Man Without Qualities

Tuesday, April 06, 2004

Pathetic ... And Bound To Lose XXIV: Hello? Hello? Searching For John Kerry's Economic Policy

The Economist magazine has looked at John Kerry's economic policy, especially his corporate tax/jobs preservation proposal, and asked: Is there a there, there?

Silly them. Of course there isn't! Will Brad DeLong again willfully violate the Economist copyright by reproducing this entire article the way he does with articles that suit his political spin? I can hardly wait ... except someone will have to tell me, since I hardly ever look at the DeLong site. There is a consumption limit for junk food of the mind in the aggregate ... and DeLong has been edged out by those Buffy the Vampire Slayer re-runs. Here are some particularly nasty bits from the Economist, and it's not pretty:

In his opening efforts at developing an economic policy, John Kerry is all fiddle and not much thrust ... On March 26th, Mr Kerry delivered what he hoped would be seen as the most definitive economic speech of his candidacy thus far, the chief part of which is a “plan” to create 10m jobs during his first term. [MWQ Note: As OpinionJournal points out, that's more new jobs than the 8.5 million unemployed people in this country. But I digress.] A few days later, he moved on to energy policy. More utterances on the economy are expected over the next few weeks. How is Mr Kerry's vision, such as it is, stacking up? ....

America's corporate tax system is certainly ripe for attention. America not only taxes its companies at a relatively high rate, it also, unlike other countries, taxes them on their worldwide operations. This puts American firms at a disadvantage overseas compared with lower-taxed competitors. So in order to help them, Congress over the years has legislated to allow American companies to put off paying taxes on overseas profits until these are actually brought home. Thus, a big pool of money—more than $600 billion, some say—sits abroad.

Mr Kerry proposes to bring that money home, by offering a one-year moratorium (another Republican idea) during which companies that repatriate profits pay only a 10% tax on money that is reinvested at home. Thereafter, tax on profits overseas must be paid immediately. The scheme, it is reckoned, will raise an extra $12 billion a year. The money will be spent lowering the overall corporate tax rate, as well as providing a tax credit to companies that take on new workers in industries, both in manufacturing and services, that are losing jobs to outsourcing.

This is the nub of Mr Kerry's vision ... But is it really clever for the economy as a whole? [T]he Kerry plan looks dangerously complicated and dirigiste... By offering tax credits at home to selected industries, he is asking bureaucrats to judge which industries to back. Even if you think this is a good thing, it will be fiendishly difficult to administer. How on earth can you measure, in the general fog of job creation and destruction, which industries are seeing jobs outsourced? And how do you discriminate between an overseas subsidiary producing for local consumption (which is still eligible for tax deferrals under the Kerry plan) and one producing for export (which is not)? ...

His utterances this week on high oil prices—hastily wrapped up as a “policy”—had the same sort of opportunism about them. He promised somehow to put pressure on oil-exporting nations to increase output. He called for the impossible goal of energy independence for America. And he criticised Mr Bush for continuing to add to the country's Strategic Petroleum Reserve, even though such purchases have only a marginal impact on oil prices.

Admittedly, that can scarcely be worse than the White House's energy policy, which consists mainly of blaming the Democrats for blocking a pork-laden energy bill. Yet absent, still, from Mr Kerry's economic thinking is any sense of an overarching, unifying theme.

No, no, no! Doesn't the Economist understand? Senator Kerry's thinking isn't dangerously complicated and dirigiste! No: This is all nuance!


But it gets even worse for Senator Kerry's economic peregrinations. In another article (will Professor DeLong be tempted to copy?) the Economist really seems to be determined to get something off its institutional chest:

The Democratic candidate's proposal is slick, but unwise .... Mr Kerry wants to eliminate a “tax break” that allows American firms to avoid American tax on foreign earnings that are not brought home. Yet this “tax break” is not quite the example of corporate welfare that Mr Kerry claims. ... America's deferred taxes on foreign earnings have been an attempt to bring America's corporate-tax code closer to those of other countries.

Mr Kerry's real concern ... [is] to slow the loss of American jobs to cheaper countries.... But such tinkering with the tax code is the wrong way to go about it. Mr Kerry's plan does little to make America more attractive to investment and new jobs at a time when many countries are slashing corporate-tax rates to much lower levels. It will make America's hideously complex tax code more so. Much worse, it tries to hamper trade through a change in the tax law. This is anything but “tax reform.” ....

His tax plan ... amounts to protectionism by other means. For it is aimed squarely at discouraging manufacturing abroad by American companies. But it is a bizarre type of trade barrier, because it hits only imports from American firms abroad. A Japanese-owned factory in Malaysia, for example, exporting semiconductors to America but paying only local taxes, would be at a great advantage against a similar American-owned plant, which would be subject to America's higher tax rate. Mr Kerry thinks he is encouraging bosses to keep jobs at home. Instead, he may just prod American consumers to buy even more from foreign companies.

Mr Kerry says he wants to level the tax rate between American firms' manufacturing in America and their manufacturing in foreign countries. But genuine tax reform would level the playing field by bringing all corporate taxes down radically, rather than slapping what is in effect a big new tax rise on American firms' foreign operations. The timing of Mr Kerry's plan is especially bad. ....

For sheer political cleverness, Mr Kerry's plan deserves full marks. ... But that should not distract from the truth about his proposal: it is unwise, likely to be counterproductive and seems to be meant mostly to mislead voters.

Nasty, nasty, nasty. Megan? Megan? Is that you? .... Hello?

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