Capital Corner

Fed-Ex Chairman Fred Smith said tax reform was a key element for restoring strong U.S. economic growth.  The Bowles-Simpson plan is his preferred approach, but he would like to see continuation of the now expired expensing provisions for capital investment in the stimulus bill.  See today’s CNBC segment here: His company and many others took advantage of the very powerful reduction in the cost of capital for investment from 2008-2010 via the Economic Stimulus Act of 2008 and subsequent legislation. Scholarly work over the last two decades including some by ACCF Scholars John Shoven and Dale Jorgenson have shown that favorable investment provisions and the investment tax credit have a powerful impact on generating new investment.  ACCF research shows that each one billion dollar increase in investment is associated with 15-22,000 new jobs and conversely decreases investment, cut employment by the same amount: Other ACCF research conducted by Dr. Allen Sinai shows that had the U.S. had a consumed income tax (where all investment is expensed) real US GDP would have been 5% higher in the 2001-2004 period.  

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This week I offered my reaction to President Obama’s remarks on energy policy in his State of the Union address:   Renewables: Time to Move On By Margo Thorning Chief Economist, American Council for Capital Formation President Obama announced expansion of domestic oil and gas drilling which is a positive step. But then he renewed his commitment to backing renewable energy sources. There’s a time for stubbornness and a time to move on. The Department of Energy’s EIA shows that new electric generating capacity using wind and solar power tends to be considerably more expensive than conventional, available and secure natural gas and coal resources. And in a world of real tradeoffs, every dollar spent on expensive renewable energy is money that could have been used by households and business for purchasing consumer goods or productive new investments that make economic sense. Increasing aggregate demand is key to strong U.S. job growth; spending more than is necessary on energy is a drag on overall demand for goods and services. Indeed, there is a direct linkage between energy use and economic recovery, as in recent years each 1 percent increase in Gross Domestic Product in the U.S. has been accompanied by a…

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Great opinion columns by Robert Samuelson in Washington Post and Peter Wallison in Wall Street Journal. Repeal of Dodd-Frank’s authorization for Fed to supervise all significant non-bank financial firms would help avoid future financial meltdowns by discouraging “herding behavior,” promote economic stability and growth, thus easing the economic burden of supporting the U.S. welfare state.

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See my thoughts on the economic impact of Swiss nuclear phaseout in today’s Wall Street Journal.   Nuclear Exit Comes With Costs Switzerland’s Reliance on Reactors Means Switch to Other Sources Will Be Expensive By GORAN MIJUK ZURICH—Going green isn’t cheap, as Switzerland is about to discover. Earlier this year, in the wake of the meltdown at the Fukushima nuclear plant in Japan in March, the Swiss government and parliament decided to get out of nuclear-power generation by 2034. Switzerland has been a net exporter of electricity during the past few decades, profiting from the production of cheap nuclear energy and huge hydropower reserves. This has helped it build a strong machinery and engineering industry, nursing industry giants such as ABB Ltd and Sulzer AG, which benefited from stable and reliable electricity supplies. But since the country’s five nuclear-power plants generate about 40% of its electricity, the switch-over to other forms of power generation is going to be costly. “According to our initial estimates, we expect investments of some 100 billion Swiss francs ($108 billion) to replace the reactors,” says Sabine von Stockar from Energiestiftung Schweiz, a renewable-energy think tank. This, Ms. von Stockar says, doesn’t include the cost of dismantling the plants,…

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