Buffett Also Wrong on Electric Vehicles

The slow market for plug-in electric vehicles has reached global proportions…literally.  An article in today’s Financial Times highlights the struggles that electric vehicles are seeing in China: Whatever the outcome of the debate, industry analysts say Beijing has been disappointed by slow progress toward developing a domestic electric vehicle industry. China’s highest profile electric vehicle maker, BYD – which is backed by Warren Buffett – has repeatedly delayed plans to commercialise and export its electric vehicles. Government subsidies of up to Rmb60,000 ($9,370) for pure electric vehicles and Rmb50,000 for plug-in hybrids are already available in five Chinese cities on a trial basis, but very few buyers have taken them up. There’s little surprise here when you consider the many deficiencies of the heavily subsidized plug-in electric vehicle market in the U.S.  You can read my recent Wall Street Journal op-ed on it here.

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Buffet Wrong on Capital Gains

Warren Buffet is wrong on economic impact of higher capital gains rates. According to research by respected economist Dr. Allen Sinai, lower tax rates on capital gains had an important role in the post-2001 U.S. economic expansion. Sinai also notes the harsh economic consequences that the U.S. could face if rates are increased : Raising the top individual capital gains tax rate from the current 15% to 20%, 28% or 50%, reduces growth in real GDP, lowers employment and productivity and, ex-post, or after feedback, negatively affects the federal budget deficit. For example, at a 20% capital gains rate compared with the current 15%, real economic growth falls by an average of 0.05 percentage points per annum and jobs decline by an average of 231,000 a year.  At a 28% rate, economic growth declines by 0.10 percentage points and the economy loses an average of 602,000 jobs yearly.  When the capital gains tax rate is increased to 50%, real GDP growth declines by an average of 0.3 percentage points per year and there are an average 1,628,000 fewer jobs per annum. Buffet is also wrong when he says that higher capital gains rates won’t have a bearing on investment.  In the…

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Scuttled Chicago Climate Futures Exchange is No Surprise

The failure of the Chicago Climate Futures Exchange highlights the fact that companies hoping to cash in on higher U.S. energy prices do not always make a killing (LINK TO WSJ).  The Chicago Climate Exchange started in 2004 when it looked like the U.S. might enact a cap and trade proposal to raise energy prices and force cutbacks in the use of fossil fuels.  U.S. policymakers, concerned about the impact of rationing energy and raising energy prices on U.S. economic and job growth refused to pass either the Waxman-Markey Climate bIll or the Kerry-Lieberman bill in 2010.  See my November 2009 congressional testimony on the economic impact of the Waxman-Markey bill as well as our macro-economic study in 2010 on the Kerry-Lieberman bill, which also included a state by state analysis on the impact on jobs and gross state product. U.S. policymakers rejected cap-and-trade on carbon emissions legislation after realizing the futility of imposing higher energy costs on fossil fuels when emission in developing countries like China and India are growing very rapidly. Renewables, where they are cost effective, have a place in our energy portfolio.  The failure of the Chicago climate exchange should be a lesson to would be…

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ACCF CPR Scholar Hubbard Has it Right on Taxes and Deficit

Columbia Business School Dean Glenn Hubbard makes good sense about how we need to approach deficit reduction and tax reform. Dean Hubbard, a member of the ACCF Center for Policy Research’s Board of Scholars, notes that the huge U.S. deficit is primarily a spending problem. He opposes  raising marginal income rates   because it would not make a significant dent in the deficit. He does support reducing deductions (as did the President’s National Commission on Fiscal Responsibility and Reform).  He also suggests addressing entitlement spending by slowing the rate of benefit growth for middle and upper income social security recipients as well as trimming benefits under the Patient Protection and Affordable Care Act for upper income individuals.  Hubbard’s conclusion that the U.S. would be better served by adopting a long-run tax reform plan which moves toward taxing consumption more and saving and less has been substantiated over the last 30 years by the analyses of public finance scholars. As Winston Churchill said, “you can always count on Americans to do the right thing after they’ve tried everything else” Could we be near that point in U.S. tax policy?

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