On Monday night, more than eighty million Americans watched our two candidates for president argue more about missing tax returns, deleted emails, and a former beauty queen than the issue that matters most to our country’s health and prosperity: economic growth.
When our economy grows rapidly, as it did during the Reagan and (Bill) Clinton administrations, good things happen. Home ownership increases, budget deficits shrink (Mr. Clinton produced a surplus his last four years), crime drops, and America’s influence increases worldwide. Unfortunately, our gross domestic product hasn’t grown more than four percent a year since the end of the last century, and I don’t see it topping that critical figure again anytime soon.
If you missed Tim Cook’s interview on 60 Minutes on Sunday, watch how fired up the normally serene CEO gets when Charlie Rose asks him about the billions Apple is keeping overseas (email subscribers can find the video here):
I don’t blame Cook for being angry. I’ve been saying similar things for awhile now. Our corporate tax system is “awful for America.” It would be bad enough if we were growing at a decent, or even somewhat decent rate economically. But in this ‘new normal’ era of slow to no growth, it’s inexcusable.
I have to admit, I’m looking forward to the Republican debate on Wednesday. Love him or hate him, Donald Trump’s candor is entertaining. It’s somewhat fun to watch him dismiss his political opponents (including the sitting president) as “losers” and “lightweights,” and his critiques of my industry—which he refers to as “those hedge fund guys”—are mostly spot on. Too many big fund managers really are little more than under-taxed, economically destructive financial engineers. Trump’s strident anti-immigrant rhetoric is far more troubling, but it’s not hard to see why it appeals to voters who feel left behind by globalization and the increasingly polyglot composition of America’s electorate.
Most economic studies show that immigration, legal and illegal, is a net contributor, not a cost, to economic growth. Three decades ago, the legendary University of Chicago economist Milton Friedman noted that the majority of illegal immigrants work, pay income and payroll taxes, but rarely receive government benefits like Social Security and Medicare. Mr. Trump, on the other hand, has frequently been on the receiving end of government largesse. Despite his professed belief in free markets, he is the prototypical crony capitalist. Without all sorts of tax breaks, debt forgiveness, and giveaways, he would be far less rich.
Last week NY hedge fund manager John Paulson took a lot of grief for his record $400 million gift to Harvard University, his business school alma mater. Personally, I admire Mr. Paulson for supporting higher education. It is a noble gesture. He could have spent that cash on private jets or his own third world island nation. But Mr. Paulson made a glaring mistake: he gave his money to a school that does not need, and does not deserve, that money–and the $200 million or so he’ll save on taxes would do America and the state of New York more good than Harvard University.
Just in time for tax day, I wrote a post on my Yahoo! Finance contributor page about the biggest tax mistake you can make as an investor. Put simply, the spread between short- and long-term capital gains tax rates is so giant now, you’re better of lighting your wallet on fire than taking profits on investments you’ve held for less than a year. At least all that burning cash might be pretty to look at.
Speaking of taxes and stupid ideas, the New York Times asked a bunch of experts about the worst tax breaks. Their answers should be familiar to regular readers of this blog. I’ve written on just about all of them at some point.
We will be hearing a lot about tax reform in the months ahead, as every presidential candidate will crow about their plans to rein in, reduce, and simplify our country’s insanely complex tax code. The chances that any of these ideas will amount to anything but empty promises on the campaign trail are close to nonexistent, of course, but it can’t hurt to dream, can it?
Earlier this week, I watched the documentary Page One about the inner workings of the New York Times and the dire financial difficulties daily newspapers face to survive. It’s a great movie. It’s also a very depressing movie. Journalism is one of my passions. Every year, I lecture at the journalism schools of UC Berkeley and Northwestern, and I believe an informed citizenry is vital for our country’s economic and cultural wellbeing. That’s why it’s so disturbing to see newspapers dying all over the country while glib, superficial, and often politically slanted outlets like Gawker and the Huffington Post thrive.
The movie also touches on another depressing trend in American business–the “strip and flip” mentality of too many private equity firms, and the warped way our tax system aids and abets these destructive behaviors.
Last fall, I blogged about possible ways to disrupt and improve our vastly overpriced and underachieving higher education system. One of my bright ideas went as follows:
[T]here’s no reason [Harvard] shouldn’t build more campuses in other locations, increasing enrollment even more. If its product is so great, why not scale it out?
Fast forward to this week when I opened the latest Barron’s and discovered that Harvard’s biggest rival is already doing just that:
Yale University has done something that no other Ivy League school has attempted: built a new version of itself halfway around the world, in Singapore.
I believe we’ve got things backwards in this country when it comes to higher education. In my opinion, a university’s reputation shouldn’t be based on how exclusive and expensive it is–that is, how much it costs and how few young people it educates. I think we should reverse that equation and judge our elite institutions by how many quality educations they provide, and at what value. Yale’s experiment in Singapore is a good first step in the right direction (even if it is in China), but it’s not addressing the biggest problem in higher education today:
No matter who is in office, or which party he (or she) belongs to, I always look forward to the State of the Union address. Even though I never got to attend the speech in person, watching it always reminds me of the summer I worked in Washington D.C. as an intern for the House Minority Leader.
My “office” that summer (actually a very small desk in a larger office) was just off the Capitol’s rotunda. I would arrive at 9 AM(-ish) every morning, write one page responses to constituent mail on issues ranging from gun control to NASA, and then continue to perform my duty as an (unpaid) civil servant at cocktail parties and other social events around town. It was a fun time, and it gave me a lot of respect for people who work in government. Politics aside, most of them–including President Obama–are decent human beings trying their best to do right by the country. They don’t always succeed, of course. Many of their policy initiatives are well-intentioned but misguided, which brings me to the tax reform proposals the President spoke about last night. One is a good idea that will only affect a select few. The other is a less-than-good idea that could affect a whole lot of folks.
Last week, the Treasury Department announced that America’s budget deficit for the fiscal year ending September 30 will be roughly $500 billion, the smallest it’s been since 2008. This was hailed as good news in most quarters.
Considering that we’ve been running deficits closer to (or over) $1 trillion for the last five years, I suppose it is good news, relatively speaking. But I can’t buy into the optimism. For me, the fact that prominent people are praising our government for only spending $500 billion more than it is takes in is depressing–and scary. It’s a clear symptom of how warped our thinking on the issue has become.
Something extraordinary happened last week: a politician went against the dogma of his own party and proposed something that might actually boost our economy and improve our country’s long-term fiscal health.
Of course, the plan has no chance of getting a vote, let alone passing congress. And even if it did manage to pass, President Obama would veto it before his first morning cigarette. But just because Representative Dave Camp’s tax reform bill is a lost cause doesn’t mean it’s not a worthy one.