Wednesday, October 12, 2011

A Reaction to Bill Clinton’s Views on the Economy by Al Jacobs

In a kickoff of his soon-to-be-released book, Back to Work, former President Bill Clinton was recently interviewed by Fortune managing editor Andy Serwer.  Mr. Clinton said much about how to fix our moribund economy.  Many of his comments seemed to be conventional palliatives, the sort to which you smile and nod without delving too deeply into the details.  However, I’d like to peek a little closer into two of his recommendations to see how they square with reality.

Mr. Clinton seems intrigued with the “Buffet Rule” when he suggests it’s only fair the rich pay more in taxes.  There’s no concept more engrained in government than that all problems can be solved by soaking the wealthy.  The reason it’s so popular with rank and file citizens is basic: a willingness to spend other peoples’ money.  In this he agrees with President Obama who equally recognizes the impact of a good campaign slogan: Tax the Rich!  However, Great Britain’s former Prime Minister Margaret Thatcher assessed the fallacy in this approach when she remarked: “Eventually we run out of other peoples’ money.”

When we advocate taxing the rich, we encounter a couple of problems.  The first: As the rules are enacted and enforced, the tax is on income, not wealth, arranged normally by increasing the marginal rates on higher income individuals.  In this way the Michael Moores and Warren Buffets remain untouched.   Add to this the ability of the truly wealthy to arrange their affairs to minimize taxable income, and it’s obvious who is taxed: not the wealthy, but rather those with far less personal worth, who merely aspire to be wealthy.

The other problem is that money garnered from the incomes of the wealthy won’t stretch very far.  If the government confiscates 100% of the taxable income of every taxpayer earning $500,000 or more, the take will be $1.03 trillion.  But the Obama administration is spending $3.6 trillion annually.  Most of it must come from the middle-income taxpayer.

A second utterance of Mr. Clinton related to the housing market: Rather than continuing to dump houses on a depressed market, they should be converted into rental property in an “aggressive and comprehensive way,” where the renters would simply pay the utilities, taxes and maintenance.  In short, the owners of the property receive nothing until “the economy picks up.”

I can visualize how this will work.  Government boards will be set up in every community in the nation to oversee and coordinate the program.  It will then evolve as did rent control in New York City, which began in 1943 under federal jurisdiction and continues to this day as a state function.  Over the decades a combination of systematic corruption and political patronage stripped apartment owners of their properties, making the local government the City’s foremost landlord.  There’s no reason to doubt history will repeat itself.

A final thought: Mr. Clinton is an affable gent with proven political credentials.  When he ventures into economics he’s out of his depth.

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