Tuesday, June 19, 2012

Now It's KOREA Cleaning Our Clock On Trade

The concept taught in most beginning macro classes is that free trade is always advantageous to all parties.  That falsity has cost us dearly.  This post on VDARE by Pat Buchanan should be required reading for all.

Now KOREA Is Cleaning Our Clock On Trade

Monday, December 27, 2010

Summary: New Transfer Tax Law

The President has signed into law the long-awaited legislation concerning transfer taxes. The new law is known as the Tax Relief, Unemployment Insurance Re-authorization and Job Creation Act of 2010 (the "Act"). Here is a brief summary of the changes made by the Act, all of which expire on December 31, 2012:

The Act establishes a $5M estate tax exemption, and a maximum estate tax rate of 35 percent, for decedents dying after January 1, 2010. For income tax purposes, the personal representative of a decedent who died during 2010 may elect to choose between 1.) a step-up in basis in decedent's property, or 2.) a carryover basis in decedent's property with no estate tax.

The Act establishes an increase in the gift tax exemption to $5M (with a gift tax rate of 35 percent), effective January 1, 2011. The gift tax annual exclusion amount will remain at $13,000; and the $1M exemption remains for gifts made in 2010.

The Act establishes a $5 million Generation-Skipping Transfer (GST) tax exemption (with a GST tax rate of 35 percent) for gifts made, and decedents dying, after January 1, 2010. Transfers made in 2010 will be subject to a zero GST tax rate, and gifts made in 2010 to grandchildren outright or in trust will incur no current GST tax. What's more, future distributions to grandchild from a trust created in 2010 can also be made free of GST tax. Distributions in 2010 from a non-exempt GST trust can still be made without incurring a GST tax.

Effective for decedents dying after January 1, 2011, the personal representative can elect to transfer any unused estate tax exemption to the surviving spouse.

The act extends lower individual income tax rates, including the 15% rate on long-term capital gains and qualified dividends, and provides AMT relief. Effective January 1, 2010, individuals older than 70½ may rollover up to $100,000 per year directly from an IRA to a public charity. These transfers will qualify as meeting the MRD for the year in which they are donated, and will not be included in the individual's gross income for federal income tax purposes. Also, any transfers made in January 2011 may be treated as made in 2010. The AMT relief and IRA charitable rollover provisions expire on December 31, 2011.

Tuesday, November 9, 2010

QE2

I stated in another post that everything that could be done to stimulate more robust economic recovery has been done (and there is nothing left to do but wait). Well, the FED has decided to undertake what is now dubbed "QE2," in a "last shot" attempt it feels worth the risk: The official news came in paragraph 3 of last Wednesday's FOMC Press Release.

I was having coffee with a couple of colleagues Tuesday (the previous night), one of whom was following stock market results on her Android and noted rumors of the FED effort had resulted in broad advances that day. At that point the other colleague asked me: "What exactly is this "quantitative easing?". My answer quickly degenerated into an eye-glazing explanation of reserve requirements and the FED balance sheet, at which time I realized: "I have no idea how to explain this!" So, I just shut-up and drank coffee.

Sorry, Rob! But, I didn't give up: Turns-out Wikipedia has economist contributors, who provide an excellent explanation of "quantitative easing (QE)," generally, and "QE2" in particular.


"But, wait, there's more!" A few points need to be made of this QE2 endeavor by the FED: It's worth paying attention to because 1. The experiment is historic; 2. it may not work; and 3. we'll soon forget it.

It's historic because we're in uncharted waters, as we were at the time of Ronald Reagan's "supply side" growth experiment. Most of the data informing the current easing comes from analysis of the Japanese experience in the early 2000s. For example, see (but don't spend too much time reading), Monetary Policy Alternatives at the Zero Bound: An Empirical Assessment, by Ben S. Bernanke, Vincent R. Reinhart, and Brian P. Sack, 2004-48 (September); and Quantitative Monetary Easing and Risk in Financial Asset Markets, by Takeshi Kimura and David Small, 2004-57 (October).

QE, or what the FED prefers to call "credit easing" may not work for our current recession, like quantitative easing didn't work for Japan, but at least we'll know for sure. In 1981, supply-side economists had data, which suggested cutting marginal tax rates would increase growth and revenues. Reagan tried, but unfortunately the experiment failed: Constant dollar revenues actually fell, and growth came not from tax rate cuts, but with recovery from the 1982 recession after the FED (led by Volcker) increased interest rates; but now we (mainstream economists) know that and can focus our problem-solving research on other issues.

And, if you pay attention, you will likely live to see how soon the nation will forget whether it worked. Heck, few of our neighbors got the supply-side memo (or remember it). Only a few election cycles later, those same neighbors still believe politicians quoting 1981 hypotheses, which promise that cutting taxes will increase growth and revenues.

Monday, October 11, 2010

On Deck: the "Volcker Rule"

In his recent Bloomberg article, "Proprietary Traders Earn 'Trust, but Verify'," Simon Johnson seems to argue for more (rather than less) scrutiny of big bank proprietary trading.

Wouldn't it be much cheaper (and just as effective) to simply prohibit the practice under threat of severe consequences (including dissolution)? Fine; but, there's certainly no sense arguing his position regarding the more fundamental and continuing matter of "too big to fail":
"Whatever you hear from politicians, there is no way to handle the failure of global megabanks because there is no cross-border resolution mechanism or bankruptcy procedure that can handle their failure, a point I made with co-author James Kwak in “13 Bankers.” The idea that too big to fail has been legislated away is simply an illusion."
So, regulators are left to work with whatever can be saved from Dodd-Frank's "Volker Rule." Financial reform is no longer the top story, but it's now time for public comments as to how the "Volker Rule" rule will be implemented. As Simon Says:
"You can stand on the sidelines or you can send comments to the committee; they will only ask once. If you care about future financial stability and regard the ability of big banks to endanger the system as unnecessary and inappropriate, you should consider sending in comments to that effect."
Mr. Johnson's article is a good review.