Other Voices: On Taxes, Environment, Oil and Debt

Raise Taxes, but Not Tax Rates

Martin Feldstein, a Professor of Economics at Harvard and Ronald Reagan’s Chair of the Council of Economic Advisors, argues that we need to raise revenues, but the way to do so is to limit the total amount of deductions to a set percentage of your total income. He suggests 2%.

I think the general idea has a lot of merit. Personally, though, I would prefer to see the rate at which deductions apply limited. For example, now if someone in the top 35% tax bracket drops $10 in the collection plate at church, effectively $3.50 of that is paid by the government through lower taxes. In the next pew over, someone who is only in the 10% bracket since they don’t make nearly as much drops $10 in the same collection plate, and the government “subsidy” is just $1.00 of that $10 donation.

I would prefer limiting the percentage of the deduction to, say, 25%. However, I will have to think through the implications of the Feldstein idea. It is a serious proposal and worthy of consideration. It will also mean big tax simplification for most taxpayers, since the standard deduction would become more attractive relative to itemizing. That would be a very welcome development and would go a long way towards making the tax code fairer.

Seas Could Rise Up to 1.6 Meters by 2100

Alister Doyle, the Environmental correspondent at Scientific American, reports on a new study that says that the Intergovernmental Panel on Climate Change, which shared the Nobel Peace Prize with Al Gore, was far too conservative in its projection of sea level increases due to global warming. The new study suggests that by the year 2100, sea levels could be as much as five feet higher than in 1990. In other words, Florida real estate would be under water, literally, not just relative to the amount of the mortgage.

Will High Oil Prices Bring a New Recession?

James Hamilton, Professor at UC San Diego, argues that the key transmission mechanism through which higher gas prices hurt the economy is via the effect on auto sales. He thinks that because we have not come close to fully repairing the damage from the last recession, that higher gasoline prices will have less of an effect on the economy than in other recent price spikes.

Higher gasoline prices will slow, but not stop the recovery. Given the sharp retracement of oil prices over the past few days (and especially today), we might soon be getting some relief at the pump in any case.

Does the US Have a Lot of Government Debt?

Simon Johnson, MIT professor and former Chief Economist at the IMF argues that the key thing to look at as far as the level of government debt is not relative to GDP, but to the level of government revenue. He has a good point there. He also argues “The real issue is how much relatively rich people are willing to pay and on what basis in the form of transfers to relatively poor people –- and how rising healthcare costs should affect those transfers.”

I agree that is an important issue to consider, but the level of debt is also worth keeping an eye on, particularly in the medium to long term. The article provides a very interesting historical perspective, and ties the current debate back to the debates between Hamilton and Jefferson.

About Dirk van Dijk 112 Articles

Affiliation: Zacks Investment Research

Dirk van Dijk, CFA is the Chief Equity Strategist for Zacks.com. With more than 25 years investment experience he has become a popular commentator appearing in the Wall Street Journal and on CNBC. Dirk is also the Editor in charge of the market beating Zacks Strategic Investor service.

Visit: Zacks Investment Research

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