Consider this post which I regard as important from James Bianco at The Big Picture:

Liquid assets held on companies’ balance sheets is a nominal number, much like the nominal level of GDP, that rarely decreases. Of course cash on the sidelines is at a record nominal level, it usually is. This series must be compared to other balance sheet items for relevance. The chart below shows liquid assets as a percentage of total nonfarm nonfinancial corporate business assets since 1952. By this measure, the “cash on the sidelines” argument is far less compelling.

See the three charts in the post. They certainly cast some doubt on the claim of corporations sitting on big wads of cash, waiting for demand to rise.

On a company by company basis the claim may still have some merit but even so it may bear no relevance to employment. Are the corporations that have large stockpiles likely to hire in the U. S.?

The company usually cited as having the largest cash stockpile is General Electric, estimates of the amount of cash being held by the company varying from about $80 billion to over $100 billion. According to GE’s Form 10-K the company has 133,00 employees in the U. S., more than 20,000 fewer now than it had in 2006. That’s consistent with the long term trend at GE. According to its 1994 10-K here’s the company’s employment trend:

Or, said another way, GE’s U. S. employment has declined by about 30% over 22 years. Someone who’s artistically gifted might want to turn that into a graph.

There’s been a reverse longterm trend in GE overseas employment. I don’t know how much of GE’s cash stockpile is overseas. I suspect much of it and, given GE’s long term employment trend, quite obviously the result of policy, IMO that GE’s cash will ever be converted into employment in the U. S. is fanciful.

BTW, try as I might I can’t make the claim of trillions in cash stockpiles add up. According to the info I’ve been able to find the top 20 cash pads in total add up to less than half a trillion. It’s a long way from a half trillion to $2 trillion and, assuming a long tail, a lot of that cash may be in pretty small bundles.

The denial of the day is from Olli Rehn, European Commissioner for Economic and Monetary Affairs:

“It is important to underline that the European Union is not going to abandon Greece. An uncontrolled default or exit of Greece from the euro zone would cause enormous economic and social damage,” Rehn said in Washington.

Never believe anything until it’s been officially denied.

Arnold Kling on President Obama’s tax proposal:

I’m used to politicians saying one thing and doing another. I’m used to politicians lying. But it’s strange for a politician to say one thing and then say the opposite, and act as if he’s saying the same thing both times, all in the space of about a week.

Think of the country as a very large focus group.

When I read this article, on how the incomes of different age brackets have fared during the economic downturn, my immediate reaction was that of course the incomes of those 65 years old and older have risen relative to the incomes of other brackets. More in this age bracket are living on Social Security, pensions, savings, and investments than in other age brackets and all of these tend to decline less during economic downturns than employment. Greater unemployment among the younger age brackets mean that their average incomes fall.

But another thought occurred to me as well, this one having to do not with income but with wealth.

Quietly, hardly remarked upon, the greatest wealth transfer in human history has been going on for roughly the last twenty years. It is the transfer between the parents of the Baby Boomers and the Baby Boomers.

In general the parents of the Baby Boomers were born between roughly 1915 and 1935. In the natural course of events they began dying in numbers in the late 1980s or early 1990s and by 2020 nearly all will have died, leaving whatever remains of the wealth earned during their lifetimes to their children and grandchildren. I won’t bother tallying up the result but it’s obvious (at least to me) that’s the greatest transfer of wealth in human history.

I continue to wonder how much of the ups and downs of the economy can be attributed simply to demographics. Is it really a coincidence that housing prices peaked in 2005 or 2006? That’s when the oldest Baby Boomers turned 60.

Presumably spurred by the president’s recent proposals on revisions to the tax code AKA “the Buffett Rule” a number of my colleagues at OTB have posted on federal income taxes, viz. James Joyner, Doug Mataconis, and Alex Knapp. A few days ago (how the time does fly!) I promised some remarks on taxes of my own.

I haven’t been sitting idle. I’ve been struggling to organize my thoughts but, try as I might, I’ve failed. What I’m going to post is more of a collection of aphorisms than an organized essay. So be it.

In discussing the “millionaire’s tax” I think there are several distinct things that are all being treated as though they’re one thing: pragmatic, political, economic, and justice issues.

We’re not going to eliminate the income tax any time soon. You can’t finance the things that we need to do with a head tax or a use tax. For example, although in principle you could have an FDA and USDA financed with use taxes and in principle you could finance White House expenses, Congressional salaries, and minor Congressional expenses with a head tax you can’t maintain a modern military that way.

In theory you could substitute a national sales tax for an income tax but in practice a sales tax as high as it would need to be, well into double digits, would be uncollectable. The incentives for black marketeering would be sufficiently high that evading the sales tax would be endemic.

We could avoid the problems of a sales tax in the way that our European cousins have, with a value-added tax. However, the very feature that makes it more efficient makes it sufficiently painless as to be an incentive for continually ratcheting up government spending.

Flat taxes, sales taxes, and VATs, however appealing they might be lack one feature that dooms their ever replacing the income tax as the primary federal government funding source: they don’t provide the opportunity for changing other people’s behavior that the income tax does.

The thirst for changing other people’s behavior probably goes back to Alley Oop. Oddly, no similar appetite for changing one’s own behavior, despite it having been preached by Confucius, Buddha, Jesus of Nazareth, and Mohammed, has managed to catch on.

We tax the rich for the same reason that the 1930s bank robber Willie Sutton robbed banks: it’s where the money is. As an increasing proportion of the country’s wealth and income has fallen to those at the highest income levels over the last several decades, that those at the highest income levels would pay the greater proportion of taxes was inevitable. People at the lower income levels just don’t have enough to tax. Even if you wanted to you can’t fund the government that way.

There’s also the political aspect: by definition 50% of the people are in the bottom 50% of income earners. At least some of these people vote and you can ensure their votes while providing them services without taxing them and still support the federal government.

The third factor in discussing taxes is economic efficiency. I don’t mean by this what some people call the Laffer curve, the self-evident proposition, first pointed out a millennium ago, that some tax rates produce higher revenues than others and that you can’t necessarily increase your revenues by increasing the tax rates.

What I mean is that taxing income with the dizzying array of ifs, ands, and buts that we do induces people to change their behavior in such a way as to reduce their tax liabilities and some of these changes in behavior may result in less total economic activity than would otherwise have been the case. A provision in the tax code that produces less revenue than the amount by which it reduces economic activity is inefficient. Enough of such provisions may be catastrophic.

The final consideration is justice and its cousin, fairness. I suspect that we can all agree that taxing 100% of someone’s income is unjust. I doubt that there’s a similar agreement that taxing 0% of someone’s income is unjust. I attribute this to greed, propaganda, and a convenient propensity to confuse expediency with fairness or justice.

Pragmatically, we’re going to tax the rich and, if we need more revenue, we’ll tax the rich more. That’s also the political calculus. Economic efficiency should limit the scale, scope, and structure of taxation. Justice demands not only some limits to the scale, scope, and structure of taxation but imposes a responsibility of prudent stewardship on government. It’s in these latter areas that we are desperately lacking.

I opposed the tax cuts of the early Aughts and I opposed their renewal last year. There was no notable decline in personal consumption but there was a decline in business expenditures. The tax cut was improperly targeted. Since, when the rates were lowered a decade ago, it didn’t give a notable boost to the economy, I sincerely doubt that returning them to the level they were in 2000 wil hurt the economy much if at all. And we’re in desperate need of both additional revenue and spending cuts—we’re borrowing more than we’re taxing. That’s both inefficient and immoral, in the long term at least.

That having been said our main fiscal problem isn’t, as Dr. Krugman and his groupies would have you believe, that the federal income tax rates are too low. With the same tax rates five years ago our deficit was enormously lower. Our problem is that our incomes are too low and we haven’t reduced federal, state, and local government spending commensurately with the decline in incomes.

In any number of previous posts I’ve explained my preferences for spending reduction: I think we need to make major cuts in defense spending, well beyond those that withdrawing our troops from Iraq and Afghanistan will bring. We should reduce our Social Security and Medicare current expenses and future liabilities by means-testing. Even if we were to make those changes which I suspect most people would consider drastic, our spending would still be much higher than our revenues.

We need higher tax revenues and a new tax bracket for millionaires doesn’t provide nearly enough new revenue to fill the hole we’ve got, however good it may feel to those whose definition of fairness runs in that direction. I think that should be done by eliminating some of what are now being called “tax expenditures” and used to be called tax breaks and loopholes. I’d start with capping the mortgage interest deduction. That’s the Great White Whale of tax expenditures.

I also think that we need structural changes in healthcare, education, and government in general. But those are subjects for future posts.

Bruce Krasting is still on the Solyndra case, this time with a lengthy email from a Solyndra employee. Read the whole thing.

After putting in his routine pitch for more lighthouses, canals, and post roads

They would understand, as President Eisenhower did, that at this crucial hinge in our history we cannot just be about cutting. We also need to be investing in the sources of our greatness: infrastructure, education, immigration and government-funded research.

Thomas Friedman mentions something with which I agree

Real conservatives would understand that you cannot just shred the New Deal social safety nets, which are precisely what enable the public to tolerate freewheeling capitalism, with its brutal ups and downs.

and proceeds on to the meat of his column, with which I also agree

Mr. Obama gave us the credible $447 billion jobs program, but his deficit reduction plan announced on Monday to pay for it and trim long-term spending does not rise to the scale we need. It may motivate his base, but it will not attract independents and centrists and, therefore, it will not corner the Republicans.

As The Washington Post reported: “The latest Obama plan ‘doesn’t produce any more in realistic savings than the plan they offered in April,’ said Maya MacGuineas, the president of the bipartisan Committee for a Responsible Federal Budget. ‘They’ve filled in details, repackaged it and replaced one gimmick with another. They don’t even stabilize the debt. This is just not enough.’ The most disheartening development, MacGuineas and others said, is Obama’s decision to count $1.1 trillion in savings from the drawdown of troops in Iraq and Afghanistan toward his debt-reduction total. Because Obama has no intention of continuing war spending at last year’s elevated levels, that $1.1 trillion would never have been spent.”

A Financial Times editorial summarized my feelings: “American voters are not looking for champions of their preferred redistributive stance, but responsible attitudes to the country’s challenges. If Mr. Obama suggests a millionaire’s tax can save ordinary voters from pain, he will fail, economically and politically.”

Let’s address these points one at a time.

When the National-Aid Highway Act was enacted in 1956 it was passed as a defense bill, it subsidized not only the inherently domestic economic activity of road-building but also the primarily domestic economic activities that would provide the engines for U. S. economic growth for the next quarter century: automobile manufacturing and the oil industry. The interstates and bridges it built were sound investments throughout their productive lives.

When President Kennedy announced his intention to send a man to the moon and return him safely to the earth, that, too, was promoted as a defense bill and it subsidized not only the defense and aerospace industries (which provide the lion’s share of our foreign exports) but it created the modern computer and telephone industries. Add the defense-inspired DARPAnet (you probably know it as the Internet) and you have today’s information-based technology. Apple grew from a garage to the company with the 2nd highest capitalization of any in the U. S. not merely from the inspiration, sweat, and determination of its founders but from the fertile ground created for it by a generation of defense-based infrastructure spending that looked not merely to the past but took a serious look at the defense needs of the future.

Can anyone seriously contend that building and refurbishing roads and bridges and refurbishing early 20th century schools will have the same lasting use and the same lasting potential for economic growth? The idea is absurd. It is too backward looking when we must look forward. Simply because China, until very recently desperately poor and lacking in 20th century let alone 21st century infrastructure, is building roads and bridges does not mean that it is equally sensible and prudent for us. China is also building cities without inhabitants. Should we be doing that as well?

I know I disagree with some of my readers on this point but income assistance for the elderly and medical care for the elderly are not only merciful and an intrinsic part of a society worth living in but they produce more economic activity here than would otherwise be the case. There is no ready alternative to consumer spending as an engine for economic growth in the United States. Our economy is too large, those in the rest of the world too small, and we cannot export enough to make up the difference. We need more exports and we need more business consumption but we will continue to be dependent on consumer spending for the bulk of our economy for the foreseeable future. That is not compatible with very high levels of saving.

The infrastructure that’s most desperately in need of refurbishing are these 75 and 45 year old programs. We’re simply not going to bulldoze them but they are in tremendous need of rehabilitation for today’s circumstances.

Leaving aside the prospective effectiveness and, consequently, prudence of an additional half trillion dollars of stimulus spending, when did it start being deemed serious to propose solutions that were wholly inadequate to the problems being addressed? If we were to cut the three highest ticket items in the federal budget in half and add the interest we’re paying on the public debt, that amount would still be higher than revenues. Primary default is just a few years away and the proposals on the table do very little if anything to address that problem.

Retorting that these proposals are merely opening offers is risible. The process of trimming the federal budget is overwhelmingly likely to prove so painful that the assertion that lawmakers will be ready to return to it immediately is far-fetched. We’ve got to change our evil ways, baby.

The blogosphere is all a-twitter about “the Buffett Rule”, fact-checking this and that, accusing each other of hair-splitting while furiously splitting hairs themselves.

What they’re arguing about is whether millionaires and billionaires pay less in taxes as a proportion of their income than their secretaries. Leaving alone the point that millionaires have secretaries, which I suspect is what bothers some of the critics, there’s something about Mr. Buffett’s formulation that bugs me.

Mr. Buffett claims that he pays less as a proportion of his income than his secretary. He also, presumably, believes that is unjust, that he can afford to pay more. He also says that he doesn’t employ a tax accountant and is just following the rules that Congress has set out for paying his taxes.

To the best of my knowledge although Congress requires that wages be declared as wages (because W-2 wage income is subject to FICA) it does not require that some of Mr. Buffett’s income be declared as regular wage income while he takes other of his income in the form of dividends, capital gains, and so on. Most of us don’t have that alternative but Mr. Buffett does. He has structured his income to limit his tax liability. Were he simply to take all of his income in the form of ordinary wage income it would raise the proportion of his income taken as taxes without other voluntarism on his part.

Consequently, what Mr. Buffett is saying is that without the penalty of law to restrain him he is unable to resist his compulsion to minimize his tax liability. Two points. First, why would that be any different regardless of what laws Congress passed? Because it’s a compulsion he’d continue to minimize his tax liability and whatever Congress did he might continue to pay a lower proportion of his income than his secretary.

Second, isn’t that a sad commentary? He needs the threat of civil or criminal penalties to do what he thinks is right?

I have no idea whether he’s right or wrong in that assessment but I don’t think there’s any substitute for a conscience.

Update

Then there’s the other other Buffett rule: “Some people claim that there’s a woman to blame but you know it’s your own damn fault.”

My reactions to President Obama’s proposal for reducing the deficit were very much along the lines of those of the editors of the Washington Post:

The president is right, of course, that credible debt reduction requires a combination of tax increases and spending cuts, and it is unfortunate that Republicans have been unwilling to accept that fact. But a more fundamental sweep through the tangled underbrush of the tax code, as envisioned by the Simpson-Bowles report, would be an even better approach.

The other essential element of credible debt reduction is tackling the biggest driver of long-term deficits — federal health spending, particularly Medicare. Here Mr. Obama backed away from some of the entitlement reforms he entertained in his closed-door discussions with House Speaker John Boehner, including raising the eligibility age for Medicare and changing the way that Social Security benefits are indexed for inflation. Mr. Obama left Social Security entirely out of Monday’s proposal, and his Medicare savings ($248 billion over 10 years) once again primarily target providers. A White House fact sheet on the proposal brags that 90 percent of the savings come from “reducing overpayments” and that changes affecting beneficiaries do not begin until 2017 — after a second Obama term, if he is reelected.

The two point summary is that

1. It isn’t big enough.
2. It gives every impression of intentionallly DOA, political posturing.

We are presently, this very day, paying in interest on the debt about half of total revenue. In order to stabilize our deficit situation, i.e. merely maintain the debt at its present unacceptably high level, we need to cut about $6 trillion from the budget over ten years, AKA a half trillion per year. As an example of just how laughable the president’s strategy with respect to Medicare is, he’s proposing just over $40 billion a year in cuts from a program that’s growing by double that every year. We need to run twice as fast as that just to stay in the same place.

I’ll have more to say about taxes in a later post.

Keith Hennessey dissects the proposal even farther:

You could be forgiven for thinking that the President is claiming that his new proposals are balanced, and that “the larger plan that’s balanced” is what he has proposed this month, consisting of equal-sized spending cuts and tax increases. That is the incorrect conclusion to which you are led, but technically the President is not claiming that. The “larger plan that’s balanced” is one that includes spending cuts enacted over the past six months. The “among the biggest cuts in spending in our history” are not those newly proposed, but those previously enacted.

They are playing a word game to fool you, and if you listen carefully you’ll hear it repeated over the next few weeks. Team Obama knows they’d never win the public debate if they admitted that the President is now proposing massive tax increases to “balance” previously enacted spending cuts, so they’re engaging in a little misdirection.

In his introductory speech for the proposal the president said “This is not class war, this is math.”. I agree with the former and disagree with the latter.

It’s the assumptions, stupid.

Those assumptions are keeping our economy in the doldrums and pushing us to the verge of insolvency.