Need to wean energy producers off of government support.

There has been a recent outpouring of letters to the editor and paid advertising in The Des Moines Register thanking President Trump for the EPA’s decision to allow E15 (gasoline with 15% ethanol) to be used year round.  Many go on complain about the hardship waivers being granted to small refineries that exempt them from being forced to add ethanol to their gasoline under the Renewal Fuel Standard (RFS).  They say the exemptions are costing corn farmers and ethanol producers billions of dollars and are undermining growth of the ethanol industry.
Since 2006, the RFS has required petroleum refiniries to add more and more ethanol to gasoline.  (For 2019 the requirement is over 19 billion gallons.)  Investment in and growth of the ethanol industry (and related corn purchases) have been greatly dependent on this use of government force.  After 13 years, the industry has billions of dollars invested in over 200 production facilities, revenues of over $16 billion per year.  Any yet, not only can it not wean itself off of government assistance, it continues to press government for more and more support.
Public Choice Theory tells us what to expect when government and special interests create an artificial market using government force.   As investment and revenues reach billions of dollars, vested interests easily justify spending millions of dollars lobbying Congress to make sure the support continues.  At the same time, each taxpayer pays such a relatively small amount that it is very difficult to raise money to lobby in opposition to these government programs.
But we must do what we can, so now is the time to urge Presidential candidates as well as elected representatives to work toward ending government subsidies and special support for all forms of energy.

Trump’s proposed tax rate for “pass-through” businesses is unfair

President Trump has proposed a maximum 25% tax rate on income that individuals receive from “pass through entities”.  Pass through entities are businesses that don’t pay corporate income taxes, but rather pass their net income each year through to the owners to be taxed as part of the owners’ individual tax return.  These pass through entities include S-Corporations, partnerships, limited liability companies (LLCs), and sole proprietorships.  Currently, income from pass through entities is taxed at the same rate as any other ordinary income – up to a maximum rate of 39.5%.  (President Trump’s proposal for ordinary income for most taxpayers is a maximum tax rate of 35%.)  He justifies the lower tax rate for pass through entities because, he says, these pass through businesses are the job creators.

This begs at least two questions:  Do pass through entities really create more jobs than non-pass through entities?  Even if so, why should the income of an employer be taxed at a lower rate than an employee if they earn the same amount?  Tax fairness would dictate that two people with the same income would pay the same amount of tax, regardless of source.

Regarding job creation, it is important to know that pass through entities are not just manufacturers, wholesalers or retailers, who may or may not be job creators.  They are also professionals such as doctors, lawyers, accountants. Most hedge funds and private equity funds are pass through entities.  About 95% of all businesses are pass through entities.  Of those, about 99% have revenues of less than $10 million.  The 1% of pass through entities with revenues of more than $10 million earn about 83% of all profits!  So, some pass through entities are very large, and many owners of pass through entities have very high incomes.  Is it fair for business owners to pay at a 25% rate while regular workers with the same income pay at a 35% rate?  I don’t think so.

I expect to write several blog posts on President Trump’s tax proposal.  The idea of reducing tax rates is a good one – especially if the total plan is revenue neutral and doesn’t increase our $20 Trillion debt.  This means that tax reform that reduces rates must also reduce special tax breaks for politically favored groups and/or reduce spending.  I hope that Congress, which controls all tax legislation, will not “bet on the come” – that is assume future tax revenue will increase due to future growth in the economy.  Our government uses a 10 year look forward to determine the deficit/surplus effect of any change in taxing or spending.  In recent decades, it seems that all tax and spending changes have significant costs up front with the promise of savings toward the end the the 10 year period.  Let’s not keep doing that.

Source: https://www.brookings.edu/research/9-facts-about-pass-through-businesses/

Church free speech okay – no charitable tax deduction for donors

Churches and their leaders should be free to  speak out for or against candidates for political office.  Our Constitution guarantees freedom of speech for all, and especially for political or religious speech.
What our government should NOT do is allow a charitable tax deduction to donors who contribute money to churches that advocate for or against specific candidates.   If churches want to be treated just like other organizations that advocate for or against specific candidates, donors should be willing to give up their charitable tax deduction for contributions they make to those churches.
If churches are allowed to advocate for or against candidates and donors are given a charitable tax deduction for contributions made to such churches, then it would only be fair to give tax deductions to all donors to political organizations.  Better to not give the charitable deduction to any of them.
Related Register article:

No need to be energy independent.

In a letter to the Des Moines Register today, 6/24/2015, Jacob Hession advocated for American energy independence and for the renewable energy Production Tax Credit.
We need to be energy independent just like we need to be food independent, clothing independent, pharmaceutical independent, electronics independent… – that is, we don’t need to be independent.
World-wide free market capitalism is a wonderful thing. It gives us a more varied and consistent supply of pretty much everything we need or want. If there is a shortage of anything anywhere around the world, there are people in other parts of the world who will rush to supply what is needed.  Shortages mostly occur where trade is restricted and protected.
Any call for for a certain type of “independence” or “security” is usually cover for special interests who will benefit if we protect them from competition or give them special benefits.
What we really need to do is end special protections and subsidies for all forms of energy.  Free market capitalism has done more to provide for the security and dependability of the supply all types of products than any scheme devised by government.
LInk to Register article: http://www.desmoinesregister.com/story/opinion/readers/2015/06/24/renewable-energy-hession/29196411/

Export-Import Bank need to end.

 

 

The essay in The Register on 9/15/2014, by Mary Andringa and Jay Timmons in support of reauthorizing the Export-Import Bank (Ex-Im Bank) was well done.  The fact that the Ex-Im Bank returned $1 billion in profits to the U.S. Treasury is very persuasive.  Of course the same thing could be said about the U.S. government getting into about any business.  If our government ran a grocery store or a tractor manufacturing plant, it is very likely that it could make a profit.  But we don’t (or shouldn’t) do things that way in the United States.
In this case, there is good reason to believe that privately owned banks could provide this kind of financing for our manufacturers who want to export their products to other parts of the world.  The manufacturers should be willing to guarantee the debt of their customers if that is what is needed to secure financing for their buyers.  The fact that Ex-Im Bank financing, “is available to any exporter of any size” does not mean that this isn’t an example of crony capitalism.  In this case, the crony capitalists just happen to be a very large group of manufacturers who want the government to guarantee loans for their foreign customers.
We have created a crutch for these businesses.  We need to take away that crutch and move towards free market capitalism.
Link to Register article:  http://www.desmoinesregister.com/story/opinion/columnists/iowa-view/2014/09/15/iowa-view-export-import-bank-economic-engine/15650761/

Government protects special interests – casinos and greyhound breeders.

Only government could create a situation like we have with the casinos and the dog racing industry.  Casinos want to pay the dog racing people $92 million so that they won’t be required to continue to subsidize dog racing.
In any kind of free market situation, the casinos would either shut down the dog tracks or sell them to a private investors, if any could be found.  In a free market, casinos would have competition.  But, in Iowa, the casinos are protected from competition by government.  Recently the Racing and Gaming Commission ruled against a couple of proposed new casinos because they would “cannibalize” other casinos.  So, casino profits are protected and dog owners get bailed out.  This is cronyism at its best.
The only good thing about this whole situation is that taxpayers are not on the hook.

Wind energy jobs created?

“Iowa has enjoyed tremendous economic benefits by being a leader in both wind power development and wind manufacturing.”  So wrote Mike Prior, Milford, interim executive director, Iowa Wind Energy Association, in a letter to the editor on 2/4/2012, (“Wind energy is important jobs provider”)  He went on to extol the many benefits that Iowans have enjoyed as a result of the funding that taxpayers have provided to those in the industry.  He urged that we, “… continue to invest in Iowa’s future.”

Good economic analysis must consider both what is seen and what is not seen.  We see the jobs.  We see the payments to farmers.  What we don’t see are the other jobs that would have been created if people had been left to spend or invest their own money.  Other jobs would have been created that would not be dependent on government handouts.  Instead, we hear a never-ending story about how we must continue to provide taxpayer support or the investment and jobs will be lost.  This is very typical when government creates new “incentives” and makes “investments” in what should be left to the private sector.

Welfare for wind energy producers is like all other special interest giveaways: the benefits are large and concentrated among the few who who are politically connected, and and costs are relatively small and disbursed among many taxpayers. This is a classic case in public choice theory.  Those who directly benefit have a great incentive to lobby government to continue the subsidies, and those who pay the taxes don’t have a strong incentive to oppose any specific program.

We need legislators who will stand against political favors for special interest factions who press their political power for their own self interest.

Link to Register article:  http://www.desmoinesregister.com/apps/pbcs.dll/article?AID=2014302040081