A poor piece of protectionist history

John Steele Gordon devotes a Barron’s column to a regrettable piece of American economic policy history.

… [T]he Smoot-Hawley Tariff Act of 1930 is certainly in the running for the title of worst legislation ever passed.

In the 1920s, food prices declined substantially as more and more land once used to grow fodder crops for horses and mules was turned over to growing food for humans. During the election of 1928, Republican candidate Herbert Hoover promised U.S. farmers protection from foreign competition to help raise farm prices.

The legislation was shepherded through Congress by Senator Reed Smoot (R., Utah), and Rep. Willis C. Hawley, (R., Ore.). While intended to help mostly farmers, the legislation soon became subject to a special-interest feeding frenzy. Tariffs were raised on more and more products, including even tombstones, as lobbyists persuaded members of Congress to protect local industries. The result was the highest tariff in U.S. history, except for the Tariff Act of 1828.

This was economic folly of a high order. Tariffs are taxes, and taxes are always a drag on an economy. More, when the bill passed and was sent to the president, on June 13, 1930, the U.S. economy was already in recession, with gross domestic product falling and unemployment rising.

IF ONE COUNTRY INCREASES TARIFFS SHARPLY, its trading partners usually will retaliate—even if it isn’t in their best interest. Many countries, including Canada, then our largest trading partner, didn’t even wait for Smoot-Hawley to pass before raising tariffs on U.S. goods.

More than 1,000 economists sent President Hoover a petition asking him to veto the bill. Henry Ford called it an “economic stupidity.” Thomas Lamont of J.P. Morgan & Co. wrote that “I almost went down on my knees to beg Herbert Hoover to veto the asinine Hawley-Smoot Tariff. That Act intensified nationalism all over the world.”

Hoover, economically sophisticated and appalled at what had come out of the legislative meat grinder, denounced the bill as “vicious, extortionate, and obnoxious.” But, under intense political pressure from Republicans in Congress, he signed it into law.

The result was disaster.

Spending more through loopholes than appropriations

Thomas Donlan uses the recent tax-filing deadline as an excuse to remind us in a Barron’s editorial commentary about one disturbing element of the federal tax code.

Hidden in the tax code, however, is another potential source of federal spending. So-called tax expenditures are the exclusions, exemptions, deductions, credits, preferential rates, and tax deferrals that infest individual and corporate income-tax laws.

These are the loopholes denounced in campaigns, yet cherished and increased after candidates settle into high office. Most are as popular as they are expensive.

Consider just the 10 biggest loopholes, as projected for their value in the coming fiscal year that starts on Oct. 1:

• Employer contributions for medical-care and medical-insurance premiums aren’t taxed for the employees who benefit. This deletes $235 billion a year in federal taxes.

• Lower rates and preferred treatment for individuals’ capital gains: $210 billion.

• Taxes are deferred on employers’ contributions to pensions and retirement saving plans and on investment earnings in the plans: $140 billion a year.

• Homeowners are not taxed on the value of living in their homes without paying rent to themselves, which would be income in their role as landlords. Though obscure and arguable, even among economists, this is worth $112 billion a year.

• Deferral of income from corporate business activity abroad until the income is brought to the U.S.: worth another $112 billion a year.

• Mortgage interest is deductible on owner-occupied residences: $68 billion.

• Earned-income tax credit, which subsidizes low-wage workers: $63 billion.

• Deductibility of nonbusiness property taxes and some other state and local taxes: $63 billion.

• Deductibility of charitable contributions: $62 billion.

• Accelerated depreciation of business machinery and equipment: $50 billion.

The total of all loopholes is $1.1 trillion of taxes that the government would collect from the nominal tax system. Beyond the top 10 are nearly 200 other loopholes worth more than $400 billion.

As the National Taxpayer Advocate, Nina E. Olson, said last month, “Congress now spends more money each year through the tax code than it spends through the appropriations process.”

New Carolina Journal Online features

Lisa Snedeker reports for Carolina Journal Online on a Sylva-based bluegrass band that’s helping to promote literacy and writing without government help or mandates.

John Hood’s Daily Journal highlights the evidence that shows increased state government spending doesn’t necessarily translate into more economic growth.

Your ‘Earth Day’ news: NC energy-based emissions have been FALLING all century

For whatever reason this never makes news reports, even though it is big news:

Energy-based emissions in North Carolina, like the U.S., have been falling all century.

Here are some graphs; read more about them in my Spotlight report on The Market Forces Behind North Carolina’s Falling Emissions.

emissions decoupling2

Bringing in the big dog to sell the HP baseball stadium

And that would be —who else could it be—–High Point University president Nido Qubein. Anyone who knows anything about HP knows Nido can sell just about anything. That’s how he got where is. I’ll say this much–when responding to questions about a business article, he once left me the most eloquent voicemail I have ever received.

The Forward High Point board of directors on Tuesday unanimously approved a resolution asking Qubein “to strategically lead and direct the acquisition of a baseball franchise, stadium naming rights, facility management and ancillary developments (in partnership with city) centered around a multi-use stadium,” according to a news release.

….Chairman Doyle Early said Qubein’s track record at HPU, which has raised more than $300 million in gifts and pledges and expanded its campus from 92 to 430 acres under his watch, makes him a logical choice to oversee the private investment needed for the stadium.

….“This is not an agreement with HPU; this is an agreement with Dr. Qubein himself. He personally wants to help us with this catalyst project,” said Early. “In other words, HPU is not going to own the team and is not going to play there.”

Rhino Times’ Scott Yost reports the tax increment financing plan that will (in theory) pay for the $30 million stadium. For Guilford County Commissioners on the fence, turns out JLF has has written quite a bit about TIFs, I can sum it up in three words:Randy Parton Theater.

Leef looks into microaggressions

George Leef’s latest Martin Center column examines the growth of “microaggression” as a tool of political complaint.

The microaggression concept has been used by progressive student groups to demand changes they want, such as including items on student end-of-term evaluations of professors relating to their use of microaggressions—and that faculty members who use them be punished.

But what is the basis for this beehive of activity? The proponents claim that there is evidence to show that microaggression is a real concept and that members of minority groups suffer mental health problems as a result of them. Now, some scholars are taking a critical look at all of this and concluding that there is little or no basis for the microaggression furor.

One scholar who thinks that the microaggression concept is much ado about nothing is Althea Nagai, a research fellow at the Center for Equal Opportunity. She specializes in statistical analysis and has written a sharply critical article for the journal Academic Questions entitled “The Pseudo-Science of Microaggressions.”

Nagai writes that a “tsunami” of microaggressions has swamped American higher education and now even targets liberal and progressive faculty and administrators. The problem is that the scholarly foundation of research into microaggression is feeble. Scholars working in this field openly declare that they reject what they call “Eurocentric epistemologies” and objectivity. What that means, Nagai observes, “is that they reject the methodology and standards of modern science.” (Italics in original.)

The scientific method calls for sufficient sample sizes, unbiased questions, replicability of results, and modern statistical analysis. The research done to prove the validity of the microaggression concept and its policy implications, on the other hand, is rooted in subjective storytelling that “enables the implementation of a highly politicized agenda and places a social change agenda above objective research.”

Deferral Program for Illegal Aliens Driving without Licenses in Orange and Chatham Counties

The News and Observer Reports that:

The Orange-Chatham district attorney’s office is giving some drivers a second chance if they are caught without a license in the two counties.

The new policy responds to a state law that bars illegal and undocumented immigrants from getting a driver’s license. Advocates say many unlicensed immigrants risk driving to take their children to school, go to work or be involved in the community. …

The policy helps a limited number of drivers keep an otherwise clean criminal and driving record, said Orange-Chatham District Attorney Jim Woodall, who drafted the policy with help from law enforcement and immigrant advocates.

The change lets them get the charge dismissed if they provide an ID and pay to take a safe driving class, a civics and law enforcement education class, and an elective course, such as a primer on family or immigration law. …

“They’re good, responsible residents, they’re not in trouble, they’re working, but they’ve got this problem. They can’t get a driver’s license, there’s no way out of this for them,” Woodall said. “And we’re trying to get them some driver’s education, because virtually none of the people we’re talking about have ever been given any type of driver’s education.” …

Local law enforcement agencies support the new policy, officials said. A statement from the Orange County Sheriff’s Office noted that the policy does not prevent deputies from enforcing state law.

“I want to send a message to that community that you are a part of our community,” Woodall said. “You may be undocumented, but sometimes we need your help, sometimes you’re going to need our help, and I’m willing to try to do my part … to promote some goodwill and trust here.” …

The move comes as the federal government considers withholding law enforcement grants from departments that don’t cooperate with immigration enforcement. While conservative groups have called Chapel Hill, Carrboro and Durham “sanctuary cities” – locales that protect people who are in the country illegally – none have policies that violate state or federal law. …

Attorneys and others told him the people his office wants to help aren’t the focus of federal conversations, Woodall said.

“These are not criminals. These are average everyday citizens. They are not going to be deported through any policy that anybody’s talked about,” he said. “They’re going to be here for years and years. We have to work with them.”

Gboro’s $30m parking deck (and hotel)

If you missed the Greensboro Council’s debate and discussion over plans to spend $30 million to build a new parking deck that would service a new downtown hotel, then you’re not alone. Fortunately John Hammer of the Rhino Times* was paying attention:

The City Council unanimously passed a motion to enter into a contract with the developer to design the parking structure for not more than $2 million.The city also approved the purchase of 116 East Market St. for $1.025 million. Thee purchase of land along Davie Street for $2.1 million and the cost of building the parking deck at $26 million.

What made this truly bizarre is that no one on the city council said anything about the Westin Hotel that will be built on top of the parking deck.

City Councilmember Tony Wilkins asked a couple of questions about where the money for this project was coming from, but no one said anything about the need for an 850-space parking deck, which will stretch from East market Street over February One Place to the current site of the parking deck for Elm Street Center.

…The City Council likes to talk about transparency, but this deal has only been discussed in closed session, and, Tuesday night, when it was for the first time brought before the public, nobody said anything.

Read the council’s resolution here. It says “annual operating expenses and debt service costs totaling approximately $2,285,000 will be funded from operating revenues from the new deck, existing parking fund revenues, and general fund revenues.” Gboro’s been wanting a hotel in the heart of downtown for some time now. Turns out they’ve finally figured out a way to get it.

*No link since Rhino Times e-edition requires flash player update, which I haven’t figured out yet.