Two Friendly Amendments to Biden's SOTU Economics
I have two beefs. Putting on my fuddy-duddy economist hat:
1. Buy American may sound great to the average person, but as industrial policy it is weak. Biden is on firmer ground with the CHIPS act. The objective for progressives is a program to provoke manufacturing investment in the U.S., employment in which we hope will be superior to jobs in the service sector. (According to Dean Baker, that is less likely these days.) Buying American is basically a tax on the public sector, which is not flush as it is.
2. Taxing stock buybacks may sound good too, but it is a weak substitute for more thorough-going taxation of capital. There are lots of ways to do that. For instance, the Feds could tax capital gains as accrued (as assets gain in value), not when 'realized' (when an asset is actually sold for a profit). The appeal of the idea -- firms are somehow wasting money with buybacks -- actually rests on an accounting delusion. If a firm buys back its stock, the shareholders have new cash they are likely to use to buy other stock. Nothing is lost to the capital markets. Share purchases do not generally finance new actual investment in plant and equipment, but to the extent some firms have cash they have no use for, recycling that into share purchases at other firms might have some positive real effects.
Speaking of Dean Baker, and of taxes, what’s your view on his suggestion that we should replace corporate taxes with a government-owned non-voting equity position?
It's hard to tax accrued capital gains of private firms. Not impossible, maybe. But difficult, since it would require a government assessment of the gain, much like a real property tax. And rich guys will have the legal firepower to challenge every assessment.