No Fooling...Economic Barbarity Is At the Gates

The Wall Street Journal's Op-Ed page today is chock-a-block with analysis of various government revenue grabs, many of which have been addressed before here at NBfPB. First the WSJ talks about the global bank tax money grab, and they rightly point out, as I did recently, that we just might be saved from this disaster by the Canadians, who didn't let their banking system become infected with crappy mortgages, didn't require national finances to bailout the system, and ought not to be punished for it. This is a very big deal, which is why I use the terms "saved" and "disaster". It does not matter by what means you do it or under what pretense you do it, removing capital from the banking system on a large scale results in economic activity grinding to a halt. We did this during the 1930s under multiple guises - the check tax comes to mind - and exacerbated what would become the Great Depression. This is no apocalyptic hooey, we are headed in that direction if we do things that give us the multiplier effect of the fractional reserve banking system in reverse. That is what sucking capital out of the banking system does, it gives us a reverse multiplier effect, for every dollar of capital that disappears, several dollars of loans supporting business activity has to disappear.

The next money grab on the horizon is the tax assault on dividends. This one is doubly dumb because, not only will it hurt the economy, but it won't achieve its revenue goals. Again the WSJ rightly points out that revenues from dividend tax increases almost always fall short of projections. Well short, and here is an example of why. Oh, and let's not forget what Nobelist Robert Mundell said about increased taxes on cap gains and dividends...nosedive city, baby. But you don't have to know your Great Depression economic history to know about the stupidity of this maneuver, we have ample lessons from recent history to guide us - lower divvy taxes and you get a flood, raise them and you get a drought. So in fact, this is a trifecta of stupidity.

I have warned that policy mistakes will send us double dipping. I think we are about an inch away from being there. We have a bottom of the ninth at bat to save us in the form of the November elections, but short of completely hamstringing this administration and this Congressional leadership, much greater economic pain is pretty much baked in the cake.