Monday update.

Tax Cut Victory

Tonight’s big news is that the President and congressional Republicans have agreed to a plan that extends all Bush tax rates for two years, cuts payroll taxes, expands business deductions, and prevents reversion of the estate tax to the previous level.

This accord – a significant capitulation by the President – plus the new Korea free trade agreement, amounts to a significant pair of supply-side policy victories. For the first time in 18 months, I think President Obama might have a shot at re-election.

The x factor will be the dollar. If the dollar continues to fluctuate against the euro and gold, a strong recovery will undermined, damaging the President’s prospects.

--------------------------------

On 60 Minutes, Fed Chairman Ben Bernanke recommits to lowering interest rates to raise employment, but denies he is increasing the money supply. He says the Fed can reverse course and tighten money in “15 minutes” if inflation arises.

On a side note, Scott Pelley’s narrative, bolstered by Bernanke, is completely stuck in the Phillips Curve framework – growth causes inflation, recession causes deflation. And, in recounting the Fed’s extraordinary 2008 measures to stop the financial meltdown, Bernanke and Pelley overlook the Fed’s policy errors that led to the subprime bust and liquidity crisis.

At Economics21, David Malpass critiques Bernanke’s analysis.

On The Kudlow Report, Kudlow is enthusiastic about the tax agreement:




On Forbes, John Tamny makes the crucial point that fixing the dollar’s price – not general price stability – is key to repairing the economy.

The WSJ worries about rising estate tax rates.

Also in The Journal, Robert M. Kimmitt and Matthew J. Slaughter support multinationals insourcing to the U.S.:

To boost the hiring prospects of insourcing companies (and of many others as well), policy makers should focus on three issues quite distinct from macroeconomic tools like quantitative easing and federal stimulus spending.

First, taxes. Insourcing CFOs reported to the Organization for International Investment that taxation is the single most important policy area that shapes their companies' investment decisions. In turn, their top concern is the U.S. corporate tax rate, which, at 35%, is one of the world's highest.

America's high corporate tax rate inhibits hiring and investment in all U.S. firms, big and small alike. All the recent proposals by prominent deficit-reduction panels have recommended cutting the statutory rate and simplifying the corporate tax code. Policy makers should act on these proposals as quickly as possible to reduce the uncertainty that is inhibiting businesses' hiring and investment.

Second, trade. The global production and distribution networks of insourcing companies foster lots of exports and related jobs. So does trade liberalization. The more U.S. policy makers enact free-trade agreements with other nations, the more insourcing companies will be able to expand their exports and related jobs. Insourcing companies owned by South Korean parents exported $10.5 billion in goods in 2008; this would likely grow if America could ratify the pending free trade agreement with South Korea.

Third, tone. A worrisome 72.2% of insourcing CFOs say that the environment for doing business in America deteriorated over the last year. Contributing to this deterioration were the "Buy American" provisions of the 2009 American Recovery and Reinvestment Act. This protectionist tone belies the reality that America today is in a new era of global competition to attract the dynamic operations of global companies.

On CTV, Reuven Brenner defends gold-backed currency.

Last week in The WSJ, Gerald O’Driscoll wonders why we have a central bank (reprinted at the Atlas Sound Money Project).

From the BBC, Han Rosling illustrates the great progress in global health and wealth since 1810 (hat tip: Cafe Hayek):




On his blog, Dan Mitchell answers the claim that supply-side economics, specifically low tax rates, blew up Ireland’s economy.