AMERICAN BUSINESS has few whipping boys so irresistibly whippable as Wal-Mart Stores Inc., whose treatment of employees, competitors and suppliers conjures cold-eyed corporate heartlessness. It's hard to root for Wal-Mart; one might as easily cheer on Scrooge or the shark in "Jaws." But state lawmakers in Maryland are preparing to impose legislation on the retailer so arbitrary that it may achieve the near-impossible feat of casting Wal-Mart as the victim.

If you are an individual whose monthly phone tax bill is so small that it doesn't pay even to go through the paperwork of a formal refund claim, but you still don't want to pay a tax you don't owe, there's a simpler option -- just stop paying the tax.

The phone companies are required by the IRS to collect the tax but not to enforce it. The first mainstream media story I've seen on this subject in the two years it has been developing reports that AT&T, Cingular Wireless, MCI, and Verizon Wireless now remove the tax charge from phone bills when asked to do so by customers. If they do I imagine their competitors do as well.

(The phone companies hate this tax, which was imposed as a temporary "luxury tax" in 1898 to help finance the Spanish-American war -- thus showing what Congress means by "temporary tax". The heads of all the big phone companies recently sent a letter (.pdf) to Treasury Secretary Snow urging him to instruct the IRS to give up on this, stop collecting the tax, and give everyone their money back. They want to get rid of this tax and aren't going to go out their way to give a hard time to growing numbers of customers who join them in this.)

Judge Alito doesn't recall being a member of CAP, but says that if he was it must have been because he shared CAP's concern about keeping ROTC on campus. For the sin of not recalling, he was then tarred as dishonest. Senator Kennedy demanded to know whether Judge Alito had read various articles on CAP that had appeared more than two decades ago, including an editorial that ran in these columns on January 17, 1985.

Much as we like our own work, even we confess to having forgotten about that editorial. We'd like to think Senator Kennedy reads us so assiduously that he knew just where to look, but something tells us his staff dug it up from our computer archives. But we appreciate the unlikely plug. (You can find the editorial here.) As for Judge Alito's prospects, if this irrelevant arcana is the most his opponents have, he can start measuring his new judicial robes.

...House Republicans, after 40 years in the minority, have, since 1994, wallowed in the pleasures of power. They have practiced DeLayism, or "K Street conservatism." This involves exuberantly serving rent-seekers, who hire K Street lobbyists as helpers. For House Republicans the aim of the game is to build political support. But Republicans shed their conservatism in the process of securing their seats in the service, they say, of conservatism.

Liberals practice "K Street liberalism" with an easy conscience because they believe government should do as much as possible for as many interests as possible. But "K Street conservatism" compounds unseemliness with hypocrisy. Until the Bush administration, with its incontinent spending, unleashed an especially conscienceless Republican control of both political branches, conservatives pretended to believe in limited government. The past five years, during which the number of registered lobbyists more than doubled, have proved that, for some Republicans, conservative virtue was merely the absence of opportunity for vice.

An editorial in Monday's Times about President Bush's recess appointments misstated the time Republicans have controlled the Senate so far during Mr. Bush's tenure. The Democrats had a one-vote majority from May 2001, when a senator left the Republican Party, until after the 2002 elections. Thus the Republicans have controlled the Senate for about three and a half years, not five.

Modern presidents have employed this power [to make recess appointments] to place nominees who ran into political trouble in the Senate. Presidents Ronald Reagan and Bill Clinton made scores of recess appointments. But both of them faced a Congress controlled by the opposition party, while the Senate has been under Republican control for Mr. Bush's entire five years in office.

In some cases, Mr. Bush has used the recess appointment power to rescue egregiously bad selections that would never pass muster on grounds of experience and competence.

I found this quite by accident, but it looks like Kim Jong Il's trying to start something like a web board. An especially bizarre section contains "seminar materials", which are papers proclaiming the greatness of the current regime, and allegedly written by various friendship societies from around the world. If you read them, you'll note that all of them use the same word processor, all of them have peculiar difficulty with English, and there's an unmistakable parallel to those letters Bob Guccione receives each month. If this is the current state of the DPRK's propaganda apparatus, I shudder to think of what a day in the life of an average "subject" is like these days.

General Motors Corp. on Tuesday announced plans to slash prices on most of its models as part of an effort to better gauge what consumers are willing to pay and move away from the heavy incentives that confuse buyers and take a bite out of the auto maker's profits.

“Earmarks don’t just waste money — though that’s reason enough to oppose them. They also join lobbyists and lawmakers at the hip. Lobbyists have made a booming business of winning earmarks for their clients, and while the tactics they use to do so don’t always cross over into Cunningham territory, sleazy, parochial influence-peddling abounds.”

--The National Review, December 15, 2005

“Many Republicans have forgotten that as government grows, its increased power to grant favors or inflict pain attracts more people who would abuse the system.”

--John Fund, The Wall Street Journal, January 9, 2006

“At the root of this mess is a culture of corruption built on professional campaign financing, lobbying, pork barrel spending and influence-peddling that has been practiced over the years by both parties.”

--John Hall, The Cincinnati Post, January 9, 2006

“Some congressional observers fear that the number and size of earmarks have become excessive in recent years, and it is increasingly narrow special interests that are benefiting most.”

--The Center For Public Integrity, April 7, 2005

“A former undersecretary of defense and chief financial officer at the Defense Department, Dov Zakheim, said earmarks have the potential of sending money to projects that are not necessary instead of to projects that are.”

--Brian McGuire, The New York Sun, December 27, 2005

“…Republicans need to get a grip on earmarks. Earmarks are the provisions that single members can stick into gigantic bills to steer spending toward favored projects. They're an invitation to corruption. If individual members of Congress can control $100-million federal contracts or billion-dollar pork-barrel projects, then companies are going to find ways to funnel graft to those members.”

--David Brooks, The New York Times, January 5, 2006

“But the problem is broader than Mr. Abramoff, Mr. DeLay or even the inherent potential for abuse in one-party rule of all three branches of government. It also has to do with the astounding growth of the lobbying industry, a growth that has tracked the growth of the federal government itself.”

--Todd S. Purdum, The New York Times, January 8, 2006

“No single member of Congress should be able to direct tens or even hundreds of millions of dollars in spending. This practice is corrupting -- and budget-busting.”

--The Roanoke Times, January 9, 2006

“Stricter rules, more illuminating disclosure and better enforcement could ameliorate some of the seamier aspects of the mutually beneficial, mutually degrading symbiosis that characterizes the lawmaker-lobbyist relationship.”

--Ruth Marcus, The Washington Post, January 9, 2006

I was glad to see you pick up on John Boehner’s views on tax cuts. He’s a great man and a good friend. If you follow the Boehner-Blunt race for leader, be sure to think about the nature of the job they both seek. I believe this inside-the-Beltway contest matters to the markets because who wins this job essentially determines what happens on spending, taxation and regulation. It may also determine whether the Republican Congress gets it act together soon, or, come November, gets the shaft from their own voters if they abandon conservative principles.

The job of Majority Leader is to set the agenda and implement it.

Substance, experience, process, fairness and stamina-under-fire are the primary qualifications. From reforming the House Post Office and House Bank in early in his career, Boehner moved on to starting the effort to revise/repeal Glass-Steagall -- once thought to be an impenetrable fortress of a bad law -- then to working with George Bush and Ted Kennedy on education reform. More recently, he passed a sweeping reform of pension and ERISA rules over Blunt’s delaying (pun intended) tactics with 70 Democratic votes.

The ability to work through tough issues and win bipartisan majorities for pro-growth policies is what the GOP -- and the country -- needs most right now, not a retrenchment to fruitless partisan bickering interrupted only by reckless earmarks.

Race will be tight.

Saturday afternoon Robert saw that Paul and Robin Wells (the wife) were signing books (that new Macroeconomics book) and so he went to check it out. The guy from the book company asked if Robert wanted a free book, and said and that Paul would sign it for him (oh joy!). Robert said "Yeah, sure," and so he took a book and gave it to Paul and when he handed it to him he said, "Can you make it out "To My Dear Friend, Don Luskin..."

Then Krugman's wife said sarcastically "Oh, we haven't heard from him in awhile. He must have gotten a life." Robert said, "My wife e-mails him now and then." While Paul was signing the book he said "Oh, I caught him recently saying that Washington is as dangerous as Baghdad, but he was looking at a weekly murder rate, rather than a monthly rate" (smiling a lot while he was saying this), and my husband said "Thanks," and that was it.

Robert said he wanted to say more, but he could tell Robin Wells was already annoyed by the mention of your name, and she looked like the type to get irritated; even more so than Paul.

Krugman did not make the inscription out to "My Dear Friend, Don Luskin" (of course you probably guessed that). He just said "To Bob, All the best." And Robin's inscription said, "All the best in teaching." Huh? I guess she thought he was a professor.

I asked Robert if he thought Paul was "gnomishly handsome." Robert looked puzzled and said, "Huh??"

The recent Democratic criticism of President Bush's use of warrantless wiretaps might lead one to conclude that the opposition party is genuinely concerned with protecting individual rights and, concurrently, restraining executive power. But when it comes to wiretaps, Democratic and Republican lawmakers have been equal partners in expanding the scope of federal power; the present Democratic objection is limited to the absence of pro forma judicial oversight.

In October 2005, the Senate unanimously passed a bill that would vastly expand the ability of the Justice Department to spy on American businesses via wiretaps. Not a single senator rose to speak against this bill. Even the most rabid Democratic critic of the White House's warrantless wiretapping, Wisconsin Sen. Russell Feingold, embraced an unprecedented expansion of unsupervised, albeit warrant-enabled, wiretaps.

It is obvious that the folks at The New York Times don't like the Bush Administration. They are entitled to their opinions which should be based on facts. Otherwise, they run the risk of losing their credibility just as CBS anchorman Dan Rather did because he let his dislike of Bush cloud his journalistic objectivity. My peeve is with the Times' reporting and editorializing on the latest employment numbers released on Friday:

(1) In their story on the employment numbers, they felt obliged to observe "that Bush's policies were not the primary reason for the economy's strength."

(2) In their January 7 editorial titled "An Anemic Jobs Recovery," they focused on December's "paltry" increase and didn't mention the big upward revision to November.

(3) Nor did they mention that first-reported employment data has a long history of upward revisions as shown in the Alert below.

(4) Instead, the Times whined that only 2 million jobs were created in 2005, 1.5 million less than at this point in the last recovery. The longer-term comparisons are even "uglier." Job growth in the current expansion "is the worst by far of the four comparable economic upturns since 1960."

There is no mention in the editorial that the jobless rate was only 4.9% in December, matching the 4-year lows hit in August and October. Could it be that we don't need to create as many jobs as in the past because the labor force is growing more slowly now that the Baby Boom bulge has passed? The Times is missing the big story: While employment has been growing fast enough to keep unemployment low, productivity has continued to grow 3% per year, on average, as it has since 1995. This is why inflation-adjusted pre-tax compensation per worker--which includes wages, salaries, and benefits--rose to a record high last year, despite soaring energy prices. Instead, the Times stated, as a matter of fact, that for the past two years wages have been flat or falling. That's not true unless they are referring to inflation-adjusted wages. But even this is misleading since it ignores benefits, which have continued to increase faster than prices. It also ignores the fact that tax cuts have boosted consumers' purchasing power as well. But then, it is no secret that the newspaper's editors favor raising taxes especially on upper-income taxpayers.

But can we consider "sex work" like any other mainstream economic activity, whose profits should be integrated into the nation's GDP, maybe even giving training for young people or the unemployed?

The answer is a definite no. The sex trade is predominantly in the economic interests of sex traders and takes place at the expense of the prostitutes.

Update... Reader Gordon Haave says:

In fact, to the extent that the sex trade is prominently in the economic interests of sex traders at the expense of the prostitutes (as it is when fradulent methods are used to lure women from eastern europe into western europe and then held as virtual sex slaves) is is precisely because "sex work" is illegal, and the biggest players are organized criminal gangs.

When the Republicans shamble back to Washington later this month after Congress's holiday recess, we'll see just how wrong Krugman is -- on every count.

For one thing, last year's unfinished 2006 revenue reconciliation bill, which congress will have to deal with promptly in the new session, isn't about "further tax cuts," or even "tax cuts" at all. It's about keeping tax rates just where they are. If today's tax rates on dividends and capital gains aren't extended, then the capital gains rate will jump by as much as a third and the dividend rate will more than double in tax years after 2008.

But we shouldn't be surprised that Krugman calls keeping tax rates where they are "cuts". He bemoans the "cruelty" of the "mean-spirited spending cuts" in the latest budget bill -- which has federal spending growing by more than 51% over the next five years.

And Krugman's wrong if he thinks the Republicans who originally enacted today's tax rates are zombies. They know precisely why they put lower dividend and capital gains rates in place in 2003, and why the reconciliation bill must extend them past their current 2008 horizon.

For example, I asked Representative John Boehner, the Ohio Republican whose hat is in the ring to succeed Tom DeLay as House majority leader, if he considered himself a tax cut zombie. "No," he said, "extending the cap gains and dividend rates is critically important for investments in our economy. Moving that horizon out is the most important part of the bill, because what investors want is certainty. I think we'll unleash more investment."

Boehner is precisely right -- and all the economic evidence agrees. Consider payroll jobs. Coming out of the recession that began in early 2001, the total number of payroll jobs hit its very lows the month the 2003 tax cuts on dividends and capital gains were enacted. Since then, the economy has added 4.6 million new jobs.

After a savage bear market that ended shortly after the 2003 were proposed, and shortly before they were enacted, the S&P 500 now stands at highs not seen in more than four and a half years. The total return to stock investors from the day the tax cuts were signed into law has been 41.3%.

Glossing over all that reality, Krugman kvetches that there's been only "a partial recovery in federal tax receipts from their plunge between 2000 and 2003." But that's simply a lie. Today, federal tax revenues stand at all-time highs. According to the US Treasury's latest monthly statistical report, November tax receipts were $138 billion. Add that to the previous 11 months, and you get a trailing 12-month total for tax receipts of $2.2 trillion. That's the largest amount ever collected in a 12-month period. In fact, receipts have been setting records every month since August, when we first surpassed the $2.1 trillion record set in April, 2001.

But Krugman continues to whine, "Revenue remains lower, and the federal budget deeper in deficit, than anyone expected a few years ago..." Anyone? That just can't be true. Someone, I'll grant you. For example, the Congressional Budget Office, in it's August 2002 Budget and Economic Outlook -- written before the 2003 tax cuts had even been proposed -- expected $2.224 trillion in revenues for fiscal 2005 (the fiscal year ended last September). In a recent budget update (October 6), CBO estimated fiscal 2005 revenues at $2.154 trillion. So for this "someone" at least, yes, revenues remain lower than expected. But barely -- only by $90 billion, or about 4%.

But let's dig deeper into CBO's analysis. Back in that 2002 report they estimated fiscal 2005 GDP to be $11.936 trillion. In fact, it turned out to be $12.308 trillion -- $372 billion higher. So let's put these numbers together. We get $90 billion less than expected in tax revenues. We get $372 billion more than expected in GDP. That's a terrific deal, if you ask me.

So while Krugman derides supply side economics as "hokum for the yokels," all the evidence points to the reality that lower tax rates do lead to faster economic growth. And to exaggerate a bit as Krugman himself might do, there isn't "anyone" who seriously disagrees with that. For example, in a New York Times column last week economics reporter Daniel Altman crowed about a recent CBO study that purported to show that tax cuts don't fully pay for themselves in increased revenue. But in the 14 scenarios examined by the CBO, all but one showed gross national product increasing after a 10% across the board tax cut.

Why does it work? Because, as Boehner puts it, "The problem is the government is too big and takes too much money out the economy and leaves too little for investment in the future." You want a bigger, faster-growing economy? Then cut taxes -- or at least leave them at low levels, like the Republicans in Congress are trying to do.

It's so simple, even a zombie can understand it. Leftist economics professors like Krugman, though, are another matter.

Posted by Donald L. Luskin at 2:41 AM | link    

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