Tax Cuts and Deficits. In general, we levy taxes not to ease income inequality but to fund government. They haven’t quite been doing the job lately: for the 2008 fiscal year, which ends in September, it is estimated that the government will spend roughly US$500 billion more than it takes in, a deficit of 3.5% of GDP. That should shrink when the economy starts growing again, but it’s not going to disappear without either big cuts in spending or substantial tax increases.
And make no mistake, somebody is going to have to pay those bills someday.
The message many Republicans took from Reagan’s successes of the early 1980s, and still preach today, is that tax cuts pay for themselves. That’s nonsense—Reagan’s rate cuts for the rich may have paid for themselves, but the 1981 tax package as a whole (which included cuts for the poor, the middle class, and corporations) clearly did not. The real lesson of the 1980s was that the Us can get away with running far bigger deficits than anyone thought possible while still enjoying strong growth and low inflation.
We’ve seen a bit more evidence of this in the 2000s, but it can’t go on forever. There comes a point at which government debts grow so large that they start to weigh on the economy, through higher interest rates, bigger debt payments, a weaker currency, etc. Reagan and George W. Bush had the advantage of starting out with a relatively small debt as a percentage of GDP. The next president won’t be quite so lucky.
The reductions in tax rates on income, capital gains, and corporate dividends that President Bush pushed through in 2001 and 2003 are due to expire in 2010. That could prove a tough blow for a still-wobbly economy to weather, but it would help shrink the deficit over time. The deficit quandary is one for which neither of the candidates have an entirely convincing answer. But the winner in November will be forced to arrive at one once in office.
We Need an Energy Policy. One of the biggest factors in making paychecks seem smaller in recent years has been the sharp increase in energy prices. There’s very little a president can do to change this in the short term. Where presidents (and Congress) can have a big impact is in the long-term trajectory of energy prices and their effect on the economy. Elected officials can do this by steering Americans away from oil and toward other energy sources and conservation measures—or by failing to do so, which has been the laissez-faire policy of the past quarter century and has helped land us in our current sorry situation.
What makes doing the right thing on energy difficult is that it would almost inevitably involve raising costs now, with higher taxes on oil, increased subsidies for other energy sources, or higher energy-efficiency standards for vehicles and homes—or all three. Economists tend to prefer the first of these approaches because taxes on gas, oil, or fossil fuels in general tamp demand and allow the market—rather than members of Congress—to sift out the best alternatives.
As a rule, presidential candidates not named Ross Perot don’t propose fuel-tax hikes. Interestingly, though, to fight global warming, McCain and Obama favor a car-bon-cap-and-trade regimen, which would raise the price of fossil fuels just as surely as a direct tax would. Almost in spite of ourselves, we may end up with a semirational long-term energy policy. It won’t make gas cheaper anytime soon—or perhaps ever—but in the long run, it could strengthen the country’s economic prospects.
The Costly American Home. Some 1.5 million US homes fell into foreclosure in 2007, and the number is ballooning in 2008. The mess has caused some economists to question why we subsidize housing so heavily to begin with. The tax deduction for home-mortgage interest alone costs the government about US$80 billion a year, and most of that benefit flows to the wealthiest 16% of taxpayers, according to the Tax Foundation. It also means we’re subsidizing bigger houses and home-equity loans, possibly at the expense of other investments that might deliver a bigger economic bang.
Several countries have dropped the mortgage-interest deduction in recent years, with no noticeably adverse effects, but there’s no indication that any of our presidential candidates are contemplating such a move. What is likely to be on the next administration’s agenda are measures to restrain Wall Street— which, by buying and repackaging hundreds of billions of dollars in dodgy home loans, has played a key role in bringing on the housing bubble and bust.
What hasn’t really been answered yet is whether we need an entirely new regulatory approach. Ever since Reagan took office, the approach has been to get out of the way and let financial markets work their magic. Now that it’s clear just how much of this is black magic, there’s a case to be made that financial innovation—especially when it’s targeted at consumers— could do with much stricter oversight.
Health Care and Retirement. In the seminal 1980 PBS series Free to Choose, which may have helped set the mood for Reagan’s victory, economist Milton Friedman argued that economic freedom was just as important as all those freedoms written into the Bill of Rights. This went on to become perhaps the most consistent theme of the Reagan economic era: giving Americans the freedom to succeed or fail on their own economically was a good thing. And it is probably a good thing. But not an unmitigated good. Economic security matters to Americans too.
And finding ways to offer more of it may be the basis of the next big economic-policy revolution.
Economic changes over the past three decades— many the result of government decisions—have “left working families up and down much of the income spectrum living with fewer economic protections, bearing more economic risk, chancing steeper financial falls,” writes Los Angeles Times reporter Peter Gosselin in his 2008 book High Wire: The Precarious Financial Lives of American Families.
That you’re-on-your-own ethos is already beginning to change—a little. In 2006 Congress passed a law that has brought positive changes to the 401(k) savings plans that for many Americans have replaced pensions. But the majority of private-sector workers in the country aren’t offered a 401(k) or a pension. Both candidates talk of creating a new system of portable retirement accounts for those who don’t get one through employers, with Obama’s plan the most ambitious.
Then there’s health care, which has become perhaps the biggest source of financial worry and occasional disaster among middle-class Americans. It is possible to conceive of a system that brings the 47 million uninsured into the fold, improves medical outcomes, and costs less than what we’ve got now. It’s possible to conceive of because many other wealthy countries already have such systems. If you’re looking for big economic change from the next Administration, this is the form it’s likely to take.
The key, really, is to accept what works about the existing US economy and attack what doesn’t. Reagan never dismantled the core elements of the New Deal, and the new president needs to take care not to thwart the dynamism unleashed by Reagan. But putting off change won’t be an option much longer.
The US Mint, the world’s largest producer of coins and medals, was established by Congress on 2 Apr 1792. It is a bureau of the US Department of the Treasury. The mint manufactures and distributes coins, protects the country’s gold and silver assets, and creates medals, commemorative coins, and coin proof sets for purchase by the public. In 2007 it produced 14.5 billion pennies, nickels, dimes, quarters, half dollars, and golden dollars. The director of the mint is appointed by the president and serves a five-year term; in mid-2008 the director was Edmund C. Moy.
From its Washington DC headquarters, the mint operates facilities in Philadelphia PA, Denver CO, San Francisco CA, and West Point NY. All engraving of coins is done at the Philadelphia site (established 1792), where general circulation coins, medals, and coin dies are also produced. Denver (1863) manufactures general circulation coins and coin dies and provides storage for gold and silver bullion. San Francisco (1854) produces only commemorative coins and proof sets; West Point (1937) manufactures uncirculated and proof sets of gold, silver, and platinum coins and stores these metals. The mint is also responsible for the storage and protection of more than 145 million ounces of gold bullion at Fort Knox, Kentucky.
Although general circulation coins were once made from gold, silver, and copper, this is no longer the case. Gold coin production was discontinued in 1933, and in 1966 silver ceased to be used in dimes and quarters. Currently, pennies are composed of copper-plated zinc, golden dollar coins of manganese brass, and all other general circulation coins of cupronickel, an alloy of copper and nickel. In early 2000 the mint began circulating the golden dollar coin, intended to replace the older Susan B. Anthony dollar coin. The new coin featured the image of Sacagawea, the Shoshone Indian woman who traveled as a guide with the Lewis and Clark Expedition in 1804-06. In 1999 the mint began issuing a series of quarters featuring the 50 states. Five quarters were to be issued annually, about 10 weeks apart, each featuring one state’s design. State quarters were released in order of the states’ ratification of the US Constitution. Introduced in 2007 were Idaho, Montana, Utah, Washington, and Wyoming; in 2008, Alaska, Arizona, Hawaii, New Mexico, and Oklahoma. Nickels commemorating the Lewis and Clark Expedition were released in 2004 and 2005; those issued in 2005 featured a slightly different portrait of Thomas Jefferson. Dollar coins commemorating the US presidents were issued beginning in 2007, with subjects released in the order that they served. The coins are the same size, weight, and metal composition as the Sacagawea golden dollar and have an image of the Statue of Liberty on the back. Only deceased presidents are planned subjects, and currently the schedule of production runs through 2016.
