WASHINGTON, Jan. 13 (UPI) -- The UPI think tank wrap-up is a daily digest covering opinion pieces, reactions to recent news events and position statements released by various think tanks.
The Institute for Public Accuracy
(The IPA is a nationwide consortium of policy researchers that seeks to broaden public discourse by gaining media access for experts whose perspectives are often overshadowed by major think tanks and other influential institutions.)
WASHINGTON -- Comments on Iraq
Denis Halliday, a former head of the UN oil-for-food program and a former UN Assistant Secretary General, has just returned from Iraq.
"In talking with people in the street and with Iraqi families, there was a tangible fear of the renewed horrors of bombing, missiles and war. One family I visited have their three months supply of food rations in the house (partially to avoid U.S. bombing of food warehouses as in the past), and were preparing to drill a well in the garden, but felt very fearful for their lives and the lives of their children under American bombing. The sense is that children already overhearing their parents talking of war are suffering psychologically ...
"My own added fear is of American usage of depleted uranium on Baghdad and other cities -- adding to destructive capacity but leaving behind contamination with a half-life of some 4.5 billion years. Massive outbreaks of various cancers, now seen primarily in the Basra area, would result. ...
"Amongst officials I found an overwhelming sense that nothing would stop Bush except perhaps the American people. They have no faith in the Arab League or Arab leaders having the guts to defend the people of Iraq or its sovereignty. Likewise the leaders of the European Union are seen as weak, seeking only their self-interest rather than genuine concern for the human rights of the Iraqis. The sense was that for the EU, such niceties as international law and UN credibility were secondary to their anxiety to please the Bush regime and thereby assure themselves of a slice of the Iraqi oil cake when occupation is complete."
The National Center for Policy Analysis
(The NCPA is a public policy research institute that seeks innovative private sector solutions to public policy problems.)
DALLAS -- Glenn R. Hubbard and The Dividends Tax
By BRUCE BARTLETT
Now that President Bush has announced a plan to eliminate the double taxation of corporate profits, people are coming out of the woodwork to take credit for the idea. However, there is little doubt that the driving force was Council of Economic Advisers Chairman R. Glenn Hubbard.
For years, Treasury secretaries have talked about getting rid of double taxation. It is wrong in principle, raises the cost of capital, lowers economic growth, and leads to excessive debt and various other problems. The late Bill Simon gave many speeches on the subject, but never actually proposed abolishing double taxation, figuring that it was easier to reform the whole tax system than tackle this one problem in isolation. Jimmy Carter's Treasury Secretary, Michael Blumenthal, also supported elimination of double taxation, as did President Carter, but also never put forward a formal proposal to do so.
The first treasury secretary to make a serious effort at eliminating double taxation was Nicholas Brady, who served under the elder President Bush. In January, 1992, the Treasury Department issued a report titled, "Integration of the Individual and Corporate Tax Systems: Taxing Business Income Once." (This 268-page study is available on the Treasury Department's web site at www.treas.gov/offices/tax-policy/library/integration-paper/index.html.)
The author of that report was Hubbard, then serving as deputy assistant secretary for Tax Analysis at Treasury. It is the most thorough analysis of the problems associated with double taxation and why it should be eliminated.
Unfortunately, the 1992 Treasury effort fell on deaf ears. But Hubbard kept it alive in his academic work at Columbia University, where he returned at the end of the first Bush administration. His most important contribution is an article titled "The Share Price Effects of Dividend Taxes and Tax Imputation Credits," which appeared in the March, 2001 issue of the prestigious Journal of Public Economics.
The importance of this article is that it refutes a commonly held view in finance textbooks that double taxation has no effect on share prices. However, Hubbard proved that taxes on dividends are in fact capitalized in stock prices. Thus it is reasonable to assume that if dividend taxes are removed, as President Bush has proposed, share prices will rise significantly. Economist John Rutledge estimates that removal of dividend taxes will raise the Standard and & Poor's 500 stocks by 8.5 percent, or $800 billion.
If this happens, it will go a long way toward restoring investor confidence, which could finally get business investment back on an upswing. Although there is much talk on Capitol Hill that consumers need another dose of rebates, the truth is that consumer spending has lagged little during the economic downturn. The falloff in business investment explains almost the entire decline in growth.
It is clear that Hubbard is the rising star on Bush's economic team. Although he was an adviser to Bush during the 2000 campaign, it has taken some time for him to establish himself as the economic adviser Bush now relies upon. Until recently, he had to compete with Treasury Secretary Paul O'Neill and National Economic Council Director Lawrence Lindsey. But now they are gone.
A key to Hubbard's growing influence is his keen understanding of the bureaucratic process -- something he may have learned in academia, where, as someone once said, the infighting is vicious because the stakes are so low. This has led him to cultivate allies among people like White House Deputy Chief of Staff Josh Bolton, and to place allies in key positions. The latter would include Richard Clarida, assistant secretary of the Treasury for Economic Policy, and reported incoming Congressional Budget Office Director Douglas Holtz-Eakin, who now serves as chief economist at the CEA.
There are persistent rumors around Washington that Hubbard may be in for a promotion. Current Deputy Secretary of the Treasury Ken Dam has announced his intention to leave that post as soon as John Snow is confirmed as secretary. Hubbard then may be named to replace Dam, which would put him in a powerful position to press for passage of Bush's tax plan.
I hope the rumor is true. Indeed, one testament to Hubbard's value to Bush is that he has lately come in for attack by partisan Democrats. For example, former Clinton economist Brad DeLong recently posted an utterly dishonest attack on Hubbard on his Web site, which was quickly picked up by the left-wing echo chamber at the New Republic, American Prospect and elsewhere. Such people don't bother attacking those they do not fear.
(Bruce Bartlett is a senior fellow at the National Center for Policy Analysis.)
