Most Popular
1. Banking Crisis is Stocks Bull Market Buying Opportunity - Nadeem_Walayat
2.The Crypto Signal for the Precious Metals Market - P_Radomski_CFA
3. One Possible Outcome to a New World Order - Raymond_Matison
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
5. Apple AAPL Stock Trend and Earnings Analysis - Nadeem_Walayat
6.AI, Stocks, and Gold Stocks – Connected After All - P_Radomski_CFA
7.Stock Market CHEAT SHEET - - Nadeem_Walayat
8.US Debt Ceiling Crisis Smoke and Mirrors Circus - Nadeem_Walayat
9.Silver Price May Explode - Avi_Gilburt
10.More US Banks Could Collapse -- A Lot More- EWI
Last 7 days
Stock Market Volatility (VIX) - 25th Mar 24
Stock Market Investor Sentiment - 25th Mar 24
The Federal Reserve Didn't Do Anything But It Had Plenty to Say - 25th Mar 24
Stock Market Breadth - 24th Mar 24
Stock Market Margin Debt Indicator - 24th Mar 24
It’s Easy to Scream Stocks Bubble! - 24th Mar 24
Stocks: What to Make of All This Insider Selling- 24th Mar 24
Money Supply Continues To Fall, Economy Worsens – Investors Don’t Care - 24th Mar 24
Get an Edge in the Crypto Market with Order Flow - 24th Mar 24
US Presidential Election Cycle and Recessions - 18th Mar 24
US Recession Already Happened in 2022! - 18th Mar 24
AI can now remember everything you say - 18th Mar 24
Bitcoin Crypto Mania 2024 - MicroStrategy MSTR Blow off Top! - 14th Mar 24
Bitcoin Gravy Train Trend Forecast 2024 - 11th Mar 24
Gold and the Long-Term Inflation Cycle - 11th Mar 24
Fed’s Next Intertest Rate Move might not align with popular consensus - 11th Mar 24
Two Reasons The Fed Manipulates Interest Rates - 11th Mar 24
US Dollar Trend 2024 - 9th Mar 2024
The Bond Trade and Interest Rates - 9th Mar 2024
Investors Don’t Believe the Gold Rally, Still Prefer General Stocks - 9th Mar 2024
Paper Gold Vs. Real Gold: It's Important to Know the Difference - 9th Mar 2024
Stocks: What This "Record Extreme" Indicator May Be Signaling - 9th Mar 2024
My 3 Favorite Trade Setups - Elliott Wave Course - 9th Mar 2024
Bitcoin Crypto Bubble Mania! - 4th Mar 2024
US Interest Rates - When WIll the Fed Pivot - 1st Mar 2024
S&P Stock Market Real Earnings Yield - 29th Feb 2024
US Unemployment is a Fake Statistic - 29th Feb 2024
U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - 29th Feb 2024
What a Breakdown in Silver Mining Stocks! What an Opportunity! - 29th Feb 2024
Why AI will Soon become SA - Synthetic Intelligence - The Machine Learning Megatrend - 29th Feb 2024
Keep Calm and Carry on Buying Quantum AI Tech Stocks - 19th Feb 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Kill the Export-Import Bank and Cut Corporate Taxes

Politics / US Economy Jun 05, 2015 - 10:00 AM GMT

By: Steve_H_Hanke

Politics

Former Texas Governor Rick Perry announced his candidacy for the 2016 GOP presidential nomination earlier today. Many recall his 2012 bid, which came to a rather spectacular end when Gov. Perry, on live television, forgot the name of the third federal agency he promised to eliminate if elected president. However, in a recent Wall Street Journal op-ed, Gov. Perry redeemed himself by offering a real candidate for elimination: the Export-Import Bank.


The Export-Import Bank (Ex-Im) provides financing and loan guarantees at below-market rates to foreign purchasers looking to buy products from American exporters. For example, if Emirates Air wants to buy planes from Boeing, Ex-Im can provide a loan guarantee, reducing the interest rate Emirates will pay and thus incentivizing Emirates to buy from Boeing rather than Airbus.

Ex-Im's supporters claim that these subsidies create jobs and finance domestic economic growth. But they fail to consider the ensuing downstream effects, which Bastiat termed "ce qu'on ne voit pas" -- that which is unseen. As the Cato scholar Daniel Ikenson makes clear, every dollar Ex-Im provides to subsidize foreign purchasers of U.S.-produced products discriminates against U.S. consumers of the same products. For example, when Emirates receives a subsidy for planes because it is a foreign company, Emirates gets a leg up on Delta.

An edifying account of how this system works was presented many years ago by the late Professor Yale Brozen in his foreword to Professor Leland Yeager's classic Proposals for Government Credit Allocation (1977):

Whom you know and with whom you have influence becomes more important in obtaining capital than how productively you can use it. Capital is diverted from more productive uses to politically determined applications.... The national income pie shrinks as an increasing proportion of our capital is allocated by the political process -- not only because of its diversion from more productive uses but also because more and more of our resources are devoted to winning political influence, as that becomes the road to access to available capital and subsidies.

For the record, Ex-Im isn't small potatoes. In Fiscal Year 2015, Ex-Im's loans and loan guarantees will total $30.9 billion, or 6.7 percent of all non-housing federal credit programs. (See the accompanying chart.) The Ex-Im's total cumulative loans and guarantees outstanding (read: credit exposure) currently sits at $112 billion. Because the loans are granted at below-market rates, the Ex-Im does not receive fair compensation for the $112 billion of risk it takes on.

Instead of adopting a policy that makes a few U.S. exporters winners at the expense of many losers, there is a way to make all U.S. firms more competitive: Just lower the grueling corporate tax rate. Rick Perry also embraces this idea in his op-ed, mirroring what I have been advocating for years.

The message is clear: Taxes on corporations increase costs, decrease margins, and often lead to price increases. The top U.S. corporate tax rate (excluding state taxes) currently stands at 35 percent.

When our sky-high corporate tax rates are the highest of any of the 34 member countries of the Organization for Economic Co-operation and Development, something is wrong. There is clearly a better way to unburden U.S. corporations than to sponsor a "bank" in which politicians and bureaucrats, not capital markets, choose winners and losers. Rick Perry is right: It is time to move away from a mercantilist view of trade towards one that puts the market back in control. Kill the Export-Import Bank and cut corporate taxes, please.

By Steve H. Hanke

www.cato.org/people/hanke.html

Twitter: @Steve_Hanke

Steve H. Hanke is a Professor of Applied Economics and Co-Director of the Institute for Applied Economics, Global Health, and the Study of Business Enterprise at The Johns Hopkins University in Baltimore. Prof. Hanke is also a Senior Fellow at the Cato Institute in Washington, D.C.; a Distinguished Professor at the Universitas Pelita Harapan in Jakarta, Indonesia; a Senior Advisor at the Renmin University of China’s International Monetary Research Institute in Beijing; a Special Counselor to the Center for Financial Stability in New York; a member of the National Bank of Kuwait’s International Advisory Board (chaired by Sir John Major); a member of the Financial Advisory Council of the United Arab Emirates; and a contributing editor at Globe Asia Magazine.

Copyright © 2015 Steve H. Hanke - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.

Steve H. Hanke Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in