Click here to read the letter

[Source: Ethiopian Review]

Just as a restaurant owner knows that a 20-percent increase in prices doesn’t translate into a 20-percent increase in revenue because of lost sales, politicians should understand that higher tax rates don’t mean an automatic and concomitant increase in tax revenue.

This is the infamous Laffer Curve, and it’s simply the common-sense recognition that you should include changes in taxable income in your calculations when trying to measure the impact of higher or lower tax rates on tax revenues.

No, it doesn’t mean lower tax rates “pay for themselves” or that higher tax rates lead to less revenue. That only happens in unusual circumstances. But it does mean that lawmakers should exercise some prudence and judgment when deciding tax policy.

Moreover, even though I’m a strong believer in the importance of good tax policy, it’s also important to understand that taxation is just one of many factors that determine economic performance. So lower tax rates, by themselves, are no guarantee of economic vitality, and higher tax rates don’t necessarily mean the world is coming to an end.

With those caveats in mind, take a look at this table from the Congressional Budget Office’s most recent Budget and Economic Outlook. Taken from page 109, it shows what will happen if the economy grows just a tiny bit less than the baseline projection. Not a recession, by any means, just a drop in the projected growth rate of just 1/10th of 1 percent.

 As you can see, the 10-year impact is $314 billion, mostly due to lower tax receipts, though there is some impact on outlays because of higher interest costs and a bit of additional entitlement spending.

So why am I sharing these numbers? Because let’s now think about President Obama’s proposed class-warfare tax hike. He wants higher tax rates on investors, entrepreneurs, small business owners and other “rich” taxpayers. And he wants more double taxation of dividends and capital gains. And a higher death tax rate, even higher than the ones imposed by France and Venezuela.

I think some opponents are exaggerating when they claim that this tax hike will cause a recession and cripple the economy. But I do think that it’s reasonable to contemplate the degree to which the Obama tax hikes will slow growth. More than 1/10th of 1 percent? Less than that? Would the damage occur in the first few years? Would it be spread out over time?

Those questions are hard to answer. Ask five economists and you’ll get nine answers, but there is compelling evidence that higher tax rates do have a negative impact.

But some people assume that taxes don’t matter at all. Using models that, for all intents and purposes, naively assume a simplistic linear relationship between tax rates and tax revenue, the number-crunching bureaucrats in Washington estimate that Obama’s proposed tax hikes will generate about $800 billion over 10 years.

I’m not going to pretend I know the economic impact of those higher tax rates, but for the sake of argument, let’s assume that the impact is minor. Indeed, let’s assume that it’s only 1/10th of 1 percent. Based on the CBO sensitivity analysis above, that means that about 40 percent of the projected deficit reduction will fail to materialize.

And that’s not even considering the fact that politicians will probably increase the burden of government spending because of the expectation of additional tax revenue.

Just something to keep in mind as this debate unfolds.

P.S. I actually shared this exact same data when testifying to the Senate Budget Committee earlier this year. Needless to say,  in some cases I think my testimony went in one ear and out the other.

P.P.S. The revenue-maximizing tax rate is not the ideal point on the Laffer Curve.

[Source: Ethiopian Review]

The Justice Department’s Inspector General has  completed their most recent review of surveillance under the FISA Amendments Act of 2008, which was set to expire at the end of 2012. The report, however, is classified—meaning the public is unlikely to see it before Congress votes to reauthorize the law for another five years during the lame duck session. Steven Aftergood of the Federation of American Scientists is trying to get a declassified version released—but he’s probably got a long wait ahead of him. I recently wrote about my efforts to get even earlier versions of this report out of the government, in hopes of understanding something about the National Security Agency’s use of the sweeping surveillance powers granted by the FISA Amendments Act. Because it authorizes broad, programmatic interception of international communications without individualized search warrants, Congress insisted that the intelligence community produce a semi-annual report evaluating the NSA’s compliance with the law’s various procedures and safeguards, and highlighting potential civil liberties issues. Given the vast scale of surveillance under the FAA, it’s hardly a guarantee of adequate oversight, but it’s something. The ACLU had managed to get the first few such reports released, under the Freedom of Information Act, so way back in June, I filed a FOIA request of my own for the most recent reports. I asked for expedited review, arguing that since Congress is expected to extend those surveillance powers before the end of December, there was a strong public interest in getting these evaluations out as early as possible. Let me say again: I submitted this request in June.

In September—long past the statutory deadline of 20 business days—I finally heard back from the Justice Department, which said they could “neither confirm nor deny the existence” of reports that were required by federal law. Unsurprisingly, I appealed this facially ridiculous denial of my request—and to her credit, the senior FOIA officer at DOJ immediately acknowledged that this response had been inappropriate.  By mid-September, just under three months after my initial request went in, I was informed that they’d identified the reports I was looking for and forwarded them to the Office of the Director of National Intelligence (ODNI) for a declassification review, which they expected would be completed by early November. Joy! Would we actually get information about an intelligence program out of the government without a lawsuit? Maybe even in time to have a semi-informed public debate?

Well, no. ODNI informed me earlier this month that they were wrapping up their review and redaction Any Day Now, at which point… their redacted version would be forwarded, one at a time, to every other intelligence agency whose activities were referenced in the report. At each agency, it would go to the back of the line of FOIA requests, exactly as though it had just been submitted for the first time. Estimated time before a heavily censored version of these reports see the light of day: Another six months. At least. By which time, it won’t matter much what these reports say about NSA’s use of its sweeping powers, because Congress will have already given them another five years of spying authority.

Notice what this means in practice: Even though a court has already established, thanks to an ACLU lawsuit, that they are legally required to release redacted versions of these reports to the public on request, a cumbersome bureaucratic process effectively guarantees that it takes a solid year to get this information out, which means at best you’re working with what the assessment found two reports ago, allowing the government to assert that they’ve fixed whatever problems were found. In this case, the timing of the review process conveniently guarantees that whatever we learn will come far too late to influence this year’s vote on FAA powers, but be old news by the time Congress takes up the question again. It’s a little hard to swallow the claim that all this delay is remotely necessary: Are we really supposed to believe that the Office of the Director of National Intelligence will be so slipshod about letting sensitive classified information through that their work has to be independently double checked by every other intelligence agency? And that this process has to take six months or longer, even after ODNI has done their initial review and redaction? Of course it doesn’t: This is a bureaucratic procedure designed, not to protect national security, but to allow stalling on the release of politically inconvenient information that the courts won’t allow to be completely hidden from the public.

This is, needless to say, a far cry from early promises that Obama would preside over “the most transparent administration in history”—and it’s part of a larger pattern of failure on that front. What we should really be asking is why I had to submit this request at all. In his first days in office, after all, President Obama issued a directive not only urging agencies to err on the side of disclosure, but to adopt a policy of proactive release of documents likely to be of public interest. Surely if there were any doubt about the public interest in the use of sweeping surveillance powers, it should have been put to rest after the ACLU won release of the earliest compliance reports. So why didn’t the Justice Department follow President Obama’s directive and draft these reports with an eye toward preparing a declassified public version, knowing full well that civil liberties groups would come asking? Well, because then they wouldn’t be able to obfuscate and delay for months and months. Because then the public might be able to have an informed discussion about the secret surveillance powers we’ve given our spy agencies before we vote to extend them. Heaven forfend.

So will there be any consequences for officials who’ve so flagrantly disregarded the president’s transparency directive? Or was the “order” to adopt more transparent policies just a bit of political theater, delivered with a wink and a nudge? I have my suspicions, but Obama still has time to prove me wrong.

[Source: Ethiopian Review]

Dreamliner set to fly in a week as Boeing fixes battery


An All Nippon Airways' (ANA) Boeing Co's 787 Dreamliner plane receives restoration work at Okayama airport in Okayama, western Japan, in this photo taken by Kyodo April 22, 2013.
Credit: Reuters/Kyodo

By Tim Kelly and Rhys Jones

TOKYO/LONDON | Mon Apr 22, 2013 6:04pm EDT

(Reuters) - Boeing began installing reinforced lithium-ion battery systems on five 787 jets in Japan on Monday, starting a process that should make the first commercial Dreamliners ready to fly again in about a week.

Boeing's Dreamliners have been grounded since regulators ordered all 50 planes out of the skies in mid-January after batteries on two of them overheated. U.S. regulators approved a new battery design on Friday, clearing the way for installation.

The grounding has cost Boeing an estimated $600 million, halted deliveries and forced some airlines to lease alternative aircraft. Several airlines have said they will seek compensation from Boeing, potentially adding to the plane maker's losses. Investors expect to learn more about the costs when Boeing reports second-quarter earnings on Wednesday.

The first five jets to receive the new strengthened battery system all belong to All Nippon Airways, the airline that launched the first commercial Dreamliner service in 2011.

"Our first priority is to get the existing fleet back into the air," Larry Loftis, vice president and general manager of the 787 program at Boeing, told European reporters.

Ten teams of some 30 engineers each have been dispatched by Boeing worldwide to install the stronger battery casing and other components designed to prevent a repeat of the meltdowns that led to the first U.S. fleet grounding in 34 years.

The plan approved by the Federal Aviation Administration calls for Boeing to encase the lithium-ion batteries in a steel box, install new battery chargers, and add a duct to vent gases directly outside the aircraft in the event of overheating.

European authorities are expected to follow suit in approving the battery design, a spokesman for Europe's aviation safety body said.

ANA is the world's biggest operator of the lightweight carbon-composite aircraft, with 17 of the planes. The next-biggest is Japan Airlines Co with seven jets, followed by United Airlines and Air India with six each.

ANA plans about 100 to 200 round-trip test flights in May of its repaired aircraft before carrying passengers again in June, sources knowledgeable about ANA's operations have said.

The flights will check the safety of the aircraft, and allow ANA's 180 Dreamliner pilots to get accustomed to flying it again and renew their licenses after more than a three-month break.

United, the only U.S. airline with Dreamliners, currently has 787 domestic flights set to start May 31. A person familiar with the matter said United expects work on its 787s to begin as early as this week.

In Addis Ababa, a source at Ethiopian Airlines, which had taken delivery of four 787s before the grounding, said they could be flying in a matter of days. Boeing says each battery modification takes about five days to install.

Richard Aboulafia, of consulting firm Teal Group, said that although most airlines have large enough fleets to adjust in case the 787s were delayed further, the FAA go-ahead gives them the ability to proceed with new routes, like United's Denver-Tokyo Narita service planned for June 10.

WHAT WENT WRONG?

Although the plane is deemed safe to fly, investigators in the U.S. and Japan have yet to unravel what caused a 787 battery onboard an ANA jet in Japan and one on another JAL Dreamliner parked at Boston's Logan Airport to overheat.

The National Transportation Safety Board is due to hold public hearings on Tuesday and Wednesday to advance its probe into the cause of a fire that destroyed a 787 battery in Boston in January.

Loftis said Boeing believed it had anticipated "the whole universe of possible causes" after exhaustive studies and testing to devise the battery fix.

"We went to great lengths to question every assumption we made in the initial design and greatly expanded the thought process for what could be potential causes," Loftis said.

"It is possible we will never know the real cause," he added. "If we learn anything new we will make changes as required."

Loftis said the crisis would not affect the development of other jets and would not derail Boeing's plans to double 787 production to 10 a month by the end of the year. Nor would it delay the next version of the 787, known as the 787-9.

"We aren't changing forecasts for future (787) orders because of this incident," he said.

Boeing has continued to produce Dreamliners at the rate of five a month during the three-month grounding. Deliveries are likely to resume within weeks, Loftis said.

The 787 is the first jetliner to be fitted with lithium-ion main power batteries, which are lighter and smaller but potentially more volatile than the nickel-cadmium sources used on most planes. The batteries are mainly used for ground power, rather than functions critical to maintaining flight.

Loftis said the extra steel housing and other accessories fitted to the batteries to keep them safe weighed about 150 lbs (68 kilograms), cancelling out the batteries' weight savings.

Boeing gave some thought to switching back to traditional nickel-cadmium as rival Airbus has done, but found no reason to do so, he said.

Some aircraft industry sources say space limitations where the batteries are installed on the Dreamliner might have reduced Boeing's options.

(Additional reporting by Nivedita Bhattacharjee in Chicago; Editing by Alwyn Scott and Marguerita Choy)

http://www.reuters.com/article/2013/04/ ... 0520130422