Capital is Good; the “Buffett Rule” is Not

The Washington Post published my editorial on the “Buffett Rule” — a proposal from President Obama to hike the effective capital gains rate on large payouts. I wrote that over time this would hurt technology startups because it increases the cost of capital and lowers the pool of available funds.

The editorial has provoked some vigorous debate. Reader comments in the Post have been mostly negative, which comes as no surprise given that the publication’s audience likely tends toward left-of-center readers and DC insiders. Here’s a quick roundup of responses:

  • Post columnist Ezra Klein responds to my editorial by ceding that my argument (i.e. the Buffett Rate is a capital gains hike that would diminish the investment pool for tech startups) might be correct, but then asserts we ought to tax the rich more anyway and concludes the logical way to protect tech is via a subsidy.
  • MotherJones’ blogger Kevin Drum covers a lot of ground in 3 paragraphs, saying higher capital gains rates don’t really impact investment, implying that there should be taxes on unrealized gains, and concluding that cap gains rates ought to be “maybe 30% or so” with no explanation offered as to why. Yikes.
  • Over at the Heritage Foundation, Mike Brownfield writes that the experience of California further serves to enhance my point. The Golden State, he notes, has relied heavily on taxation of the wealthy for revenue, and as a result has experienced wild boom-or-bust swings depending on the stock market.

My editorial stands on its own, and I don’t see a reason to amend it other than to point out that it’s a case study of the tax proposal’s unintended consequences on one industry. But a broader macro-economic analysis of Warren Buffett’s idea leads me to the same conclusion. Why? Because of several broad and simple principles:

Capital is good. Our country needs capital. Capital makes the economy grow and allows businesses to start and expand. All the political rhetoric is about taxing “millionaires” and “billionaires,” but the proposal really is about taxing capital. Passing this plan means that more capital will be taken from the (productive) private sector and given to the (unproductive) public sector.

Capital is fluid. National capital gains rates do not exist in a vacuum. If rates go too high, capital will leave our country in search of more fertile ground. Our nation’s 15% federal rate is the 4th highest of G7 countries (according to a 2009 study), and many developing countries have rates around 0%. It’s hard to conclude that our rates are too low when benchmarked globally.

Capital is property. What’s getting lost in the debate is that this discussion centers around seizing private property. Politicians and pundits engaging in “sticking it to the fat cats” rhetoric seem almost gleeful about taking away capital gains. While taxation is obviously legal, it ought not be flippant.

Mapping the Terrorist Social Graph

On Sunday, U.S. Marines killed terrorist leader Osama Bin Laden in a compound in Abbottabad, Pakistan. But history might show that Monday marked the true victory in the War on Terror.

As I write this, terrorist “chatter” is no doubt at a high as supporters of the dead Al Qaeda leader react to his demise. Emails, text messages, social media posts, and all sorts of packets of information from radical Islamists are flying through the ether at this very moment.

Much of this chatter will just be noise. But someone, somewhere will show up on the grid after a long absence. That person might be in a remote village in the mountains north of Abbottabad, or he could be living within a few miles of Buckingham Palace. He’ll slip up, driven by the emotion of the moment. And that will give America’s intelligence apparatus an opportunity to locate him.

Despite all the talk in the last presidential election about needing more boots on the ground in Afghanistan, intelligence is how the War on Terror must be fought. The United States is mapping the terrorists’ social graph, and then connecting nodes on the graph to physical locations whenever our enemies pop up on the grid, if even for a moment.

Think of it as Islamofascist Foursquare. Except they don’t knowingly check-in. And it’s often a Hellfire missile that checks them out.

This connect-the-dots approach is how we caught Bin Laden. While supporters of President Obama credit his use of the military (and rightly so), it was intelligence gathered during his predecessor’s term that led us to his Pakistani mansion.

The New York Times reports that terrorist detainees held as combatants in Guantanamo Bay revealed the name of a Bin Laden courier back in 2007. This courier didn’t resurface until 2009, and it wasn’t until last August that he was tied to Abbottabad. The C.I.A. then started collecting data on the compound and later concluded that it was the likely hideaway of Bin Laden.

While we don’t yet know all the details surrounding the investigation, we do know that Bin Laden had taken great pains to stay off the grid. The mansion had no phone or internet connections. But not being wired is no guarantee of invisibility. Just one node of Bin Laden’s social network appearing on the grid was apparently enough to set in motion the events that brought about his demise.

Which brings us back to today’s inevitable chatter. No doubt the terrorist leadership such as Ayman al-Zawahiri is smart enough not to be texting or tweeting, but someone who’s one or two nodes away from him on the social graph might.

Could the U.S. be delaying the release of photos of Bin Laden’s corpse to incite speculation among his followers that he’s not dead? Obviously we have no way of knowing. But if so, it’s not the worst idea.

Gallup: 6 in 10 say government is doing too much

Gallup reports a 10 year high in the number of Americans (57%) who say the government is engaging in affairs better left to the private sector. The prior high of 60% was set in 1995, during the first term of the Clinton administration. Additionally, on the question of governmental regulation of business and industry, a new Gallup high (45%) said the government was doing “too much” to oversee commerce, compared to 24% who said too little.

No doubt this shift in public perception comes from Washington’s expansive involvement in the banking, mortgage, automotive, energy, and health care industries. Recent comments from President Obama suggest he’s open to aid for the newspaper business, suggesting that our elected officials are tone deaf to the discontent that’s beginning to form around the country.