"Former AMEX CEO Trashes Obama's 'Understanding Of Capitalism'"

Harvey Golub, former CEO Of American Express: "His understanding of capitalism and free markets and how free people operate in free markets is less than my oldest grandson’s. It is evident in almost everything he does."

Golub also has a good discussion of how incredibly stupid Obama is about tax free municipal bonds. "In his latest jobs plan, one of the things that he suggests is that high income people lose some of the benefit of municipal tax free bonds. He doesn't understand that the purpose of tax free bonds is to provide subsidies to the municipalities and states that issue these bonds. It is because they are tax free that they [pay a lower interest] rate. If the tax benefits went away, they would have to charge a higher rate, otherwise people wouldn't buy those bonds." He then goes on to say how nutty all this is because at the same time that Obama wants to eliminate the tax free nature of these bonds, he wants to increase other government subsidies to these very same municipalities and states.

To put it differently, because the bonds are tax free wealthy people will buy them, increasing their prices, until the after tax return on these bonds is the same as the after tax return on other investments. Yet, this isn't really right. The wealthy won't be indifferent from this tax change. First, for Obama who wants income redistribution, there will be a one time capital loss for the those who have been holding these bonds, and this might justify it to Obama. Thus, it doesn't necessarily represent stupidity by Obama. Second, this is really a statement about the marginal wealthy individual. With the tax free subsidy in place, the marginal wealthy person will buy the bonds, increasing their prices, until the after tax return on these bonds is the same as the after tax return on other investments. But there is a transfer to the infra marginal wealthy person (i.e., the wealthiest people who have the highest marginal tax rates). The marginal high income who buys these bonds will be indifferent between the low interest rate that is tax free and a higher interest rate that is taxable as regular income. But higher income individuals who face a higher marginal income tax rate will prefer the low interest rate that is tax free and a higher interest rate that is taxable as regular income.