Tax Plan…..tell me why this wouldn’t work. Mixed federal tax:
5% national sales tax (excluding infant/child clothes, groceries, utilities, and gasoline[already too taxed]) coupled with a progressive income tax on those individuals making more than 75,000 as an individual, or 150,000 as a couple. Eliminate most deductions. Restructure income rates starting at 15% for those at the base, and 30% at the margin (over 250,000)……
Lower corporate rates by 5%, but eliminate all corporate tax deductions.
What would be the tax rate on those earning median income? I’m one of those sweet ole Southern ladies whom it would be a pity to tax even one more little bit. She says charmingly, battin’ her remaining eyelashes. Well? 😉 NancyO
Oh, almost forgot! Ever wonder what kind of bird Big Bird is? Well, here is a link that connects you to an excellent explanation of what species and why. Hey. There is good stuff on the internet! Happy weekend, y’all! NancyO
Not to worried about taxes persay. I believe the largest issue to face the US since 2001 is the decreasing percentage of the Non-Institutional Population in the Civilian Labor force which reduces tax revenues over the long run thereby increasing the infrastructural costs of this nation. Taxes are an issue; but, they also take a 2nd place to employment.
One thing I will say on the sales tax is how do they resolve the issue of US companies moving off shore to avoid the overall taxes of this nation? Woldn’t you rather be more selective?
EVERYBODY SHOULD READ Brad DeLong’s: A Free Lunch for America
We are live at Project Syndicate: BERKELEY – Former US Treasury Secretary Lawrence Summers had a good line at the International Monetary Fund meetings this year: governments, he said, are trying to treat a broken ankle when the patient is facing organ failure. Summers was criticizing Europe’s focus on the second-order issue of Greece while far graver imbalances – between the EU’s north and south, and between reckless banks’ creditors and governments that failed to regulate properly – worsen with each passing day. But, on the other side of the Atlantic, Americans have no reason to feel smug. Summers could have used the same metaphor to criticize the United States, where the continued focus on the long-run funding dilemmas of social insurance is sucking all of the oxygen out of efforts to deal with America’s macroeconomic and unemployment crisis. The US government can currently borrow for 30 years at a real (inflation-adjusted) interest rate of 1% per year. Suppose that the US government were to borrow an extra $500 billion over the next two years and spend it on infrastructure – even unproductively, on projects for which the social rate of return is a measly 25% per year. Suppose that – as seems to be the case – the simple Keynesian government-expenditure multiplier on this spending is only two. In that case, the $500 billion of extra federal infrastructure spending over the next two years would produce $1 trillion of extra output of goods and services, generate approximately seven million person-years of extra employment, and push down the unemployment rate by two percentage points in each of those years. And, with tighter labor-force attachment on the part of those who have jobs, the unemployment rate thereafter would likely be about 0.1 percentage points lower in the indefinite future. The impressive gains don’t stop there. Better infrastructure would mean an extra $20 billion a year of income and social welfare. A lower unemployment rate into the future would mean another $20 billion a year in higher production. And half of the extra $1 trillion of goods and services would show up as consumption goods and services for American households. In sum, on the benefits side of the equation: more jobs now, $500 billion of additional consumption of goods and services over the next two years, and then a $40 billion a year flow of higher incomes and production each year thereafter. So, what are the likely costs of an extra $500 billion in infrastructure spending over the next two years? For starters, the $500 billion of extra government spending would likely be offset by $300 billion of increased tax collections from higher economic activity. So the net result would be a $200 billion increase in the national debt. American taxpayers would then have to pay $2 billion a year in real interest on that extra national debt over the next 30 years, and then pay off or roll over the entire $200 billion. The $40 billion a year of higher economic activity would, however, generate roughly $10 billion a year in additional tax revenue. Using some of it to pay the real interest on the debt and saving the rest would mean that when the bill comes due, the tax-financed reserves generated by the healthier economy would be more than enough to pay off the additional national debt. In other words, taxpayers win, because the benefits from the healthier economy would more than compensate for the costs of servicing the higher national debt, enabling the government to provide more services without raising tax rates. Households win, too, […]
ddrew: “Since we are in a balance sheet recession caused by sticky REAL ESTATE prices (that wont adjust to insufficient demand) — and since real estate stickiness historically is healed only by inflation — raising wages would also tend towards un-sticking the balance sheet recession. Of course we would need to rebalance the wage stripping American labor market — decades and world-wide tested sector-wide labor agreements only way to go — to achieve this.”
Simple enough to be a brilliant observation. Don’t hold your breath, I’ll not hold mine, ’til corporate America shares the wealth. Nor, for that matter, the beneficiaries of corporate America. Unfortunately that includes most of the members of the Congress, whom we have all been stupid enough to choose as our representatives in the government. No Virginia, there is no real difference between Mitch the Bitch and his Democratic colleagues. They are almost all very wealthy Americans with their own personal treasures to harbor and enhance.
ddrew you might be correct that sector-wide labor agreements/unions would be highly beneficial to the economy, by adddressing income inequalities and unemployment priorities through both economic and political action. If so, the question is how this transformation is to be accomplished in the political sphere. Persistant pressure from the White House over several years probably can move the needle only so far, and this is an uncertain path. Congressional Republicans and blue dogs aren’t likely sources of transformational or even supportive legislation in this direction. And then the Supreme Court would need to play along, which currently is a dubious proposition. So, what supplies the big “push” on the system?
Halasy a national sales tax is not so simple and politics might turn this into a nightmare. I presume you mean retail domestic and foreign sales, and would exclude other sales, but application of the tax will be politically brokered. Exceptions, like those you list, will come and go as lobbyists and campaign contributors work on elected officials, who also will be under constant pressure to raise the tax rate. Then there’s enforcement–a whole set of additional issues. None of this should stop a good idea, but I don’t agree that it’s a good idea to impose a new regressive tax (which probably would become more regressive over time) and cut income taxes on high earners as you propose. As for corporate taxes, I’m okay with cutting rates if deductions go away, as you suggest, but which deductions? Businesses deduct mose of their receipts, but I suspect that you aren’t recommending that all of these deductions be disallowed. Generally I believe a national sales tax should be last on the list of options to increase taxes or change the way people are taxed by Washington.
Not my observation, btw. Japanese economist Richard C. Koo wrote a book “The Holy Grail of Macro Economics” about it — named after Ben Bernanke’s statement that the explanation for the depth and length of the Great Depression is the Holy Grail, etc.
Koo agrees with Milton Friedman and most everyone else that the contraction of the money supply collapsed the GDP in half and kept it there. Koo had the insight — why nobody else? — that no amount of liquidity created by the central bank will help if the corporations wont borrow the money because they are paying down their balance sheet red ink.
Koo is a monetarist who normally frowns on fiscal stimulus as crowding says that in what he calls a “rare” balance sheet recession the government must become the borrower of last resort.
Koo explains that the Japanese recession went on 15 years because the price crash of commercial real estate which caused the corporate red ink took 15 years to hit bottom — bottom being down 87% in six large cities. He said if the gov hadn’t become the borrower of last resort (not by design but while thinking fiscal stimulus at first) Japanese GDP would have crashed instead of standing still. Koo also details how when the gov tried to cut the deficit it only made the deficit worse — while dipping GDP.
PJR, Somebody has to tell the people (as they say) that the median wage is probably where the minimum wage should (minimally) be: $15/hr — so they realize mostly all are permanently suffering through a Great Wage Depression (no matter how hot the economy might be).
LBJ’s 1968 minimum wage was $10.15/hr ($1.60 adjusted). Double per capita income later (from $11,000 to $22,000) the median wage — not the minimum wage is $15/hr; where people of 1968 would have expected the minimum (minimally) to be. This is the most untold story in America — and would shake politics to the core if ever told.
Double the average income later, 90-97 percentile incomes have essentially the same share of overall income so it is not a matter of higher skills being worth relatively more these days (or if so they are not getting what they deserve). The missing income share shifted to the people with the greatest bargaining power: CEO’s, TV news anchors and linebackers (top NFLers from the ’60s are tending bar today). It’s all about bargaining power which is the last thing Americans ever — never1 — think about. Squeeze a toothpaste tube at the bottom where there is no resistance — resistance equalizes in the middle (which middle gets ever smaller) — it all comes out the top. Not the top’s conspiratorial fault or anything — the top is bargaining like it is supposed to; most Americans never think of squeezing back at all (just work hard and play by the rules).
Somebody’s got to explain to Americans that the original purpose of sector-wide wage contracts was to prevent post war European labor unions from going on a race to the top — so more money could be invested in rebuilding — a purpose that would have every Republican working overtime to get the vote out for. (The welfare state was instituted as a compensation for sector-wide bargaining — BTW, scabs inherently banned under sector-wide as I understand; they wont have the legally mandated sector-wise contract to work under).
Magic bullet: sector-wide collective bargaining also prevents the race to the bottom. Wal-Mart recently closed 88 big boxes in Germany because they couldn’t compensate for not understanding the German customer by competing with always lower wages.
Wherever in the OECD sector-wide in in place the average person’s interests are paramount. Anywhere else (Japan, Australia, Britain) the average person’s lot is in peril and going down. Automatic unionization means fair and balanced politics too.
American supermarket workers and airline workers would kill for sector-wide. (In a recent year Northwest Airlines wrung $1 billion in concessions out of flight crews — next year awarded $1 billion in bonuses to 1000 executives.)
The world real estate bubble inflated since 2003 is a symptoim of the gambling and greed from wall street bubbles building since Nixon and the Goldwater (e.g.) conservatives began tearing down New Deal era regulation. The meme that “regulation is bad” is gambler, monetarized merchantilism which since 1980 has repeatedly been bailed out by Treasury and the fed.
Banks and standing armies…………………………………
Inflation is good for the massive creditors on Wall St, bad for labor and savers.
When the Tea Party is no longer funded by Wall St maybe these things will be debated.
Regulations are bad if you are gambling with the US economy.
I wasn’t taking your suggestion seriously because it is just another politically motivated fix. Tax the other guy.
You could tax ONLY corporations and “since the corporations would simply pass the tax through to their customers” the economy would still work. And the corporations would understand the need for taxes better than ordinary citizens and have the accountants who could do the math.
The problem with all the “fixes” to the tax code is that they fail to recognize that taxes won’t fix the economy. The problem with the economy is that the people have no work, and the rich have more money than they know how to spend. Hard to fix that without making rich people mad, and we know who pays for the Congress.
As for the long run funding dilemmas of social insurance, that is nonsense. The people need the insurance’ they can pay for it themselves. They are willing to pay for it themselves. The funding dilemma is a creation of the Big Lie, aided by persistent stupidity on the part of the defenders of social insurance, who have confused it with welfare.
If you are going to want to retire, or have medical care when you retire, the simplest, safest, and cheapest way to guarantee it is through the government run… but not government paid… insurance plans known as Social Security and Medicare (as it was, not the half assed welfare program they have turned it into… and the liberals want to turn Social Security into.)
ddrew your analysis is fine but your answer specifically to my question boils down to “Somebody has to tell the people” and “Somebody’s got to explain to Americans” because they “would shake politics to the core if ever told.” Not sure who somebody is, not sure that is indeed the problem or is so easily accomplished against counter-messaging, and not at all sure that it would affect politics like you say. That said, spreading knowledge and attempting to change views would be a good place to start (perhaps necessary and insufficient), so I’m with you on that. More fundamentally, as FDR found, I believe a strong political coalition (like the New Deal coalition) has to be formed to act politically and legislatively while accomplishing what you recommend at the grass roots.
that’s what i thought Obomber was about. Boy did i read that wrong.
it is also what upsets me when “liberals” go out of their way to make enemies of the common people whose “family values” are all that they have to protect them from fear. [there are ways to protect liberals from “family values” without making enemies of them, though it’s trickier now that the bad right has discovered how to use them to foment hate.]
and it’s also what upsets me when people who should know better try to turn SS into “welfare” by demanding “the rich” pay for it. or try to turn it into a ponzi scheme by finding a new set of “investors” (the rich) to pay for it. or practice “class war” by offering to “trade” benefit cuts for the poor in return for … higher taxes on the rich.
SS is an insurance program for workers. the workers have always paid for it themselves, and can, and must, do so forever. it won’t cost them much. in fact it won’t cost them anything, because they will get all of their money back plus interest.
even the rich can understand that. it’s the stupid we are having trouble reaching.
And lots of people respected and approved of Warren–including, eventually, Christina Romer: Warren was caught off guard by Romer’s intensity, and her thoughtfulness…. Question after question, the two engaged in an intellectual thrust-and-parry, until finally… Romer broke her stride. “Why is it always the women?” Romer said. “Why are we the only ones with balls around here?” That night Warren got a call from Valerie Jarrett. “Wow, you really turned Christy Romer around.” ****** Social instinct?: Mars’ thinking is owned by his group (as in hive mind); Venus thinks for herself.
Males are deeply instinctively hunting pack animals — and prey animals don’t tarry while the pack squabbles. Female humans are deeply instinctively gatherers — gatherers judge findings autonomously. Instinctive gatherers quite logically believe they should be able to persuade others to make the same autonomous judgements based on the same set of facts. Males just know nobody in the hive is talking about something — that is the end of all consideration in their world.
Maybe women can be persuaded to persuade the people. ****** Maybe males (also females) who don’t know everything the economic world is already thinking can breath new life into the national discussion.
Denis Drew — an over the hill (30 year) cabdriver is the only one I have seen (but what do I know; I’m a cabdriver :-]) to see the Great Wage Depression for what it is — and to (immediately) recognize the only mechanism that can possible reverse the race to the economic and political bottom; sector-wide labor agreements.
I (er, Denis Drew) am a bit like the farmers of the late 1800s trying to figure out why their world is coming to and end (because deflation that made paying off their debts impossible helped burgeoning industry). The Chicago taxi meter got one 30 cent increase in the mile charge between 1981 and 1997 — at which 1990 midpoint the city began adding two subways to the airports, unlimited limo licenses (taking away the cream), trolleys between all the hotspots downtown (taking away the bread) — and adding 40% more cabs! All around me union jobs are being outsourced to non-union and by early 1997 the minimum wage dropped almost in half since per capita output doubled (the latter under performing Malthus whose theory predicts only a third cut in income as population doubles :-]).
Naturally when I learned of sector-wide labor agreements I instantly recognize the perfect answer to America’s 21st century labor troubles (political too). There are a lot of people like me out there waiting to hear the perfect theoretical answer (does anyone have any practical alternative at all; but you cannot get […]
ddrew you offer an interesting thought about women as leaders, at least at a theoretical level. There have been successful political movements led by women in the past, here and abroad, on important issues. Bachman and Palin may not join the movement that you have in mind and might help efforts to crush one that wasn’t serving their purposes, but there are plenty of better women leaders to include some experienced in Congress and/or the executive branch. (Even one former Supreme Court Justice is out there.) In today’s world, a movement of this type also could organize itself in new and rapid ways. If successful, such a movement potentially would find political allies to support “change you can believe in” for real. I’m not holding my breath but it’s nice to see the idea.
The proposals always break down based on incidence. For example should be impose a tax on health services through the VA? On auto insurance? But every exemption drives up the needed rate.
The math never equalizes burdens, instead the net result (and in my opinion the intended result) is a downwards transfer of the income tax burden. And since the ostensible savings from tax simplification always seem to be offset by cuts on revenue on returns on capital the benefits for the upper income 5% and 1% get even more leveraged.
Just as in Social Security the best defense rests on demanding they show their math and an undistorted CBO score before we accept the framing.
The Economic Right’s sloganizing works, I mean who could object to Ownership Society and Fair Tax? But their arithmetic never adds up and you stop their cheating the same way you do on a fifth grad math test: make them show their work on the back on the test paper.
First things first. Though a Senator Warren elected in 2012 wouldn’t be up for re-election in 2016 and would be in position to make real or symbolicnor ideally both run that year without having to give up her seat.
But step one in any 2016 effort starts with her winning next Fall. And so far things look great, MoveOn raised $300k for Warren in a 24 HR period, and every Lefty blogger out there is suggesting that Obama doesn’t really need those donations as much as Warren does. Obama will get his $billion even if he loses 1,000,000 $20 donations to Warren and her allies
Dale the argument that corporate taxes only results in pass through to customers and so no actual incidence on those corporations builds in a fallacy that should be obvious to a first week student in Econ 101, that end prices are infinitely elastic, at least to the degree they keep returns on capital steady.
There is nothing in history outside Randian Friedmanistan that supports this, instead increased taxes (and so cost) combined with any stickiness in wages (say via minimum wage) and prices (through demand for that widget or burger) serve to increase tax revenues at the expense of profit.
Tax increases can drive out capital investment via lowered ROI and this effect should be monitored, but until there is evidence of this crowding out effect we should put Pass Through to Consumer in the same category of Confidence Fairy and Invisible Bond Vigilante, like all effective Fairy Tales having their own internal logic but something less than one to one correspondence with real world experience.
Maybe I am missing and/or mischaracterizing your point.
you may be right about sector wide. i am not ready to start shouting from the rooftops because i don’t understand it. but i always tell people the answer to poverty is not tax transfers but unions.
and i don’t agree with your sexist interpretation of history. most of the women i know are as dumb as the men. what you are describing may be the behavior of predatory men… as well as of predatory women, of which there are many, we just don’t hear about them so much, and they always call us sexist when we point them out.
i would like to hear more about the warren – romer interview. a changed mind is a rare thing in the world.
see my reply to ddrew. but if it takes a “women can…” slogan to beat the present set of too dumb to fail incumbents, i’ll pretend i’m voting for her because she’s a woman.
“Europe’s focus on the second-order issue of Greece while far graver imbalances – between the EU’s north and south, and between reckless banks’ creditors and governments that failed to regulate properly – worsen with each passing day.”
He really said this after saying this in 1999 about Brooksley Born attempts to regulate Derivatives:
“casting a shadow of regulatory uncertainty over an otherwise thriving market.”
Interesting how Summers has turned a cheek as if we would forget.
yes. you are missing it a bit. i use the “pass through” argument because that’s what the corps always say as an argument AGAINST taxing corps. I use it as an argument FOR taxing them. “Why should they worry?”
on the other hand you are exactly right, the pass through would result in changes in what people buy. i don’t see that as a problem. the economy will adjust to the new prices and people will still pay what they want to pay for whatever the corps are selling.
i would suggest you back way up and try to look at it from, say, the Maritan point of view. The taxes going to the government would be the same (arguably). The difference is that instead of the corps paying… ultimately… enough wages so the workers could pay taxes, they would just pay the taxes directly. i would expect the small businesses not taxed this way would have to adjust their wages and prices to meet (compete with) the new corporate scale. as for stickiness of wages.. well, our old friend inflation can take care of that.
i haven’t taken a serious look at exactly how this would all work out. i am just trying to be provocative. but i would like to provoke people to think about the next step after their previously prepared answers to everything satisfy them that “it can’t work.”
bear with me a bit. this is just an idea to play with, not deadly politics. yet.
Everyone who works for a corporation gets a paycheck. And on that paycheck is listed “gross wage” “IRS tax withheld” and “net pay.”
so what happens if you don’t list the first two, but just the “net pay”, only call it “pay.” and the corporation sends the same “irs tax withheld” to the irs. now, what has changed in the real world? nothing. the corp has the same money at the end of the day. so does the employee. and so does the government.
all that has happened is that the employee doesn’t have to file a tax return. and so all the tax gaming can stop. except for the corps. but then the irs lawyers could spend their time jousting with the corp tax lawyers, and since all the Libertarians would not be paying taxes at the point of the government gun, they would not find it as compelling to defend the poor corps.
Some stuff on facebook.
Jefferson on Occupy Wall Street.
Tax Plan…..tell me why this wouldn’t work. Mixed federal tax:
5% national sales tax (excluding infant/child clothes, groceries, utilities, and gasoline[already too taxed]) coupled with a progressive income tax on those individuals making more than 75,000 as an individual, or 150,000 as a couple. Eliminate most deductions. Restructure income rates starting at 15% for those at the base, and 30% at the margin (over 250,000)……
Lower corporate rates by 5%, but eliminate all corporate tax deductions.
Tell me why this wouldn’t work….
@Michael,
Define “work.”
What would be the tax rate on those earning median income? I’m one of those sweet ole Southern ladies whom it would be a pity to tax even one more little bit. She says charmingly, battin’ her remaining eyelashes. Well? 😉 NancyO
Oh, almost forgot! Ever wonder what kind of bird Big Bird is? Well, here is a link that connects you to an excellent explanation of what species and why. Hey. There is good stuff on the internet! Happy weekend, y’all! NancyO
http://boingboing.net/2011/09/28/taxonomy-of-big-bird.html
Michael:
Not to worried about taxes persay. I believe the largest issue to face the US since 2001 is the decreasing percentage of the Non-Institutional Population in the Civilian Labor force which reduces tax revenues over the long run thereby increasing the infrastructural costs of this nation. Taxes are an issue; but, they also take a 2nd place to employment.
One thing I will say on the sales tax is how do they resolve the issue of US companies moving off shore to avoid the overall taxes of this nation? Woldn’t you rather be more selective?
EVERYBODY SHOULD READ Brad DeLong’s:
A Free Lunch for America
We are live at Project Syndicate:
BERKELEY – Former US Treasury Secretary Lawrence Summers had a good line at the International Monetary Fund meetings this year: governments, he said, are trying to treat a broken ankle when the patient is facing organ failure. Summers was criticizing Europe’s focus on the second-order issue of Greece while far graver imbalances – between the EU’s north and south, and between reckless banks’ creditors and governments that failed to regulate properly – worsen with each passing day.
But, on the other side of the Atlantic, Americans have no reason to feel smug. Summers could have used the same metaphor to criticize the United States, where the continued focus on the long-run funding dilemmas of social insurance is sucking all of the oxygen out of efforts to deal with America’s macroeconomic and unemployment crisis.
The US government can currently borrow for 30 years at a real (inflation-adjusted) interest rate of 1% per year. Suppose that the US government were to borrow an extra $500 billion over the next two years and spend it on infrastructure – even unproductively, on projects for which the social rate of return is a measly 25% per year. Suppose that – as seems to be the case – the simple Keynesian government-expenditure multiplier on this spending is only two.
In that case, the $500 billion of extra federal infrastructure spending over the next two years would produce $1 trillion of extra output of goods and services, generate approximately seven million person-years of extra employment, and push down the unemployment rate by two percentage points in each of those years. And, with tighter labor-force attachment on the part of those who have jobs, the unemployment rate thereafter would likely be about 0.1 percentage points lower in the indefinite future.
The impressive gains don’t stop there. Better infrastructure would mean an extra $20 billion a year of income and social welfare. A lower unemployment rate into the future would mean another $20 billion a year in higher production. And half of the extra $1 trillion of goods and services would show up as consumption goods and services for American households.
In sum, on the benefits side of the equation: more jobs now, $500 billion of additional consumption of goods and services over the next two years, and then a $40 billion a year flow of higher incomes and production each year thereafter. So, what are the likely costs of an extra $500 billion in infrastructure spending over the next two years?
For starters, the $500 billion of extra government spending would likely be offset by $300 billion of increased tax collections from higher economic activity. So the net result would be a $200 billion increase in the national debt. American taxpayers would then have to pay $2 billion a year in real interest on that extra national debt over the next 30 years, and then pay off or roll over the entire $200 billion.
The $40 billion a year of higher economic activity would, however, generate roughly $10 billion a year in additional tax revenue. Using some of it to pay the real interest on the debt and saving the rest would mean that when the bill comes due, the tax-financed reserves generated by the healthier economy would be more than enough to pay off the additional national debt.
In other words, taxpayers win, because the benefits from the healthier economy would more than compensate for the costs of servicing the higher national debt, enabling the government to provide more services without raising tax rates. Households win, too, […]
ddrew: “Since we are in a balance sheet recession caused by sticky REAL ESTATE prices (that wont adjust to insufficient demand) — and since real estate stickiness historically is healed only by inflation — raising wages would also tend towards un-sticking the balance sheet recession.
Of course we would need to rebalance the wage stripping American labor market — decades and world-wide tested sector-wide labor agreements only way to go — to achieve this.”
Simple enough to be a brilliant observation. Don’t hold your breath, I’ll not hold mine, ’til corporate America shares the wealth. Nor, for that matter, the beneficiaries of corporate America. Unfortunately that includes most of the members of the Congress, whom we have all been stupid enough to choose as our representatives in the government. No Virginia, there is no real difference between Mitch the Bitch and his Democratic colleagues. They are almost all very wealthy Americans with their own personal treasures to harbor and enhance.
“eliminate all corporate tax deductions”
Do you mean all loopholes, or are you scrapping the income tax for a gross revenues tax?
ddrew you might be correct that sector-wide labor agreements/unions would be highly beneficial to the economy, by adddressing income inequalities and unemployment priorities through both economic and political action. If so, the question is how this transformation is to be accomplished in the political sphere. Persistant pressure from the White House over several years probably can move the needle only so far, and this is an uncertain path. Congressional Republicans and blue dogs aren’t likely sources of transformational or even supportive legislation in this direction. And then the Supreme Court would need to play along, which currently is a dubious proposition. So, what supplies the big “push” on the system?
Halasy a national sales tax is not so simple and politics might turn this into a nightmare. I presume you mean retail domestic and foreign sales, and would exclude other sales, but application of the tax will be politically brokered. Exceptions, like those you list, will come and go as lobbyists and campaign contributors work on elected officials, who also will be under constant pressure to raise the tax rate. Then there’s enforcement–a whole set of additional issues. None of this should stop a good idea, but I don’t agree that it’s a good idea to impose a new regressive tax (which probably would become more regressive over time) and cut income taxes on high earners as you propose. As for corporate taxes, I’m okay with cutting rates if deductions go away, as you suggest, but which deductions? Businesses deduct mose of their receipts, but I suspect that you aren’t recommending that all of these deductions be disallowed. Generally I believe a national sales tax should be last on the list of options to increase taxes or change the way people are taxed by Washington.
Not my observation, btw. Japanese economist Richard C. Koo wrote a book “The Holy Grail of Macro Economics” about it — named after Ben Bernanke’s statement that the explanation for the depth and length of the Great Depression is the Holy Grail, etc.
Koo agrees with Milton Friedman and most everyone else that the contraction of the money supply collapsed the GDP in half and kept it there. Koo had the insight — why nobody else? — that no amount of liquidity created by the central bank will help if the corporations wont borrow the money because they are paying down their balance sheet red ink.
Koo is a monetarist who normally frowns on fiscal stimulus as crowding says that in what he calls a “rare” balance sheet recession the government must become the borrower of last resort.
Koo explains that the Japanese recession went on 15 years because the price crash of commercial real estate which caused the corporate red ink took 15 years to hit bottom — bottom being down 87% in six large cities. He said if the gov hadn’t become the borrower of last resort (not by design but while thinking fiscal stimulus at first) Japanese GDP would have crashed instead of standing still. Koo also details how when the gov tried to cut the deficit it only made the deficit worse — while dipping GDP.
Koo’s book is the most thoroughly thought out thesis I have ever seen — inexhaustibly answering every possible objection.
http://www.amazon.com/Holy-Grail-Macroeconomics-Lessons-Recession/dp/0470824948/ref=sr_1_1?ie=UTF8&qid=1317569197&sr=8-1
PJR,
Somebody has to tell the people (as they say) that the median wage is probably where the minimum wage should (minimally) be: $15/hr — so they realize mostly all are permanently suffering through a Great Wage Depression (no matter how hot the economy might be).
LBJ’s 1968 minimum wage was $10.15/hr ($1.60 adjusted). Double per capita income later (from $11,000 to $22,000) the median wage — not the minimum wage is $15/hr; where people of 1968 would have expected the minimum (minimally) to be. This is the most untold story in America — and would shake politics to the core if ever told.
Double the average income later, 90-97 percentile incomes have essentially the same share of overall income so it is not a matter of higher skills being worth relatively more these days (or if so they are not getting what they deserve). The missing income share shifted to the people with the greatest bargaining power: CEO’s, TV news anchors and linebackers (top NFLers from the ’60s are tending bar today). It’s all about bargaining power which is the last thing Americans ever — never1 — think about.
Squeeze a toothpaste tube at the bottom where there is no resistance — resistance equalizes in the middle (which middle gets ever smaller) — it all comes out the top. Not the top’s conspiratorial fault or anything — the top is bargaining like it is supposed to; most Americans never think of squeezing back at all (just work hard and play by the rules).
Somebody’s got to explain to Americans that the original purpose of sector-wide wage contracts was to prevent post war European labor unions from going on a race to the top — so more money could be invested in rebuilding — a purpose that would have every Republican working overtime to get the vote out for. (The welfare state was instituted as a compensation for sector-wide bargaining — BTW, scabs inherently banned under sector-wide as I understand; they wont have the legally mandated sector-wise contract to work under).
Magic bullet: sector-wide collective bargaining also prevents the race to the bottom. Wal-Mart recently closed 88 big boxes in Germany because they couldn’t compensate for not understanding the German customer by competing with always lower wages.
Wherever in the OECD sector-wide in in place the average person’s interests are paramount. Anywhere else (Japan, Australia, Britain) the average person’s lot is in peril and going down. Automatic unionization means fair and balanced politics too.
American supermarket workers and airline workers would kill for sector-wide. (In a recent year Northwest Airlines wrung $1 billion in concessions out of flight crews — next year awarded $1 billion in bonuses to 1000 executives.)
The world real estate bubble inflated since 2003 is a symptoim of the gambling and greed from wall street bubbles building since Nixon and the Goldwater (e.g.) conservatives began tearing down New Deal era regulation. The meme that “regulation is bad” is gambler, monetarized merchantilism which since 1980 has repeatedly been bailed out by Treasury and the fed.
Banks and standing armies…………………………………
Inflation is good for the massive creditors on Wall St, bad for labor and savers.
When the Tea Party is no longer funded by Wall St maybe these things will be debated.
Regulations are bad if you are gambling with the US economy.
Halasey
I wasn’t taking your suggestion seriously because it is just another politically motivated fix. Tax the other guy.
You could tax ONLY corporations and “since the corporations would simply pass the tax through to their customers” the economy would still work. And the corporations would understand the need for taxes better than ordinary citizens and have the accountants who could do the math.
The problem with all the “fixes” to the tax code is that they fail to recognize that taxes won’t fix the economy. The problem with the economy is that the people have no work, and the rich have more money than they know how to spend. Hard to fix that without making rich people mad, and we know who pays for the Congress.
As for the long run funding dilemmas of social insurance, that is nonsense. The people need the insurance’ they can pay for it themselves. They are willing to pay for it themselves. The funding dilemma is a creation of the Big Lie, aided by persistent stupidity on the part of the defenders of social insurance, who have confused it with welfare.
If you are going to want to retire, or have medical care when you retire, the simplest, safest, and cheapest way to guarantee it is through the government run… but not government paid… insurance plans known as Social Security and Medicare (as it was, not the half assed welfare program they have turned it into… and the liberals want to turn Social Security into.)
ddrew your analysis is fine but your answer specifically to my question boils down to “Somebody has to tell the people” and “Somebody’s got to explain to Americans” because they “would shake politics to the core if ever told.” Not sure who somebody is, not sure that is indeed the problem or is so easily accomplished against counter-messaging, and not at all sure that it would affect politics like you say. That said, spreading knowledge and attempting to change views would be a good place to start (perhaps necessary and insufficient), so I’m with you on that. More fundamentally, as FDR found, I believe a strong political coalition (like the New Deal coalition) has to be formed to act politically and legislatively while accomplishing what you recommend at the grass roots.
pjr
exactly.
that’s what i thought Obomber was about. Boy did i read that wrong.
it is also what upsets me when “liberals” go out of their way to make enemies of the common people whose “family values” are all that they have to protect them from fear. [there are ways to protect liberals from “family values” without making enemies of them, though it’s trickier now that the bad right has discovered how to use them to foment hate.]
and it’s also what upsets me when people who should know better try to turn SS into “welfare” by demanding “the rich” pay for it. or try to turn it into a ponzi scheme by finding a new set of “investors” (the rich) to pay for it. or practice “class war” by offering to “trade” benefit cuts for the poor in return for … higher taxes on the rich.
SS is an insurance program for workers. the workers have always paid for it themselves, and can, and must, do so forever. it won’t cost them much. in fact it won’t cost them anything, because they will get all of their money back plus interest.
even the rich can understand that. it’s the stupid we are having trouble reaching.
Women; maybe I can get women to tell the people.
From:
http://delong.typepad.com/sdj/2011/09/review-of-ron-suskinds-confidence-men.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+BradDelongsSemi-dailyJournal+%28Brad+DeLong%27s+Semi-Daily+Journal%29
And lots of people respected and approved of Warren–including, eventually, Christina Romer:
Warren was caught off guard by Romer’s intensity, and her thoughtfulness…. Question after question, the two engaged in an intellectual thrust-and-parry, until finally… Romer broke her stride. “Why is it always the women?” Romer said. “Why are we the only ones with balls around here?” That night Warren got a call from Valerie Jarrett. “Wow, you really turned Christy Romer around.”
******
Social instinct?: Mars’ thinking is owned by his group (as in hive mind); Venus thinks for herself.
Males are deeply instinctively hunting pack animals — and prey animals don’t tarry while the pack squabbles. Female humans are deeply instinctively gatherers — gatherers judge findings autonomously. Instinctive gatherers quite logically believe they should be able to persuade others to make the same autonomous judgements based on the same set of facts. Males just know nobody in the hive is talking about something — that is the end of all consideration in their world.
Maybe women can be persuaded to persuade the people.
******
Maybe males (also females) who don’t know everything the economic world is already thinking can breath new life into the national discussion.
Elizabeth Warren — a lawyer — wrote the best book on the coming collapse of the middle class. She presents the whole book here in a 40 minute speech at: http://economistsview.typepad.com/economistsview/2008/04/the-coming-coll.html
Lane Kenworthy — a sociologist — has done the best (only?) (very) multifaceted thinking about the collapse of the American middle class. A taste of his work here: http://lanekenworthy.net/2008/03/09/the-best-inequality-graph/
Denis Drew — an over the hill (30 year) cabdriver is the only one I have seen (but what do I know; I’m a cabdriver :-]) to see the Great Wage Depression for what it is — and to (immediately) recognize the only mechanism that can possible reverse the race to the economic and political bottom; sector-wide labor agreements.
I (er, Denis Drew) am a bit like the farmers of the late 1800s trying to figure out why their world is coming to and end (because deflation that made paying off their debts impossible helped burgeoning industry). The Chicago taxi meter got one 30 cent increase in the mile charge between 1981 and 1997 — at which 1990 midpoint the city began adding two subways to the airports, unlimited limo licenses (taking away the cream), trolleys between all the hotspots downtown (taking away the bread) — and adding 40% more cabs! All around me union jobs are being outsourced to non-union and by early 1997 the minimum wage dropped almost in half since per capita output doubled (the latter under performing Malthus whose theory predicts only a third cut in income as population doubles :-]).
Naturally when I learned of sector-wide labor agreements I instantly recognize the perfect answer to America’s 21st century labor troubles (political too). There are a lot of people like me out there waiting to hear the perfect theoretical answer (does anyone have any practical alternative at all; but you cannot get […]
ddrew you offer an interesting thought about women as leaders, at least at a theoretical level. There have been successful political movements led by women in the past, here and abroad, on important issues. Bachman and Palin may not join the movement that you have in mind and might help efforts to crush one that wasn’t serving their purposes, but there are plenty of better women leaders to include some experienced in Congress and/or the executive branch. (Even one former Supreme Court Justice is out there.) In today’s world, a movement of this type also could organize itself in new and rapid ways. If successful, such a movement potentially would find political allies to support “change you can believe in” for real. I’m not holding my breath but it’s nice to see the idea.
Elizabeth Warren for president! 🙂
National Sales Tax
The proposals always break down based on incidence. For example should be impose a tax on health services through the VA? On auto insurance? But every exemption drives up the needed rate.
The math never equalizes burdens, instead the net result (and in my opinion the intended result) is a downwards transfer of the income tax burden. And since the ostensible savings from tax simplification always seem to be offset by cuts on revenue on returns on capital the benefits for the upper income 5% and 1% get even more leveraged.
Just as in Social Security the best defense rests on demanding they show their math and an undistorted CBO score before we accept the framing.
The Economic Right’s sloganizing works, I mean who could object to Ownership Society and Fair Tax? But their arithmetic never adds up and you stop their cheating the same way you do on a fifth grad math test: make them show their work on the back on the test paper.
First things first. Though a Senator Warren elected in 2012 wouldn’t be up for re-election in 2016 and would be in position to make real or symbolicnor ideally both run that year without having to give up her seat.
But step one in any 2016 effort starts with her winning next Fall. And so far things look great, MoveOn raised $300k for Warren in a 24 HR period, and every Lefty blogger out there is suggesting that Obama doesn’t really need those donations as much as Warren does. Obama will get his $billion even if he loses 1,000,000 $20 donations to Warren and her allies
Dale the argument that corporate taxes only results in pass through to customers and so no actual incidence on those corporations builds in a fallacy that should be obvious to a first week student in Econ 101, that end prices are infinitely elastic, at least to the degree they keep returns on capital steady.
There is nothing in history outside Randian Friedmanistan that supports this, instead increased taxes (and so cost) combined with any stickiness in wages (say via minimum wage) and prices (through demand for that widget or burger) serve to increase tax revenues at the expense of profit.
Tax increases can drive out capital investment via lowered ROI and this effect should be monitored, but until there is evidence of this crowding out effect we should put Pass Through to Consumer in the same category of Confidence Fairy and Invisible Bond Vigilante, like all effective Fairy Tales having their own internal logic but something less than one to one correspondence with real world experience.
Maybe I am missing and/or mischaracterizing your point.
ddrew
you may be right about sector wide. i am not ready to start shouting from the rooftops because i don’t understand it. but i always tell people the answer to poverty is not tax transfers but unions.
and i don’t agree with your sexist interpretation of history. most of the women i know are as dumb as the men. what you are describing may be the behavior of predatory men… as well as of predatory women, of which there are many, we just don’t hear about them so much, and they always call us sexist when we point them out.
i would like to hear more about the warren – romer interview. a changed mind is a rare thing in the world.
pjr
see my reply to ddrew. but if it takes a “women can…” slogan to beat the present set of too dumb to fail incumbents, i’ll pretend i’m voting for her because she’s a woman.
drew:
Summers statement here caught my attention:
“Europe’s focus on the second-order issue of Greece while far graver imbalances – between the EU’s north and south, and between reckless banks’ creditors and governments that failed to regulate properly – worsen with each passing day.”
He really said this after saying this in 1999 about Brooksley Born attempts to regulate Derivatives:
“casting a shadow of regulatory uncertainty over an otherwise thriving market.”
Interesting how Summers has turned a cheek as if we would forget.
Bruce
yes. you are missing it a bit. i use the “pass through” argument because that’s what the corps always say as an argument AGAINST taxing corps. I use it as an argument FOR taxing them. “Why should they worry?”
on the other hand you are exactly right, the pass through would result in changes in what people buy. i don’t see that as a problem. the economy will adjust to the new prices and people will still pay what they want to pay for whatever the corps are selling.
i would suggest you back way up and try to look at it from, say, the Maritan point of view. The taxes going to the government would be the same (arguably). The difference is that instead of the corps paying… ultimately… enough wages so the workers could pay taxes, they would just pay the taxes directly. i would expect the small businesses not taxed this way would have to adjust their wages and prices to meet (compete with) the new corporate scale. as for stickiness of wages.. well, our old friend inflation can take care of that.
i haven’t taken a serious look at exactly how this would all work out. i am just trying to be provocative. but i would like to provoke people to think about the next step after their previously prepared answers to everything satisfy them that “it can’t work.”
Bruce
bear with me a bit. this is just an idea to play with, not deadly politics. yet.
Everyone who works for a corporation gets a paycheck. And on that paycheck is listed “gross wage” “IRS tax withheld” and “net pay.”
so what happens if you don’t list the first two, but just the “net pay”, only call it “pay.” and the corporation sends the same “irs tax withheld” to the irs. now, what has changed in the real world? nothing. the corp has the same money at the end of the day. so does the employee. and so does the government.
all that has happened is that the employee doesn’t have to file a tax return. and so all the tax gaming can stop. except for the corps. but then the irs lawyers could spend their time jousting with the corp tax lawyers, and since all the Libertarians would not be paying taxes at the point of the government gun, they would not find it as compelling to defend the poor corps.