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08/22/2011

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Jim

What do you all think of a cash flow consumption tax with credits for the low end. It seems to me that it would avoid a transition mechanism, encourage saving, be progressive and be simple to manage (IRS)?

Observer

This is just so much tripe as to be pathetic

Only Becker would suggest tackling income inequality by, get this, ---lowering taxes on the wealthy

Why can't we have an honest discussion about income? All income distribution is a political question, aligned principally around leverage.

Hedge fund managers earn what they earn due to leverage---they underpay the people who work for them. If hedge fund employees had powerful unions, what would Hedge Fund managers earn?

And, totally missed is all the income that flows to patents and royalties, incomes entirely dependent on the government.

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During the past 25 years, inequality in the world has greatly declined mainly because of the rapid growth in incomes in large poorer nations, especially China, India, and Brazil. This led to enormous declines in worldwide poverty as hundreds of millions of families were pulled above poverty thresholds, such as having to live on $1 or $2 dollars a day. At the same time, however, inequality between families grew rapidly within many countries, especially the United States and other Anglo-Saxon countries, China, and India. Although attitudes to inequality differ across cultures and countries (see, for example Alesina, Di Tella, and...

Jim

Everything I have read lately in a variety of journals cites globalization as the root of growing inequality in the USA especially because of the need for more advanced skills which many Americans do not have. And to boot, the situation is made realtively worse by the emergence of other countries. Somehow I do not think that the fix is going to be very quick.

Michael

I get so tired of the Democrats talking about the rich vs the poor. Most people that are poor are that way because they don't know any other way. People who grow up in poverty have a mind set that the government owe them a living. I am rich not because I was born with a silver spoon but because I worked hard over the last 40 years. The multimillionaires pay over 60% of their earnings in taxes, some even more because they pay 35% corporate tax, plus state income tax,social security tax, medicare tax and half of the social security tax of their employees. NOW why should they pay more taxes than the rest of the nation? Less than 50 percent of the population pay income tax. Let us go to a straight 10% of income and NO deductions. We also need to end WELFARE. Paying people for doing nothing is pure STUPID. Humans are naturally lazy and if you pay them for doing nothing they will do nothing. That is why the Blacks have more children than any other race, they qualify for more money if they are single parents. Black men are in prison at a higher rate because of the way they were brought up mostly in a welfare family without a Father figure so they hang out in gangs and get in trouble. NO I am not Racist I think the Democrats did this to the Blacks back in the Wilson era. He was highly prejudice and put them in their place, depending on the government to provide for them, Just like they did for my ancestors,the American Indian, the poorest of the poor in America.

NEH

Jim, It's not the issue of Globalization that is the problem. The problem is the pitting of one National workforce against another to drive wages and salaries to their lowest common denominator while at the same time maximizing owners and operators wealth. This has been an inherent problem with Capitalism since its inception. Ever heard of "Scabs" and the rise of the Unions? And what has happened to that wage level since Unions have been placed under attack by those who have been sponsored by Capitalists? It could be said that the Civil War was fought over the issue of Slavery. Not because it was morally wrong, but that it was fought to keep the Slaves out of the Northern Industrial Plants by undercutting the free Northern workman of his daily wage.

Advanced skills? Come now, The U.S. has one of the most highly skilled workforces in the World. That's just "Pap" used to hide the issue of manipulating the Labor supply and wage rates to the Capitalist's own personal advantage.

As for the "fix", try International Unionism. Strange that China is a Communist Country (and supposed workers paradise) in which the Economy is controlled by both the Army and the Kommisariat. No chance of Unionization here.

Jack

Jim.. Why do you favor "consumption tax" which inherently favors those who do not have to spend much of their income on "consumption" and, at least have a choice 70% of the rest do not?

Further: Why, in a nation 75% dependent on consumer spending with very little need for capital would you want to discourage consumption? Within the US? While those of higher incomes could more easily move their gleanings offshore and "consume" abroad?

As for encouraging saving? With the current incomes stagnation, that's likely a hopeless cause, but ONE means of encouraging savings would be for those wanting to use the capital of others to pay for it. 1% is hardly much of an incentive; ha! the wise shopper may be better off buying consumables ahead.

There is NO way a consumption tax could be made adequately progressive enough to deal with US income disparities, Forbes knew this when he spent $60 million of inherited wealth answering even questions about loose dogs with "flat-tax-flat-tax" and would be among the greatest beneficiaries.

Or so it seems in the clear air of 60 degrees north.

Jack

Michael! That QUITE a GOB of self-centered whack-right rant replete with an over-sized dollop of racism and IGNORANT mythology.

I was struck too, by the arithmetically idiocy of suggesting "10%" which would hardly pay for our military and knee-jerk warmongering, and the payments on the Reagan-Bush-Bushy D E B T amassed under the "brave new worldish" "conservative -- supply-side voodoo --ALL for the rich hocus pocus.

ARE you aware that the bills tally to some 24% of GDP these days? 'bout the same as ever in our post WWII history except for feeding the aforementioned D E B T?

Anyway........ ignorance need not be a life sentence with even the smaller of our burgs still offering libraries at no cost to the inquisitive. Cheers, and good reading?

Jack

NEH -- You're again "on it". I was, again, thinking about "college educated" doing so much, and lately "somewhat" better than those with little or no college.

It would be a good PhD research paper to look under the covers on that one! In our less than upward mobile society 50% of the offspring of the wealthy go to college with a total for all categories being just 30%. A figure that for all the TALK of needing a more educated workforce is increasing only 1% each four years, with that skewed toward the females.

Thirty percent? No suppose that roughly speaking (very roughly it often seems) that the 30% college grads tend to represent the upper 30% of the IQ bell curve.

Were we to miraculously move that 30% figure to 50%, by definition some fair share of the new grads would be down at the average IQ level with yet dimmer bulbs getting in by the sort of affirmative action that so enabled GW access to Yale.

Today....... another "trend" that exacerbates the college-non-college disparity seems that of the employers using a degree as a quick and easy means of sorting literates from non-literates. Some would like to howl about "failing HS's" being the reason for that, but despite the rosy memories of our much better past, it seems that illiteracy was much higher "back then" and a major problem for the military in WWII.

So the "non-college" is virtually pre-judicially excluded with no chance of "showing his or her stuff". Read some of the help wanted ads....... Wanted: Someone for boringly repetitious work a fool could learn in six weeks and master in 90 days, Must have BA in yadda.


But as we see....... that's the way it IS when the job market has been soft for decades....... and to top if off someone like "Michael" wants to come along and jeer at those who "don't want to work".

Jack

Ha! Geez Observer! You know the reason we can't have an honest incomes discussion and why any mention of it is greeted with the hopefully conversation ending cry of "Class Warfare!!" which all too often works as intended.

Of course what is most feared is that once out in the open so many WOULD discover that The Class War took place over the last thirty years; working folk have been routed from the field with the top 1% and .1% in front of the castle gate with canon and battering rams at the ready.

Well, Peck, of the GREAT article in Atlantic I recommended, figures that those of the stagnant incomes WERE doing well enough for them to remain complacent........ but! after 99 weeks on unemployment and then facing moving into the family SUV, with the likes of "Michael" looking down his nose at them? We'll see.

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Jack

The President's Bold Jobs Bill (Maybe)

The president is sounding like a fighter these days. He even says he'll be proposing a jobs bill in September -- and if Republicans don't go along he'll fight for it through Election Day (or beyond).

That's a start. But read the small print and all he's talked about so far is extending the payroll tax cut and unemployment benefits (good, but small potatoes), ratifying the Colombia and South Korea free trade agreements (not necessarily a job-creating move), and creating an infrastructure bank.

An infrastructure bank might be helpful, depending on its size.

Which is the real question hovering over the entire putative jobs bill -- its size.

Some of the president's political advisors have been pushing for small-bore initiatives that they believe might have a chance of getting through the Republican just-say-no House. They also figure policy miniatures won't give aspiring GOP candidates more ammunition to tar Obama as a big-government liberal.

But the president is sounding as if he's rejected their advice.

That's good policy and good politics.

Good policy because any jobs bill has to be big enough to give the economy the boost it needs to get out of the gravitational pull of the Great Recession.

Right now all the old booster rockets are gone. The original stimulus is over. The Fed's "quantitative easing" is over.

Combine the budget cuts state and local governments continue to make with the slowdown in consumer spending, the reluctance of businesses to expand or hire, and the magnitude of unemployment and under-employment, and you need a big new booster rocket. I'd estimate the shortfall in aggregate demand to be $300 billion to $500 billion this year alone.

A bold jobs plan is also good politics. With more than 25 million Americans looking for full-time jobs, the wages of people with jobs falling, and an economy on the verge of a double dip, the President has to come out fighting on the side of average people.

Besides, Republicans won't go along with any jobs initiative he proposes -- even a tiny one. Better they reject one that could make a real difference than one that's pitifully small and symbolic.

If Republicans reject it, Obama can build his 2012 campaign around that fight. Maybe he'll even call Republicans on their big lie that smaller government leads to more jobs.

What would a bold jobs bill look like? Here are the ten components I'd recommend (apologies to those of you who have read some of these before):

1. Exempt first $20K of income from payroll taxes for two years. Make up shortfall by raising ceiling on income subject to payroll taxes.

2. Recreate the WPA and Civilian Conservation Corps to put long-term unemployed directly to work.

3. Create an infrastructure bank authorized to borrow $300 billion a year to repair and upgrade the nation's roads, bridges, ports, airports, school buildings, and water and sewer systems.

4. Amend bankruptcy laws to allow distressed homeowners to declare bankruptcy on their primary residence, so they can reorganize their mortgage loans.

5. Allow distressed homeowners to sell a portion of their mortgages to the FHA, which would take a proportionate share of any upside gains when the homes are sold.

6. Provide tax incentive to employers who create net new jobs ($2,500 deduction for every net new job created).

7. Make low-interest loans to cash-starved states and cities, so they don't have to lay off teachers, fire fighters, police officers, and reduce other critical public services.

8. Provide partial unemployment benefits to people who have lost part-time jobs.

9. Enlarge and expand the Earned Income Tax Credit - a wage subsidy for low-wage work.

10. Impose a "severance fee" on any large business that lays off an American worker and outsources the job abroad.

Some of these won't cost the federal government money. Others will be costly in the short term but lead to faster growth.

Remember: Faster growth means a more manageable debt in the long term. Which means the President could tie this (or any other jobs bill of similar magnitude) to an even more ambitious long-term debt-reduction plan than he's already proposed.

A bold jobs bill is good politics and good policy. Let's wait to see what the President actually proposes.

Does anyone here still think panic stricken budget cutting and piling more government workers and private enterprise contractors on on the unemployment rolls with 25 million other full time job seekers, along with extending the, unaffordable when implemented, Bush tax cuts for the wealthy is going to work? For the benefit of most folks? and the acutely unemployed? Why?

Observer

Jack

What is truly amazing is that those who play the class warfare card are never part of the class against whom "warfare" is allegedly being waged.

It is amazing the fools with whom we have to converse.

Take an area for which they have no understanding--patents. Most basic research, the foundation of all patents, is paid for by taxpayers, whom should have the largest claim to the value of inventions.

Instead, our "system" rewards the bottom of the food chain, those who "finance," the final product (where there is the least risk).

For example, the taxpayers of Ohio funded the basic research for the LCD in the late 1960s and never got a dime, from the billions of units now in production.

But, Jack, save your key strokes. There is no talking to the people. They are total psychological basket cases--cognitive dissonance. Even fools like Becker and Posner are totally infected.

Jack

Observer - Yep. One recent example is that of the "Telcom Act"

As tech opened the possibility of more digital channels for TV as the analogue bands were being recycled for better use, even Bob Dole favored the extra channels being auctioned.... with a shot for anyone. The worth of the extra digital chans was in the $100 billion range, perhaps w/o counting that we'll soon be able to click on items being sold.

What happened after the lobbyists did their work....... in the dark of night? The extra chans were gifted to the existing station owners in payment of the one time "digital upgrade".

Gore...... a long time supporter of "campaign finance reform" was on that comtee and what SHOULD have been included (at least) 10% of each new chan being devoted to "Town Hall" space for candidates, and local/state issues. "The People" for whom our resources are supposed to be developed? screwed again.

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NEH

Jack, As for being "on it", somtimes you just have to go off on a tangent to clear the air and the mind. Then things become clear - somtimes... ;)

Saurabh Gupta

Hedge fund managers do not operate in a vacuum. Their counter parties are banks. Sometimes direct and sometimes inderct. When Federal Govt steps in to save banks, they are in essence saving Hedge hunds because they benefit from the strength of counter parties.

I thoroughly wish that both of you do a post to debunk my argument. Nothing would give me more peace and intellectual stimulation than reading that particular argument in this blog.

Please.

Jack

NEH -- Ha -- Indeed! One of my favorite observation posts is high on a bluff with "D E M O C R A C Y" carved into a stone. Rule by THE people. Not SOME people, or privileged people, just THE.

Not far away is another with something about "developing OUR resources for the benefit of THE people.

I was out in The Valley today, though a safe distance from the Palin lair. On my way back I stopped at the drag strip someone hacked out of the woods just below a spectacular 1500 foot butte, some 30 years ago. Despite the difficulty, our short summer season, small population, some, just regular working folk created this raceway. This Friday eve -- it's still light until 10pm -- guys were out their tuning their rigs for w/e competition.

There was a lot of "America" there, guys and their families doing what they love to do, HAVING a few bucks to spend on cars from fast "daily drivers" on up to $100K plus rigs turning 190 mph at the end of a quarter mile. And not "just" money but the creativity, "backyard" engineering and hardworking doggedness to build a competitive or fun car, or ha! the modified snowmachine turning 117 mph.

This ALL FOR THE RICH devil-take-the-hindmost, "market" as god, era is hrsht and denies working folk doing much more than boring survival. In the next few years, even survival WILL be a challenge for many.

Perhaps of interest, I spoke with a erudite fellow recently here from Ireland. "The boom there?" Another phony bubble. First, apparently "poor" Ireland received a bundle for joining the EU. Then the call went out of NO taxes for a decade plus something like 30% investment support. All the big names showed up. Sounded like a tech revolution. But no...... low paid, often call center work being done by "new immigrants".

Housing was built on "boom" expectations. Now? with the bennies having run out the "bigs" are leaving for yet lower wage venues with whole subdivisions of 400 or so having NOT ONE occupant.

NEH

Jack, To put this all in Historical perspective, Alexis de Tocqueville in 1847-48 (during the European wide Revolution) observed while in France, " We are sleeping together in a volcano... A wind of Revolution blows, the storm is on the horizon... and the various Classes are about to erupt in revolt". The field is littered with analysis which gave rise to the likes of Marx, Engels, Pierre Proudhon and Louis Blanc; much like today. Inequality, Class, Exploitation and employment problems then, Inequality, Class, Exploitation, and employment problems today. And the question of "Deserving and Undeserving Inequality" is raised.

Perhaps, Tocqueville's comment ought to become the watchphrase of Today, "We are all sleeping together in a volcano"... And the band plays on... Wall Street, K-Street, Congress, and Ben & Co.; are you listening?

Jim

Jack,

Good article in today's WSJ on Baltimore. Essenrially a lesson in microeconomics (the only economics) detailing high property taxes, migration of businesses and high end folks out of the city since 2000, uban decay, loss of jobs, high crime rates, failing schools and an 8:1 Dem to Republican voter resistration. The implication in the article is that the DEms think this is great. Oh boy, Detroit here we come.

My point is that a cultural change is needed in our society that recognizes the need and the benefits of VOLUNTARY economic sharing and support of the middle (and Poor). Coercion through policy change simply will not do it. The reaction to those policies will diminish their effectiveness. Although I agree with many of your suggestions (not all), Getting too far into the European employment model does not seem to have worked well either. Hiring people who are not needed and with nothing to do for a federal subsidy would destroy most companies.

an observer

Jim

The WSJ piece is just crap. Baltimore's allegedly high property taxes have nothing to do with the decline of Baltimore. There is no evidence of such and no credible person would assert such.

The argument is an much crap as is contra argument for tax subsidies to promote development

Cities fail when they stop producing valuable ideas, for cities exist only when they eliminate transportation costs for goods, people and ideas. It is well documented that the automobile is cheap enough to cause sprawl and destroy most of America's inner cities.

A good place to start would be Glaeser and Kahn's paper, Sprawl and Urban growth (free on SSRN):

First, despite the pronouncements of academic theorists, dense living is not on the rebound. Sprawl is ubiquitous and expanding. Second, while many factors may have helped the growth of sprawl, it ultimately has only one root cause: the automobile. Suburbia, edge cities and sprawl are all the natural, inexorable, result of the technological dominance of the automobile. Third, sprawl’s negative quality of life impacts have been overstated. Effective vehicle pollution regulation has curbed emissions increases associated with increased driving. The growth of edge cities is associated with increases in most measures of quality of life. Fourth, the problem of sprawl lies not in the people who have moved to the suburbs but rather the people who have been left behind. The exodus of jobs and people from the inner cities have created an abandoned underclass
whose earnings cannot support a multi-car based lifestyle.

Jack

Jim -- Not sure why the date 2000 was cherry-picked but cities, states AND the nation have NOT done well since Bush got in. Truth is Baltimore has been a tough city of LOTS of problems for its entire history.

"My point is that a cultural change is needed in our society that recognizes the need and the benefits of VOLUNTARY economic sharing and support of the middle (and Poor)."

............. sort of fantasy hopes of a "return to Eden?" with corporate greed and political graft miraculously fading away?

" Coercion through policy change simply will not do it. The reaction to those policies will diminish their effectiveness."

........... that's exactly how we got out of the last Depression caused mostly by constipation of income and wealth at the very topmost tiers. Personally, I'd rather NOT turn to warmongering, but the far more positive and ultimately production enhancing tasks of actually maintaining our long neglected infrastructure (say with the bank selecting the best projects for $300 - $400 billion in the front years and tapering off as we climb out of The Mess) AND doing our best to catch up with (at least) the EU in terms of energy consumed/squandered per dollar of GDP generated.


"Getting too far into the European employment model does not seem to have worked well either."

.......... Ideology? Did you know that on a per hour worked basis that the working folk of that aging, war torn nation of France with few natural resources of its own ARE as productive as those of the US? Even though we've tremendous advantages in that those "producing" (extracting) oil are HIGHLY productive, as are those of corporate farming, and our high tech sectors.

"Hiring people who are not needed and with nothing to do for a federal subsidy would destroy most companies."

J.......... You're reacting to the OLD "dig a hole and fill it up" mythology. No........ truth is despite 20% of our workforce being under or un-employed we've MUCH to do and what we "say" varies greatly from what we DO. For example we're so screwed up that we pay lawyers more per hour than a week's pay for those ANGELS who do the tough job of caring for our elderly.

J........ as for "destroying" try to consider what IS destroyed at BOTH the personal and long term "macro" level when those who want and need to work are put on unemployment for 99 weeks ---------- and/or worse.

"SOME" here are simply NOT aware of what a MESS we're in and that it is NOT getting better. "Interestingly" a recent polls showed those living in and near our nation's capital were most "positive" about the outlook for the future. Indeed! with government as their economic base things do remain fairly stable.

Jack

Observer: Ha! Just the other day as Don Young's "Bridge to Nowhere" was being discussed I tallied up the costs of commuting from Anchorage to dear Sarah's "Valley" which many here do as housing was quite a bit cheaper out there. The 75 mile round trip likely tallies to $1,000/month.

an observer

Jack, what's your point?

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