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Logo3 Merry Christmas and Happy New Year

NEW - In 2016 the 2-4-8 Tax Blend will become 2-4-8 Tax Choice
The "choice" would allow all taxpayers to choose an income tax rate between 8% and 28% paired with a net wealth tax rate of 2% going down to zero. Wealth taxes paid would reduce Estate and Gift taxes (also set at 28%). This would encourage wealthy individuals to pay some net wealth taxes as a form of inexpensive life insurance.


C - Corp
4% VAT
8% Income

I Just Can't Get
Enough Paul Krugman


"People who really worry about government debt" don't read enough Paul Krugman. Krugman's "don't worry be happy" crowd doesn't care if Mrs. Clinton's "sloppiness" has reached the level of criminal negligence. Government spending and tax expenditures are out of control and wastful - but who cares.

In the ideal, Congress should let the Attorney General and FBI conduct the broad email investigation, but political reality suggests that this would be a whitewash - (unless Joe Biden throws his hat into the ring).

Benghazi was just a little sloppy and it led to the loss of just a few lives. The investigation to date also led to the disclosure of a much wider email problem that revealed the potential for much wider scandal, influence peddling and security breaches. It is political only because Mrs. Clinton thinks she is fit to run a government the size of the United States. It would be foolish to stop the inquiry just as thousands of new emails are becoming available. Hundreds of emails are being classified for security reasons (that Mrs. Clinton previously denied). Was Mrs. Clinton too involved is personal matters to provide the proper protection in Benghazi?


Tweaks to the TPP don't offset the fact that it is a way to boost big global U.S. business and much smaller, yet important, foreign businesses - all at the expense of free markets. Heaven help me but I agree with Paul Krugman that the TPP is an, "agreement not really so much about trade as about strengthening intellectual property monopolies and corporate clout in dispute settlement — both arguably bad things, not good, even from an efficiency standpoint."

My broader concern is not improving the balance to gain Democratic support and passage in congress, but rather about locking U.S. public policy into dependence on bigger companies that have less and less connection to the U.S. and no interest in putting the interests of U.S. families first.

The excellent article in today's paper, "How Did the Democrats Become Favorites of the Rich?" explains how and why U.S. non-union workers have been abandoned by the Democratic Party. The TPP is just another step down that road.

If the GOP and the Dems decided at some point to replace Obamacare with free prescription drugs for all and to change the patent, trademark and copyright rights so the nation reaped the benefits of cures and both the insured and uninsured had some treatment it would counter the TPP.

There are intelligent and educated voters that believe that growth in GDP will trickle down. They believe that $1.3 trillion in tax expenditures (deductions, exemptions, deferrals special rates and credits) mostly for the wealthy will help them. They are sadly wrong.
We all know business needs investment and capital but eliminating the estate tax does not add to investment. In fact the charitable tax deduction rewards wealthy people to take their money out of U.S. business and give it to foreign charities. (Think Gates and Clinton).
The worst tax is the special income tax for workers know as the combined payroll tax. The 15.3% rate does not apply to high earnings (over $115,000) and makes U.S. jobs more expensive than necessary. The payroll taxes could be replaced by a 4% VAT and business tax expenditure reform. This would increase take-home pay for all workers, encourage full employment and eliminate most objections to better immigration policies.
My gripe with Krugman is that his constant criticisms of the GOP gives the false impression that the Democrats have a better way. They don't. In fact the Democrats continue to destroy the tax code by pushing for more unfair tax expenditures. There are bold tax reform alternatives which should be considered by both parties. Seehttp://taxnetwealth.com/01_how_the_248_tax_blend_compares_to_FairTax_Fla...for the FairTax, Flat Tax and 2-4-8 Tax Blend.

The explanation of Keynesian goals is most welcome but it does not follow that deficit spending is the best or only solution. Our country is blessed with a Social Security and Medicare system which is funded by job killing, consumer destroying combined payroll taxes of 15.3%. The good news is that the tax revenue could be replaced with a 4% VAT and elimination of unnecessary business tax expenditures. The new tax base would strengthen Social Security for decades to come and encourage both consumer spending (with 7.65% more take home pay) and U.S. job creation (because each job becomes 7.65% less expensive to the business). It would help to keep jobs in the U.S. rather then send them to Mexico (Nabisco and Ford according to Mr. Trump). Of course, one might think Krugman was wrong about deficit spending on infrastructure but it might help wealthy business owners and union employees. The lower income workers will get nothing and the rest of the taxpayers will get higher national debt. The debate should be about which is a better way even when it is clear that most want to do nothing.


Prof. Krugman admits that the Fed money printing and purchase of old debt is intended to boost asset prices and “starts a chain reaction” with the cash loaned out, stimulating spending and boosting the real economy …[causing ] … wages and prices … to rise, solving the problem of deflation.” In the U.S., individual wealth increased from about $56 trillion 10 years ago to $83 trillion today, far beyond the growth in GDP.
In Japan, taxes were raised in an apparent effort to reach idle cash and Krugman argues that this set Japan’s recovery back. He argues government should do just the opposite with deficit spending on “stuff” rather than “assets” with no apparent guideline or concern for the expansion of debt.
Mr. Abe was not crazy when he pushed for higher taxes and any failure at least left the government richer rather than poorer. Perhaps taxation is the better way to control the economy if, and only if, the right tax blend is used. Indeed, it may not be an issue of more revenue or less by rather who is being taxed and how.
We can tax income, sales and/or net wealth. If asset prices were inflating and there was too much idle cash the choice of what should be taxed is easy. If workers were losing family wealth even with two adults working the choice of where to cut (and stimulate spending on stuff) would also be easy. More deficit spending is not necessary.


Replacing the job killing payroll taxes (with a 4% VAT and business tax expenditure reform) can change the equilibrium. It can move the full employment rate down and the GDP up.

Of course communism (China) can go further by putting all to work with pay scales driven by policy rather than a free market. The U.S. can, and should, achieve the same government controlled full employment by going even further than payroll tax replacement by creating a program of transitional jobs in the nonprofit sector. The nonprofit sector has grown exponentially. Excluding churches, the nonprofit wealth equaled the poorer half of the population and now is eight times as wealthy. This has been fueled to some extent by keeping government payrolls in check. In any event, nonprofit payrolls and services can be better used by limiting the charitable deduction to charities that are willing to put people to work (at a little below private sector rates). Real full employment (as is having a range of jobs available for all who want one) will obviously drive up salaries for all workers.

There is nothing wrong with letting our nonprofit sector behave with social democratic values while providing a constant well trained and experienced labor supply that can adjust to the expanding and contracting needs of business.

The great political debates of our day (welfare, education, immigration, criminal justice, family formation, etc.) can all be greatly improved if we first focus on actual full employment.


Prof. Krugman's view of conservative principles is quite true when it comes to the ruthless managers of business and wealth. It is not their job to support family or to have a workplace that is more pleasant or offers more benefits than necessary. A business should seek an advantage with the monopoly granted through intellectual property and destroy as many competitors as it can. Donald Trump is quite good at this.

All people need to be ruled in a manner that makes them feel modestly happy and free. The masses are poor with half the population sharing just 1% of the net wealth (down 70% since 1995). Businesses do not and cannot manage all of "those" people with all of their social and cultural baggage, not to mention their low IQ. They are the under employed, the unemployed and the unemployable that need to be handled by government.

Liberals and conservatives generally share the view that "they" should stay on their own side of the tracks except when providing a necessary service as a servant. The government must give them enough to keep them in line and no more, so they stay hungry.

Unfortunately, the scales have tipped so far, that the middle class in the U.S. are beginning to be treated like the poor. Their share of wealth is down to 24% and trending toward the global average of 12%. Unfortunately, those at the top can't expand unless the middle class suffer. The poor have nothing left to give (except future Social Security and health benefits). Even Trump won't go there.


"I’d say probability, that excess savings and persistent global weakness is the new normal."

The phrase "excess savings" is identical to excess wealth for the top 10% of the population. In the U.S. the share increased from 67% to 75% over the last 20 years. On a global basis the top 10% have 87% of the wealth.

The phrase "global weakness" is identical to the loss of family wealth (and political power) for the bottom 90%. We need to focus less on where the money is and more on where it is no longer. The 40% of the population that represents the middle class has historically been the measure of strength for any economy. The U.S. remains strong with a 24% wealth share for the middle class - twice the global average. The problem is that the middle class share is down 4% since 1995 but is accelerating downward. The pressure on the middle class is getting worse because the rich can no longer take from the poor (except their future benefits). The poorer half in the U.S. went from a 4% share 20 years ago to just a 1% share today. Too many young adults can no longer afford to marry.

The wealth trends tell the whole story. Tax policies over tax the poor and middle class (i.e. payroll, sales and property taxes) and under tax returns from wealth (causing "excess savings").

Consider a taxpayer choice of a 2% wealth tax (with $500,000 retirement-education-health care exemption) versus a 26% income tax (plus gift and estate taxes). Choose: be middle class or be rich and very profitable.


The current federal tax system operates like climate change slowly shifting wealth to the richest 10%. Over 20 years the wealthy increased their share by 8% taking 3% from the poorer half and 5% from the middle class. The numbers sound small but half the population now shares just 1% of the wealth. In fact, the 30% at the very bottom are below water with more debts than assets.
Half of the growth in wealth at the top is the indirect result of unnecessary deficits and progressively expanding government debt. Much of it can be seen in the untaxed growth of wealth. People like Warren Buffett increase their wealth (stock value) by about $3 billion a year yet they only pay taxes on about $30 million in taxable income. Another $2,970,000,000 goes without tax year after year. If anyone thinks Mr. Buffet should not pay more in taxes I remind you that even Donald Trump thinks he should.
The real focus of reform is to make wealth a measure of taxation while lowering taxes on the poor. Imagine an optional 2% net wealth tax (above $500,000 retirement-health-education savings) and its effect on interest rates and government bonds combined with an 8% income tax rate (and no payroll taxes or estate taxes). An alternative 26% income tax and hefty estate tax would be an available option to the wealth tax. Imagine the equity of using the now optional estate tax to pay down debt and the market incentive to keep interest rates above the wealth tax rate.

If everyone paid SS/payroll taxes on all income (at 7.65%) we could give everyone the option of paying a 2% wealth tax (excluding $500,000 tax free savings) or a flat 18% income tax. With a 4% VAT (the lowest in the world) we could eliminate the corporate payroll tax and lower the business income tax to 8%. See TaxNetWealth.com for details.

With Capital in the Twenty-First Century, Pickety had the bully pulpit on tax reform. He foolishly called for a global "soak-the rich-style" wealth tax which made him seem like Donald Trump calling for a 14.25% wealth tax (in Trump's 2000 book, The America We Deserve).
Pope Francis has been pounding the pavement for reforms that might keep the good in capitalism while using tax and regulatory reform to see that a bit more than 1% trickles down to the poorer half. The middle class share of wealth has also been shrinking - to 24% in the U.S. and just 12% globally. The need for the top 10% to have a slightly smaller share (around 65%) of a bigger pie seems like a no brainer. Pickety was the most prominent visionary economist that could be expected to overcome his youthful exuberance and give us a workable model tax blend with built in checks and balances.
In a more equitable world, perhaps all could choose between low 2% wealth (with large exemption) and 8% income tax rates verses a high 26% income tax rate and no wealth tax. Perhaps a small 4% VAT and tax expenditure reform could replace the job killing payroll taxes and the corporate income tax could be lowered to just 8%. Low business taxes, an optional wealth tax and transitional jobs are at the heart of "The Economics of Equality". We don't need another "The Economics of Inequality" book.


Minimum wage studies comparing NJ and PA should not be a basis for rejecting market based labor economics because a study showed no, "clear negative effect on employment". Local economies differ. Small increases in the minimum wage (i.e. to $9.00) may not hurt jobs anywhere, while an increase to $10.15 would cost 500,000 jobs (in the weakest economies). Projections about President Obama's proposal made just two years ago by the Congressional Budget Office under a Democratic Congress, don't fit with Krugman's political spin and his defense of his beloved and clueless, Mrs. Clinton. When the minimum wage is too high it can lead to an awful economy as in Puerto Rico.

Workers have little hope under "Clinton-Krugman-many liberals" labor economics. Krugman argues that, "Mrs. Clinton’s core message was that the federal government can and should use its influence to push for higher wages" yet her proposal for a two-year 15% corporate tax credit to corporations that pay bonuses up to 10% does not change the base wage, encourage promotion, or create new jobs. It helps Wall Street.

I agree that the government should push for higher wages through structural change rather than stimulus. Replace the payroll taxes with a 4% VAT and tax expenditure reform. All workers would get an immediate 7.65% increase in take home pay and new job creation would be permanently stimulated. This can be a revenue neutral change that actually strengthens long range funding for Social Security and Medicare.



The obvious solution to the debate about "bums" - (a rather sexist term) is to provide a range of jobs to all. The idea of full employment is something which can be achieved with a combination payroll tax replacement and transitional jobs with nonprofits. A small 4% VAT and elimination of business tax expenditures would provide more than enough revenue to replace payroll taxes. The lower cost of creating jobs and reduced incentive to outsource jobs overseas would create near full employment.

Anywhere from 10 to 40 million transitional jobs could be created by using the 40 billion charitable tax deduction only with charities that are willing to provide transitional jobs (and savings from reducing welfare payouts). While transitional jobs would pay a little below private business sector rates the types of work could range from entry level to professional in whatever area the charities needed. The transitional jobs would be upwardly mobile and rewarding.

If an able bodied adult did not want or need to work that is just fine. I certainly would not call him or her a bum.



It is hard to understand the economic claim, "if workers are paid their marginal product, the fall in GDP from the ACA is equal to the lost wages, but workers choosing to work less clearly prefer to have the extra time to the extra wages". If you deny the role of family wealth, the worker has an economic choice. No doubt the richest 10% with 75% of wealth have a free choice. The next 40% (the middle class) share just 24% of wealth and while those near the top of the spectrum have a choice those near the bottom, with assets below $50,000 clearly cannot enjoy the life of leisure for long. The poorer half of the population (62 million families) with just 1% of wealth cannot not afford not to work, yet they are the ones who may profit most. Low wage workers only have to work 26 weeks to get an earned income tax credit and expenses for meals, transportation and child care can make the real take home pay quite small. There is nothing good about the economic pressures that encourage workers to work less and qualify for Medicaid.


"[T]he Davos Democrats ... have lost much of their credibility". President Obama has become the leader of the Davos Democrats. Individual wealth has increased from $56 trillion to over $83 trillion in just the last five years and very little has been taxed as ordinary income. Plans to expand the jobless growth with intellectual property monopolies enforced by the pending Pacific Trade Agreement are backed by both the GOP and their Davos partners.

Obama has helped the poor with free contraceptives as half the population now struggles with just 1% of the wealth. The top 10% have 75% of the wealth (trending toward the global 87% average). The large middle class, with 40% of the population, has slowly declined from a 27% share of wealth to 24%. Unfortunately, the middle class is poised to more rapidly decline toward the global middle class average wealth share of 12%.

Bill and Hillary Clinton remain the Davos Divas giving lip service to the poor while serving the rich and the Clinton Foundations. Bill Clinton gave us the Earned Income Tax Credit and this has encouraged both the largest expansion of low paying jobs in the world and a 70% loss of family wealth for the poorer half of the population (62 million families). Hillary Clinton failed in her attempt at universal health care, failed to articulate and implement a sound foreign policy and failed to achieve anything on her own. She has been little more than a cheerleader for the very serious men in her life.


"dispute settlement and intellectual property deals that pretend to be about trade"

The U.S. intellectual property laws are no longer fair and that is why they work well for big business. Empowering businesses with monopoly rights destroyed free trade by destroying competition. Once congress decided to copyright non-human expressions such as computer software, it was downhill from there. Even the judges can't understand it so they had to form intellectual property courts to handle appeals. Now the President, with the urging of businesses that avoid U.S. taxes, is attempting to expand U.S. intellectual property laws to generate profits for global businesses at the expense of U.S. jobs. Prof. Krugman should not just be a "lukewarm" opponent. It's like saying I'm not too sure about Obamacare because I haven't had time to read the bill. Even Rep. Polosi seems to have learned the lesson about trusting others to supply the details.


With all due respect, Prof. Krugman, Obamacare is history and this year's change in insurance rates means little. Even the New York State Assembly is preparing for the switch with a Single Payer Bill. See http://www.capitalnewyork.com/article/albany/2015/05/8568890/assembly-passes-universal-health-care-bill The (still Republican controlled) Senate could vote any day - or not. The Senate may be waiting to see if the (Democratic controlled) Assembly brings up the tax credit bill which would provide scholarships for private schools.

Whatever the temporary logjam may be New York is poised to eliminate health insurance companies (and their jobs), provide free abortion and contraception (the envy of China) and double the payroll tax rates to over 30% (just shy of our socialist friends in Greece). The STATE, rather than the free market (the little that is left of it) will determine all health care costs. Prices will go down in election years and up the rest of the time. The best is yet to come in health care and the program will be "highly successful", comrade. All will be equal regardless of merit.


As an economist, Prof. Krugman should be concerned about who is paying for the insurance expansion. Rather than asking business to pay $130 billion Mr. Obama has delayed this tax penalty provision and simply directed the Treasury and IRS to give the money to private insurance companies on behalf of some people. This increases the deficit and forms a rather large slush fund for ObamaCare supporters. Deficit spending was not the intent of Congress but the giveaway has been a sick and very expensive way of buying votes for Democrats.

If the Supreme Court puts an end to most subsidies, Mr. Obama will not be able to restore the money that he has recklessly authorized. Those who lose their health insurance may think it would have been better not to have it in the first place - (at least the vast majority that suffered no major illness). The president known for being politically correct and defending the good name of Indians from the spirit of football may ironically be remembered as the "health care Indian giver". (I can think of no other way to vividly describe it.)


Confusing Politics with Economics

The Keynesian approach justifies not just any stimulus but rather government spending on union jobs that provide election support to Democrats. If you like you can call it infrastructure spending to make it sound as if the private economy would flourish if we only had a few new bridges and schools. Keynesian stimulus must also be run from Washington (not by Republican governors) so the wiser Democrats have the final say on which union jobs will be most helpful to the economy (and perhaps the next election). According to Prof. Krugman's spin, it is not about bigger government. It is about a temporary boost to the economy (and perhaps to the party). Of course, only a Keynesian can tell good stimulus from bad. Reducing payroll taxes and letting workers keep more of their own money only helps those that the Keynesians' already have on their side.


It seems that, "low taxes on the rich and harsh treatment of the poor" aptly describes the payroll taxes. The rich pay no taxes on their income over $118,000 and workers below that level have no deductions to offset the combined 15.3% rate. The tax reduces salaries and discourages new jobs within the U.S.

The payroll tax could be replaced by less regressive taxes such as a 4% VAT and reduction in some non-essential business tax expenditures. It would actually help workers in Texas and Kansas and 48 other states.


The poorer half of the population (62 million families) lost 70% of their net wealth since 1995. They (meaning 50% of the people) share just 1% of the wealth. Young adults from this group no longer marry and make babies as earlier generations did. The poor are perhaps not so conservative and that is why the Pew survey numbers seem skewed. It is nevertheless quite true that the wealthy, whether conservative like Romney or liberal like Clinton, have little idea of the desperation that causes young people to become losers.

The U.S. could create full employment with tax reform that replaces the payroll taxes and provides transitional jobs through wealthy nonprofits (that have eight time the wealth of half the population).

The Clinton Foundation is certainly not helping the poor in the U.S. It has enriched the Clinton's at the expense of the poor.


There is no question that "high unemployment" has been a problem. The solution is to replace the payroll taxes with a small 4% VAT and reduction in some business tax expenditures. Opposition to this sensible reform comes from "crazy people" on both sides of the aisle who don't see their self interest aligned with putting the unemployed to work. Both sides are too busy picking the pockets of the wealthy and making sure that the rich get richer and the poor get poorer.


"productivity growth finally took off circa 1995."

Indeed 1995 was the start of the 20 year wealth gap trends. The top 10% increased their share from 67% to 75%. The next 40% (the middle class) went from a 27% share to a 24% share. Unfortunately this left just 1% of individual family wealth for half of the population. It is true that the pie has also grown from $56 trillion five years ago to $83 trillion today. This accelerates the growth at the top but does little to offset the losses at the bottom.
There is a big difference between productivity and progress.


" Doctors Without Borders is worried that the deal would make medicines unaffordable"

A far more important issue relates to health care reform and the Obamacare replacement. The best tradeoff would be to tax employee health insurance benefits and use the $200 billion to have the U.S. government provide free drugs to all which would reduce the cost of health care to all. Such a change should put the U.S. government as the patent holder for drugs and reap the benefits of all cures. The government (or nonprofit), rather than drug companies, should authorize world manufacture and distribution.

The trade agreement could prevent a revolution in medicine.


Lied into War (on Poverty)

Prof. Krugman repeats his description of Rep. Paul Ryan as a "fraud" and wants to persuade us that Ryan's "real goal [is] dismantling the welfare state". There is no question that Rep. Paul Ryan supports major reform of the "welfare state" and before switching from Congress's point man on the budget to the more powerful leader of tax reform he outlined the waste and duplication in, “The War on Poverty: 50 Years Later”. Ryan's solution is an optional “opportunity grant” (not quite war) to replace, dollar for dollar, the amount of money states currently receive to implement means-tested federal poverty programs such as food stamps, housing assistance, utilities subsidies, etc.

Being "lied into war" in Iraq assumes an intentional "fake case about WMD". Prof. Krugman suggests that Rep. Ryan has made a "fake case" about poverty programs. It seems that even smart people like Bill Gates may have been deceived into thinking the government must do a better job of helping low wage workers. Gates even went so far as to suggest that the job stifling payroll taxes should be replaced with a better tax base (speaking at AEI on March 13, 2014).

Should we continue to fight poverty in the same way; and with the same vigor, honesty and efficiency Mr. Obama has used in health care? If the left won't change course, the right will soon rule.



More spending can be achieved by the government (through union infrastructure programs) or by consumers (through lower taxes on workers). Which is better: another trillion on roads or a replacement of the job killing payroll taxes with a VAT to encourage full employment and higher salaries? It is better for the Democratic party to go with union programs, better for the GOP to do nothing and better for workers to replace the payroll taxes (with no change to Social Security).


The Value of Intellectual Property

Individual family wealth was about $56 trillion in 2010 and is now over $83 trillion thanks to the "Obama stock market" and the Fed fuel. Foreign investments were not promising, so "US holdings abroad [saw] no comparable boost." Prof. Krugman explores why "current account deficits have been small compared with those of the bubble years" given expected "borrowing ... from foreigners".

Perhaps the government was borrowing from corporate assets captured overseas. After all, two trillion is a sizable sum. More to the point may be to question Krugman's view of the "bubble years" and his potential failure to see that the housing bubble has quickly been replaced by the intellectual property bubble.

Google spent $12.5 billion for Motorola to gain intellectual property and monopoly rights in the wireless universe. Microsoft did the same thing with its purchase of Nokia for $7.2 billion. Enforceable intellectual property rights can prevent other companies around the world from the creation of similar or derivative works for decades. This is why President Obama is willing to risk division within the Democratic party and push for the GOP version of a new trade agreement.

Intellectual property will be either the new bubble or the new wealth depending largely upon U.S. political and economic domination. Political uncertainty is why Krugman seems unsure as to whether the U.S. international investment position is a sign of weakness or strength.

... (reply omitted)

China is not dumb enough to agree to U.S. intellectual property laws. China will suffer only when the U.S. creates full employment by replacing the job killing payroll taxes. Eliminating the tax on jobs and giving workers more take-home pay will restore U.S. manufacturing.

The long range threat is the decline of the consuming middle class. The top 10% will have to settle for a slightly smaller percentage share of wealth in a much larger economy. The elite in the U.S. have 75% trending toward the global average of 87%. Wealth inequality has translated into less wealth.

... (reply omitted)

Bill Gates thinks that the tax on jobs harms job creation and salaries. So does economist Casey Mulligan. See "How Payroll Tax Cuts Can Create Jobs", NY Times, September 14, 2011.

A replacement of payroll taxes with a 4% VAT and/or other tax reforms does not require any change in Social Security benefits.


Prof. Krugman is right about the "intellectual property" focus of the trade agreement because it increases the "rent" or premium that can be charged for most U.S. exports. The trade agreement helps the owners of global C corporations but does little for other U.S. businesses.

Importers rely on labor to resell products and they are subject to the job killing payroll taxes and the insurance burdens under Obamacare. Exporters increasingly manufacture overseas and avoid U.S. tax and regulatory burdens.

Congress should be doing more to help U.S. workers and the best thing would be to eliminate the payroll taxes and impose a small 4% VAT. Every developed country in the world is adding a VAT onto our exports and we should return the favor while making U.S. jobs less expensive.

President Obama has been trusting big business and the GOP a little too much.


Professor Rogoff concludes his excellent article with, "the view that we have lived through a debt supercycle, marked by a severe financial crisis (Lo and Rogoff 2015), is far more constructive for policy analysis than the view that the world is suffering from long-term secular stagnation due to a chronic shortfall of demand."

His arguments about why inflation has been measured so low include the belief in the need for a, "true economic real interest rate; that would require a utility-based price index that is extremely difficult to construct in a world of rapid change in both the kinds of goods we consume and the way we consume them." As inequality expands it may be fanciful to think that a single price index, however weighted, could fairly reflect the different purchases of the top 10% (with 75% of the wealth) and the bottom half of the population (with just a 1% share of wealth).

Rogoff believes that in "the debate over the size of government, there is far too little discussion of how to make government a more effective provider of services". Going one step further, we might consider what services would be needed if full employment were established through payroll tax replacement and transitional jobs provided through charities. Rogoff's call for "higher taxes on urban land" to combat "inequality in wealth trends" ignores rent control as the source of market distortions.


Your Pick: Politics or Solution

Last March Bill Gates said he opposed the proposed increase in the federal minimum wage because of concerns about job losses. The CBO projected a 500,000 loss but a lower one dollar increase like that announced by McDonalds would have a negligible impact on jobs.

In any event, Mr. Gates suggested that all workers could be helped by a replacement of the payroll taxes. All would get an immediate 7.65% raise and that would increase demand through consumer spending. Jobs would also be 7.65% less expensive from an employer's perspective and that would reduce outsourcing and slow some job automation. Full employment and even higher wages would be encouraged. A 4% VAT and reduction in some business tax expenditures could secure Social Security funding for decades to come.

The more interesting political question is why a real solution gets no traction and Prof. Krugman sees the McDonald’s and Walmart announcements as the start of a movement, "to raise wages across the board." All that is needed is, "a moderate push ... to persuade much of American business to turn away from the low-wage strategy that has dominated our society for so many years". Krugman's "all that is needed" approach sounds like he is rallying the base for a presidential campaign with no chance of economic success but great political impact at the expense of the poor. Could Mr. Gates care more about workers than Mr. Krugman; or at least have a better solution?



"But that was prevented by the same people who now blame Obama for the delayed recovery."

Senator Schumer is in the "blame Obama" camp because the Democrats controlled both houses of congress for two years when they could and should have pushed through any fiscal and structural reform they wanted. Instead, Obama forced most political effort on Obamacare apparently believing that jobs would rapidly return as they had in much earlier recessions.

It is not too late for Democrats to make amends. The job killing payroll taxes could be replaced with a small 4% VAT and reduction of unnecessary business tax expenditures. The GOP would have a hard time saying no because payroll tax replacement is a good government issue and not a partisan one.


Two workers have the same desire for a phone but one is poor and the other comfortable. One needs credit to buy the phone but more traditional factors influence the other potential consumer. Forces beyond the control of either worker (like payroll taxes and the expansion of low wage jobs) cause their family wealth (and 62 million others) to slowly but substantially decrease by 75% over 20 years. A decrease in the volume of basic phone sales is more than made up by the sale of new high end phones every six months to the smaller upper class that have greatly increased family wealth as workers have declined.

One economist thinks demand is the same because total sales are about the same over 20 years and another thinks demand is different because the consumer base has been radically skewed. A third economist welcomes a 200 year revisit and more nuanced reflection of the concept of a, "general deficiency of demand".

Thomas Piketty now qualifies "r>g" as being more relevant to wealth trends and less so to long range changes in income. Admitting our ignorance is a wonderful thing.

Pope Francis has written eloquently about the "economy of the excluded" and suggested that it is something new in the economy that goes beyond historical poverty and inequality. It may be an economy of no demand and no escape unless the government's political view is larger than that of the market. It is also fitting to be reminded today of the patron saint of the excluded - St. Patrick.



If, like Prof. Krugman, you focus on monetary policy rather than structural reforms you will find it natural to read, "monetary policy can take over the job of achieving full employment", no matter how many years it takes to gain traction. When pressed on why not simply replace the job killing payroll taxes you might jump to the Fiscal policy chant as if big spending on union projects is the same as St. Augustine's prayer for delayed chastity.

We should do the right thing now and replace the payroll taxes with a small 4% VAT (the fairest business tax worldwide) and elimination of unnecessary business tax expenditures.


The difference between textbook economics and the real world can be seen by looking at the people behind the numbers.

The housing crisis was about doubling the number of single family homes while the number of married couples with children remained the same. It went against the liberal narrative to suggest that there could be economic consequences to pushing non-traditional families into single family homes. It was not politically correct to suggest that unmarried couples might be less stable of have less support from parents.

A failure to look at the people behind the numbers can also lead to a misreading of the current economy where family wealth increased from $56 trillion in 2010 to $83 trillion today. The prosperity has not been shared below the top 10%. The middle class has a 29% wealth share in 1995 and is down to 24% (rapidly trending toward the 12% global middle class average share).

Most theories of economics look to see if the totals and averages are up or down and rarely evaluate the economy by class. The current trends are dangerous to most of the population in spite of the enormous bubbles at the top.

Full employment with transitional jobs is the much needed solution.


B.F. Skinner's psychological assumptions made it clear that values, norms and beliefs never cause behavior. Complex reinforcements (laws, economic incentives, social rewards, etc.) tend to follow and reinforce behavior while producing feelings we associate with, "values, norms and beliefs". Behavior can be explained in terms of reinforcements which makes, "values, norms and beliefs" more or less a shorthand for shared experiences. This technology of operant conditioning was threatening to everyday politics and religion but is becoming less of a threat as artificial intelligence (AI) takes hold.

Turning to the social science question posed by Prof. Krugman he seeks to test, "the root cause of America’s poverty problem", by considering the, "black family and of African-American values more generally" as if white families of similar family wealth (a convenient shorthand for total positive reinforcements) must be different. Krugman concludes that similar, "values, norms and beliefs" of whites and blacks negates changing values as a cause of "social dysfunction" and implicates money (family wealth) as the cause. The problem is not just in the circular (chicken or the egg) reasoning but rather in Krugman's quaint and unscientific assumption that mental values rather than rewards can ever be the cause of any behavior.

The larger problem is in the "non-belief" that jobs can be guaranteed to all. It hasn't been done so it can't be done or it would have been done.


My Dumbness

Traditional inflation never grew out of control but family wealth continued to shrink for 90% while individual wealth increased from $56 trillion in 2010 to $83 trillion today.

Without inflation, it is hard to explain how families have gotten so far behind. A few did overspend on a house that went underwater. Many more young people (borderline college qualified) took out student loans which returned less earnings and high rates of default. Higher education has been inflated beyond the increase in tuition especially for students that will remain in the bottom of the class if they graduate at all.

Perhaps the largest inflation is tax inflation - the kind that taxes labor at 30% and lets investors pay only 15% or 18%. Workers pay on top of more regressive state and local taxation. It is also important to understand that this has little to do with tax rates and everything to do with tax expenditures (credits, deductions, special rates, deferrals and exemptions) which amount to $1.3 trillion a year - more than is raised from workers via the regressive payroll taxes. Obamacare adds a head tax for each worker in the form of a tax penalty or the price of insurance leaving no room for normal raises. The worker who needs a used car to get to work may be charged an extra $7,500 in interest payments while the government gives $7,500 to the rich man to persuade him to buy an electric car.

Inflation, like tax tricks, has morphed into something insidious and almost invisible.


"the falling fortunes of America’s workers are a choice, not a destiny imposed by the gods of the market."

The top 10% have 75% of U.S. wealth, the next 40% (the middle class) have 24% of family wealth and the poorer half have just 1%. Young adults don't even feel they have a choice to marry or make babies.

Only bold tax reform can reverse the trends. On a global level the richest 10% have 87% of the wealth and the middle class only have 12% of the wealth. The U.S. is trending strongly in this direction - like a train wreck as they say.

Our destiny can be changed with full employment (via payroll tax replacement) and transitional jobs at a little below private sector rates for each and every adult citizen that needs a job.


Prof. Krugman does a great service to identify Laffer, Kudlow and Moore both as "charlatans and cranks" and as "the three most prominent supply-siders". Harvard Professor Mankiw (George W. Bush’s chief economic adviser) has long warned of “supply-siders” who falsely promise that tax cuts would cause deficits to go down, not up. Of course, a cut in the capital gains tax rate could spur a temporary tax revenue increase from those that have borrowed against appreciated assets that might be sold off.

In any event, it is a bit over the top to suggest that Governor Walker has "pledged allegiance" to these charlatans and more extreme to suggest that these three old dogs have created Republican, "party orthodoxy". Senators Rubio and Lee are proposing tax reform with a top income rate of 35% - a number much too high to be invited to the dinner at the "21 Club". Other conservatives like James Capretta, a Senior Fellow at the Ethics and Public Policy Center, is pushing for a reduction in payroll taxes and researching improvements in health care. See https://www.aei.org/publication/cut-payroll-tax/

Of course there are spin doctors, like Bill O'Reilly, who present tax reforms issues like a "wealth tax" with a sociologist and this week spoke of a "flat tax" with ignorant fellow news anchors apparently to prepare the Fox audience for very low tax reform expectations in the 2016 race.


Payroll taxes are a noose around the necks of businesses and workers alike. They make jobs more expensive, reduce worker take-home pay and bankrupts the government that spends the money collected and never saves a dime for the retirement promises which come due tomorrow. In the U.S., the Social Security program, and later Medicare, seemed so good that few have examined and challenged the cancer of payroll taxes. Other countries have designed their systems with greater generosity for retirement age, health and other benefits. Unfortunately, payrolls are shrinking as a portion of business income and expanding rates are harmful. The combined 15.3 percent rate in the U.S. is awful and high enough to send jobs overseas; but the 44% combined rate in Greece is foolish enough to make France blush. No wonder the unemployment rate is 28% (and 60% for youth) in Greece.

Some say tax reform must include reduction in the payroll taxes and others see the need for complete replacement of payroll taxes. In the U.S. full replacement could be achieved with a tiny 4% VAT and an elimination of just some of the unnecessary business tax expenditures (deductions, credits, special rates, deferrals and exemptions). In Greece they already have a VAT and have no intention of taxing the shipping industry or cutting back on worker retirement benefits. Structural reforms with the income tax rates have also failed.


Intellectual property in the form of copyright and patents don't just protect the owners' profits. Intellectual property rights prevent competitors from making new derivative works and slow progress. Business competition is quite destructive and often hard to see and measure. In a capitalist society the destruction trickles down because competitors are legally prevented from competition. What is referred to as "middle-income status" is more likely the establishment of the "big fish" (i.e. global companies) that destroy local competition and free markets with intellectual property monopolies. This is also why there is so much secrecy around trade agreement discussions. The locals get jobs but the global companies own and exploit everything worthwhile.


The lesson of the Ayn Rand story has little to do with the specialty of monetary policy and much to do with crony capitalism, government corruption and government incompetence. The dramatic lesson is very much like the Obamacare in Mr. Gruber's narrative.

What is the harm if Mr. Gruber's narrative replaces Ayn Rand as the economic story Paul Ryan now finds worth remembering? Perhaps the reality makes the drama less far-fetched.

What could be the harm in an audit of the Fed and how can Sen. Warren and Prof. Krugman be so sure is would not be useful? It is politics, not money, that "makes crazy".


Taxing jobs (i.e. payroll taxes) is the worst way to help workers and create jobs. With a 44% combined payroll tax rate, Greece has a 28 percent unemployment rate (60 percent unemployment rate for young people). The few that make it to retirement hope for a good life paid for by high government taxation of workers (because few can save anything for their own retirement). Greece has not been willing to make structural reforms and might be better off leaving the EU and proving to the world what socialism can accomplish.


Not Quite Insurance

Prof. Krugman mentions, "social insurance programs" when they really do not exist. The language of "insurance" is only used to divert the masses from the regressive taxation of workers that ranges from 15.3 percent of payroll in the U.S. to 44 percent in Greece. The accounting fiction is not necessary as the almost 100 cosponsors of the Fair Tax Act know since they want to replace the regressive payroll taxes (and the income tax). While I am no fan of any sales tax, Bill Gates also thinks that the best way to help job creation and workers is to replace the payroll taxes. Unfortunately, it's hard to talk about more worker friendly tax reforms (elimination of tax expenditures, VAT, optional wealth tax, etc.) if economists and teachers like Prof. Krugman use terms like "insurance" to describe government retirement benefit programs. While the benefits can vary based on lifetime earnings it need not have anything to do with the taxes paid by the worker or employee into a faux "insurance" system.

The misuse of the word insurance also narrows the range of policy options that are needed to shift the cost of benefits from wages to the accumulated wealth of business owners. We need to end the real "long-run cop-out" that Mr. Obama refuses to address and which continues to harm workers and reduces the wealth of their families.


Ratner's Head Count or Guillotine

Mr. Ratner's solution of, "reducing head counts", is no doubt good for individual failing businesses but it is very bad for workers, their families and the countries involved. If Mr. Ratner is correct about there being, "ultimately, more jobs" with a more flexible private employment system then he will also understand why it should be cost effective to provide transitional jobs (at a little below private sector rates) to all. Why not eliminate the unemployed with jobs with nonprofits that will keep skills sharp and workers well exercised and trained as the private sector retools and is ready to put them to work. A shifting from the taxation of jobs (payroll taxes) to taxing accumulated wealth (much of it idle) will also accelerate job creation.

Mr. Ratner is confusing high labor costs due to high payroll taxes with high wages. He implies that the growth in U.S. GDP is due to keeping our workers on the chopping block. He admits that income inequality is bad and fails to mention that there has been a decline of 75 percent in family wealth over the last 20 years for the poorer half of the population. These families and the new generation coming of age is facing a crisis of family formation and child development worse than anything the world has ever seen.

The cost of keeping everyone employed is far less than the social cost of not doing so


We Are Greece

Greece has rearranged the income tax rate brackets. It hasn't helped. Of course it still refuses to tax its shipping industry. The slow sinking of Greece relates to the myriad of benefits funded by young workers to pay for retirement lifestyles.

An iceberg, particularly at a distance, looks small and harmless because its massive size is concealed underwater. Almost a hundred years ago a benign system of Social Security was devised to care for the elderly with a 3 percent tax on wages that promised to benefit us all. In Europe socialists were more generous but the basic structure of taxing jobs to fund the system was maintained.

Expecting the young to support the old may have been a natural way of life before legal abortion and increased life expectations began to strain the actuary tables. The combined payroll taxes in the U.S. have grown to 15.3% and in Greece they have reached 44%. Like a cancer Social Security taxes destroy good jobs and high rates of unemployment reduce wages and strain the system further. The larger harm in recent decades has gone unnoticed as family wealth of the poorer half of the population (low wage workers) has decreased by 75 percent. This has led to a crisis in family formation and child development.

The solutions can take many forms but all require a shift from taxing jobs to taxing wealth to support the [now retired] laborers that created it decades ago.



Perhaps gradually restoring family wealth would be the best course for families and the economy. Full employment and higher salaries can be created by eliminating the job killing payroll taxes. Social Security can be better funded with a new blend of taxes with low rates. Consumer spending can rebalance the economy from the bottom up.

A 4% VAT and 8% business income tax would be the most competitive in the world. For individuals a choice of a 26% income tax or an 8% income.and 2% net wealth (excluding $15,000 cash and 500,000 retirement savings) would let workers keep 92% of their pay ... until they accumulated real wealth

Over a decade the richest 10% ,might see their share of wealth decline from 75% to 70% but it could be part of a much larger economy and a substantial gain in absolute terms. The poorer half of the population now shares just 1% of wealth and this could increase by a factor of three or four.


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Copyright 1985 to 2015 by Eugene Patrick Devany