Go to 2015 Comments,
2014 Comments
http://krugman.blogs.nytimes.com/2013/12/31/cynical-fantasies/?comments#permid=10846091
It’s a "right-wing fantasy" that "programs instituted to
fight a slump inevitably become permanent".
If the so-called stimulus programs are simply more spending
on union labor projects that just happen to help the
Democrats in the next election it is not accurate to
describe "right-wing" opposition as rooted in "fantasy".
The only fear of "permanence" comes from ObamaCare - the
only major Democratic program intended to reform and
reinvigorate the economy after the Great Recession. The ACA
has reformed the health care markets and committed a lot of
public money to provide rather poor insurance (with large
co-payments and little doctor choice) to some previously
uninsured persons and left tens of millions without
insurance. In fact, the uninsured actually have higher
medical costs because the volume discounts encouraged under
the ACA not only limit patient choice to "discount doctors"
but also raise the rates for the uninsured who do not have
insurance discounts.
Of course, "governments care about their reputations, and
even, to some extent, about the welfare of their citizens."
The ACA was well intended but when it comes to fighting a
slump (and medical care, and digital medical records, and
religious coercion), the ACA has done much more harm than
good.
The "power of the printing press" is small potatoes when
jobs, wealth, procreation, privacy, health and religious
freedom can be so easily swept aside by government
incompetence and abuse. That's my two cents for 2013.
http://www.nytimes.com/2013/12/30/opinion/krugman-fiscal-fever-breaks.html?comments#permid=10839548
The New Economic Analysis:
Conflation and Confusion
All people should arguably be protected with a minimum wage
and unemployment insurance but there is no rational reason
to have the same rules and standards in every state and
city. Both the funding and the adjustments should be done
according to local unemployment rates and similar factors.
One might properly oppose extended unemployment at the
federal level and support it locally without being a "scold"
just as one might support reducing federal spending in some
areas (favored by liberals) while supporting increased
federal spending in other areas.
It appears that Paul Krugman enjoys attacking any
"deficit-cutting ideology" by conflating fiscal scolds,
usual suspects, GOP, austerians, and some news
organizations. They oppose tax increases (in point one)
while admitting that there has been too much increase in tax
revenue (in point two). They are apparently wrong for paying
attention to the co-chairmen of Mr. Obama’s debt commission
who warned that a severe fiscal crisis (point three) but
should believe the economics underlying Mr. Obama's other
policy issues (maybe health care or immigration reform or
minimum wage). Indeed we all need to be reminded that the
spend less crowd was wrong and more spending is needed, and
it must take place at the federal level (on almost any
liberal program) - well just because it does. They (and you
know who they are) just can't be trusted because of their
"Fiscal Fever".
http://www.nytimes.com/2013/12/27/opinion/krugman-the-fear-economy.html?comments#permid=10821139
Jobs for the Excluded
The comment that, "progressives lately, with some arguing
that populism and condemnations of inequality are a
diversion, that full employment should instead be the top
priority" is scary. This implies that even progressives
don't have employment as a priority or that it somehow was
removed from the agenda.
Progressives apparently accepted the trade-off that both
inequality and employment had to be put aside for the sake
of a poorly designed national health care agenda (and
immigration reform). Face it, volume discounts in health
care raise the rates of the uninsured; and a job given to a
non-citizen is one less job for a citizen. It seems
progressives are as cold in their analysis as conservatives
with both groups supporting policies that accomplish some
good for their side while causing real harm to others.
The "excluded" according to Pope Francis are those pushed
beyond the margins. They lack family wealth and work.
Desperation leads to violence. It is the reason our jails
are many and too full.
The "excluded" can be invisible. They are created by
reliance upon trickle-down economic theories and global
markets that create prosperity only for some. "[T]he culture
of prosperity deadens us. ... all those lives stunted for
lack of opportunity seem a mere spectacle; they fail to move
us"
We need to be moved. Eliminating the regressive, job killing
payroll taxes is a good place to start.
http://krugman.blogs.nytimes.com/2013/12/25/why-corporations-might-not-mind-moderate-depression/?comments#permid=10814009
Eliminate the Payroll Taxes
It has taken Christmas to put a human face on both the
employed and the unemployed. Even President Obama has
realized that family wealth is the key. When the cushion of
a modest savings is lost (as is the case with half the U.S.
population losing 70% of their net wealth since 1995)
millions of people will work for minimum wage jobs and those
a little ahead on the economic ladder will work for much
less. Wages have become a smaller percentage of sales
because business can get away with it in times of high
unemployment - particularly when family wealth is greatly
diminished.
The solution is to replace the regressive, job killing
payroll taxes (worst tax) with a revenue neutral value added
tax (best tax worldwide). This will help businesses with the
largest payrolls - a/k/a America's Job Creators. It will
also give workers an immediate 7.65% pay raise and stimulate
the economy.
http://www.nytimes.com/2013/12/23/opinion/krugman-bits-and-barbarism.html?comments#permid=10797583
"money meant
stuff you could jingle in your purse"
Me thinks
money meant something that could be hidden from the taxman -
true barbarism.
http://krugman.blogs.nytimes.com/2013/12/21/uber-and-the-macro-wars/?comments#permid=10790908
Plan for the
Next Big One
The
characterization of Truman Bewley's asking employers why
wages were not lowered in a recession as being, "novel on
the subject of wages" shows the gap between economists and
litigators, policy makers and other social sciences.
Economic theories developed before B.F. Skinner's technology
of operant conditioning in the 1960's must be suspect.
Human behavior
is largely controlled by positive and negative
reinforcements that operate very differently on our psyche
and are associated with different feelings. A wage reduction
is easy to perceive as a punishment which represses
behavior, engenders feelings of anger and can lead to
retaliation. At the very least, the good will of the worker
will likely be lost. It is thus better to eliminate jobs
entirely than to risk punishing the existing workforce.
In Germany
where worker committees and unions plan for downturns, it is
possible to agree in advance to salary reductions and/or
reduction in hours for all workers rather than layoffs.
Programs even exist for using the unemployment fund to
partially supplement reduced take home pay. Most
importantly, the workers do not feel they are being
punished.
Just as banks
must now plan how to liquidate in the event of a downturn,
the U.S. should require employers to minimize layoffs in an
economic downturn or pay higher unemployment costs.
http://krugman.blogs.nytimes.com/2013/12/18/the-three-stooges-do-westminster/?comments#permid=10768071
"The only
reason Britain isn’t suffering terrifyingly high
unemployment is the fact that, for reasons not clear,
productivity has collapsed"
It seems that
austerity holds back the economy a lot less than job killing
payroll taxes or low productivity for that matter.
http://krugman.blogs.nytimes.com/2013/12/18/the-non-death-non-spiral/?comments#permid=10772769
The Rules
Distort the Prices
Fair market
pricing is impossible to attain under the ACA rules. ACA
eliminates, "discrimination based on medical history" and
allows the insurance companies to exclude hospitals and
physicians that refuse to provide volume discounts.
Insurance
companies want to encourage healthy people and discourage
costly chronically ill. One way is to eliminate the doctors
and hospitals that have historically treated more expensive
patients. Insurance companies can do this by demanding
volume discounts which are so high that the most, but not
all, competent physicians and hospitals refuse to go along.
If a doctor is not an on the approved provider list the
insurance company will be less likely to worry about the
chronically ill patient applying for insurance. Under
scrutiny, the insurance company will contend that the
hospital or doctor was not cost effective and the doctor
will claim that they simply cannot afford to provide quality
care at the price offered by the insurance company.
The market
fails to work as it should because of the underlying volume
discounts (which actually raise rates for the uninsured). It
would be far better to prohibit volume discounts and require
physicians to post their prices so patients can shop
(knowing how much the fixed reimbursement will be under each
insurance policy). This would also restore doctor choice and
enable the more popular and successful doctors to charge a
little more.
http://krugman.blogs.nytimes.com/2013/12/17/the-facebooking-of-economics/?comments#permid=10764781
While snarky
analysis can sometimes quickly point out the error of our
ways it is always better to say, "smart things backed by
data". David Brooks takes the process a step further with
the story of his politically correct thought leader that
says it all so well but can't really tell good from bad (in
his own behavior and his subject). His resume is impeccable
but his commitment to truth seeking is far from the top of
his list. The political polarization of economics is similar
to the thought leader's approach in Brooks' article. The
bias does a disservice to economic epistemology and we never
quite know who to trust.
Indeed, the
listing of, "three classic economic debates — on the effects
of monetary expansion at the zero lower bound, on fiscal
multipliers and austerity, on the effects of high debt
ratios; the emergence of major new themes involving issues
like private-sector leverage and the need for safe assets;
and more, all strongly informed by data" may be but another
thought leader's attempt to shift, control and limit the
debate to matters that do not invite bipartisan or even
nonpartisan views of tax and policy reforms that would
jeopardize the thought leader's leadership.
http://krugman.blogs.nytimes.com/2013/12/16/health-expenditure-is-really-really-big-a-clarifying-note/?comments#permid=10756789
If all goes
well, health care spending of about $2.9 trillion will
increases 6% each year - fueled by unstable markets with no
fair way to match supply and demand.
Physician and
Clinical Services could be competitive if volume discounts
were prohibited and prices were posted (online) so patients
could shop for doctors.
Hospital care
is different. States strictly control not just the size and
location of hospitals but often the number of beds that may
be devoted to different specialties. Because patients often
have little choice the rates should be approved just as they
are for most utilities.
The price
competition among insurance companies is currently based
largely upon an insurer's ability to obtain volume discounts
from both hospitals and primary care providers. This is done
with the threat of exclusion from the insurer's approved
provider list and the loss of patients that will result.
Approved lists also cause patients to lose their doctors or
pay more for doctors not on the list. The uninsured (that
the ACA should help) have to pay inflated prices. Insurance
prices can be kept low by simply requiring a level playing
field even if it means including the non-discrimination
provisions for preexisting conditions and minimum coverage.
Insurers should compete on service (like maintaining digital
medical records), reimbursement levels and co-pays.
The new market
dynamics under the ACA rules may be shown to be unworkable
within 18 months after business insurance is priced.
http://www.nytimes.com/2013/12/16/opinion/krugman-why-inequality-matters.html?comments#permid=10746564
No Wealth No
Taxes
There is
inequality and there is something more extreme which Pope
Francis describes as the "economy of exclusion". Exclusion
goes beyond "exploitation and oppression" and might
generally be characterized as not having enough wealth and
income to support your family. Terrorism can offer false
hope to the powerless, abortions are justified solely for
economic reasons, marriages can be delayed indefinitely and
the elderly may be abandoned if they are poor.
President
Obama showed some real insight into the importance of family
wealth: "[M]illions of families were stripped of whatever
cushion they had left", "[T]he top 1 percent has a net worth
288 times higher than the typical family, which is a record
for this country", "[G]aps [in all social welfare measures
including education] are now as much about growing up rich
or poor as they are about anything else".
Exclusion is
by design. It is a known consequence of government policies
that depend on trickle-down theories which exclude growing
numbers from a life sustaining share of economic
opportunity.
Since 1995 the
poorer half of the population lost 70% of their net wealth
more or less gradually - not just as a result of the housing
crisis. The bottom 40% are bankrupt with negative net wealth
and minimum wage jobs can't pay the bills.
We need to
eliminate the job killing payroll taxes and reduce income
taxes on those who don't have modest net wealth (including
student loans greater than savings).
http://krugman.blogs.nytimes.com/2013/12/12/unprecedented-austerity/?comments#permid=10719180
Exclusion and
Austerity
Austerity can
be an issue about whether any government should borrow and
spend on capital infrastructure projects to stimulate the
economy. Most of these projects could and should be done at
the state level and the states have access to just about the
same low borrowing rates that the federal government has.
Oddly, it is
hard to find even blue states that are willing to spend
significantly more on infrastructure. Even states like New
York have taken a very different approach to job creation by
promising new companies that if they start a new business in
New York they can pay no taxes for 10 years.
New York's
approach shows that future tax revenue is not an issue. It
also shows that the economy as a whole and the public good
does not matter because the state tax expenditures are
designed to hurt job growth in neighboring states (like New
Jersey where Gov. Christie has shown some bipartisan
leadership and raised the minimum wage). Public money should
not be spent in a harmful competition with other units of
government. This type of interstate competition is just
wrong.
Perhaps
austerity is also the only defense to governments that spend
badly - causing unacceptable harm [ACA] to the public good.
Tax perks for
one business hurt their competitors. Veterans preferences
hurt non-veterans. Health insurance discounts hurt the
uninsured. The charitable deduction reduces private
investment in jobs. Pope Francis is right about the "economy
of exclusion".
http://krugman.blogs.nytimes.com/2013/12/11/upstairs-downstairs-outside/?comments#permid=10710703
Tax Reform
Designed with Women in Mind
The
outsourcing of domestic chores coincides with the
outsourcing of moms. The liberation of women and near
saturation of the workforce has also coincided with the
gradual loss of 70% of the net wealth of half the country
and depressed wages.
Our tax code
and programs like social security were designed at a time
when dad was the sole support of the family and the demand
for labor made sure that he earned a decent salary. It is
too late to turn back the clock but it is not too late to
realize that modest family wealth rather than income has
always been the key to economic and family stability. Net
wealth, such as that gained through home equity and 401ks
were the principal driver of consumer spending before the
Great Recession.
Tax reform
needs to focus on restoring wealth and decent jobs. The
biggest obstacle is the outmoded belief that net wealth
should not or cannot be a measure of tax liability. The
second biggest obstacle is the assumption that a net wealth
tax will soak the rich when it should be used as a much
needed option for the working poor and middle class.
Consider an optional 2% tax on average net wealth (excluding
$15,000 cash per person and $500,000 retirement funds)
paired with a low flat 8% income tax (and no job killing
payroll taxes of 7.65%). Anyone with a lot of wealth could
avoid paying the net wealth tax by paying a reasonable 26%
income tax rate (plus deferred capital taxes on gains, gifts
and estates).
http://krugman.blogs.nytimes.com/2013/12/09/counterattack-of-the-deficit-scold-deadenders/?comments#permid=10702747
Who will pay
back the long term national debt? Will it be paid by the
wealthy, by the bottom 50% which have a mere 1% of net
wealth or will we continue to pretend that only wages and
taxable income should be the measure. The GOP has approved a
deficit of 7.5% of GDP simply to pay for $1.3 trillion in
tax expenditures. Last week, even President Obama took note
that, "the top 1 percent has a net worth 288 times higher
than the typical family, which is a record for this
country". Eliminating the tax expenditures (and the deficit
that goes with it) requires a little imagination and real
tax base broadening.
Just for fun,
consider 99% of taxpayers choosing an “optional” 2% tax on
average net wealth (excluding $15,000 cash and $500,000
retirement funds) paired with a low flat 8% income tax and
no job killing payroll taxes. A higher 26% individual income
tax rate (plus deferred capital taxes on gains, gifts and
estates and no wealth tax) could be paid by anyone (but they
would likely be very, very rich). A 4% VAT on business would
also enable a reduction of the C corporation rate to 8% and
$2 trillion in foreign earnings would be repatriated.
The GOP is
fond of saying taxpayers should keep more of their own
earnings and should have fair choices. By shifting tax
liability to those with more wealth and allowing more people
to accumulate more wealth through low income taxes and no
payroll taxes, the 99% will pay back a larger share of the
debt. The wealthy should rejoice.
http://www.nytimes.com/2013/12/09/opinion/krugman-the-punishment-cure.html?comments#permid=10694706
Cold Turkey
Extended
unemployment benefits are for the long term unemployed - the
"excluded" as Pope Francis might say. Some have been pushed
into the ranks of the long term employed by well intended
programs like Veterans preferences which create a
non-veteran loser for every veteran given a job. A far
larger number of people suffer from high employment rates
due to misguided policies that keep inflation way too low at
the expense of employment. Even tax incentives like the
charitable deduction use $40 billion in tax subsidy to
encourage wealthy individuals to donate over $300 billion
that could otherwise be invested in private job creating
businesses. The worst job killer is the payroll tax that
makes U.S. labor about 8% more expensive than the market
would dictate and takes just under 8% of wages that could
better be spent boosting the economy.
Congress could
create full employment by replacing the payroll taxes (worst
tax) with a revenue neutral value added tax (best tax
worldwide).
Tax Reform
could add one to two million new jobs by limiting the $40
billion charitable deduction to charities willing to expand
their services with new employees.
The Fed could
allow higher inflation (2% to 4%) to reduce unemployment.
Instead of
eliminating extended unemployment benefits all at once
("Cold Turkey"), congress could reduce them gradually; or
Congress can
do nothing.
http://www.nytimes.com/2013/12/09/opinion/krugman-the-punishment-cure.html?comments#permid=10694706:10695519
To: Polsonpato
Without
payroll taxes even minimum wage workers get a take home pay
raise of almost 8%. That produces a lot of consumer spending
and becomes the demand the economy needs. U.S. jobs also
become 8% less expensive so there will be less outsourcing.
The states
have the same access to low interest loans as the federal
government. They do not need the federal government to
borrow and spend more on capital projects (or education).
[Of course some states would rather spend tax dollars from
other states].
"Trickle down"
economics works well at the top but most of us will need tax
reform. Just for fun, consider 99% of taxpayers choosing an
“optional” 2% tax on average net wealth (excluding $15,000
cash and $500,000 retirement funds) paired with a low flat
8% income tax and no job killing payroll taxes. A higher 26%
individual income tax rate (plus deferred capital taxes on
gains, gifts and estates and no wealth tax) could be paid by
anyone (but they would likely be very, very rich). A 4% VAT
on business would also enable a reduction of the C
corporation rate to 8% and $2 trillion in foreign earnings
would be repatriated.
http://www.nytimes.com/2013/12/06/opinion/krugman-obama-gets-real.html?comments&_r=0#permid=10676291
The Best Economic Speech of President Obama:
"ACA" - apologized twice for the ACA implementation - Should
we post prices and ban volume discounts that raise prices
for the uninsured?
"Wealth" - "the top 1 percent has a net worth 288 times
higher than the typical family, which is a record for this
country", "gaps [in social welfare measures] are now as much
about growing up rich or poor as they are about anything
else". - Should we study family wealth vs. taxes
[REDISTRIBUTION]?
"Francis" - "the Pope himself spoke about this at eloquent
length". - Will "The Economy of Exclusion" make Obama see
that his middle class focus is no longer enough?
"International Threat" - "combined trends of increased
inequality and decreasing mobility pose a fundamental threat
to the American Dream, our way of life, and what we stand
for around the globe". Should the phrase "American
Exceptionalism" be replaced?
"Political Power of the Poor" - "Ordinary folks can’t write
massive campaign checks or hire high-priced lobbyists and
lawyers to secure policies that tilt the playing field in
their favor". Should nonprofits be permitted to campaign and
engage in political speech for the poor?
"Straight White Males" - "pass the Employment
Non-Discrimination Act so workers can’t be fired for who
they are or who they love". Should we prohibit
discrimination not justified by legitimate business reasons
rather than giving legal rights only to certain protected
classes of people and union workers?
http://krugman.blogs.nytimes.com/2013/12/04/pres-vsps-and-the-ecb/?comments#permid=10669485
Economic and
Political Thought
Perfectly
Reasonable Economists (PREs) are said to exist, at least at
the ECB. This holiday season it would be nice for a PRE to
visit the U.S. and speak with our economists who seem to
believe that no economist should be more "reasonable" than
his or her political affiliation permits. In the U.S. each
economist authorized to publish in the media is expected to
brag about the success of his or her party's positions and
to back it up with data from Japan, France or any other
place that keeps a few records. Moreover any attempt to be
"perfectly" reasonable such as admitting the flaws,
shortcomings and unintended consequences of the programs
championed by one's own political party (or to point out any
common ground in the political discourse) requires removal
from the bipartisan VSP donation list and a visit to
employment Limbo - (just as a reminder of the rules).
The PREs at
the ECB have apparently been part of a thought experiment to
separate economic thought from the political independence of
many countries. This could actually lead to agreement on the
economic front and coerce reasoned political change. Of
course this would also upset those that profit from
inaction, stalemate, status quo or what we tend to call
congress.
http://krugman.blogs.nytimes.com/2013/12/03/unacceptable-realities/?comments#permid=10653298
Moral
Imperatives
The
"underlying desire to see market outcomes as moral
imperatives" echoes the words of Pope Francis about how
some, "people continue to defend trickle-down theories which
assume that economic growth, encouraged by a free market,
will inevitably succeed in bringing about ... inclusiveness
in the world". Market outcomes do not "inevitably succeed"
and the lack of "inclusiveness", is the focus of the
"Economy of Exclusion".
Prof.
Krugman's discussion of his hate mail relating to "health
care and monetary policy" provides insight into the
political thicket. The hate mongers contend that, "nothing
resembling a government guarantee of health insurance can
possibly work" apparently because the price of care is set
not by the workings of the market but rather by government
price controls (i.e. Medicare, Medicaid, workers
compensation, no fault, etc.) and vile contractual volume
discounts that must be given to health insurance companies
to get on the "approved provider" list. Volume discounts
create inflated prices for the uninsured - (the excluded).
Whether hate
or simply disagreement is in the mind of Prof. Krugman. It
may also be just fun to lump the right in the hate monger
category and contend that all civil disagreement ended when
the Supreme Court decided - (just as it has on the abortion
issue). Which brings us back to Francis and Catholics who
tend to split on the issues when they see the excluded and
the unacceptable unintended consequences.
http://krugman.blogs.nytimes.com/2013/12/02/immaculate-stability-wonkish/?comments#permid=10650514
Behavior
"[E]conomics
is about how people ... are motivated to take actions, and
how those actions interact." Rules and models can easily
fail when people (or some of them) are excluded.
Understanding, "what those equations are supposed to be
saying about the actual behavior of consumers and firms" is
critical.
Last week a
Jesuit priest name Francis was excoriated in the financial
press for his new theory labeled an "economy of exclusion".
He identified the shortcomings of "trickle-down economic
theories" not because of their reliance on the free markets
or the lack of economic growth but due to the growing
economic and political failure to extend a life supporting
share of the economy to the extremes. Francis claimed to be
speaking about, "something new" which is. "no longer simply
about exploitation and oppression". The exclusion of some
distorts rational behavior for all.
The "excluded
are no longer society’s underside or its fringes or its
disenfranchised – they are no longer even a part of it." The
economic exclusion and the desperation that comes with it
"kills" with misguided support for terrorism, abortion and
abandonment of the elderly. "Resources spent on law
enforcement or surveillance systems [cannot] guarantee
tranquility." The effects of exclusion may be worse for the
rest of us because, "the culture of prosperity deadens us.
... all those lives stunted for lack of opportunity seem a
mere spectacle; they fail to move us" - an "Immaculate
Stability" of sorts.
http://www.nytimes.com/2013/12/02/opinion/krugman-better-pay-now.html?comments#permid=10642325
Minimum Wage
on Top of the ACA
Prof. Krugman
should reconsider support for a minimum wage of $10.10 on
top of the ACA provisions. Should it matter if the business
is having a bad year or can't afford health insurance or
plans to reduce hours to avoid the penalty?
The historic
economic thinking is that hiking the minimum wage, "has
little or no adverse effect on employment". Unfortunately,
the "little or no" phrase is equivocal and no one is
considering the combined effect of coerced health insurance
and higher minimum wage - at the same time. Unemployment
could get worse and fledgling businesses could go under.
Business will also pass all the higher costs to consumers
with higher prices.
A better way
to help workers is to replace the job killing payroll taxes
with a revenue neutral value added tax (VAT). By reducing
payroll costs to all businesses, U.S. workers become more
attractive and labor intensive businesses (like restaurants,
manufactures and retailers) gain an advantage over large
corporations that profit with monopoly advantages and fewer
workers in the U.S. A VAT is the fairest way to apportion
taxes among different types of businesses and across
different taxing jurisdictions. A "revenue neutral" VAT has
no impact on consumer prices so it helps the poor without
hurting them.
Instead of
also advocating a higher tax credit (EITC) for the working
poor it would be better to simply tax them less in the first
place by eliminating suffocating payroll taxes.
http://krugman.blogs.nytimes.com/2013/11/30/new-thinking-and-old-books-revisited/?comments#permid=10634811
It seems that
the focus of macro is on the big picture that shows the
numbers and not the people. Macro is not the same as
behavioral economics and is clueless when it come to
politics - even if Prof. Krugman and his readers enjoy
mixing it up.
The "need
[for] a whole new field" may be more in the nature of a
suggestion for an interdisciplinary approach when the
specifics of the topic or problems call for it. For example,
I'm sure most would agree that political science, law,
ethics, public administration and even religion should have
a seat at the "tax reform" and "safety net" table. The "old
books" are a fine beginning for "trickle-down theories" but
lack the ability to quantify or even to see the human faces
and consequences at the extremes of economic analysis. A
vigorous change of approach is needed when we tackle the
real problems beyond the classroom.
http://krugman.blogs.nytimes.com/2013/11/27/the-trouble-with-economics-is-economists/?comments#permid=10620180
Theory,
Ideology or Ethics
According to
Simon Wren-Lewis, "We should also be more honest that our
wisdom might be influenced by ideology." What about economic
ethics?
The claimed
"need [for] different economists" may actually be need for,
"a non-ideological ethics [which] would make it possible to
bring about balance and a more humane social order"
according to Pope Francis just two days ago. He encouraged
all financial experts [i.e. economists] and political
leaders to ponder the words of St. John Chrysostom (407 AD).
"Not to share our own wealth with the poor is theft from the
poor and deprivation of their means of life; we do not
possess our own wealth, but theirs."
"[S]ome people
continue to defend trickle-down theories which assume that
economic growth, encouraged by a free market, will
inevitably succeed in bringing about greater justice and
inclusiveness in the world. This opinion ... never ...
confirmed by the facts, expresses a crude and naïve trust in
the goodness of those wielding economic power and in the ...
workings of the prevailing economic system."
"[I]nequality
provokes a violent reaction from those excluded from the
system ... [and] because the socioeconomic system is unjust
at its root." according to Francis. "A financial reform open
to such ethical considerations would require a vigorous
change of approach on the part of political leaders." Are
there any economists willing to say the problem is one of
ethics and will rather than Eco 101 theory?
http://krugman.blogs.nytimes.com/2013/11/27/the-case-for-techno-optimism/?comments#permid=10621732
It seems that,
"a persistent shortfall on the demand side" is a euphemism
for the fact that half the population will remain near
bankruptcy for quite sometime.
Pope Francis
said two days ago, "To sustain a lifestyle which excludes
others ... a globalization of indifference has developed.
Almost without being aware of it, we end up being incapable
of feeling compassion ..."
One may
consider the Pope less qualified to "pontificate" about
technology than Prof. Krugman who "tracks technology" and
sees that "smart machines are getting much better at
interacting with the natural environment in all its
complexity ... [and concluding] that a real transformative
leap is somewhere over the horizon" Pope Francis said, "This
epochal change has been set in motion by the enormous
qualitative, quantitative, rapid and cumulative advances
occurring in the sciences and in technology, and by their
instant application in different areas of nature and of
life. We are in an age of knowledge and information, which
has led to new and often anonymous kinds of power."
"This epochal change" seems to be a reference to "fear and
desperation, even in the so-called rich countries" and to
people forced to live "with precious little dignity". The
"anonymous kinds of power" could be a reference to "American
Exceptionalism" - that connotes business success to
Americans and unbridled power to many developing countries.
http://www.nytimes.com/2013/11/25/opinion/krugman-california-here-we-come.html?comments#permid=10603808
Sound Economic
Policy Still Needed
The ACA is not
"fundamentally sound policy" from an economic perspective.
It simply replaces state standards with overbearing federal
standards for health insurance policies, simplifies
intrastate competition among health insurers and coerces
employers and individual U.S. citizens to buy minimum
coverage and/or pay higher taxes. Tens of millions will
remain without insurance and the volume discounts to
insurers will keep the prices grossly inflated for the
uninsured who need health care.
Insurance
companies will keep 10% of the premiums and have no market
incentive to keep healthcare costs low. In fact, the little
competition among insurance companies (an average of eight
health insurers in each state) will be based primarily upon
each company reaching volume discounts with medical
providers or eliminating the doctor or hospital as a
participating provider. This will result in less doctor
choice for the patients, lower quality and discourage
innovation.
An
economically "sound policy" would prohibit volume discounts
that increase costs for the uninsured and require each
medical provider post fees for services (perhaps in an
online exchange). This may result in wealthy people paying a
little more (above the insurance reimbursement) for the very
best doctors but this could be a good thing. Malpractice
attorneys will make sure that no one gets substandard care.
http://krugman.blogs.nytimes.com/2013/11/23/bubblephobia-and-monetary-policy/?comments&_r=0#permid=10592677
Bubbles,
Bubblephobia, Bubble-Headed & Bankrupt
If "hard money
and hatred of the welfare state go hand in hand" for the
"right-wingers" than the hard money would push for
alternatives to the welfare state. Perhaps the hard money
quietly loves the welfare state because it encourages
minimum wages with job killing payroll taxes, and placates
the workers with supplements like food stamps, health
insurance and housing assistance. Lower consumer demand
could be a bargain compared with the cost of full
employment.
The
"secular stagnation" of high unemployment and low GDP can be
explained by the structural flaws that have devastated the
net wealth of the poorer half of the population. The
redistribution of wealth may have concentrated large gains
in net wealth in the top 10% but the cancerous damage has
been caused by the gradual reduction in the already small
share of net wealth for the poorer half of the population
going from 3% to just 1% over 20 years. This loss of family
wealth increases the numbers willing to work for very low
wages. The structural flaws of the tax code and safety net
policies are not amenable to the trickle down effects of
monetary policy and interest rates. Forty percent of the
population owe more than they own and billions in low
interest student loans have helped only a small percentage.
Easy housing loans are now out of the question and low
interest consumer loans are limited to those who don't need
the loan. Bankrupt families need a good job or two.
http://krugman.blogs.nytimes.com/2013/11/21/real-entitlement-reform/?comments#permid=10574747
Market Rates
for Health Care
Government
Medicare uses
the take it or leave it method of setting fees. With some
admitted oversimplification, if half the providers will
accept the fee set by the government then there should be
sufficient providers available.
Insurance
The ACA sets
uniform standards for three policy levels and forces all
health insurance companies in a particular state to compete
in terms of price for essentially uniform policy terms. This
new limited competition (with an average of eight health
insurers in each state) in the exchanges can be expected to
keep the costs of these particular insurance policies
competitive with each other but not necessarily the cost of
health care in general. The health insurance companies take
their profits from 10% of the premium and it is in their
economic interests to insure everything and everyone.
Profits increase as total health costs rise (as much as
possible) over time. Insurers will also pull out of states
that are not sufficiently profitable.
Providers
Large volume
discounts must be given to the insurance companies causing
health care and laboratory testing prices to be inflated for
the uninsured - the people the ACA was intended to help.
Ethics
Volume
discounts for professional health care services should be
prohibited. Prices should be posted (available online) just
as they are in supermarkets. It works in France. How else
can the market set honest prices for providers - especially
innovators?
http://krugman.blogs.nytimes.com/2013/11/20/social-security-and-secular-stagnation/?comments#permid=10565751
The call to
increase social security is a very good political
position to be taken by those Democrats who reduced
Medicare by $400 billion to pay for the ACA. The seniors may
hate the Democrats less with a $70 per month bribe. It will
also put the Democrats in a position of wanting to lift the
$114,000 income limit on payroll taxes - a good way to soak
the rich while denying any support for increases in the
income tax. Most importantly, the posturing will help to
prevent any real tax reform and the wealthy who benefit from
the status quo will have won again.
The relation
between social security and secular stagnation (high
unemployment and low GDP) is strained. If you really wanted
to help unemployment with social security funds it would be
better to use the money to lower the retirement age and let
younger workers have the (generally better paying) jobs.
http://krugman.blogs.nytimes.com/2013/11/19/monetary-and-fiscal-implications-of-secular-stagnation/?comments#permid=10564844
The "new
normal" of depression-like symptoms can be called "secular
stagnation" because it is rooted in a negative “natural”
rate of interest – (the rate at which desired savings and
desired investment would be equal at full employment).
Perhaps the rate is stuck below zero because of the negative
net wealth for 40% of the population - (just one result of
high debt). There is no way to reverse the gradual 70% loss
of net wealth over the past two decades with current
policies. Incremental increases in earnings merely go to
debt service.
The federal
funds rate can be kept low "forever" but this policy has not
overcome the core problems with unemployment and low GDP
growth. Inflation of 3 or even 4 percent may seem like a
reasonable tradeoff (if it will work) but a more direct tax
on net wealth could accelerate the loss of wealth if it were
paired with very low income tax rates and no payroll taxes.
An
"optional" 2% tax on average net wealth (excluding $15,000
cash and $500,000 retirement funds) could be paired with a
flat 8% income tax (and no payroll taxes) for about 95% of
the population. In the alternative, a higher 26% individual
income tax rate (plus deferred capital taxes on gains, gifts
and estates and no wealth tax) could be paid by anyone (but
they would likely be very, very rich). A 4% VAT on business
would enable a reduction of the C corporation rate to 8% and
elimination of payroll taxes (so combined business tax
revenue and consumer prices remain about the same).
http://krugman.blogs.nytimes.com/2013/11/19/another-taylor-rule/?comments#permid=10556463
Our purchases
are sharply divided by family net wealth. It would be nice
to see separate indexes for typical purchases by the top
10%, the next 40% and the bottom 50% (or perhaps five or
more indexes of equal purchasing volume by net wealth).
Aggregating
the prices for all consumers as if we live on the same block
is a very rough measure that continues to skew the picture
by overstating dollar volume and understating individual
economic decisions at the extremes. The 40% of the
population with negative net wealth just don't shop the same
way as people with real money.
Of course such
attention to detail is only necessary when the little people
make a difference - apparently not in monetary policy.
http://www.nytimes.com/2013/11/18/opinion/krugman-a-permanent-slump.html?comments#permid=10546127
The new normal
of high employment and "depression-like conditions" is a
safe bet. The "new normal" may actually be the decades long
result of the tax codes and safety net policies. Forty
percent of U.S. families now have negative net wealth (and
many are not considered poor).
A modest
economic leap can causally relate the gradual 70% loss of
net wealth for half the population to the conditions of the
new normal. Unfortunately, the causal connection might be
strained as soon as similar economic conditions worldwide
are compared. In haste one might conclude that the tax codes
cannot be the cause. Perhaps it is not the specific
government schemes of payroll taxes, food stamps, VAT,
social security, net wealth tax, trillion dollar tax
expenditures, etc. but rather how they combine in each
country to redistribute and concentrate net wealth. Indeed,
it may not even be an issue of the large sums concentrated
at the top but rather the point at which family wealth for
the majority of the population at the bottom is so drained
that young adults cannot afford to procreate, the elderly
cannot afford to retire and minimum wage looks good. The
market and life at the top can be supported indefinitely by
government.
One
way to restore family wealth in the U.S. is with 1) an
optional net wealth adjustment to the income tax [8% income
+ 2% net wealth -or- 26% income], 2) a revenue neutral VAT
replacement of the job killing payroll taxes and 3) a
nonprofit jobs program for those in need.
http://krugman.blogs.nytimes.com/2013/11/17/what-to-do-when-youre-wrong/?comments#permid=10546687
The "who’s who
of right-wing econopundits" warned that quantitative easing
would not "achieve the Fed’s objective of promoting
employment". They have been right about this primary
objective. The percentage of workers in the labor force has
not grown. The poor have gotten poorer as they say.
The right-wing
econ... , each and every one of them, now owe Professor
Krugman and his readers an apology because they also warned
about a "risk" of "inflation". Really? Rising prices exist
in the luxury markets - (the art world) but not for the
products sold to the bottom half of the population. The
wealth gap has caused the market to become increasingly
polarized, In the supermarket, as in the economy, there is a
growing high end and low end and shrinking demand for middle
priced items.
The liberal
economic policies are expensive but they apparently hold up
the sky. Without them we would ... never mind.
http://krugman.blogs.nytimes.com/2013/11/16/secular-stagnation-coalmines-bubbles-and-larry-summers/?comments#permid=10539611
Larry Summers
describes the core problems in terms of GDP falling behind
its potential and a lack of growth in the share of adults
working over the last four years. The “natural” rate of
interest – (the rate at which desired savings and desired
investment would be equal at full employment) – seems to be
stuck below zero at negative 2 or 3.
Long term
comparisons between the Great Depression and Great Recession
and with the robust decades of growth following World War II
suggest that net wealth, and particularly family wealth may
be critical. The tax codes have drained the net wealth of
the middle class and the poor for several decades. Half the
country lost 70% of their net wealth between 1995 and 2010.
The technology and housing bubbles may have affected some
more than others but, in aggregate, the loss of net wealth
was more or less gradual for those at the bottom.
Student loans,
mortgages and credit card debt leave the bottom 40% of the
population with negative net wealth. It is no wonder that
25% of the U.S. population will compete for low paying
minimum wage jobs and that 40% of workers earn $20,000 or
less (a sum which often requires food stamps and other
subsidies). Family wealth cannot be restored with current
policies.
We need 1) a
nonprofit jobs program, 2) a revenue neutral VAT replacement
of the job killing payroll taxes and 3) an optional net
wealth adjustment to the income tax [8% income + 2% net
wealth; or 26% income]. Details at TaxNetWealth.com
http://www.nytimes.com/2013/11/11/opinion/krugman-the-plot-against-france.html?comments#permid=10492509
France does
more for its citizens with fewer resources because it has a
blend of taxes including a VAT and net wealth tax. Over
reliance on the income tax base in the U.S. has created
regressive, job killing payroll taxes that need to be
replaced. Individual and corporate income tax rates are also
$1.3 trillion higher than necessary in order to accommodate
political tax expenditures that have reduced the wealth and
hindered economic mobility of the poor and middle class.
Unfortunately,
the French soak the rich with their wealth tax rather than
pairing a wealth tax with a very low income tax rate (and no
payroll taxes) to grow the middle class. In the U.S. an
"optional" 2% tax on average net wealth (excluding $15,000
cash and $500,000 retirement funds) combined with a flat 8%
income tax would be reasonable for more than 95% of the
population. In the alternative, a higher 26% individual
income tax rate (plus deferred capital taxes on gains, gifts
and estates and no wealth tax) could be paid by anyone (but
they would likely be very, very rich). A 4% VAT on business
would enable a reduction of the C corporation rate to 8% and
elimination of payroll taxes (so combined business tax
revenue and consumer prices remain about the same).
The payroll
earnings tax base has been shrinking compared to both net
wealth and sales tax bases. Tax base growth can provide
funds to pay down the debt without raising the low 2-4-8
rates.
http://www.nytimes.com/2013/11/01/opinion/krugman-a-war-on-the-poor.html?comments#permid=10415298
Wealth-Poor
The U.S. tax
code redistributes income and, over time, channels all
wealth to the top. Between 1995 and 2010 the poorer half of
the population gradually lost 70% of their net wealth.
Persons from wealth poor families now anxiously compete for
low and minimum wage jobs with little opportunity for
promotion. Today the U.S. has the highest percentage of low
wage jobs - 25%, and this has put a damper of the wages of
workers at all levels.
Congress has
done little to stimulate jobs and almost everything possible
to discourage jobs. The "best" jobs program was "cash for
clunkers" which produced a few thousand automotive jobs at a
cost of several billion dollars (about $1 million each).
Veterans credits give low paying jobs to veterans and extend
long term unemployment of others. Encouraging late
retirement reduces jobs for the young. Charitable deductions
reduce investment in private business. The ACA will help
hospitals and insurance companies (neither of which need
taxpayer help) and add nothing to the health care of the
poor - (at least they won't go broke - lol).
The combined
payroll taxes are regressive, job killers which could be
replaced by a revenue neutral value added tax to encourage
jobs and consumer spending without raising consumer prices.
Leaders in the GOP have at least supported a VAT (to reduce
business income taxes) but the Democrats are keeping the
poor under the bus with their clueless tax reform
suggestions and planned entitlement cuts.
http://krugman.blogs.nytimes.com/2013/10/28/the-confidence-gnomes/?comments#permid=10382880
The
"confidence fairy" doesn't visit those who are broke and
unemployed. Today most young people can't even afford to
procreate. Our "once-in-three-generation" economic crisis
has been preceded by a gradual 70% loss of net wealth for
half the population since 1995. It can all be attributed to
the direct and indirect effects of the tax code. The annual
redistribution of 7.5% of GDP (almost $1.3 trillion in tax
expenditures) has enabled the confidence fairy to visit just
the high earners because her visits have been financed with
$17 trillion in debt. Only the ineptitude of congressional
gnomes can keep her coming back - a good bet come to think
of it.
http://www.nytimes.com/2013/10/18/opinion/krugman-the-damage-done.html?comments#permid=10302249
"We should
also acknowledge the power of [bipartisan] bad ideas."
Consumer
confidence in the housing market was so high that bank
issued profitable construction loans to double the number of
single family homes and the Great Recession followed. The
GOP did not cause this.
The GOP was
not behind the ACA that has reduced the number of new jobs,
the weekly hours and the rate of pay for many.
The report's
focus on reduced discretionary spending (5.2% of GDP) while
ignoring the growth of tax expenditure spending (7.5% of
GDP) is arbitrary. To the extent the tax code does not give
the right tax breaks to the right people it is a bipartisan
problem.
The payroll
taxes are the biggest job killer and few could have
envisioned the growth from 3% to almost 16%. There has also
been a large decrease in payroll as a percent of business
income and GDP so the payroll tax base is shrinking. The
combination of high rate of unemployment, shrinking tax base
and fewer workers creates significant pressure for
entitlement reform. Delaying retirement age reduces jobs for
young people and lowering benefits reduces consumer demand.
Both the GOP and President Obama are said to favor these
"bad ideas". A better solution is to replace at least the
business portion the payroll taxes with a revenue neutral
VAT which would help U.S. job creation with no change in
consumer prices.
Immigration
Reform is the next "bad idea" for unemployed U.S. citizens.
The blame will be bipartisan.
http://krugman.blogs.nytimes.com/2013/10/17/what-a-drag-2/?comments#permid=10293130
Tax Policy
Drag
Bipartisan
Blame
The first
cause of fiscal drag relates to consumer confidence.
Overconfidence in the housing market did not work out well
10 years ago.
Reduced
discretionary spending is the second item, as if government
should manipulate the "free" market whenever consumer
spending goes down.
Professor
Krugman also identifies the 2% payroll tax hike as causing
"$200 billion of fiscal contraction" and a 1.25% reduction
in GDP.
All "fiscal
drag" is related to bad tax policy.
Consumer
confidence is primarily a function of wealth and the tax
code has redistributed all prosperity to the top 10%. The
poorer half of the population lost 70% of their net wealth
since 1995.
Government
"discretionary" spending must be viewed along with
off-budget "tax expenditure" spending which has grown to the
point of redistributing 7.5% of GDP each year. These give
always (credits, deductions, exemptions, deferrals and
special rates) are larger and growing faster than
discretionary spending - which represents only 5.2% of GDP.
The premature
ending of the 2% payroll tax holiday is small in comparison
to the broader need to end all payroll taxes (about 16% of
wages) which destroy U.S. jobs and comprise a decreasing
share of GDP. The President is foolish to think that future
Social Security and Medicare benefits should be reduced when
it is really the wage tax base that needs to be changed to
net wealth and/or VAT - bases that are larger and will grow
faster than wages.
http://krugman.blogs.nytimes.com/2013/10/15/five-on-the-floor/?comments#permid=10281102
In the new
normal of our topsy-turvy world, an individual net wealth
tax could effectively change the lower bound to stimulate
investment. According to the paradox of thrift if people cut
their spending and the Fed can’t offset this move by cutting
interest rates, the economy will contract and investment
actually falls. If instead of using low interest rates as a
carrot the government used a net wealth tax as a stick (as
in "use it or lose it") the incentive (actually a negative
reinforcement) to invest remains even if interest rates went
to zero.
The potential
spenders need a modest amount of wealth to spend and this
can be readily accomplished by a reduction in payroll and
income taxes. The very large scale individual investors
don't need the same kind of incentive and for this reason
the net wealth tax can be optional.
[Wonkish] An
"optional" net wealth tax is a fairer way to tax individuals
based upon ability to pay. A 2% tax on average net wealth
(excluding $15,000 cash and $500,000 retirement funds)
combined with a flat 8% income tax (and no job killing
payroll taxes) would be reasonable for more than 95% of the
population. An optional 26% income tax rate (plus deferred
capital taxes on gains, gifts and estates) could be elected
by anyone. A 4% VAT could also reduce the C corporation rate
to 8%.
New U.S. jobs
would again become a good investment.
http://krugman.blogs.nytimes.com/2013/10/11/notes-on-interregional-and-international-trade/?comments#permid=10238985
Before the
legal expansion of intellectual property to methods of doing
business and software, "monopolistic competition" tended to
be geographic like a local public utility. Google purchased
Motorola Mobility for $12.5 billion because Motorola had a
library of patents that now enables Google to better take on
Apple and other players in the international wireless
communications market. More recently Microsoft paid $7.2
Billion for Nokia for the same reasons. The new intellectual
property monopolies have not just the ability to keep
competitors at bay but also have the legal ability to shift
tax liability to subsidiaries in tax haven countries. Even
Starbucks can reduce local taxes in a particular country by
inflating a coffee royalty fee that must be sent out of the
country as a cost of doing business.
Corporations are not people. They can be formed (and
dissolved) anywhere in the world on a moment's notice.
Assets are shifted with the stroke of a pen faster than
anyone can say, "tax reform". The value of intellectual
property in the U.S. has been so underestimated that GDP is
being redefined to add about 3% (retroactively). Businesses
that tend to profit most from intellectual property also
tend to have a proportionately lower payroll. They are not
America's job creators. They are America's cash machines.
http://krugman.blogs.nytimes.com/2013/10/10/automatic-destabilizers/?comments#permid=10227410
Wall Street
economists have to take their predictions seriously, but
academics can say things like, "we could be looking at a 10
percent decline in GDP, and a 5 point rise in unemployment,
even if interest is paid in full." It is just political
puff, since the GOP has no intention of allowing a default -
no matter how much the President wants to spend.
Both sides
seem to be ramping up the last minute drama to force
concessions on bad tax reform and benefit cuts for the
underclass. Hysterical economic predictions like the one
above, feed into congressional haste and bad policy
decisions. We don't need another sequester deal.
The White
House meeting on the budget and debt stalemate needs a
solution that makes all sides look good. The $40 billion
charitable deduction offers an opportunity to create more
than a million new full and part time jobs by simply
limiting the deduction to those charities willing to create
new jobs. The jobs would pay a little below the private
sector rates but could range from basic to professional -
whatever the charity needed to expand services.
http://krugman.blogs.nytimes.com/2013/10/09/they-cant-handle-the-truth/?comments#permid=10226647
Today,
"Republican leaders trying to extract themselves from the
box they’re in". Try thinking out-of-the-box with a million
new jobs.
The White
House meeting on the budget and debt stalemate needs a
solution that makes all sides look good. The $40 billion
charitable deduction offers an opportunity to create more
than a million new full and part time jobs by simply
limiting the deduction to those charities willing to create
new jobs. The jobs would pay a little below the private
sector rates but could range from basic to professional -
whatever each charity needed to expand services.
The Tea Party
could claim that they did something to offset the job losses
caused by the ACA.
The Democrats
could point to a jobs program that will reduce Food Stamp
spending.
The
Republicans could point to a model program that creates jobs
without raising taxes or increasing spending.
The President
can speed up the economic recovery (without favoring union
jobs).
Large donors
will know their gift is putting people back to work.
Service
charities will expand their good deeds.
The public
will regain some faith in good government.
http://www.nytimes.com/2013/10/07/opinion/krugman-the-boehner-bunglers.html?comments#permid=10194225
The Tea Party
activists are credited with eliminating pork and earmarks to
pass legislation in congress (like the ones used to pass the
ACA). The activists want tax reform that eliminates most of
the $1.3 trillion in tax expenditures that distort business
decisions and primarily favor the high earners and
investors. The activists also want to stop the loss of jobs
and hours caused by the ACA.
In fact, when
it comes to jobs and the economy there is much room for an
alliance between the Tea Party activists and traditional
Democratic objectives. The unprecedented intransigence of
Mr. Obama has diminished hope for compromise and turned
standard congressional posturing into media brinkmanship by
reason of the automatic shutdown of government.
The pending
default is something which Speaker Boehner can and will
prevent. The GOP will raise the spending limit, reopen the
government and give the Democrats more snowballs in winter.
The GOP and the rising stars of the Tea Party activists will
live to fight another battle.
No
knowledgeable Democratic is happy with the ACA and the
public has a much better idea of its shortcomings thanks to
Sen. Cruz. The Democrats can point to the ACA as their only
dubious accomplishment. The poor and middle class deserve a
lot more.
http://krugman.blogs.nytimes.com/2013/10/05/governing-the-worlds-greatest-nation/?comments&_r=0#permid=10180556
Fix the Damage
with Jobs
The
Republicans need a face-saving compromise from the
Democrats. Perhaps a bill could mitigate the damage to
worker hours attributed to the ACA and both Republicans and
Democrats can take some credit.
Putting people
back to work by simply reopening the government is too
obvious and might not meet the face-saving need of the
Republicans. Moreover, the solution cannot favor union jobs,
increase the minimum wage, increase government spending or
increase total tax revenue.
One or both of
the following suggestions meet all the criteria mentioned:
Payroll Tax
Reform
Casey
Mulligan, estimated in September 2011 that each,
"percentage-point reduction in employer [payroll] costs
raises employment by about a percentage point and real gross
domestic product by about 0.7 percentage points." If
congress replaced the business portion of the job killing
payroll tax - (almost 8%) with a revenue neutral 4% VAT (the
lowest in the developed world) jobs would be encouraged with
no change in consumer prices.
Not-for-profit
Jobs
If the $40
billion charitable deduction were simply limited to
donations to charities willing to expand their services with
new full and part time jobs we could create more than
1,000,000 decent new jobs. The not-for-profit jobs would pay
a little below private sector rates but could range from
entry level to professional - whatever the charity needed.
The new job earmarks would only apply to the taxpayer funded
portion of the donation.
http://krugman.blogs.nytimes.com/2013/10/01/what-they-say-versus-what-they-mean/?comments#permid=10145996
Economic
Certainty: The Underclass Will Grow
For many
decades the rich have gotten richer and the poor have gotten
very much poorer. Half the population gradually lost 70% of
their net wealth in less than 20 years. This trend continues
even if the extent of the decline is a bit uncertain.
People with
low wealth are desperate and they accept low paying, minimum
wage jobs that make it hard to save and restore the family
wealth that has been lost. At 25%, the U.S. now has the
largest percentage of basic, low paying jobs of all
developed countries. This may be the single best measure of
"economic desperation" - (a close cousin of "economic
uncertainty"). Safety net incentives like Food Stamps (SNAP)
are designed to placate the working poor, help their
employers keep wages low and most of all - ease the
conscience of liberals. After all, Food Stamps, and now the
ACA, are designed to make poverty tolerable even at the
expense of a significant reduction in upward economic
mobility and enlargement of the permanent underclass. Good
politics generally trumps sound economics.
When and if
the wealthy have to pay the tax bill for the growing debt
and the Democratic largess, the GOP will cry uncle. For now,
that kind of tax reform remains an "economic uncertainty" or
more accurately an "economic long shot". The poor may no
longer have wealth to steal but their future benefits can
always be reduced to pay for the current needs. The rich are
doing just fine with the trend.
http://www.nytimes.com/2013/09/27/opinion/krugman-plutocrats-feeling-persecuted.html?comments#permid=10097247
It is
refreshing for an economist of stature to come out in public
and label a tax expenditure (carried interest) as
"redistribution". The preferential treatment for high
earners has not been considered redistribution because it is
said to let high earners keep more of their own money
(notwithstanding that the poor must then pay more).
It is hard to
imagine how the poor and lower middle class could run their
families with just 5% of the country's wealth. In 1995 the
share was reduced to 2.8% and today it is only about 1%.
With so many families living near bankruptcy there is
surprising growth of basic minimum wage and part time jobs.
In fact, the U.S. now has the highest level of basic, low
paying jobs in the world (24.8%). If wealth were more evenly
distributed the workers would demand more as they did in
years past.
Maybe if we
can agree that the tax code has redistributed wealth, than
tax reform needs to encourage wealth restoration. This can
be done by eliminating the job killing payroll taxes, taxing
income at a low 8% and net wealth at 2% (excluding $15,000
cash and $500,000 retirement funds). Moreover, the wealth
tax could be optional for anyone willing to pay a 26% income
tax rate (and defer capital taxes on gains, gifts and
estates). C corporation rates could also be 8% with a 4%
VAT.
Wealth
restoration has been considered off limits by all of the
presidential tax reform and congressional tax reform study
bodies. Economists are quite timid about the subject.
http://krugman.blogs.nytimes.com/2013/09/25/bubbles-regulation-and-secular-stagnation/?comments#permid=10083283
"... there is
a case for believing that the problem of maintaining
adequate aggregate demand is going to be very persistent."
Between 1995 and 2010 the bottom half of the country
gradually lost 70% of their net wealth. Household
liabilities peaked because tens of millions became bankrupt
or near bankrupt. Some relates to residential house prices
but much of the debt for the poor and lower middle class
consists of student loans.
For demand,
the ratio of net wealth to disposable income is critical.
This is why it is the poor really need a net wealth tax.
An "optional"
net wealth tax is a fair way to tax individuals based upon
ability to pay. A 2% tax on average net wealth (excluding
$15,000 cash and $500,000 retirement funds) combined with a
flat 8% income tax (and no job killing payroll taxes) would
be reasonable for more than 95% of the population. [The
poorer half of the population would pay just 8% on wages
while avoiding 16% in combined payroll taxes]. An optional
26% income tax rate (plus deferred capital taxes on gains,
gifts and estates) could be elected by anyone who wants to
avoid a net wealth tax.
For businesses
taxed as C corporations, the income tax rate could also be
lowered to 8% with a small 4% VAT. The VAT would offset the
revenue now collected by the higher income tax rates and the
business portion of the payroll taxes - negating any change
in consumer prices.
http://krugman.blogs.nytimes.com/2013/09/23/attack-of-the-killer-hipsters/?comments#permid=10064983
The Real
Endgame: ACA or Tax Reform
The ACA is
"affordable" because 25,000,000 new health insurance
policies (or whatever the number turns out to be) will be
subsidized by the government with tax dollars and debt. This
enormous expense will be reapportioned by tax reform and the
GOP will make sure that those at the top don't pay for the
Democratic largess.
It is the
Democrats that have no endgame when it comes to tax reform.
As Obama concentrates on the ACA and the public fumbles with
the exchanges, the GOP can be expected to throw a sucker
punch disguised as parameters for tax reform. The health
insurance will not seen so affordable when workers are taxed
to pay for their own insurance and additionally taxed to pay
for the insurance of millions of people who don't have jobs
(because business cannot afford the mandatory benefits). It
will hurt the poor and middle class for decades to come -
far more than a repeal of the ACA.
It may be too
cynical to suggest that the GOP really doesn't care about
the ACA as long as those at the top can avoid paying for it.
Passing new costs to businesses simply shifts the costs to
consumers in a regressive manner. This hidden tax on
consumers, (like the combined 16% payroll tax), is rarely
considered by the public. It is always overlooked by
congressional tax reformers when they consider what can
fairly be expected from each income group.
http://www.nytimes.com/2013/09/20/opinion/krugman-the-crazy-party.html?comments#permid=10032665
Delay the ACA
"Obamacare
can’t be defunded," according to Krugman (and Rove). The
public does not understand how the poor have survived
without insurance. Hospitals provide care for free in
exchange for limited competition and generous tax breaks.
There are also malpractice attorneys available for free to
anyone that does not receive proper care. The wealth of
hospitals has grown and the hospitals can afford to continue
to provide free services.
Health
insurance protects the wealth of those who have wealth but
it is of no "financial" value to the poor. [We don't keep
collision insurance on an old clunker]. Keep in mind that
half of the U.S. population lost 70% of their net wealth and
now live on only 1% of the country's assets. The insurance
approach is of limited value to the poor when they cannot
even afford the co-payments. Public clinics work.
If the
government had a large surplus and had not run out of money
the trade-offs would be less urgent. Unfortunately, the cost
of health insurance is reducing full time jobs. The reality
is that tens of millions of the poor would rather have jobs
than health insurance - but the Democrats too often seem to
think they know what is best for everyone.
Compromise
reforms like "no insurance discrimination for preexisting
health conditions", "extended family coverage for older
unemployed children", "insurance across state lines", better
care for the poor at hospitals and clinics; and tort reform
may be possible.
http://krugman.blogs.nytimes.com/2013/09/18/things-come-to-a-head/?comments#permid=12
There is a
difference between stopping existing services and delaying
new, nonessential ones - like health insurance (for those
who have gotten along without it for most of their lives).
Hospitals have
more than doubled their net wealth in the last 10 to 15
years even though they provide free emergency health
services to the poor. They do not need Obamacare to continue
to provide this service because of their local monopoly and
many tax breaks.
The big health
insurers stand to gain a large profit from Obamacare but
surely this could be delayed if the country is running out
of money. "GOP craziness" may exist but there are many
Democrats who also believe full employment and tax reform is
more urgent than a wasteful rush just for the sake of
preserving the legacy of President Obama. We all learned
this month in regard to Syria, that the President can be a
bit hasty and many parts of the ACA have already been waved
or delayed.
Perhaps the
Democrats will accept a delay for the sake of the economy
and spin it into a Democratic victory. The "crazy" GOP might
even throw in a bone like "no insurance discrimination for
preexisting health conditions" or "extended family coverage
for older unemployed children".
http://krugman.blogs.nytimes.com/2013/09/13/wynne-godley-and-the-hydraulics/?comments#permid=10
Mr. Wynne
Godley, "had barely any formal economics training" and
perhaps that is why he focused on likely, rather than
rational human economic behavior. Job creation after the
Great Depression with a payroll tax of just 2% is not the
same as job creation with a 16% payroll tax. When half the
population looses 70% of their net wealth in less than 20
years there are structural distortions. 7.5% of GDP is
redistributed through tax expenditures and mathematically
"rational" economic choices no longer exist for most.
Using Godley models, the Levy Institute reports difficulty,
"in convincing economic leaders of the nature of the main
problem: insufficient aggregate demand." Perhaps those at
the top have prospered so much they cannot understand why a
minimum amount of family wealth may be needed by all to
encourage marriage and childbirth. The predictable aggregate
demand that flows from the most basic of human institutions
may have been pushed beyond tolerable limits not just by
family planning but also by poverty, unemployment and debt.
Apparently the Levy Institute is trying to reach the same
economic leaders that were convinced 10 years ago that there
is nothing wrong with banks making profitable residential
construction loans even if the pace of construction far
outpaced marriage and childbirth. It is always hard to
predict when a sector (or congress) will act irrationally -
but they do from time to time.
http://krugman.blogs.nytimes.com/2013/09/12/insurance-company-with-an-army-blogging/?comments#permid=88
"[T]he US
spends twice as much on health care as other advanced
countries, ... and that disparity is the result of
private-sector, not public-sector, waste".
In regard to
health care there is a for-profit private sector and a
not-for-profit private sector that dominates most hospital
care. As part of the hospital monopoly the poor are provided
with free care while hospitals avoid taxes and enjoy
donations. As long as the poor have treatment they do not
need health insurance (because they have no wealth to
protect). Giving health insurance to the poor is wasteful.
In 2000 nonprofits, including hospitals, had twice the net
wealth of half the country and today they have eight times
the net wealth of half the U.S. population. Hospitals are in
a very good position to continue to provide emergency
treatment to the poor.
The tax code
has taken the wealth of the poor and their jobs. The
Democrats in congress have figured out a way for insurance
companies and hospitals to profit from the poor rather than
figuring out a way to give them the help they really need -
good jobs. The ACA is "Democratic-sector" waste.
http://krugman.blogs.nytimes.com/2013/09/12/good-times-at-the-top/?comments&_r=0#permid=25
The income of
the "flourishing ... elite" is all too often just an
election as in the planned choice to convert the
appreciation of capital into taxable income. Warren Buffet
can get richer by $3,000,000,000 each year with income of
only $40,000,000. Income taxes on foreign profits can be
paid at will - if and whenever the money is repatriated.
Nevertheless, the ability of the wealthy to defer taxes
becomes a serious problem only when deferral becomes
avoidance.
Some call for
raising the highest income tax rates or even for soaking the
rich with a net wealth tax. A better solution would keep
income tax rates very low with a small adjustment for
accumulated net wealth.
An "optional"
net wealth tax is the best way to replace the 16% payroll
taxes and a fair way tax individuals based upon ability to
pay. A 2% tax on net wealth (excluding $15,000 cash and
$500,000 retirement funds) combined with a flat 8% income
tax would be reasonable for more than 95% of the population.
[Half the population would pay just 8% on wages, avoid 16%
payroll and pay no tax on net wealth]. An optional 26%
income tax (plus deferred capital taxes on gains, gifts and
estates) could also be paid by anyone who wants to avoid a
net wealth tax. The C corporation rate could also be lowered
to 8% with a small 4% VAT.
Tax liability
should adjust according to net wealth and ability to pay but
this can coexist with a system where investors can choose to
defer (but not escape) some of their tax liability.
http://krugman.blogs.nytimes.com/2013/09/11/toxic-inequality/?comments#permid=72
"those not
born into the upper tier are, and know themselves to be, at
a huge disadvantage"
Those who
attend Harvard Business School know the disadvantage but
ignorance is bliss outside the top tier universities and the
business/economics majors.
http://krugman.blogs.nytimes.com/2013/09/10/the-wonk-gap-and-the-debt-ceiling/?comments#permid=23
Hospitals
provide emergency care for free so a delay in the Affordable
Care Act will not hurt people in need of hospital care.
The delay will
help job creation and is a priority for those who believe
high unemployment is more harmful to millions of families
than no insurance is to the largely healthy, uninsured
families sitting at home with no job.
The ACA never
should have been passed with the unemployment rate so high
and its implementation should be delayed until full
employment is achieved. Unemployment is like an illness that
desperately harms all involved whereas being uninsured only
has an impact on the relatively small number of individuals
that require services that cannot be obtained in a hospital.
For
most of the middle class health insurance is a means of
protecting their family wealth from being drained by health
costs but for the poorer half of the country there is no
wealth to protect. The cost of health care for the bottom
50% of the country is more than the value of all the net
wealth of the people it is designed to protect. It is a
waste of money from an insurance-economics point of view and
it helps to make the poor poorer. The insurance companies
and hospitals which will soon avoid free care for those in
need are the only winners.
http://www.nytimes.com/2013/09/06/opinion/krugman-years-of-tragic-waste.html?emc=edit_tnt_20130905&tntemail0=y&_r=0
Tax Reform
"Stimulus": Eliminate Payroll Taxes and Tax Expenditures
Combined
payroll taxes in excess of 15% result in fewer U.S. jobs and
lower wages. The payroll tax on wages is not the best way to
fund social security and Medicare and it is an important
reason why recovery from the Great Recession has been more
difficult than recovery from the Great Depression.
The tax code
also contains $1.3 trillion in tax expenditures which
redistribute 7.5% of GDP each year. This is larger than the
entire federal discretionary budget which is only 5.2% of
GDP. The tax expenditures for the working poor are needed
because even the lowest 10% and 15% income tax rates are too
high when it is on top of 15% payroll tax on wages. The tax
expenditures are needed for business and high earners
because the top marginal income tax rates are considered too
high above 30%.
A net wealth
tax of just 2% (excluding $15,000 cash and $500,000 in
retirement funds) could produce almost half of the federal
revenue and enable a flat income tax rate of just 8% (with
no payroll taxes). A net wealth tax is so good it should be
"optional" by allowing any individual taxpayer and business
to elect a higher 26% income tax rate now and deferred taxes
on wealth later (capital gains, gift and estate taxes). A 4%
VAT would enable the C corporation rate to be reduced to 8%
with no increase in consumer prices.
A flat 26%
income tax is close to the GOP ideal and complements an
optional 8% income tax rate for workers (who will pay more
as their net wealth increases).
http://krugman.blogs.nytimes.com/2013/09/03/the-austerian-mask-slips/?comments#permid=25
With its
economy just coming out of recession, Socialist France
offers lessons in political choice and responsibility. It
may be less about France's balancing the budget and more
about the tax bases on which it relies. With taxes on
income, wealth and consumption; one would at least expect
low rates but that is not the case. Income can be taxed
above 45%, the VAT is in the high teens and wealth taxes of
1.8% soak the rich. A carbon tax is planned.
The concern,
"about using hyperbole about the dangers of debt to
dismantle the welfare state" sounds less true with respect
to France than it does for the U.S. For each country the
political issue is not just how much welfare does the
majority want but also how much can it afford. France is at
its limit but the U.S. has wealth to burn on defense while
half the population now suffers with only 1% of the nation's
assets -(a 70% loss of wealth from 1995).
With a net
wealth tax of just 2%, a VAT of just 4% and individual and
corporate income tax rates of just 8% the U.S. government
could eliminate the job killing payroll taxes and have more
tax revenue than it needs. In other words, if the U.S.
expanded its tax bases, it could provide significantly more
"welfare" with much lower tax rates than France. If the U.S.
continues to rely primarily on income, including the payroll
taxes, most of the "welfare" will continue to be given to
the wealthy in the form of tax expenditures.
http://www.nytimes.com/2013/09/02/opinion/krugman-love-for-labor-lost.html?comments#permid=177
Professor
Krugman falls into the language trap (as we all do) when he
defends the, "great majority of this newly defined army of
moochers consists of working families that don’t pay income
taxes but do pay payroll taxes". Most honest government
reports recognize that a worker's income tax liability
includes not just his portion of the payroll tax but also by
the employer's portion of the payroll tax - about 15%
(combined) plus another 15% or more on earnings over
$17,000.
My interest in
recognizing the social security and Medicare revenues as a
real part of the income tax is reality based and part of a
broader effort to make elimination of the "payroll" taxes a
part of tax reform. The approximately 15% tax on U.S. labor
income is a job killer and it could easily be replaced or
reduced by a revenue neutral value added tax (VAT). A few
years ago Rep. Paul Ryan called for an 8 1/2% VAT to
entirely replace the C corporation income tax rate – but
there was no plan for the pass-through corporations.
A 4% VAT for
both C corporations and pass through corporations could
replace the business portion of the job killing payroll
taxes and encourage domestic labor. Reducing the U.S. tax on
labor would help businesses to create more jobs in the U.S.,
pay for benefits like health care, and/or increase wages. A
VAT is considered the fairest way to apportion taxes among
different types of businesses and across different taxing
jurisdictions by every developed country in the world.
http://www.nytimes.com/2013/09/01/opinion/sunday/labor-then-and-now.html?comments#permid=110
The wealthy
need to support, "pro-labor policies that have been
overlooked for decades.", but there are much better ways of
creating opportunity and economic mobility than raising the
minimum wage.
If the $40
billion charitable deduction used by the wealthy were simply
limited to charities willing to expand their services with
new full and part time jobs the country could create over
1,000,000 new jobs with no additional expense to the
government. The jobs would pay a little below private sector
rates but could range from entry level to professional -
whatever the charity needed.
Another no
cost solution is to simply replace the business portion of
the job killing payroll tax with a revenue neutral 4% VAT
(the lowest in the developed world). Millions of better
paying jobs would be created with no increase in consumer
prices. A VAT is considered by all developed countries to be
the fairest way to apportion tax among different types of
business and across different taxing jurisdictions.
Bold
tax reform that includes an "optional" 2% tax on net wealth
(excluding $15,000 cash and $500,000 retirement savings)
could reduce both the individual and C corporation tax rate
to 8% and eliminate all payroll taxes. A higher 26% income
tax rate (plus capital gains, gift and estate taxes) could
be paid by those who choose to avoid the net wealth tax.
There is nothing wrong with giving very wealthy individuals
the option of deferring (but not eliminating) their fair
share of taxes.
http://krugman.blogs.nytimes.com/2013/08/31/the-arithmetic-of-fantasy-fiscal-policy/?comments#permid=39
Professor
Krugman has written one of his best articles for general
readership. "4 points on the debt ratio" sounds like a
rounding error and indeed, the government is recalculating
GDP to add about 3% each year for intellectual property
rights. If, "millions of American families would have been
spared the hardship and humiliation of mass unemployment ...
and more," the
choice was clear.
Unfortunately,
stimulus must end (like the 2% payroll tax holiday) unless
it is the kind that focuses on structural changes in tax
policy rather than creating temporary union jobs. For
example, if the $40 billion charitable deduction used by the
wealthy were simply limited to charities willing to expand
their services with new full and part time jobs the country
could create over 1,000,000 new jobs with no additional
expense to the government. The jobs would pay a little below
private sector rates but could range from entry level to
professional - whatever the charity needed.
Another no new
cost solution is to replace the business portion of the job
killing payroll tax with a revenue neutral 4% VAT (the
lowest in the developed world). Millions of better paying
jobs would be created with no increase in consumer prices. A
VAT is considered by all developed countries to be the
fairest way to apportion tax liability among different types
of business and across different taxing jurisdictions.
The right tax
reform can be a better long range alternative to the
stimulus - austerity stalemate.
http://krugman.blogs.nytimes.com/2013/08/30/the-baht-and-the-bubble-excuse/?comments#permid=9
With over 200
countries to choose from it is fun to randomly select two
and chart the change in GDP. Focus in time on the U.S. Great
Recession and conflate all economic controls from the tax
codes to government budgets. Select one or two (politically
relevant) factors (austerity is always a good one) which
might provide a causal explanation for the correlation and
you can call yourself an economist with a differential
diagnosis.
Of course, the
so-called science of economics, also requires the use of
terms of art that cannot be readily understood by other
professionals. Could it be that austerity might work
differently from one economy to another because the
economies are so different at different points in time? In
law attorney advocates can almost always find a case to
support an argument for their client but economists should
not be doing the same thing.
http://opinionator.blogs.nytimes.com/2013/08/27/how-dr-king-shaped-my-work-in-economics/?comments#permid=35
"[Economists]
were unconcerned about inequality", "unemployment was
[considered] the fault of workers" and it was "poisonous ...
to focus on questions of [wealth] distribution. Dr. King
tactically focused on "greater economic equality and justice
for all Americans." Today race baiters foolishly inhibit
economic reforms that require bipartisan political support.
Congress is on
the verge of enacting tax reform and race baiting partisan
politics has failed to produce a consensus for economic
mobility and jobs. It is all about wealth and the fact that
blacks, "saw their median wealth fall by 53 percent between
2005 and 2009, more than three times that of whites" is less
important than the fact that half the population saw their
net wealth gradually decline by 70% between 1995 and 2010
The large gains in wealth were confined to the top 10%.
While it is true that blacks had a disproportionate paper
gain in wealth due to lax residential lending policies they
also suffered the most when housing prices fell. The long
range wealth redistribution effect of the tax code has been
color blind and the much needed "re-redistribution" effect
of bold tax reform must focus on helping the poor without
regard to race.
Replace the
job killing payroll taxes with a 2% tax on net wealth
(excluding $15,000 cash and $500,000 retirement savings)
combined with a flat 8% income tax. The ultra rich can just
pay a 26% income tax (plus capital gains, gift and estate
taxes) if they really want to.
http://www.nytimes.com/2013/08/26/opinion/krugman-the-decline-of-e-empires.html?comments#permid=214
Microsoft
obtained most of its wealth from congress through copyright
protection for its computer software. Microsoft, as an
original invited barbarian, may have underestimated the gift
that was also being given to its rivals. Apple seemingly
merged software into hardware and reaped the combined
profits of its monopoly. Google has paid $12.5 billion to
Motorola for its place at the new barbarian table in the
clouds.
Apparently
President Obama's understanding of economics has also been
influenced by Khaldun's Muqaddimah as can be seen in the
following passage about profit and labor: "(Man) obtains
(some profit) through no efforts of his own, as, for
instance, through rain that makes the fields thrive, and
similar things. However, these things are only contributory.
His own efforts must be combined with them, ...".
The U.S. GDP
is being recalculated and increased by 3% to incorporate the
previously unrealized value of intellectual property created
by congress. It is less about the specific innovations than
it is about the legal right to prevent ravels from competing
with derivative works (i.e. keeping new barbarians out).
This value has kept corporate productivity and profits up as
job numbers and earnings decline.
It is congress
that has expanded the gap between labor and profit but the
right tax reform can be the solution. A VAT replacement of
the business portion of the job killing payroll taxes would
be a good start.
http://krugman.blogs.nytimes.com/2013/08/25/ibn-khaldun-psychohistorian/?comments#permid=17
I am
reasonably sure that President Obama's understanding of
economics has also been taken from "Abd Ar Rahman bin
Muhammed ibn Khaldun" as can be seen in the following
passage from Chapter 5-1 about profit:
"(Man) obtains
(some profit) through no efforts of his own, as, for
instance, through rain that makes the fields thrive, and
similar things. However, these things are only contributory.
His own efforts must be combined with them, ... The Prophet
said: "The only thing you (really) possess of your property
is what you ate, and have thus destroyed; or what you wore,
and have thus worn out ..."
Of course I am
not suggesting that the President is a ... Oh never mind.
http://opinionator.blogs.nytimes.com/2013/08/24/what-is-economics-good-for/?comments#permid=140
Some believe
economics actually follows the natural laws of science - as
if money were a natural part of the universe and life
itself. Economics is simply a part of the man made system of
civil law.
Predicting a
market is not much different than predicting how a jury or
an appellate court will decide a particular case. "The fact
that the discipline of economics hasn’t helped us improve
our predictive abilities suggests it is still far from being
a science, and may never be." Economics, like law, is an art
that evolves with civilization. Good practitioners are the
ones who know when to distinguish and discard the old cases
and theories rather than cling to the past. Great
practitioners are the one who see the civil law as a
collection of contingencies of reinforcement that reward and
punish economic behavior. Fools say there should be no
control while the wise look at both the intended and
unintended consequences of the rules and ask how they can be
improved.
For example,
unemployment, economic immobility, low GDP and low revenue
could be improved with tax reform that begins with
elimination and replacement of the job killing payroll
taxes. An 8% income tax and 2% net wealth tax (excluding
$15,000 cash and $500,000 retirement funds) combined with a
4% VAT on business and 8% C corporation rate is all that is
essential. If the ultra wealthy don't want to pay a net
wealth tax let them pay a 26% income tax rate (and pay
capital gains, gift and estate taxes later).
http://www.nytimes.com/2013/08/23/opinion/krugman-this-age-of-bubbles.html?comments#permid=230
I'm forever blowing bubbles ...
All bubbles pop sooner or later. Larger bubbles rock the
boat and inevitably cause some in the first class cabin to
scream, "Help, my martini spilled and we're about to sink".
Help arrives, a new martini is poured, and the rescue crew
is given credit for saving the ship.
Now in the "age of bubbles" those who have gambled with
their capital no longer settle for a new martini. Each
crisis is blown out of proportion and used as justification
for special treatment in the tax code, the intellectual
property laws and both interstate and international trade.
The bubbles, both real and imagined, have spawned a massive
safety net for the well to do which now extends throughout
the world. It has been paid for with the national debt.
Wealth is concentrated (75%) with the top 10% of the
population but the important "bubble" is with the poorer
half of the population which now shares only 1% of the net
wealth. The loss has been gradual for decades leaving the
poor and lower middle class with only $3 for every $10 they
had in 1995. Many families no longer have sufficient wealth
to properly guide their children, or to have children in the
first place or even to stay together as a family. The
poverty bubble (a part of the larger debt bubble) has
reached proportions not seen in anyone's lifetime and
Washington has not come to the rescue.
When the poverty bubble explodes, don't let economists say,
"I told you so" unless they really told you so.
http://krugman.blogs.nytimes.com/2013/08/21/the-point-of-economath/?comments#permid=57
I believe the President of the United States does not have a
passing comprehension of either math or economics. This is
the sad truth behind many otherwise brilliant and competent
attorneys and politicians.
http://krugman.blogs.nytimes.com/2013/08/20/coalmines-and-aliens-again/?comments#permid=20
It seems that with massive distortions, theories that don't
work such as the "paradox of thrift and the paradox of
flexibility" do work; and the "theory of the second best"
will explain how, "seemingly wasteful activities can
sometimes be beneficial".
In this topsy-turvy economic world perhaps we can create two
million jobs without any new spending. Simply limit the
availability of the charitable deduction to charities
willing to expand their services by sponsoring new full and
part time jobs (at a little below private sector rates).
Better yet, lets enact a net wealth tax for the poor rather
than the rich. Consider a pro-growth tax reform solution
that actually begins with the elimination and replacement of
the job killing payroll taxes to create full employment.
Next, permit every taxpayer a choice between A or B:
A. - a flat 26% income tax (with deferred capital gains,
estate and gift taxes);
OR
B. - an 8% income tax rate combined with a 2% tax on net
wealth (excluding $15,000 cash and $500,000 retirement
savings).
For business a 4% VAT (the lowest in the world) would enable
an 8% C corporation income tax rate (also the lowest in the
developed world).
$1.2 trillion in tax expenditures are not needed with low
rates. Let the wealthy and their pass-through businesses
avoid estate, gift and capital gains taxes, and pay the same
8% rate as the poor and C corporations - if they want.
I call it the 2-4-8 Tax Blend but you might as well call it
topsy-turvy.
http://krugman.blogs.nytimes.com/2013/08/13/a-tale-of-two-flat-countries/?comments&_r=0#permid=55
Gridlock is better than waste and folly - especially when
your side benefits from the status quo [Republican]. The
rich keep getting richer while the poor seem to get what
they deserve from their blind support for incompetent
elected officials [Democrats]. No wonder there is a rise in
extremist parties and a yearning for new ideas [Tea Party,
Independents].
http://krugman.blogs.nytimes.com/2013/08/07/the-year-of-living-stupidly/?comments#permid=134
Simon Wren-Lewis repeats the economic polarization fallacy
that, "nearly all economic issues involve winners and
losers" and then proceeds to focus on the, "widespread
adoption of austerity policies, and their remarkable
persistence despite apparent failure". To the extent
austerity equates to nickel and dime spending policies, of
course there is failure. To the extent more spending is the
only alternative to the austerity failure, economists must
consider "win - win" alternatives.
With a foot on the brake pedal it will be difficult to move
forward no matter how much gas is applied with the
accelerator pedal. The "elite", as Professor Krugman
apparently considers himself, may be well trained, but the
economic bus won't go very far or very fast if the brakes
are engaged.
The payroll taxes are an effective brake to private sector
domestic job creation. The business portion of the payroll
taxes could be eliminated with a revenue neutral VAT of
about 4%. No economist can provide a good economic reason
for not adopting this win-win solution.
Safety net programs may discourage work when only low paying
jobs are available. Voluntary better paying full and part
time jobs with public charities (at a little below private
sector rates) could reduce safety net payments and provide
transition to the private sector. About 2,000,000 new jobs
could be created without new spending by simply allowing the
$40 billion charitable deduction to be used only for
charities that create new jobs.
http://krugman.blogs.nytimes.com/2013/08/06/another-bad-story-bites-the-dust/?comments&_r=0&#permid=73
"You have a large overhang of private debt; you have a
still depressed housing sector; and you have contradictory
fiscal policy" and Professor Krugman does not want to put
the blame on President Obama or at least on Washington.
Apple has a lot of money but it borrows money ("private
debt") to pay dividends and buy back stock because interest
is low ("fiscal policy") and the tax code (more "fiscal
policy") encourages it. The "still depressed housing sector"
is the result of overbuilding, profitable construction loans
and politically correct lending policies from Washington
(Freddy and Fanny). Wall Street simply spread the risk and
extended it to our allies in Europe - (good job!). The term
"contradictory fiscal policy" may be directed at the Fed but
fiscal policy is filtered through a tax code that gradually
sucks the wealth from 90% of the population and channels it
to the top 10%. The 70% loss of wealth to the bottom 50% of
the population has gone beyond economics and is destroying
the social fabric of society.
President Obama has done almost nothing positive and much
negative (ACA) but in the last few weeks he has at least
begun to acknowledge the problem and the need for
"re-redistribution" of wealth and job creation.
Consider a taxpayer choice of paying a flat 26% income tax
(plus capital gains, estate and gift taxes later) versus a
low 8% income tax rate combined with a 2% tax on net wealth
(excluding $15,000 cash and $500,000 retirement savings).
http://www.nytimes.com/2013/08/05/opinion/krugman-republicans-against-reality.html?comments#permid=55
I am a big proponent of the VAT and would welcome a 4% VAT
to replace the business portion of the job killing payroll
taxes for both pass-through businesses and C corporations.
Tax expenditure reform can also reduce business income
taxes. Unfortunately, Rep. Ryan's suggestion to replace the
corporate income tax with a VAT of 8 1/2 percent may have
been the kiss of death for a VAT in the U.S.
Nevertheless, Rep. Ryan is correct that bold and simple tax
reform is needed and it does not have to soak the rich. In
fact, it simply has to let them pay the same rates as the
poor. For individuals, consider permitting every taxpayer
the option of paying an income tax rate of 26% (a rate Rep.
Ryan could love) or an income tax rate of 8% combined with a
2% net wealth tax (excluding $15,000 cash, $500,000
retirement savings, payroll, estate, gift and capital gains
taxes). A surprising number of wealthy taxpayers would elect
to have their net wealth taxed not just for the low 8%
income tax rate but to avoid deferred payments on capital
gains and estate taxes. For business, a revenue neutral 4%
VAT (the lowest rate in the world) could complement a C
corporate income tax rate of 8% (also the lowest rate in the
world).
The low tax rates are possible by expanding the tax base and
eliminating the $1.2 trillion in tax expenditures which are
not needed with low rates. The taxpayer election should
appeal to Republicans and Democrats at all income and wealth
levels. Read more at TaxNetWealth.com
http://www.nytimes.com/2013/08/04/opinion/sunday/of-courage-and-cantaloupes.html?comments#permid=86
If all goes well with immigration reform and the economy,
full employment for U.S. citizens will be delayed for just
another decade. Tens of millions of young people will feel
the economic pressure to abort children or avoid marriage
and stay on public assistance. Another generation of
American children will be destroyed - all in the cause of
being politically correct.
We need full employment for U.S. citizens first and
immigration reform later. If the Affordable Care Act makes
that more difficult consider it a lesson on overreaching.
http://krugman.blogs.nytimes.com/2013/07/23/this-time-was-predictable/?comments#permid=20
Inflation
requires computing the changes in the price of a fixed
basket of goods purchased by a typical consumer. The basket
is updated periodically to more accurately reflects
aggregate purchases but it may not do justice to typical
consumer behavior that is increasingly needs based for many.
Consider that the wealth of the nation has grown for decades
but that all of the growth has been confined to the top 10%.
The middle and upper middle class lost 8% of their net
wealth between 1995 and 2010 and the poorer 50% of the
population gradually lost a staggering 70% share of their
net wealth.
Without wealth
there is no consumer demand and no inflation. Adding a
trillion or two to the bank money supply doesn't trickle
down to those who lost it over the decades - especially when
business is not looking for it. Market prices cannot adjust
if five cents is too much for too many. Bold tax reform,
including elimination of the job killing payroll taxes, is
needed to reverse the damage.
So what is
predictable? The politicians will redefine full employment
as 7.5% and social security benefits will be reduced
(because the poor have nothing left to take). Inflation will
stay low because it hurts the rich.
http://krugman.blogs.nytimes.com/2013/07/16/john-galt-and-the-theory-of-the-firm/?comments#permid=132
Faux
competition or faux cooperation: the real John Galt just
can't tolerate the faux rules of engagement.
http://www.nytimes.com/2013/07/15/opinion/krugman-hunger-games-usa.html?comments#permid=598
Professor
Krugman doesn't mince words and sure doesn't waste any time
looking for common political ground on food stamps and other
safety net issues. Taking biblical passages out of context
is about as despicable as using clerical garb to seduce the
innocent. How low can the GOP go?
The 2009
Recovery Act increased food stamp benefits as a way of
delivering economic stimulus. The small increase is
scheduled to expire on November 1, 2013. The Democratic
majority Senate passed a $4 billion cut to food stamps in a
combined food stamps and farm bill. Thus it seems that both
the President and the Democrats have "unclean hands" in the
great food stamps debate.
Yesterday I
heard a story about a man who fell victim of the tax code
that left him naked and penniless on the side of the road.
The Republican walked on the other side of the street to
avoid him and a Democratic later paused only to see if he
was a registered voter and moved on when he saw no ID. A
third man with no partisan agenda was moved to help. You may
ask who was the victim's neighbor but I want to know which
one was the economist.
http://krugman.blogs.nytimes.com/2013/07/13/march-of-the-munching-moochers/
Not quite a
snap.
The food stamp
program (SNAP) is means tested and generally requires
earnings below $25,000. The program helps small businesses
looking to fill the least desirable minimum wage jobs while
keeping wages low.
The Republican
majority House refused to pass a $20.5 billion cut to food
stamps in June.
The Democratic
majority Senate passed a $4 billion cut to food stamps in a
combined food stamps and farm bill.
The Republican
majority House passed a separate farm bill intended to save
about $20 billion, including $5 billion paid annually to
farmers whether they plant crops or not.
The NY Times
editorial board believes that if the food stamp program, "is
not returned to the five-year farm bill, it will have to be
financed through annual appropriations." It is disheartening
to conclude that the NY Times believes the safety net is as
good as it's going to get - even with a $4 billion cut. The
annual appropriation review should be a welcome opportunity
for each new congress to revisit the current needs of the
poor in light of the ongoing economic conditions.
http://krugman.blogs.nytimes.com/2013/07/13/more-on-not-so-miserable-france/?comments#permid=23
France has a
net wealth tax, VAT and income tax and manages to hold its
own among European countries in spite of "their generous
welfare state". Because the U.S. has much greater wealth and
GDP per capita, the U.S. could provide more benefits than
France with lower tax rates.
The 2-4-8 Tax
Blend is a tax reform plan that provides the lowest tax
rates through maximum expansion the tax base. A 2% net
wealth tax (excluding $15,000 cash and $500,000 in
retirement funds) would encourage business investment
through negative reinforcement (as in "use it or lose it").
The new revenue would be sufficient to eliminate the job
killing payroll taxes and also enable the individual income
tax rate to be reduced to 8% (because no tax expenditures
can be justified when the rates are very low).
A low 4% value
added tax (VAT) is the fairest way to apportion tax among
different types of business and across different taxing
jurisdictions. New VAT revenue would enable the C corporate
income tax rate to be reduced to 8% (to match the new
pass-through business rate). The low corporate income tax
rate also eliminates the tax obstacle to repatriating about
$2 trillion in foreign corporate profits and makes future
deferrals unnecessary. Learn more at TaxNetWealth.com.
Full
employment, economic mobility and a stable economy - sacre'
bleu!
http://krugman.blogs.nytimes.com/2013/07/11/even-more-about-whites-and-the-safety-net/?comments#permid=53
Social issues
are at the heart of the partisan divide with religion, race
and sexual politics creating polarized allegiances that
rival those of Yankee and Red Sox fans. Economic issues are
different. With social issues we may tolerate or even admire
the other team while having little interest in joining it.
With economic issues we are united in our desire for
equality of opportunity.
Professor
Krugman's clever use of the phrase "missing white voters" in
yesterday's post stabs the GOP by opening the wound of
Romney's failed election while simultaneously stabbing in
the back with the inference that the GOP doesn't care or
could not hope to garner non-white voters. Today's reference
to "downscale" whites joined with the idiotic, "notion of
'libertarian populism', which is supposed to rally GOP
support" is yet another stab at the GOP's supposed new
recruitment of poor white voters (over non-whites). The
racial spin of the author is legitimized with the pretext of
conveying irrelevant statistics about the race of food stamp
recipients that has no discernible connection with the GOP.
The article
conveys little about "whites" or the "safety net" but I sure
don't trust "libertarian populism" - whatever that is. In
the end I do not know from the article if the existing
safety net actual needs improvement but I do know the
programs apply the same rules without regard to race. How
would Professor Krugman make them better?
http://krugman.blogs.nytimes.com/2013/07/09/whites-and-the-safety-net/?comments#permid=37
If one can
spin a racial component on top of an economic inequality
issue the partisan effect is quite powerful. Between 1995
and 2010 half the country lost 70% of their net wealth. The
story received some play when the data was first released
last year but when the details of the same survey showed a
growing racial gap in wealth distribution there were many
more stories written about the racial aspect of the survey
data. I have never read an article that explained exactly
why the wealth gap has grown although I suspect the tax code
is the primary vehicle of redistribution (to the top) and
the combined safety net trap (instead of a jobs program) is
the significant process of stagnation.
The tax code
does not discriminate on the basis of race but some pundits
with the conscience of a liberal seem to blame the GOP, the
wealthy and business in general for anything negative in the
area of race relations. Wealthy and powerful Democrats
always seem to get a pass - at least to the extent the green
approach to economic development (which offers no real help
for racial equality) is not scrutinized.
Social issues
are at the heart of the partisan political divide and these
transcend race and economics. Nevertheless, a more tolerant
GOP can capture both "missing white voters" and a few
non-white voters with a positive adjustment in unemployment
as part of tax reform.
http://www.nytimes.com/2013/07/08/opinion/krugman-defining-prosperity-down.html?comments#permid=301
While
government "stimulus" to create union jobs is still a "dirty
word" with the GOP, a "deliberate job-creation program" with
churches and public charities can be positioned for
bipartisan support.
The charitable
deduction encourages the transfer of hundreds of billions of
dollars each year from investment in job creating businesses
to nonprofits. The enormous influx in wealth has resulted in
large salary and benefit packages to professors and medical
professionals with the unintended rise in the cost of higher
education and health care. Even as there is growing national
concern about political and international groups that take
advantage of charitable tax loopholes, no politician can be
expected to hurt a genuine local charity.
A clever
compromise lies is limiting the availability of the
charitable deduction only to those charities that are
willing to sponsor some of the 2,000,000 new jobs that could
and should be created with the $40 billion that is now
disbursed to charities without restriction. By targeting
donations to new jobs for those most in need at salaries
below the private sector congress can help the charities,
the donors and the long term unemployed - with no additional
cost to the taxpayer. Indeed, targeted tax expenditure
programs are not even considered to be a part of the budget.
The charities that participate will be able to expand
services and gain the additional support denied to charities
that are unwilling to provide new jobs.
http://krugman.blogs.nytimes.com/2013/07/05/on-the-political-economy-of-permanent-stagnation/?comments#permid=33
There has been
an unemployment stalemate between the left's push for more
government spending (on union jobs) and the right's belief
that the government spends too much (on the safety net).
U.S. expectations are so low many seem to accept 6% to 7%
(or any level less than Europe) as the new "full
employment". The president and congress have chosen not to
rock the boat by avoiding attacks on the job killing payroll
taxes or eliminating those tax expenditures and policies
that destroy U.S. jobs. Hope will replace despair only when
the wealthy are coerced (rather than coddled) to create
jobs.
A revenue
neutral 4% VAT could replace at least the business portion
of the payroll taxes with no increase in consumer prices.
U.S. labor would be instantly more attractive (at the
expense of businesses which profit less from labor).
Numerous tax
expenditures destroy U.S. jobs by deferring repatriation of
foreign profits, encouraging donations to charity, and
exempting safe investments in bonds over risky investments
in business to name just a few.
Congress must stop rewarding jobless growth even if it means
increasing taxes (i.e. reducing tax breaks) on savings,
intellectual property and speculation in assets and
commodities.
http://economix.blogs.nytimes.com/2013/07/01/full-employment-the-big-missing-piece/?comments#permid=12
I can't wait
for the next installment. I hope you will consider
encouraging full employment with better tax policy rather
than deficit spending.
1. Replace at least the
business portion of the job killing payroll taxes with a 4%
VAT. A revenue neutral VAT is not regressive and does raise
consumer prices. [VAT's are used in all developed countries
because they are the best business tax reform].
2. Use the $40 billion
charitable deduction only for contributions to those
charities willing to sponsor 2,000,000 new jobs and
internships. [In 2000 nonprofits had twice the net wealth of
the poorer 50% of the U.S. population and today they have
more than eight times the wealth].
3.
Reduce tax breaks and deferrals for C corporation
profits from intellectual property which do not come from
labor. [In contrast, Rep. Camp supports "Option C" intended
to reduce or exempt all tax on revenue from intellectual
property]
http://www.nytimes.com/2013/07/01/opinion/krugman-the-war-on-the-unemployed.html?comments#permid=199
The job
killing payroll taxes and the bipartisan tax expenditures
are the real enemy in the war for full employment. The war
has been sidetracked by partisan skirmishes about
unemployment benefits and resources diverted to health care
and immigration reform. Instead of fighting for a 4%
unemployment rate the Fed seems poised to declare victory at
7%.
A 4% value
added tax (VAT) could replace at least the business portion
of the payroll taxes making U.S. labor instantly 7% less
expensive. A revenue neutral implementation would not
increase consumer prices. A VAT is considered the best
business tax reform by every developed country in the world
because it fairly apportions tax liability among different
types of business and across taxing jurisdictions. A VAT is
a solution with no partisan advantage or business tax
distortion and this sadly may explain why it has not been
promoted by the president and congress.
The charitable
deduction is a popular tax expenditure and so effective that
U.S. nonprofits (excluding churches) had twice the wealth of
half the population in 2000 and now have eight times the net
wealth of the poor and lower middle class. The charitable
deduction encourages wealthy individuals to take hundreds of
billions in investments in job creating businesses and
donate to charities which don't even pay taxes. Over time,
millions of private sector jobs have been lost. The $40
billion tax subsidy could better be used to create about
2,000,000 new jobs and internships directly with the
charities. Rather than eliminating the charitable deduction,
it should be available only for those charities willing to
sponsor new jobs. Congress can counteract the job loss in
the private sector and help charities at the same time.
http://www.nytimes.com/2013/06/24/opinion/krugman-et-tu-bernanke.html?comments#permid=230
The Federal
Reserve plans to cut back on stimulus bond purchases as (and
if) the unemployment rate goes down to 7.0%. At worst, this
is perhaps a signal that the Fed considers 6% to 7% as the
new normal. Targeted features of tax and spending policy
must change to encourage significant job growth (instead of
continued wealth concentration and growth at the top). It is
congress that maintains the regressive job killing payroll
taxes and it is congress that must rebalance the tax code
that recklessly redistributes 7.5% of GDP each year through
tax expenditures.
Policy makers
must remember, "that job creation [is] their most urgent
task".
1. Replace at least the
business portion of the job killing payroll taxes with a
revenue neutral 4% VAT. A revenue neutral VAT is not
regressive and does raise consumer prices. [VAT's are used
in all developed countries and few in the U.S. understand
why].
2. Use the $40 billion
charitable deduction only for contributions to those
charities willing to sponsor 2,000,000 new jobs and
internships. [In 2000 nonprofits had twice the net wealth of
the poorer 50% of the U.S. population and today they have
more than eight times the wealth].
3. Reduce tax breaks and
deferrals for C corporation profits from intellectual
property which do not come from labor. [In contrast, Rep.
Camp supports "Option C" intended to reduce or exempt tax on
revenue from intellectual property].
http://krugman.blogs.nytimes.com/2013/06/20/a-potentially-tragic-taper/?comments#permid=42
Only bold tax
reform can encourage full employment over the long term:
1. A revenue
neutral VAT will not increase consumer prices and a low 4%
rate could replace the business portion of the job killing
payroll taxes.
2. If congress
eliminated the $40 billion charitable deduction and gave the
money directly to charities it could create 2,000,000 new
jobs for those most in need (at no net cost to the
taxpayers).
3. A revenue
neutral net wealth tax of just 2% (excluding $15,000 cash
and $500,000 in retirement funds) would coerce more
investment in job creating ventures through negative
reinforcement (as in "use it or lose it") and enable the
income tax rate to be flattened to 8% (because most of the
$1.2 trillion in tax expenditures are not needed with very
low rates).
http://krugman.blogs.nytimes.com/2013/06/19/how-are-these-times-different/?comments#permid=52
The most
profound economic changes are in intellectual property law.
Expanded intellectual property protection adds enormous
value to products while diminishing reliance on labor to
generate profits. Many C corporations avoid not just U.S.
labor costs but also the payroll taxes which have funded a
large part of the U.S. safety net.
The
pass-through businesses taxed on the individual returns on
the owners are touted as "America's Job Creators" because
most still need to expand their workforce to make more
money. Tax reform has focused of proposals to help C
corporations such as Rep. Camp's "Option C" which would
exempt income attributed to domestic intellectual property
and lower the tax rate to 15% for income from the
intellectual property of foreign subsidiaries. This reform
is claimed to address the widely publicized tax deferrals of
Apple and similar multinationals but it simply creates more
profit with fewer workers. These tax perks and monopoly
rights should never be confused with real productivity
increases - although both add to the bottom line.
Federal tax
policy can favor profit without jobs or profit with jobs -
but not both. The intellectual property laws have resulted
in enormous advantages for C corporations and it is time for
tax policy to stimulate jobs. A revenue neutral value added
tax (VAT) of just 4% could replace the business portion of
the payroll taxes and encourage full employment. This would
not impair tax reform of business tax expenditures.
http://www.nytimes.com/2013/06/14/opinion/krugman-sympathy-for-the-luddites.html?comments#permid=631
Keep Your
Sympathy: Guarantee Jobs to the Luddites
It is most
refreshing to hear a respected professor and author admit
that, "highly educated workers are as likely as less
educated workers to find themselves displaced and devalued,
and pushing for more education may create as many problems
as it solves."
In response to
the challenge, "So what is the answer?", it is twofold:
eliminate the job killing payroll taxes and provide
guaranteed work (at below market rates) and on-the-job
retraining for those most in need.
A value added
tax (VAT) of about 4% could replace the business portion of
the payroll tax. The U.S. is the only developed country in
the world that does not use a VAT even though it is the
fairest way to apportion tax liability among different types
of businesses and across different taxing jurisdictions. A
"revenue neutral" VAT replacement of the payroll tax
promotes full employment without increasing consumer prices.
The $39
billion charitable deduction in the tax code is intended to
help charities but it simply gives more money to very rich
people and encourages them to take money out of job creating
businesses and give it to public charities. It would be far
better to help the charities by taking the $39 billion and
letting charities sponsor 2,000,000 new jobs of all types
for those in need. Most of the rich will still donate
without the charitable deduction and the new jobs will help
both U.S. public charities and millions of Luddites.
http://krugman.blogs.nytimes.com/2013/05/28/taxing-the-rich/?comments#permid=83
The top marginal rate means very
little when both Mr. Buffett and Mr. Romney pay effective
rates which are in the teens. The corruption of the tax code
derives from a payroll tax in excess of 15% which is avoided
by high earnings and from income tax rates which are $1.2
trillion higher than necessary to enable the redistribution
of 7.5% of GDP to those taxpayers that qualify for the tax
expenditure programs (credits, deductions, special rates,
deferrals and exemptions).
The chart is misleading because
many in the top 0.1% pay individual tax rates on the profits
from pass-through businesses which are intermingled with the
data (unlike C corporations). The actual portion of tax
revenue paid by the high earners would be much less if their
taxes on owned businesses were separated.
The concept of an “optimal”
individual top income tax rate is a myth because "optimal"
tax liability should consider wealth and consumption in
addition to profit and income. An adjustment based on wealth
(a revenue neutral net wealth tax) coerces investment of
capital (including tax deferred and exempt appreciations)
and an adjustment based on consumption (a revenue neutral
value added tax - VAT) provides the necessary fair
apportionment of tax liability among different types of
business across different taxing jurisdictions.
If business income is taxed
fairly (a VAT) and real income is taxed gradually (net
wealth tax) the "optimal" individual and corporate income
tax rates can be lowered significantly.
http://krugman.blogs.nytimes.com/2013/05/16/the-smithkleinkalecki-theory-of-austerity/?comments#permid=54
The "elites" are the business
leaders that have been forced to cope with an economic
downturn through belt tightening. They know the process may
not be good for the economy as a whole but it is essential
for the survival of the fittest.
The "reforms" urged by the
"elites" ... "may not actually serve the interest of
promoting economic growth" as is certainly the case with tax
reform that eliminates only enough tax expenditures to
enable the top marginal rates to be reduced to 25%. This
will enable the "elite" individuals and corporations to
profit without increasing risk or adding even a single job.
We have a President that
continues to coddle the wealthy but there is a far better
way to stimulate the economy. We can coerce investment with
a 2% net wealth tax that cannot be avoided (excluding
$15,000 cash and $500,000 in retirement funds). It can be
applied in a revenue neutral manner by eliminating the
payroll, estate, gift and capital gains taxes; and reducing
the individual income tax to 8% (because the $1.2 trillion
in tax expenditures are not needed with low rates). A 4% VAT
could also reduce the C corporation tax to 8%.
The tax code has encouraged those
with wealth to send it overseas or even to give it away to
charity. The enormous and wasteful tax expenditures amount
to 7.5% of GDP and enable investors and corporations to
profit while keeping too many assets under the mattress for
a rainy day. This kind of "austerity" should be taxed to
death.
http://krugman.blogs.nytimes.com/2013/05/05/naive-fiscal-cynicism/?comments#permid=23
Cut Tax Expenditures and Create
Jobs
"Austerian economics" keeps
stimulus spending low and tax expenditure spending high.
Like the no-tax pledge philosophy spending (for new jobs or
anything else) must be avoided even if financed by
reductions in the $1.2 trillion in tax expenditures. Rep.
Camp wants only to eliminate sufficient tax expenditures so
that the top individual and corporate tax rates can be
reduced to 25% to increase profit without investing in a
single new job.
Extreme austerians even refuse to
consider replacing the $50 billion anti-business tax
expenditure known as the charitable deduction. Why should
the taxpayers continue to subsidize people who want to take
money out of business and give it to charity? The money
could certainly be better spent creating over 2,000,000 jobs
and internships with local government, schools, day care
centers, churches and other nonprofits.
If you think the charities need
the money consider that in 2000 the charities had twice the
net wealth of half the U.S. population and today nonprofits
have eight times the wealth of half the country (churches
not reporting assets to the IRS are excluded). In truth,
large public charities like universities and hospitals have
done relatively little to help the poor but a professor's
salary and benefits will now often reach or exceed $500,000
... and don't even ask about the doctors and hospital
administrators.
Imagine the good that could come
from 2,000,000 new jobs for those in need. An additional $50
billion in consumer demand would also help business. Free
labor would help those worthy nonprofits that actually
provide services to people in the U.S.A. It's a win-win-win
situation.