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Logo3 Merry Christmas and Happy New Year

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


C - Corp
4% VAT
8% Income

I Just Can't Get
Enough Paul Krugman


Go to 2015 Comments, 2014 Comments


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.


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".


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.


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.


"money meant stuff you could jingle in your purse"

Me thinks money meant something that could be hidden from the taxman - true barbarism.


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.


"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.


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.


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.


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.


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).


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".


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).


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.


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.


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.


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?


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.


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.



"[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.


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.


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.


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?


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.


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.


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.


Market Rates for Health Care


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.


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.


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.


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?


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.


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).


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.


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.


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.


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


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.



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.


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.


"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.


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.


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.


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.


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.


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.


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.


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.


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.


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.


"... 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.


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.


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.


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".


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.


"[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.


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.


"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.


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.


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).


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.


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.


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.


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.


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.


"[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.


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.


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.


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).


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.


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.


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);


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.


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].


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.


"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).


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


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.


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.


Faux competition or faux cooperation: the real John Galt just can't tolerate the faux rules of engagement.


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.


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.


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!


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?


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.


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.


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.


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]


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.


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].


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).


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.


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.


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.


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.


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.

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Copyright 1985 to 2015 by Eugene Patrick Devany