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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 2013 Comments, 2014 Comments



Your Pick: Politics or Solution

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

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

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



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

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

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


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

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

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

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



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

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


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

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

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

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

Full employment with transitional jobs is the much needed solution.


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

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

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


My Dumbness

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

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

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

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


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

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

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

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


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

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

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


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

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


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


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

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

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


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


Not Quite Insurance

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

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


Ratner's Head Count or Guillotine

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

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

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


We Are Greece

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

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

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

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



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

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

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

The interview by Ezra Klein is very good and worth the read. I was particularly interested in the question asking, " Do you worry more about wealth inequality or income inequality?"
Prof. Krugman responded, "Income inequality, but I don't think they're separable issues. We need to worry a lot more about lagging incomes in the bottom half or bottom two-thirds of the income distribution than we worry about soaring incomes at the top. And the people in the bottom two-thirds of the income distribution have hardly any wealth. For them, wealth has gone from essentially zero 30 years ago to essentially zero now. So for them, it's income that is crucial."

The facts show that the poorer half of the population shared 3.6% of the wealth in 1995 and now share just 1% of the wealth. The 70% loss is enormous and reflected in the reduced rates of marriage and live births. There is a huge difference between a family that has no net wealth and one that has modest $50,000 in net wealth.
To be sure the loss of about $2 trillion in wealth at the bottom is small to the wealthiest 10% that share $61 trillion. Imagine being in one of the 62 million families that now share just $800 billion.
Tax reform needs to restore family wealth and hope. Prof. Krugman also said, "soaring incomes at the top, they are many of the same forces that are leading to stagnating incomes for workers" The "same forces" amounts to the job killing payroll taxes that also reduce family wealth over time.


With new college graduates earning less than $20k, if they can land a job at all, the job market is far from robust. Businesses have learned that government hand outs in the form of tax credits are great for the expansion of low paying jobs and that is what we have. Experienced workers have been starved for raises.

The comparison to, "hitting yourself in the head, repeatedly, with a baseball bat" is exactly what the 15.3% payroll taxes have done for more than 20 years. It is counterproductive to say we want U.S. businesses to create good jobs and then add a 7.65% tax to each one. Global businesses can save the 7.65% by sending jobs overseas. Even if they have to use U.S. workers they will deduct the 7.65% from worker salaries while lavishing bonuses and raises on upper management. Another way to destroy the economy is to impose a regressive 7.65% tax on worker take-home pay which will reduce much needed spending by consumers.

Some think payroll taxes are the only way to fund Social Security but even the 100 congressional cosponsors of the FarTax know it is not. They also know that the $1.3 trillion in tax expenditures are not needed by business or individuals to stimulate the economy.

Replacing payroll taxes with a small 4% VAT and elimination of the worst tax expenditures would encourage full employment and higher salaries for all workers now numb to the baseball bat on the head - I mean payroll tax.


It is odd to see economic science so dependent on the psychology of perception. Prof. Krugman opines, "I think, that conventional open-market operations are ineffectual in a liquidity trap unless the increase in the monetary base is perceived as permanent." The change in perception requires nothing short of "regime change" to use one of those ill-defined Krugmanisms.

Turning to the gist of the Beckworth-Krugman difference is the issue of whether monetary policy and fiscal policy both require the same "regime change" or change in perception to work with modest efficiency.

For reasons, beyond my comprehension, economists seem to rule out the fact that the 10% with 75% of the assets and 98% of the discretionary investment might react one way while the middle class and the poorer half with just 1% of the wealth are never going to make investment decisions base on economic knowledge.

In fact there may be less than one one hundredth of a percent of the population that decides how and when to switch discretionary investments. The small size of this group makes any comparison with helicopter drop stimulus to be as absurd as the example itself.

When half the population shares only 1% of the wealth the economy is unstable. It can and has been propped up and dressed with lipstick, but if it no longer supports families, it is a disgrace and too many want it to stay that way.

Family wealth and jobs matter. Replace the payroll taxes now.



Some look at government not only for the good it accomplishes but for its efficiency and the unnecessary harm it allows.

Ebola has, "vanished from the headlines" but the U.S. now has troops in Western Africa.

The "state of the economy" is said to be held back by "unprecedented cuts in public spending and employment" and at the same time it is reported that, "business investment has been quite strong".

In my book the economy must be measured by how it is shared. The top 10% have 75% of the wealth and the bottom 50% now share just 1%. The good news is that tax reform could reduce the elite to a 71% share (and they would hardly notice) and restore 62 Million families to a 5% share - increasing their net wealth fivefold. Imagine young people with enough faith and hope to actually marry and consider live births.

Mr. Camp retires leaving a new tax reform bill as a model for Rep. Paul Ryan but progressives, blinded by some good news, are likely to miss the tax reform opportunity of a lifetime. A threefold increase in stock prices does not help 90% of families who need jobs with decent salaries. Indeed, large swings in the market obviously reflect factors other than traditional supply and demand. Most relate to government advantage or disadvantage of one type or another. The market seems to be pricing an economy that takes advantage and excludes the needs of the poor for decades to come.


Perhaps "frankincense and myrrh" would be a better investment. Better yet, let's invest in families and jobs and build the economy from the ground up.

Yesterday, I suggested replacing the payroll taxes with a VAT to create full employment. An unnamed NYT reporter tweeted back that a VAT would be more regressive than payroll taxes. I estimate a 75% savings for workers based on the following. The 15.3% payroll tax applies to all worker income under $115k. An 8% VAT would generate the same tax revenue as payroll but apply only to a worker's VAT consumption. To the extent full employment is reached, salaries will also increase through ordinary market pressure.

This Christmas let's remember that families are more valuable than gold and well worth the investment.


The people of Russia will suffer for the delay in reforming a corrupt system that channeled opulent amounts of wealth to the top. The U.S. is not far behind.


Jeb Bush is presidential material because he has a good record as the "CEO" of a large state. He has run many different departments and functions as opposed to simply being a legislator or first lady with little hands-on experience. In fact one of our best presidents, Bill Clinton, had just about the same type of experience as Jeb Bush (except Bill Clinton was from a tiny state that he really never cared about). Of course, Jeb Bush also seems like a nice, moral, family man as well.


"Suddenly, we were supposed to ... slash government spending, even in the face of mass unemployment," or instead of government spending austerity policy could wisely encourage the nonprofit sector to provide transitional jobs to all in need.

The U.S. is not Greece and there is no reason to have any unemployment at all in a country with surplus assets. Economic and tax policy should automatically adjust the public, nonprofit and private sectors to maintain a reasonable demand for labor. When private demand for labor is low, nonprofits should be putting people to work at a little below private sector rates. This would keep skills sharp, families intact and insure that the tax supported wealth of nonprofits helps those in need of work while also expanding the nonprofit's services.

A replacement of the payroll taxes with a 4% VAT and elimination of the unnecessary tax expenditures outlined in Rep, Tom Coburn's "Tax Decoder" report released on Tuesday would create full employment in the U.S. Limiting the $47 billion in charitable tax deductions to charities that agreed to provide transitional jobs would direct funding and tax incentives to where they can do the most good and provide millions of jobs and good work experience to the long term unemployed.

This week we have seen how even brilliant economists can be arrogant and deceptive when their help is sought by policy makers. Suggesting that austerity is the only obstacle to full employment is deception of the worst sort.



"Obamacare has killed jobs, right?"

No, it is the $130 billion in ObamaCare business penalties that will kill (impair) the equivalent of 2.5 million full time jobs (according to CBO projections). Remember, Mr. Obama delayed these business mandates in a failed attempt to help the midterm elections (and the House voted to bring a declaratory judgment action against him).

The 2.5 million jobs will be on top of the millions of green cards Mr. Obama plans to give out as part of his parting gift to non-citizens. It will take a decade of months with 300,000 new jobs to make up for the president's economic incompetence.

Good and bright men like Rep. Paul Ryan have grown on the job and as the next Chairman of the Ways and Means Committee he will spearhead all tax reform bills and determine the growth of employment and family wealth restoration. He might follow the lead of Bill Gates and push for a replacement of the job killing payroll taxes. He might take a signal from the Koch brothers and understand that it is finally OK to eliminate the tax expenditures that favor the wealthy and epitomized the class greed flaunted in the failed Romney presidential campaign. Ryan must atone for Romney's indifference to the poor and his comprehensive review of welfare programs was a very good start.

Millions of transitional jobs could be guaranteed (at a little below private sector rates) by the amazingly wealthy nonprofits. They now have ten times the wealth of half the country - enough!


Prof. Krugman has reached across the Atlantic Ocean to find an excuse to criticize his nemesis, Rep. Paul Ryan. Ryan made peace with democrats and reached a compromise budget - no small achievement. He then looked at the welfare and spending programs to find duplication and suggested that consolidation and transfer to the states of some programs might help people in need better and more efficiently.

Rep. Ryan is not only a viable G.O.P. presidential candidate but has achieved an arguably more important position as Chair of the tax writing committee in the House for the next congress. Rep. Ryan will determine if the U.S. adopts a VAT - the fairest business tax used by every developed country in the world. It sounds farfetched except that Ryan proposed an 8 1/2 percent VAT just a few years ago before he was selected to run as VP. Rep. Ryan will also determine the extent to which our $1.3 trillion in tax expenditures are eliminated. Eliminating tax perks for the wealthy also sounds farfetched but last week the Koch brothers lobbied congress to do the right thing - even if it personally eliminated favorable perks for their businesses. The Wall Street Journal and Political have also run opinion pieces that support the unthinkable - real reform of tax expenditures.

If Prof. Krugman wants to be heard he better do less criticizing of general tax reform and more prudent analysis of reform ideas. Otherwise Krugman will be limited to the failed economic ideas of President Obama.


"I have seen no answer to these questions," even with President Obama having control of Congress for two years. This means that Obama had complete control over tax reform - but what did he do?

He appointed a commission just as President Bush had done and he made sure that their hands were tied. Don't look at a VAT or payroll tax reform or anything that might reverse the decades long trend of reducing family wealth for 90% of the population.

A revenue neutral replacement of the 15.3% payroll taxes (with a 1% wealth tax, 8% VAT and/or reduction in the $1.3 trillion in tax expenditures) would create full employment, raise salaries and grow the economy from the bottom up. The two year 2% payroll tax reduction (which Obama gave up) was much too little and failed to address the business side of the problem of taxing domestic jobs which encourages outsourcing.

The decades long trends in reducing family wealth for 90% has also reduced the consumer demand that the economy needs to grow. With half the population sharing just 1% of the wealth (down 70% since 1995) there is no longer any discretionary spending.

Full employment is not just possible but it could also be guaranteed with transitional jobs with nonprofits paid for by permitting the charitable deduction to be used only with charities that agree to provide jobs (at a little below private sector rates).

"I have seen no answer to these questions," just doesn't cut it and at least Sen. Schumer knows it.


" The U.S. economy finally seems to be climbing out of the deep hole it entered during the global financial crisis."

The decades long trend of reducing the family wealth for 90% of the population remains without even the slightest reversal. The wealth gap was not caused by the housing crisis and it is not helped by increasing the number of part time low wage jobs.

When Prof. Krugman speaks about the, "U.S. economy" he ignores U.S. families and the crisis of family formation. Too many policy makers think young people have simply made liberal or lazy life style choices not to marry (think free love) or raise children (think abortion). The poorer half (62 million families) have lost 70 of their wealth since 1995 and continue to do so. More higher education, tax credits and food stamps have not helped families and only expanded low wage jobs.

Krugman will remain a part of the problem until he talks about families and the bold tax reform that is needed to restore wealth and good jobs for all.


What Structural Reforms?

The linked article reports, "Top officials at the Organization for Economic Cooperation and Development ... called on leaders of the European Union to carry out fiscal and monetary measures, in addition to structural reforms, to restore growth." Professor Krugman seems to always ignore the "structural reforms" needed, in favor of discussing spending in a vacuum.

In the U.S. the poorer half of the population has been part of a 20 year trend which reduced family wealth to a 1% share. This can only be reversed with structural reforms but Krugman is mum (except for welfare programs). When it come to his favorite structural reform like the ACA he has been a consistent cheerleader for President Obama. Even Sen. Schumer has now seen the light and admits Obamacare was a big mistake. The Democrats should have focused on jobs.

Economic growth should not be driven by deficit spending. It should be driven by full employment and higher salaries which can be achieved by replacing the 15.3% payroll taxes with a revenue neutral VAT of about 8%. This is a matter of fairer taxes for workers, not more government spending.


"And everywhere you look, inflation is low, verging on deflation."

The article at http://economiccollapsenews.com/2014/11/22/chart-price-inflation-in-doub... elaborates on the claims about the rates of inflation, While Corp CPI has been a modest 11.9% over the last six years, medical care is up 21.4% and education is up 32.2%. The price of durable goods are actually down 2.2%.

Thomas Piketty separates populations into three groups for summary comparison: the top 10%, the next 40% (the middle class) and the poorer 50%. We know from family wealth data that all gains in the share of wealth went to the top 10%, the middle class is down 8% and the 62 million families at the bottom lost a 70% share of net wealth since 1995. The bottom half are in a crisis of family formation. They now share just 1% of the wealth due to debts for higher education and medical costs. New durable goods are at the heart of the luxury markets.

It is a particularly great time to be rich and bad time to be poor. Young people have been investing in education and have dug a very big hole for themselves. Too many will never climb out or form a traditional family.

The growing wealth gap is a result of overtaxing workers, high unemployment and low salaries. The solution is to replace job killing payroll taxes with a VAT and guarantee transitional jobs (at a little below private sector rates) with nonprofits for the long term unemployed.



More for Them is Less for ...

"And, yes, low-skill immigration probably has some depressing effect on wages, although the available evidence [from research finished four years ago] suggests that the effect is quite small."

There are millions of long term unemployed citizens whose families will continue to suffer as work permits are given to illegal immigrants. This would not have been possible if Mr. Obama had not delayed the $130 billion in Obamacare penalties that will harm another 2.5 million jobs. Obama is taking advantage of a 5.8% unemployment rate which is still several points too high but a lot lower than his first five years.

The country will need an economic shot in the arm that restores family wealth from the bottom up. A revenue neutral replacement of the job killing payroll taxes and a transitional jobs program funded by limiting the charitable deduction to nonprofits willing to provide jobs at a little below private sector rates would work.

The one thing we know is that Obama is acting without updated "available evidence" on jobs. He has never cared about reversing the 20-year trend for low wealth families.



Gruber should have invented a better way.

A bad health care design can have, "the same three key provisions — nondiscrimination by insurers, a mandate for individuals, and subsidies to make the mandate workable." The three elements are not essential. As a simple matter of state approval insurers can be obliged to accept pre-existing conditions and spread the loss. One way or another healthy people will pay for sick people and that is exactly what insurance is for.

There is no need for an individual mandate and individuals have a right not to be penalized (taxed) for refusing health insurance or choosing to pay out of pocket for competitive market priced care not rigged by the insurance companies. The third requirement of, "subsidies to make the mandate workable" is something which states have rejected by refusing to expand Medicaid and by refusing to setup state exchanges. Subsidies should be for people who can't work.

Volume discounts coerced by insurance companies have increased the prices for those without insurance. Discounts are unethical and should be banned so medical providers have to compete fairly. Medical prices should be posted. Fair competition will lower costs and provide more care to more people in the long run.

... [reply]

You missed the point about Volume discounts which would also apply to employer polices. If all insureds are paying the same rates with the same insurance company the policy is affordable. Howard Dean has also admitted that the individual mandate is not necessary. As you say, "the 2% penalty enacted is so small as to amount to virtually nothing"


"admit error"

The Republicans have been right about the need to cut taxes but wrong about who needs the cut. Workers rather than business owners need to pay less to the government. Note that workers have spent trillions of dollars less than they should have because they have been over taxed.

As proof of the distributional imbalance of the tax burden consider Janet Yellen's speech last month on inequality. Using detailed wealth survey data (just released for 2013) we can see how the myriad of tax provisions have interacted to create consistent trends over the last 25 years. The top 10% have garnered all the increases in the share of wealth reinforcing Piketty's observation that r>g. The next 40% (the diverse middle class) lost an 8% share which weakens the economy. The poorer half of the country never had much - a mere 3.6% share of U.S. wealth at their peak in 1995. Today the share is down to just 1% - a suffocating 70% loss for 62 million families.

This comes back to the Democrats and the President who failed to fully understand the financial burdens and trends or how to fix them. The downward spiral in both wealth and jobs is attributable entirely to the 15.3 percent payroll taxes. The offsetting tax credits for low earners have simply encouraged wage stagnation. As the Republicans offer to expand the earned income tax credit (along with perks for the fat cats) the Democrats must step back and consider if revenue neutral payroll tax replacement is a better way to go.


Go with the Businessmen

Prof. Krugman challenges, "the economic wisdom" of "business leaders" by alluding to, "bad economic advice, especially in troubled times." He blurs the lines between Japan and the U.S. in his anti-business rant.

Prof. Krugman says the "corporate chieftains" were wrong to suggest, "that budget deficits were the biggest threat facing America, and that fixing the debt would cause growth to soar". He links to a November 2010 letter addressed to Ben Bernanke from a few Wall Street investors and academic economists, including Prof. Ronald I. McKinnon of Stanford University. Over four years the Republicans maintained course, the deficit went sharply down and the economy is slowly getting better with solid growth. Fourteen months after Professor McKinnon wrote to Mr. Bernanke he also wrote an op-ed in the Wall Street Journal titled, "The Conservative Case for a Wealth Tax" supporting a large 3% net wealth tax with $3,000,000 deduction. Which side is McKinnon on?

At least Prof. Krugman agrees that, "the real problem ... is inadequate demand" and we all know there are many ways to stimulate consumer spending. QE has been counterproductive for 90% of the population and nonessential government spending on infrastructure is an expensive short term fix with long range consequences. Businessman, Bill Gates, recommends a replacement of the payroll taxes which would give each worker an immediate 7.65% increase in take home pay. Which side is Gates on?


The problem in 1933 was fluctuation of currency values among countries. The letter sought a return to the gold standard along with international agreements. It has little to do with today's economy except that the large gap in family wealth and concentrations at the top made it clear that a political swing toward the bottom was necessary.


Invest in Families

The state (and city and local) governments are in the best position to know what infrastructure spending is needed (or not) and they can take advantage of the same low interest rates. Most have done so and more should.

Of course the economy and job growth can be stimulated by almost any kind of spending - including consumer spending (even if it does not help the union workers [and Democrats] as much). Unfortunately 90 percent of the population has lost so much of their family wealth that they can no longer spend very much. The middle class is down 8% and the poorer half of the country is down 70% since 1995. Janet Yellen reminded the distinguished crowd up in Boston that half the country now have only 1% of the wealth. [So don't blame her for the mess]. In spite of all the credits and hand outs most workers have been overtaxed and under paid. Even basic family formation and procreation has been devastated so we don't need any more single family homes.

Bill Gates told an AEI audience that the 15.3%payroll taxes were discouraging full employment, higher salaries and consumer spending. A replacement of the regressive payroll taxes with a 1% wealth tax, 8% VAT and/or reduction in some of the $1.3 trillion in tax expenditures (credits, deductions, special rates, deferrals and exemptions) would create a permanent stimulus/economic investment without adding to the government deficit or debt (assuming a revenue neutral payroll tax replacement).


The chart presented identifies five net wealth classes and separates "income source". The "capital gains" reflect asset appreciation which has been realized (sold for a profit) but the chart does not reflect unrealized capital gains such as stock and artworks that have increased in value and which have not been sold.

The real return to capital is much larger than what is included in "income" because it is not taxable income. QE enabled very wealthy people and companies to borrow and invest so that individual wealth (asset prices) increased from $56 trillion in 2010 to $84 trillion today - with most concentrated in the top 3%. QE created the wealth effect and drained wealth at the bottom to suffocating levels. Low family wealth depresses incomes at the bottom - it has nothing to do with interest on savings (which the poor don't have).


Derp Limitations

Is "derp" bipartisan like a blindness to the economic evils of job killing payroll taxes? Perhaps it is only the truly "derpy" who understand why the gods apparently do not want the U.S.A. to have a VAT (although it is the fairest tax adopted in every developed country). In the "age of derp" the poorer half of the population must learn to be grateful to share one percent of the wealth (or less) because they have color TV and indoor plumbing - such a good life. Derps also know that poverty is the cheapest form of family planning (but you get the mess that you pay for).

Just to remind anyone who was alive during the Obama administration ... "runaway inflation" was avoided according to about 27 out of 28 of Prof. Krugman's last posts.


A reference to Paul Krugman did "slip through" because the author is from the liberal Brookings Institution. It also explains why, "Berkeley’s Brad DeLong" was also quoted.

The claim that in a, "deflationary economy, wages as well as prices often have to fall" seems to be more a general warning about wages rather than a prediction. The current assertion by Prof. Krugman that, "too-low inflation has all the adverse effects of outright deflation, just to a lesser degree" is actually a bit more ominous.

Perhaps is time to relieve the pressure by replacing the job killing, salary stagnating, payroll taxes. A wealth tax, VAT and/or reduction in tax expenditures would increase take home pay and economic demand while reducing the tax on each U.S. job.


Economics or Politics

The near constant call for infrastructure spending at the federal level (in some other community and state) may help union jobs later and will certainly encourage unions to get out the vote now. Krugman and his liberal pal, Lawrence Summers, are, "trying to bully us into doing what they themselves want". See http://www.washingtonpost.com/opinions/lawrence-summers-invest-in-infras... Summers even goes so far as to cite the IMF for the assertion that, "properly designed infrastructure investment will reduce rather than increase government debt burdens". This is politics not economics; and said to be justified first because the market is going up and now because the market is going down. It is justified by the Democratic get out the vote needs in the midterm elections and will be again justified in 2016.

If infrastructure were truly needed and economical due to low interest rates, it would be arranged and financed at the local and state level.


Janet Gornick delivered an excellent presentation in a mild mannered and nonpolitical style. I hope Prof. Krugman will learn not just from her data but also from her style.

While Ms. Gornick mentioned Piketty's call for a wealth tax as a means to counteract income inequality it was obvious that she was uncomfortable with wealth. It seems the data on wealth is not available. In poorer economies even the data on income is often not available and consumption is used as a proxy.

In the U.S. Nick Hanauer gave a TED Talk and said the poorer half of the U.S. population has only 6 percent of the wealth. See [link] The U.S. government says this group has only 1.1 percent of the wealth (down 70% since 1995). See [Wealth Gap].

There is a huge difference between 6% and 1% and perhaps some of it can be explained by the difference between assets and debts (net wealth or just wealth). The U.N. has a global goal of helping the world's poor by 2040 through growth rather than hand outs. This will be achieved only if family wealth becomes not just a part, but the actual focus of inequality studies.

A wealth tax should not soak the rich and can be better used as a tax option to reduce income, payroll and other taxes for those (less wealthy) willing to pay tax on their wealth.


Consumers avoid bonds (and similar investments) and keep their funds in secure savings if they believe low interest rates will soon rise. Monetary policy can be ineffective at budging these rational middle-of-the-road consumers because rates are so low it is not worth the risk. The 10% (with 75% of the assets) can use the easy money for tax deferral. When rates are really low they can borrow against their assets and invest in equities without realizing a gain for tax purposes. The big deals inflate the asset prices far in excess of the interest paid on the loan and avoids most tax consequences. Individual wealth in the U.S. increased from about $56 trillion in 2010 to $82 trillion today with very little being taxed. This "wealth effect" defines and separates those few who can take advantage of the liquidity trap loans from those ordinary consumers who safely float by.

Both sides of the petty Krugman-Asness debate give only lip service to the majority of consumers that have no savings. The middle class share of wealth is down 8% since 1995 and represents a reduced but substantial 24% share of wealth. The poorer half of the population is down 70% and now share only 1% of the wealth. Their consumption comes from their take home pay which is grossly over taxed by 15.3% payroll taxes on top of all the rest. In other words, monetary policy applied to the current tax code enables those at the top to avoid taxes and eliminates any chance of getting ahead for those at the bottom.


Don't Forgive Debt

Reduce Taxes on the Poor

We can use a wealth tax to tax away debt. Sounds counterintuitive, but it is time to tax individuals not just based on income and consumption but also on wealth. The progressive tax design problem had been in the assumption that a wealth tax would and should "soak the rich" rather than directly help the poor and middle class.

Consider a flat 26% income tax than could be reduced to just 8% by any family willing to pay a 2% tax on their wealth (excluding $15,000 cash, $500,000 retirement savings and with no payroll taxes). For the majority of families with negative or low net wealth it would be like paying no taxes. When one considers that the 8% income tax rate is offset by the elimination of 7.65% in employee payroll taxes the net income rate comes to less than one percent. The 2% wealth tax doesn't begin until assets less debts exceed the exemption ($15,000 per person, $60,000 for a family of four).

Today the top 10% have 75% of the wealth and the poorer half of the country share just 1% of the wealth (down 70% since 1995). Reducing taxes on those with debt (low wealth) makes a lot of sense. Let the poor keep more of their own money.


I certainly don't know what France will do if things get really bad. I do know that their blend of taxes: income, VAT and wealth give the government options to help their people in many ways while spreading the burden in a more intelligent fashion and providing health care, retirement and other benefits that the people support.

In the U.S. the 70% loss of family wealth for the poorer half of the country has caused social problems which are beginning to get quite expensive. Half the population is gasping for air trying to survive on just one percent of the wealth. That would never happen in France (ain't that right Mr. Piketty).


Still Deficient

President Obama should get credit for the deficit reduction because he did not spend more than the Republicans allowed. Obama may also deserve blame for the deficit reduction because he did not fight harder for more stimulus spending to help the economy.

Some in the public are "unappeasable" and Prof. Krugman speculates that only sever, "damage [to] Social Security and/or Medicare will satisfy them". Others simply think that a balanced budget with no deficit should be the norm.

Ironically, it is the 15.3 percent payroll taxes which are over taxing workers and hurting the economy. The irony comes from the fact that payroll taxes were originally designed to help the poor and fund Social Security and later Medicare. The benefits of these programs can be maintained even if the tax base is changed from combined payroll to a wealth tax, VAT and/or reduction in tax expenditures (in a revenue neutral replacement). Bill Gates and economist, Casey Mulligan have explained how full employment and higher salaries can be created by not taxing jobs and workers at such a high rate. [Note that the EITC helps with a credit for very low earners but it also encourages low wages].

Of course, full employment and economic growth through payroll tax replacement is a better way of eliminating the deficit and preserve Social Security and Medicare benefits for decades to come. A win-win scenario apparently does not fit Prof. Krugman's (deficient) liberal political agenda.


Government has not grown so much but nonprofits supported by taxpayers have. The wealth of nonprofits increased from $2.6 trillion in 2000 to $4.5 trillion in 2010. From an economic standpoint it should matter very little whether the spending is from the government or nonprofits; or if spending was for construction, maintenance or operations. The main difference is the size of the deficit(s) and the government bonds which help Prof. Krugman's very rich friends. One other difference between government and nonprofit spending is the extent to which union workers are employed - the other friends of Prof. Krugman.


Re-Balance the Burden

We need tax cuts. At least workers who have been over taxed by 15.3% in combined payroll taxes need to keep more of their own money (as the Republicans like to say). Bill Gates and economist, Casey Mulligan have explained why taxing payroll reduces U.S. jobs and over taxing workers reduces the take home pay needed to support the economy and families. The middle class lost 8% of their wealth over the last 20 years and the poorer half of the population is down 70% and gasping for air.

In order to maintain Social Security benefits the payroll tax revenue needs to be replaced by tax bases which are less harmful to jobs and place the burden on investors whose wealth is up by almost 50% in just the last six years (with very little taxed).

The goal of full employment, higher worker salaries and a robust economy has some appeal to both the left and the right. Replacing payroll tax revenue with a wealth tax, VAT and/or reduction in tax expenditures presents an opportunity for compromise but it could be a great way for Democrats to show power and the President to show a vestige of economic leadership in a Republican controlled congress.

Prof. Krugman is simply wrong to imply that a tax increase (as President Clinton did) rather than redistributing the tax burden in a revenue neutral manner is the way forward. As for the suggestion of voodoo economic projections, the CBO should be realistic about any savings from increased employment.


The data presented does not reflect any growth in the population as one would find in comparing the rates of unemployment over the 12 year period. The data is apparently intended to make a (false) political point rather than a fair economic one. Prof. Krugman will no doubt expand the analysis after Election Day to explain why similar numbers of jobs did not keep pace with the growing population and how large numbers of low paying jobs has made the Obama recovery so bad.

PS. A better look at the 6 million plus job shortfall can be seen here: https://twitter.com/alyssalynn7/status/518025902731841536?wpisrc=nl-wonkbk&wpmm=1


Gasping for Air

Investors found a way to make huge sums of money while tens of millions remain unemployed and G.D.P growth is slow. Soaring asset values (i.e. stock prices) have increased total individual investor wealth by almost 50 percent during the Obama years - mostly tax deferred. It seems that Mr. Buffett's no tax strategy (if you don't have to sell) is even better than low tax - 18% top marginal rates (and inversion may be as good as deferral).

The abundance of counterproductive tax advantages at the top have actually tipped the balance against genuine productive growth. It's not that some businessmen can't adjust to inflation, pay taxes and decent salaries and make money the old fashion way, it's that too many businessmen have turned to less risky investments and tax avoidance - because they can.

The, "depression denial syndrome" is really about the human factors causing economic, "rules to be different in a persistently depressed economy." In his book about ending "this depression", Prof. Krugman admitted he was unsure if the growing wealth gap contributed to and caused the depression. Thomas Piketty showed how returns to capital historically exceed growth and the process has obviously been accelerated by awful "reforms" in the U.S. tax code. Perhaps both Krugman and Piketty will learn that it is the 70% loss of family wealth for the bottom half of the population (just two or three percent of total wealth) that has left the economy (and families) gasping for air.


It is an over generalization and distortion to describe the position of "the right" as, "you mustn’t tax the rich or help the poor because that would destroy job growth". The right has no collective position on a VAT and certainly has no position on a wealth tax. Keep in mind that the No tax pledge signed by many in congress applies only to the income tax and does not prevent new tax bases that would enable reductions in the job killing payroll taxes and both corporate and individual income taxes. Of course "the left" also has no collective position on the evil of taxing jobs/payrolls or the greater equities that come with VAT and wealth taxes.

Thus Prof. Krugman is correct to note that post recession job creation numbers have no correlation with the party affiliation of the governor of each state. The governors can impact local spending but they can't change the federal regulations and tax policy that destroy jobs.

The real divide is between those who over tax labor at marginal rates of 29% (going to 32% in a few years) and those who under tax investment income by not including economic income from capital appreciation and by limiting the top marginal tax rate to 18% for wealthy investors.

Contrary to popular belief, wealth could be taxed (i.e. at 2%) as an option for those who want lower income tax rates (i.e. 8% rather than 26%). Basic retirement funds could also remain tax exempt. A business VAT of just 4% could lower the C corporation rate to 8% with no payroll taxes.


Offer Jobs and They Will Work

At A.E.I. Mr. Boehner said he wants everyone to work. He should be willing to encourage near full employment by replacing the job killing payroll taxes (which Bill Gates suggested at A.E.I. in March). He should also have no objection to transitional jobs with nonprofits (at a little below private sector rates) for hard to employ people that could be funded with the existing charitable deduction. Indeed, Rep. Ryan’s plan to consolidate dozens of safety net programs at the state level (also described at A.E.I.) could add child care, transportation, training and other support to the transitional jobs.
It seems that the right has given the left much to work with.


We all know that most investor asset values are inflated from stocks to luxury cars and trendy supermarket items. The inflated assets are not the items used to measure the common basket of consumer goods and services. Wages and basic goods have not increased in price thanks to government policy that produced a surplus of college graduates and imports all basic goods.

My problem with Prof. Krugman is that he focuses on monetary policy and blames the problem on politicians who are responsible for structural reform. The GOP has taken the No Tax Pledge which is enforced by tens of millions of dollars in fat cat donations and threatens economic reform just as Sharia Law threatens political reform. The Democrats use regulation as an alternative to tax reform by forcing businesses to pay higher minimum wages and/or provide health insurance (and pretend that taxes have not been raised). Environmental regulations can have the same effect.

In the end, the inflation arguments have little to do with inflation and everything to do with returns to capital investment. Investor wealth has increased by 50% during the Obama years while most young people cannot afford to marry and raise children because their families have been over taxed and loosing wealth for decades.


No Adverse Consequences

Prof. Krugman suggests that with a $15.00 minimum wage, "the adverse consequences would be much less than people imagine." The CBO estimated a loss of 500,000 jobs with a $10.15 national minimum although a smaller increase to $9.00 would result in negligible job losses.

Perhaps we should take the safe approach and raise the federal minimum to $9.00 and at the same time replace the job killing payroll taxes with an 8% VAT, 1% wealth tax and/or reduction in some of the $1.3 trillion in tax expenditures.

The payroll tax replacement would encourage full employment (according to Bill Gates and Casey Mulligan) and full employment would encourage higher wages for all workers (in addition to the 7.65% payroll tax savings).

The CBO has not considered the effect of a $15.00 minimum wage but payroll tax reform and replacement is a better way to increase wages and stimulate economic growth.


Premiums are Down because

Poverty Levels are Up

The report states, "An individual who is eligible for a tax credit and enrolls in the second-lowest-cost silver plan pays a defined percentage of their income … Those percentages increase slightly in 2015… . However, poverty levels have also increased, meaning that someone with the same dollar income as in 2014 will be at a lower percentage of poverty in 2015 and will therefore pay a smaller share of their income towards the premium."

Some of Prof. Krugman's liberal readers may find the explanation in the report to be part of the "wall of rage from the right". Others may find that Fox and the WSJ should devote more time to increasing poverty as the root cause of more health care subsidy (and corresponding lower premiums).

Independent readers should also be concerned about the delay in the $130 billion in business penalties that will harm millions of jobs. Don't be polarized by simplistic left-right thinking even if Obamacare is entirely a creature of the left.


The U.S. is limited to a tax code that suffocates (and hides) income not just with high individual rates but also with 15.3% payroll taxes and 35% C corporation taxes. It is hard to squeeze more revenue from the income tax base because congress believes the base rates are already $1.3 trillion too high. This is the amount of annual tax expenditures that distort individual, business and political decisions.

In France the income taxes are not so onerous because net wealth and value added taxes provide revenue tools that can be adjusted and balanced to fine tune burdens on the very wealthy and on business. In the U.S. we do not tax investor wealth (which increased by $26 trillion - 46% in just the last 5 years). In France they respect the importance of free market prices with doctor fees and reimbursements posted in each office while the U.S. destroys markets in health care by permitting volume discounts that increase costs for the uninsured and socialistic price setting by government health programs.

Current U.S. tax revenue could be replaced by a blend of taxes with the lowest rates possible and generous exemption for supplementary retirement savings. Payroll taxes should be replaced. Workers need to keep more of their own earnings and families with above average wealth need to pay for government services that made their prosperity possible. The U.S. economy would soar with the change (rather than simply inflate asset prices).


Segregated Housing is the “Real Key”

“It would be great to see the real key — affordable housing — become a national issue.”

Businesses can be expected to damage their competitors and seek monopoly and other intellectual property advantages. When states and localities act like businesses the country suffers.

In Nassau County, NY the average property tax on a house is about $8,000 a year ($240,000 over 30 years if taxes don’t increase). Public education is the largest expenditure and perhaps Prof. Krugman would like to begin the affordable housing experiment there.

Please tell Mayor Bill de Blasio that adding pre-school and day care is not a way to cut public education costs and make housing more affordable. In urban areas costs are managed with some housing segregation combined with incompetent public education that encourages those with wealth to pay for private schools. In the suburbs there is greater reliance on segregation and New York State is ranked as the most segregated state in the nation. Perhaps housing prices would be more affordable if Democrats in New York desegregated the schools and offered greater school choice. Most affordable housing is in school districts which are 90% minority while the unaffordable housing is in school districts which are 99% white. The teachers union would certainly put the interest of the children first and Democrats want desegregation just as much as Republicans want to lift the government regulations that keep us apart. Right?


Leftist, Rightist, Centrist or Something Else

Some political and economic ideas don’t fit into a left, right or center linear ideology. Consider:

- an optional wealth tax which would permit a much lower income tax rate for those who choose to pay it.

- a value added tax to replace income taxes versus a value added tax to replace job killing payroll taxes

- a blend of taxes with very low rates and no tax expenditures

Without political leadership nothing happens. All sides spend most of their time seeking to preserve the status quo - Prof. Krugman included. Presidents Bush and Obama had so called tax reform study groups but they were not permitted to look at payroll taxes, VATs or wealth taxes. Congress has done the same. Indeed while tax reform studies typically seek to be revenue neutral there is no rational reason for tax reform to be distributionaly neutral. We need something else and we need to go beyond talk of, "elites and conspiracy theories". There is nothing foolish about hoping for new political leadership willing to do the right thing.


Bad Consequences Are Foreseeable

Two Democratic members of congress want to show movie goers that they care enough to force theaters to post the 1,030 calories one would imbibe if the extra large buttery popcorn is consumed. Theaters had been excluded from the Obamacare posting regulations because less than half of their business was from food sales. The guilt will cause a few to avoid the popcorn (or at least the imitation butter) and will cause many more to share their popcorn with their neighbors. The fact that some will also be sharing hepatitis C and a host of other diseases is immaterial to liberal do-some-gooders.

The mandatory posting of the calories in McDonalds oatmeal teachers customers that they should order the (unhealthy) breakfast sandwich because it seems almost as healthy as oatmeal (unless you read Mark Bittman’s column).

The broader point is that the goal is often defeated by the means. Payroll taxes are regressive and discourage jobs but liberals foolishly think they are necessary to fund Social Security and Medicare. A VAT and/or wealth tax would be better and would create full employment. Bad laws are hard to change.


Secular Stagnation: So What Do We Do About It?

The ebook defines secular stagnation in terms of “full employment”. The introduction states, “First, a workable definition of secular stagnation is that negative real interest rates are needed to equate saving and investment with full employment. Second, the key worry is that secular stagnation makes it much harder to achieve full employment with low inflation and a zero lower bound (ZLB) on policy interest rates. … Third, it is too early to know if secular stagnation is more than just old-fashioned slow growth, but economists and policymakers should start thinking hard about what should be done if secular stagnation materialises – the old macroeconomic toolkit is inadequate.” Larry Summers goes so far as to write, “It may be impossible for an economy to achieve full employment, satisfactory growth and financial stability simultaneously simply through the operation of conventional monetary policy”.

Political (tax reform) solutions are needed like the elimination and replacement of the job killing payroll taxes with a VAT (of 8%) and/or wealth tax (of 1%). Bill Gates understands that the payroll tax has been over taxing workers and U.S. jobs. Professor Krugman remains rather tight lipped on the subject of job sustaining tax reform - (also President Obama’s biggest failure). How many more years do we have to debate economic theory before we fix all the policies that hurt U.S. jobs – Payroll taxes, ObamaCare and Immigration.


At Least a Two Year Slump

The claim that, "things don’t look that dire in America, where job creation seems finally to have picked up" sounds like a pep rally for the Democratic Party. The median family has lost 36 percent of their family wealth since 2003 and half the country now has assets of less than $57,000. This group needs to vote Democratic to keep control of the Senate. President Obama's six years has produced only the ill-timed economic ball and chain of Obamacare.

U.S. tax policy has stranded too many on our economic "Mount Sinjar". President Obama has been slow in coming to the rescue and now believes most should fend for themselves because a few thousand jobs have been added this month. The job killing payroll taxes need to be replaced with a VAT and/or wealth tax to encourage full employment, increase salaries and create a robust economy for all.

The Democrats believe job creation is for the next President. They should be willing to give up Obamacare to create full employment but they cling to the $130 billion in penalties that will harm 2.5 million jobs. The President has also threatened to give another 5 million jobs to illegal immigrants. It looks like the "Forever Slump" has at least two years to go.


Cut Ryan Some Slack

Going back to FY 2012 there were conditions which caused S & P to downgrade the credit of the U.S. Rep. Ryan would have been a fool to ignore it. Ryan was responsible for budget issues but not for tax issues and for this reason it would have been going over the line to specify changes in tax expenditures. Prof. Krugman is just an economist and not a politician with wide discretion in specifying detail. "I wish we lived in a world in which you could reasonably assume that people with different [economic] views were arguing their case honestly".

The amount of the tax expenditures eliminated by Ways and means would also determine the extent of the spending cuts and feasibility of the target tax cuts. As a VP candidate with Romney, Ryan also lost some of his independence and had to be more general in his budget statements.

Prof. Krugman is not wrong to refer to the "essential dishonesty of the plan" because it was not a bill that was going to be passed in Congress. It was a political document just like those that come from the Democratic controlled Senate. The "flimflam" seems to be not in some old budget but in the real political power that Krugman fears if Ryan takes over tax reform at Ways and Means. Prof. Krugman has always remained less specific about tax reform than Ryan has been about budgets.


In Ann Rand novels politicians only pretend to investigate ethics (Gov. Cuomo) and pass laws to help some businesses (no taxes for ten years) while wasting the tax receipts of other taxpayers. There are, “people who read Atlas Shrugged in their teens and never grew up” and there are others who read Atlas Shrugged and never learn the many lessons. They grow up and point to the DMV as a government success because it primarily wastes productive taxpayer time (Monday to Friday, between 9 AM and 5 PM) without wasting too much money. Of course, union rules make evening and weekend hours out of the question. My last trip helping an 82 year old woman get a non-driver ID required a wait of over two and a half hours in a waiting room filled with over 200 people and most of the counters not being used. Should the governor consider part time help during peak hours and worker lunch periods; or should we just let the public wait (on very hard wooden benches).

If you think the DMV is "a model of customer service" you probably also think Obamacare is working.


Tax Wealth Not Work

Prof. Krugman calls the new Standard & Poor’s analysis a, “new view of inequality” and joins in the speculation that a more equal distribution of income can promote growth and a “trickle-up” economy. The long range income correlations cited in the report support the thesis but I believe it is family wealth, rather than income, which is the cause rather than simply the measure of prosperity. Median household wealth is now just $56,335 (down 36% in ten years). Families with less wealth (and negative wealth) manage by accepting low wages and taking advantage of government programs.
Full employment is the key to higher salaries and lower taxes on workers is the key to restoring family wealth to the poor and middle class. Both goals can be accomplished by replacing the payroll taxes with bases such as a VAT and/or wealth tax that are less of a burden on workers.

Unrealized capital gains are never taxed and this is why “higher taxes on the rich” need to actually tax wealth rather than just income. Wealth can be taxed directly with a low rate wealth tax (i.e. 2%) or deferred and taxed with higher rate gift and estate taxes (i.e. 26% or more). A taxpayer might even be given the option of paying a wealth tax (excluding retirement savings) and a low income tax rate or paying a higher income tax rate and capital gains, gift and estate taxes later


An attorney letter was written identifying some 50 passages that were allegedly plagiarized while Perlstein responded that they were "paraphrased" and generally cited in endnotes (separately published online). Thus there is no factual issue that copying occurred and only an issue of whether it was lawful under the fair use doctrine of copyright law.

Of course journalistic and academic standards can be more rigorous than what the law allows. "Daniel Okrent, the outgoing public editor, [fired] a parting shot (with no chance for [Krugman] to reply) accusing [Krugman] of fiddling with the numbers."

This all comes just a week after Prof. Krugman writes. "... it looks as if [Stephen] Moore pulled numbers from an old piece of his, and never bothered to update." See http://krugman.blogs.nytimes.com/2014/07/26/moore-of-the-same/?module=Se.... Moore moved from the Wall Street Journal to the Heritage Foundation.

The use of the term "professional malpractice" for any economist, especially ones like Krugman and Moore that express political opinions 95% of the time, is a joke. There are no professional standards in political opinions - thank Goodness.


Dammed if We Do and Dammed if We Don't

What is the economic relationship between health insurance costs and the ACA? The imposition of uniform policy terms and eliminating surcharges for pre-existing conditions seem to be good insurance changes that did not break the bank. Nevertheless, in spite of the individual coverage requirement, the percentage of persons without insurance is only one percent more than it was in 2008.

So far, the ACA has accomplished a little. The big test will come when the $130 billion in business tax penalties begin for employers who decline to provide coverage. President Obama has delayed this provision by Executive Order and invited a declaratory judgment law suit by the House because of the anticipated economic and political harm.

President Obama sees the economic and political danger of the ACA design. [I continue to believe that we should not rule out the possibility that the online rollout of ObamaCare was sabotaged to create a “legal emergency” to justify the politically convenient delay in business penalties]. Prof. Krugman might at least concede that the GOP has one concern if the law is followed and a different concern if it is not.


His Legacy

I agree that both ObamaCare and Dodd-Frank are working and will let others debate how well. With only two debatable successes in a two term presidency, Mr. Obama will not need a very large presidential library. His old mansion in Chicago might suffice. The disabled and a few bankers will come together to honor his legacy.

The other (unintended) Obama success is the astonishing increases in individual wealth which unfortunately has been confined to the top ten percent of the population. The easy success at the top has been made possible by Mr. Obama's failure at tax reform and job creation. His unfavorable poll numbers show how many think he really didn't even try.


Poor Poor Workers

The 15.3 percent combined payroll tax is a game changer. In March, Bill Gates spoke at AEI and let it slip that a replacement of the payroll tax base is all that is required for full employment. The employer portion of the tax encourages outsourcing and the employee portion reduces take home pay (and consumer demand) by another 7.65 percent. Without changing Social Security and Medicare benefits, an 8% VAT, 1% wealth tax and/or reduction in the $1.3 trillion in tax expenditures could provide a revenue neutral tax replacement and create full employment.

The expanded payroll tax rates are also the reason why labor is taxed at a marginal rate of 29% (going to 32% by 2024) and returns on capital investment have been taxed at only 18%. Over time this results in concentrations and enormous growth of wealth at the top (up 46% in just 4 years) and losses at the bottom (down 70% since 1995). The loss of family wealth at the bottom creates such desperation that talented workers accept minimum wages (supplemented by food stamps, EITC and health insurance subsidy).

Jared Bernstein seems to agree that, “traditional relationships between critical variables are shifting in ways we don’t understand.” … The “Fed … mandate to balance full employment and price stability [inflation] is a serious problem.” You don’t need to be a wonk to understand that the long term effect of taxes on worker family wealth has altered labor supply and demand and inflated only asset prices.



The top C corporation rate is 35% and the U.S. tax code has so many tax expenditures (deductions, special rates, deferrals, credits and exemptions) that many large corporations pay little or no income taxes. Those that do pay taxes are increasingly looking at inversion (foreign ownership) to avoid taxes. Don't fault the tax attorneys or assign blame to the corporations that seek to take advantage of it. Blame goes to the government that poorly drafted the unfair tax laws and now fails to reform them.

Prof. Krugman writes that President Obama is not wrong to use the term “corporate deserters” because of some “civic duty” to pay more taxes than necessary to the U.S. Treasury. This imagined duty actually contradicts the legal duty to zealously represent a client (even against the government’s interest). The President seems to declare new law even as he stubbornly refuses to promote a value added tax which every legislative body in the developed world has found to be the fairest way to tax all types of businesses.

A 4% VAT (the lowest in the world) and 8% C corporation rate (with no business tax expenditures) would eliminate the incentive for inversion and deferral of taxes on foreign profits. [Foreign companies might even want to become U.S. companies]. The only downside with eliminating the tax loopholes is that corporations would have no reason to make large donations to the Democratic or Republican Parties – not really much of a downside when you think about it.


The link suggests that the Heritage foundation once renowned for its intellectual rigor might now be more of a political advocacy outlet than a home for scholarly research. Mr. Moore is the new economics chief and represents to the right what Prof. Krugman is to the left. Both are 95% politics and 5% economics - (although the numbers could be slightly off and misleading).


"Alarming" to Most of Us

Prof. Krugman says the, “latest long-term projections from the Congressional Budget Office … are distinctly non-alarming”. The “crucial ratio of debt to G.D.P. [will] remain more or less flat for the next decade”. The Treasury 18 months ago had spending for interest on the mounting debt escalating at an alarming rate. See http://www.taxnetwealth.com/04_Tax_Expenditures.aspx. Now the CBO “expects interest rates to remain fairly low, not much higher than the economy’s rate of growth.” According to Prof. Krugman this, “weakens, indeed almost eliminates, the risk of a debt spiral”.

While Prof. Krugman may be using the phrase, “non-alarming” to counteract the fix-the-debt crowd (a/k/a “deficit scolds”) he seems to forget that the projections are based upon increasing marginal income tax rates on labor from 29% today to 32% in 2024. This is “alarming” considering that the marginal tax rates on the return of capital are only 18% and projected to remain the same. See Table 5-2 at page 65.

Labor has been over taxed for decades, payrolls are a shrinking share of G.D.P. and family net wealth (the most important predictor of success) has been gradually reduced over 70% since 1995 for the poorer half the population. The investor class has increased its wealth at an astonishing rate going from $56 trillion in 2010 to $82 trillion today with very little being taxed. Wealth grows faster (and easier) than G.D.P. and should be taxed more heavily than labor.



Schools of “quasi-economic thought” such as “Austrianism” have correctly predicted “quasi-inflation” rooted in the monetary base known as family wealth. Under the “quasi-theory” an increase in a consumer prices is the equivalent of constant prices coupled with reduced family wealth. If low wages, taxes and other essentials leave a family with a diminished ability to engage in non-essential discretionary spending it can be called “quasi-inflation”.

It is important to appreciate that cell phones and health insurance are no longer discretionary. Indeed, cigarette smoking at $10 a pack is not just a health concern but also an economic curse on poor families that only quasi-economic schools factor into the inflationary reality. Used car scams with easy credit and 20% interest rates on loans add to the “quasi-inflation” bubble.

Quasi-inflation even exists at the top (in a different form) with asset prices going through the roof. Individual [investor] wealth may have increased from $56 trillion in 2010 to $82 trillion [largely untaxed] but it is still hard to keep pace with the newsstand price of the New York Times.

Alas the richness and wealth of the private language used by Austrianism still pales in comparison to Krugmanism. Levity, like hospital humor, is needed when writing about the misery of tens of millions of families caught up in unrestrained income and wealth gaps yet to be fully understood and explained.


Metaphorically Speaking

Rep. Paul Ryan actually said, “I think a lot of people would observe that we are living in an Ayn Rand novel metaphorically speaking”. Because “metaphorically” is the opposite of “literally”, Prof. Krugman deserves a few Pinocchio noses on this one.

The entire subject of interest seems to be the tail wagging the dog and Professor Krugman appears to be primarily interested in rewriting political and economic history by conflating all who expressed concern about interest rates with American conservatives, reform conservatives and the Tea Party – as if no one on the left had the slightest concern about inflation. Did not the same conservatives say that the market would rebound if President Obama stayed out of the way? Obama has done very little (thanks to GOP opposition) and individual wealth increased from $56 trillion in 2010 to $82 trillion today. The rich of both parties love Obama (metaphorically speaking) because he has accomplished nothing for the poor and lower middle class.


No Dominion for Some Tax Payers

The CBO Long-Term Budget Outlook is amazing in projecting, “an average interest rate on federal debt of 4.1 percent and an average growth rate of nominal GDP of 4.3 percent”. Happy Days are Here Again and it doesn't matter what party controls the White House, congress or the judiciary. I recall that during the last presidential election a group of economists were invited to write chapters in a book saying whatever they wanted as long as they swore up and down that the GOP could deliver a 4% economy. See "The 4 Percent Solution: Unleashing the Economic Growth America Needs" (with introduction by George Bush).

It seems that it is Obama that has delivered just as he increased individual wealth by 46% from $56 trillion in 2010 to $82 trillion today. Unfortunately the growth in wealth has been confined to those at the top - expanding the wealth gap while shrinking after tax income from labor. The marginal tax rate on labor income is 29% and the CBO projects this will expand to 31% by 2024. See Table 5.2. In contrast, the 18% marginal tax rate on capital income is expected to stay the same.

The poorer half of the country lost 70% of their net wealth between 1995 and 2010 solely because they have been over taxed. It apparently will get worse for these families as they pay off the national debt and increase their own.

Instead of 31%, let any taxpayer pay 8% on income and 2% on wealth (excluding $500,000 retirement savings and $15,000 cash).


Something to Behold

Yesterday, Prof. Krugman said enrollments in the ACA were above some unidentified target but it is not clear if this includes the 5 million people who live in states that have not expanded Medicaid and are therefore not eligible for any health insurance. In The Upshot we learn that these states have good reason to be concerned about the expansion. See http://www.washingtonpost.com/opinions/robert-samuelson-the-real-medicai...

Now Prof. Krugman defends ObamaCare from yet another group of unidentified critics because ObamaCare has worked for some - however small this group may be. To be sure those 26 year old children getting free insurance on the family policy are quite happy as are those in the right states with the right income to qualify for Medicaid. They represent a significant share of the previously uninsured which are now 13.6% of the population (down from 14.6% in 2008 when Obama took office). Big Deal!

Unfortunately the worst is yet to come when the $130 billion in penalties start to hurt struggling businesses and harm 2.5 million workers (according to the CBO projections).

The ACA is not a complete failure but as it stands it is an awful national health policy. I refuse to believe that Prof. Krugman is just a political hack who feels he has to defend the ACA for political reasons that relate to the upcoming elections.


Hatred of Race Baiting

I do not know anyone (still alive) who has, “hatred for any kind of program that helps the less fortunate, especially if they happen to be … not white”. If they exist they must be Democrats because New York State remains the most segregated state in the U.S. and the Democrats in control have no plans, policies or proposed legislation to change it. In fact, the Democratic led congressional district that includes the Garden City – Hempstead area is the most segregated district in the country.

Of course modern segregation (and health care) has to do with wealth. Non-whites (with sufficient green) are welcome anywhere – especially in the health field. Prof. Krugman intentionally perpetuates a myth, without data, and he should be held to the same standard he demands of the ACA detractors – “please explain”.

The uninsured (of all races) must pay more for health care due to the unethical ACA insurance discounts. The $130 billion in (politically delayed) business penalties will harm 2.5 million jobs according to the CBO. The race of the President (and his Attorney General with the big mouth) matters, at most, only in regard to the discriminatory ACA tanning tax.


Obamacare has reduced the the percentage of uninsured individuals to 13.6% (down from 14.6% in 2008). Most of the 1% change is due to giving taxpayer supported Medicaid to a larger group of poor people.

Prof. Krugman likes to spin the numbers by giving Obama credit for the millions who lost their jobs and insurance to the point where 18% of the population had no insurance in 2013. After the worst economic recovery since the Great Depression Obama can not fairly take take credit for the economy plodding forward or perhaps he deserves credit for changing Obamacare.

If Obamacare had proceeded according to congressional design the employees refusing to provide health insurance would be getting ready to pay $130 billion in fines at the expense of 2.5 million jobs. This has been delayed by one of President Obama's infamous Executive Orders which conveniently delays the bad job numbers and the business penalties until after the elections.

It's both the policy and the economy, stupid.


Tax Policy is Political

Prof. Krugman fears that the Fed might, “stop trying to boost employment and raise interest rates instead” but the low interest policy has not boosted employment. Easy money boosts the value of all assets except labor because cash is idle. Individual wealth at the top has grown more than 50% since the Great Recession but wages at the bottom have stagnated. The growth in wealth has not come from a 2% annual growth in GDP or from interest paid to financially conservative investors. Krugman’s true colors come out when he describes this growth of wealth at the top as helping the, “economy as a whole”. Krugman even goes so far as to contend, “monetary policy is as bound up in class and ideological conflict as tax policy”.

We can certainly agree that tax policy is political but it is Prof. Krugman that needs to understand that tax policy, like payroll taxes, destroy jobs and lowers wages. Krugman is far to cute for his own good and should come out and say whether Bill Gates is right or wrong about the need to replace payroll taxes. It is an issue far more important than ObamaCare (even if the ACA has so many interesting and new angles to attack). If we are in a recession (or depression) we will need tax policy and monetary policy to get out of it because the poor and middle class have been over taxed for decades.


Tax-Controlled Inflation

Looking at individual net wealth is critical to understanding how the economy is mismanaged. For a family of four the “average” wealth is over $1 million even though the typical middle class family has much less and the poorer half of the population has less than $5,000 per capita. The data shown by Prof. Krugman does not embrace all types of net wealth and does not reflect the spectacular increases in individual wealth over the last five years going from $56 trillion in 2010 to $82 trillion today (largely thanks to the stock market).

Someday (soon I hope) Prof. Krugman will likely explain in more depth how our slow growth economy with high unemployment resulted in a 46% increase ($26 trillion) in individual net wealth. Of course we are speaking about values in the investor and luxury markets which have inflated (without any inflation) rather than drastic increases in the production of consumer goods. Indeed, Prof. Krugman now explains how low or no inflation policy concentrates the growth of wealth at the top. It seems that the 90% at the bottom need some inflation, some wealth and higher salaries. Replacing the job killing 15.3% payroll taxes with a 1% wealth tax (excluding $15,000 cash and $500,000 retirement savings) would be a good place to start.


So the price of everything is going up (except wages of workers) but there is no inflation - just smoke and mirrors and bubbles. Would values be less inflated with a wealth tax rather than a labor (payroll) tax?


U.S. individual wealth increased from $56 trillion in 2010 to $82 trillion today. The increase has not been taxed because it is mostly in unrealized capital gains. Four years is 1,460 days which means that the wealthy gain about $17.8 billion each day (more than twice what is needed to replenish the Highway Trust Fund). Whatever needs to be fixed should be paid for by those who have reaped the economic gains without paying a fair share of taxes.


Danny Vinson is right to criticize Room to Grow for failing to address full employment. The book was launched at AEI just two months after Bill Gates suggested replacing the job killing payroll taxes.

The so-called reform conservatives were afraid to mention this elegant solution because the replacement tax base would likely be a VAT - similar to the eight percent VAT Paul Ryan wanted just a few years ago to replace the C corporation tax. Because the Republicans cannot oppose a VAT and they don't want to oppose a full employment plan, the safe path has been to say nothing.

The Democrats like Gates, who is himself a Democrat, but full employment and a robust economy sadly brings votes to the Republicans. It is too bipartisan an issue to maintain the coalition of victims which sustains the Democrats. Better, less harmful government tax policy, is not the Democratic way.


Taxes on the Bottom

Professor Krugman, says, “This created a big hole in demand, one that couldn’t be filled with conventional monetary policy; so the answer should have been some mix of fiscal expansion, unconventional monetary policy, and debt relief” while Dean Baker suggests, “spending and/or tax cuts”.

Recent economic history shows individual net wealth increased from $56 trillion in 2010 to $82 trillion today. Krugman must therefore be wrong to say, “I would give more role to household debt” … or is he. Perhaps Prof. Krugman is just talking about the 90% who did not realize 46% gains in wealth over 4 years of a 2% economy. The debts include not just underwater mortgages but also high consumer debt and most importantly, student loans.

The solution is a revenue neutral replacement of the payroll taxes to infuse a massive across the board increase in take home pay and consumer spending. A VAT of 8%, wealth tax of 1% and/or reduction in some of the $1.3 trillion in tax expenditures would turn around the economy (before the stock market bursts its own bubble). Family wealth needs to be restored before family housing can be.


The “charlatans and cranks” get away with millions because liberals don’t understand tax reform. It should be about redistribution of tax liability so that workers and low wealth families pay less and the rich pay more. President Obama always talks about raising the income tax rates on those earning over $250,000 but never talks about eliminating the job killing payroll taxes on workers earning less than $115,000. An 8% VAT, 1% wealth tax and/or elimination of some of the $1.3 trillion in tax expenditures can, and should, replace the payroll taxes (and encourage full employment and higher salaries).

In Kansas the snake oil salesmen in the mainstream GOP [not the Tea Party] unethically tricked the voters and the state legislature. The resulting shortfall should be paid by those with Misc. income and not by those with W-2s.


Do It Right

In Australia they want to repeal their carbon tax in favor of a better global approach that will harm their economy a lot less. See http://www.abc.net.au/lateline/content/2014/s4033303.htm. Prof. Krugman is also correct to describe ObamaCare as a hasty “Rube Goldberg device” that is better for some but clearly worse for others.

When it comes to jobs, Krugman valiantly raises his fist to austerity worldwide but refuses to speak about a payroll tax replacement along the lines suggested by Bill Gates a few months ago. He is silent about a VAT for the U.S. and has never described an elective wealth tax that reduces income and other tax liability for those that pay a wealth tax. At Vox, Thomas Picketty is quoted as saying, “My point is not to increase taxation of wealth. It's actually to reduce taxation of wealth [and presumably income] for most people, but to increase it for those who already have a lot of wealth.” See http://www.vox.com/2014/6/23/5834034/mankiw-unpersuasive-on-inherited-we....

In the U.S. an “average” family of four has over $1 million while the “median” has less than $100,000. The poorer half of the country has less than $5,000 in net wealth and desperately need bold tax reform.


I should have added “under conditions where the Fed can achieve full employment.”

Replace the job killing payroll taxes with a new revenue neutral tax base (VAT, wealth tax, etc.) to create full employment.

Maintain full employment with transitional jobs in the nonprofit sector funded by earmarking the charitable deduction.

The Fed is not able to "achieve full employment" without tax reform.


Concentrated Wealth and Concentrated Taxes

Concentrations of wealth are good and that is why we have a stock market where investors large and small can pool their money and corporations can combine talent and other resources. There is no particular economic advantage to very large individual concentrations of wealth.

Prof. Krugman is correct about taxation being the real issue and the relative advantages and disadvantages that may flow from taxing corporate sales, profits or value added; individual income, estates or individual net wealth. Some taxes, like payroll taxes, not only raise revenue but also destroy jobs in the process. A blend of taxes is the best way to keep rates low and eliminate the need to distort the tax structure with tax expenditures that make the exceptions (at $1.3 trillion) bigger than the revenue. Low rates also minimize the political economics problem of regulatory capture.

An elective wealth tax of 2% (excluding $500,000 retirement savings) would permit a low 8% income tax rate and no payroll taxes. A flat tax of 26% and estate taxes later could be paid by those who are overly concerned about their individual concentration of wealth.

On the business end, a 4% VAT could replace the payroll tax and permit an 8% C corporation rate. That can take the wind out any argument for tax expenditures.



Health, Wealth and Carbon

Professor Krugman contends that, "individuals and firms don’t pay a price for emitting carbon ... [E]very economist I know would start cheering wildly if Congress voted in a clean, across-the-board carbon tax". Some don't appreciate the economic harm passed to the lower classes by payroll taxes, tax expenditures, the ACA or a carbon tax. Our tax code has already destroyed jobs (payroll taxes) and caused the poorer half of the population to lose 70% of their wealth. This economic harm is far more urgent than the slow climate changes which are a natural part of the planet's history.

Free markets have enabled individual wealth to reach $56 trillion in 2010 and $82 trillion today. This 46% increase is well beyond our slow economic growth and can best be understood by reading Thomas Piketty's “Capital in the Twenty-First Century". Piketty also explains how wealth can vanish in times of war as the markets for non-defense assets shrink. Financial leaders like Henry Paulson know that a carbon tax will preserve the wealth of those at the top in the climate change war. His selfish political motivation to support a carbon tax is simply to pass the cost to the bottom.

Government regulation should phase out most coal, oil and gas by regulating emissions according to available technology over time (20 to 100 years). A carbon tax is very attractive to the rich and should be opposed by decent people. Wealth can be taxed without hurting the poor.


Less Disruption

"maybe we need to do less disruption and put more effort into doing whatever we do well"

I have only been reading Paul Krugman's work for about two years and in my mind he has been the epitome of "creative disruption". I hope he doesn't take his own advice too seriously.

In any event, there is a huge difference between disruption in business and government. Disruption is a useful tool of business competition but disruption is the enemy of government. In business, damage to the competition is good and monopoly power supreme. In government, progress should be more egalitarian and do no harm to anyone. Economists, and particularly liberal economists, are constantly trying to apply the disruptive methods of business to government rather than applying the creative innovations with "less disruption".

After all, the conservative means of accomplishing any objective is to put in sufficient effort to do it well and with "less disruption". Perhaps Krugman will come out of the closet and admit he is a conservative.


Principled Economics

One might hope that an economics professor like Paul Krugman would cheer or at least personally relate to the enormous victory of a fellow economics professor. Perhaps that would lead to an awkward expectation that he understands conservative economics.

Eric Cantor is a mainstream Republican who has too often compromised on conservative economic principles. His position as Majority Leader understandably required a skill set that constantly strives to form a coalition within the Republican Party. The Tea Party movement brought new members that generally had the same conservative economic principles as the GOP and other conservatives with one difference – Tea Party members at least promised to vote according to principled economics.

In a post primary interview Economics Professor, David Brat, identified the most important principals as free and fair markets, eliminating the tax code distortions caused by tax expenditures, the rule of law, reduced regulation and deference to the states (i.e. smaller federal government) in the administration of means tested programs.

Cantor sought to defuse the Tea Party principals by sponsoring the Young Guns (YG) movement and the “Room to Grow” manifesto (read Douthat & Friedman) which purports to be reform conservatism but is little more than spinning and tweaking mainstream Republican mistakes of the past. Cantor’s “Movement Conservatism” was simply marching in place wearing a new uniform but having little soul.

[see response]

Free Markets and Regulations

In health care the doctors and other medical providers are not free to set their professional fees because insurance companies are permitted to arrange for outrageous volume discounts. Mr. Brat knows this is not a fair market and, as in France, believes health insurance prices should be posted. This would encourage market competition and lower prices for the uninsured. Keep in mind that ObamaCare was sold to the public a way to help the uninsured but they are the ones hurt by high medical care prices (which the insurance companies don’t pay). Between 2008 and 2014 the percentage of uninsured in the U.S. have declined by only 1% and the tens of millions who remain uninsured are worse off due to ObamaCare. The ObamaCare regulations that will require large businesses to provide insurance will affect 2.5 million jobs when the $130 business penalties begin. Those who harm some people to help others are the "frauds".

Immigration policy has been a bit about ignoring the rule of law for decades and then feeling so guilty and sympathetic to the innocent children that the jobs of needy citizens are taken and given to those who broke the law. Should we have the same sympathy for corporations that have avoided U.S. taxes on $2 trillion in foreign tax deferrals? [Rand Paul is selling his soul as we speak].

I don’t expect to change your mind but perhaps you can think about the unintended consequences that flow from an unprincipled approach.


But why is it so hard to act?

"What makes rational action on climate so hard is ... a toxic mix of ideology and anti-intellectualism", according to Prof. Krugman.

Apparently, we need to shut down the coal industry [which detracts from the real oil and gas targets] but there must be a, "toxic mix of ideology and anti-intellectualism" that also prevents China and the rest of the world from acting. Even Paul Krugman must admit that when it comes to, "rational action" it is surely counterproductive to ban coal burning in the U.S. if coal is simply going to become less expensive and continue to be burned in other countries. Even "carbon tariffs" will not eliminate the burning of coal and will result in decreasing trade with the U.S. and increasing trade among the coal burning countries with no significant reduction in carbon emissions. See http://www.nytimes.com/2014/06/06/opinion/krugman-the-climate-domino.html?ref=opinion.

The poorer half of the U.S. population all together has a net wealth of about $600 billion (down over 70% in 20 years). How much of the $50 billion coal regulations will be passed onto the poorer classes? Would the poor also suffer higher consumer costs from a carbon tariff?

The U.S. has about $82 trillion in individual wealth (over $250,000 per capita but it is concentrated heavily at the top). Wealth can be taxed without causing harm to the poor and middle class and is a far better way to fund carbon remediation than direct and indirect carbon taxes.



Too Expensive and Too Risky

Prof. Krugman now admits that the U.S. regulations will work only if, “carbon tariffs”  are imposed "on goods imported from countries that aren’t taking similar action". Thus the 224,000 estimated job loss and the $50 billion annual compliance costs must now be considered as only a small down payment to the immense consumer costs added to all imports. Unfortunately, “carbon tariffs” don't reduce carbon and if they must be imposed we are simply hurting the economy while keeping high levels of carbon emissions. U.S. consumers cannot afford this left leaning plan which has such a small likelihood of achieving any more than a 2% reduction in global carbon emissions.

Keep in mind that half the U.S. population lost 70% of their net wealth between 1995 and 2010. They have less than $600 billion all together and $50 billion represents almost 10% of their wealth. If carbon tariffs add another $50 to $100 billion most U.S. families will be devastated.

It might be different if we had full employment and higher salaries but the left is unwilling to support Bill Gates in calling for a replacement of the payroll taxes to create jobs. It might also be different if remediation efforts were funded by a wealth tax that would not financially harm 90% of the population.


Tax Equality

There are always, "populist demands for higher taxes on the rich" but there should be populist demands for lower rates. The problem with economists like Piketty is not their work evaluating wealth and income concentrations but in shoddy policy recommendations.

Regrettably, it is Piketty’s French style, “soak the rich”, vision of a wealth tax on a global scale which is awful. A flat rate wealth tax is progressive compared with a flat rate income tax or flat rate consumption tax so why would escalating wealth tax rates be needed? Why should the tax be less if the fortune is disbursed among family members? The U.S. maintains worldwide tax jurisdiction and is quite capable of taxing the income (and net wealth) of its citizens wherever the assets are located. A global tax shared among countries would inevitably leave the U.S. and its $82 trillion in individual wealth with a bad tax deal.

The biggest conceptual omission lies in Piketty’s failure to consider an elective wealth tax – one that offers a low flat income tax rate to those that elect to pay a wealth tax and requires a significantly higher income tax rate (and estate taxes when the time comes) from individuals not yet ready to share their wealth. This is true tax equality. A small wealth tax exception for savings and another for retirement would leave the majority of poorer taxpayers with no wealth tax liability and low income tax rates (and no job killing payroll taxes). For example see TaxNetWealth.com


Limited Resources

The $50 billion a year cost does not include the additional estimated loss of 224,000 jobs (in an average year). The cost might be worth it if it actually achieved, "large reductions in greenhouse gas emissions at little cost to the economy" (according to Prof. Krugman). Unfortunately the report actually says that because global carbon emissions are expected to rise by 31% between 2011 and 2030, the EPA regulations would reduce this overall emissions level by just 1.8 percentage points. Unless the rest of the world is ready to put in the same effort, (and China, India, etc. are not) we will be wasting both money and 224,000 jobs (in an average year) trying to fight global climate change alone.

Our very limited resources should be focused on full employment (via replacement of the payroll taxes), real health care reform, immigration reform and climate change - in that order. Regulation that keeps power plants current with the latest proven technology is fine but the federal government should not destroy the coal industry to increase energy prices at this time.

Prof. Krugman speculates that the construction of new power plants might create new jobs but this is contradicted by the net job loss estimated in the report. Believe whatever you want but Krugman has never shown a real appreciation of how tax (payroll) and regulations (ACA, minimum wage or immigration) can hurt U.S. jobs - (it is a liberal thing).


What Happened to Cost Benefit

Prof. Krugman believes the report concludes, "we can achieve major reductions in greenhouse gases at a cost of 0.2 percent of GDP. That’s cheap!" Unfortunately the report actually says that with global carbon emissions expected to rise by 31% between 2011 and 2030, the EPA regulations would reduce this overall emissions level by just 1.8 percentage points. Unless the rest of the world is ready to put in the same effort, (and China, India, etc. is not) we will be wasting both money and 224,000 jobs (in an average year) trying to fight global climate change.

The Obama administration has lost sight of the cost-benefits in all of their initiatives. The ACA compels a few million to get health insurance but 2,000,000 jobs will be affected when the $130 billion in penalties begin in 2017 and tens of millions have or will lose their policies and doctors. The proposed minimum wage will cost 500,000 jobs. Immigration reform will take millions of additional jobs from U.S. citizens.

The climate change regulations, (like the ACA, minimum wage and immigration reform) are too expensive for the minute gain and the job losses.


Let's Compete Until We Drop Dead

"America’s prevailing economic philosophy" (defined above) is reflected in the way we compute and tax income. The process distorts the economy (tax expenditures redistribute 7.5% of GDP), corrupts government officials (cf. tax extenders) and destroys jobs (15.3% payroll taxes on workers).

European countries (like all other developed countries in the world) use a value added tax (VAT) on business income (France also uses a wealth tax) to pay for health insurance, early retirement, higher education and a range of quality of life programs that enrich the lives of everyone.

The United States remains a very wealthy country with $56 trillion in individual wealth in 2010 and is now approaching $82 trillion for 2014 Q2. By design, the rich get richer with fewer people working and large numbers excluded from decent salaries. The luxury markets are made possible by the 25% low paying, dead end jobs for our young workers (that France would not want if offered).

The enormous growth in U.S. wealth has not gone to workers. An elimination and replacement payroll taxes with an 8% VAT or 1% net wealth tax (or better yet, a combination) would create full employment and higher salaries for all workers. The broader the tax base the lower the rates can be.


U.S. survey data on wealth is conducted every three years and it supports Piketty and the concentration of wealth at the top, See graph at http://www.taxnetwealth.com/01_The_Wealth_Gap.aspx. The 70% reduction in wealth for the bottom half of the population between 1995 and 2010 has eliminated economic elasticity and the ability to recover from recession.

Reform measures, including an optional net wealth tax, could reverse the trend by giving low 8% income tax rates (and no payroll taxes) to those that elect to pay a 2% net wealth tax (excluding $15,000 cash and $500,000 in retirement savings).


Too Specialized

Prof. Krugman argues against, “more elite commissions”. Both Bush and Obama appointed tax reform groups to look at the income tax and to come up with revenue neutral changes that would approximate the same distributional tax liability. The constraints prevented consideration of a VAT (the fairest business tax) the payroll taxes (which destroy jobs and consumer demand) or a wealth tax (to target need). Workers had to have the same tax burden to prevent soaking the rich (as both Jared Bernstein and Ross Douthat discussed in yesterday’s NYT). Simpson-Bowles reviewed $1.3 trillion in tax expenditures that are really spending programs (think Rep. Ryan) or business tax extenders used to coerce political contributions (think Sen. Reed). No commission or congressional committee is ready for, “The Big Debate” as David Brooks alluded to yesterday. The handful at the top maintain their power and partisan polarization by preventing fixes to the interrelationships among taxes, wealth, jobs, safety net, retirement, markets, etc.

Should we replace payroll taxes to encourage the private sector to create full employment and increase salaries?

Is it necessary for young families to earn family wealth more quickly and be taxed more when they can afford it (after student loans and mortgages decrease)?

Should we allow any taxpayer to pay a 2% net wealth tax (excluding $500,000 in retirement funds) and get the benefit of a low 8% income tax rate (with no payroll taxes)?


Politically Mandatory: Climate Change or Health Care

Earth did not come with a manual indicating a fixed design and healthy speculation should be encouraged, not discouraged, about all issues. Scientists dispute the pace of climate change, the extent to which manmade activities affect the climate and the likely harm. Effective global political solutions are not obvious. Why is it that great doubt can lead to great faith in religion; but in politics, like war, doubt is viewed as treason.

President Obama wisely seeks to regulate emissions from coal fired plants but he delayed regulations set to be published in 2011 due to concerns that it would hurt his reelection chances. Obama is a pragmatic politician who believed his reelection was more urgent than climate change and he is probably right.

Senator Rubio was also hedging when he said, "dramatic changes to our climate the way these scientists are portraying it" are not believable. He obviously believes that things are not so dire that we must resort to a carbon tax - (a bad tax combined with no scientific regulation of carbon emissions).

Inflation is a poor example. Skepticism about climate change is analogous to skepticism about health care. No one is suggesting that there were no health insurance problems only that resort to the ACA was bad policy - the perfect example of, "how support for a false dogma (Obama's legacy) can become politically mandatory".


Regulatory Power

Prof. Krugman cherry picks some unrelated comments by George Will (about trains) Rick Santorum (about the word "class") to fabricate a wild theory about Republican fear of Marxism. President Obama had delayed the regulation in 2011 solely for political reasons relating to his re-election chances in coal-reliant swing states like Ohio. There is no moral high ground here.

The 6 to 2 decision was concerned with regulations sufficient to make a fair calculation. The court determined that reasonable calculations could be formulated and the end result is that the EPA will be able to force coal plant owners to install costly “scrubber” technology to curb smokestack pollution of smog-forming chemicals.

Keep in mind that the most important decision from the court for big money was its determination a hundred years ago that the IRS could not fairly calculate capital gains from year to year and this left the economic income, tax deferred until each taxpayer realizes a gain at the time of sale of the appreciated asset. Today it is easy to evaluate assets and the big fear of Republicans is that capital gains could be taxed yearly or worse - a wealth tax (for the reasons advance by Thomas Piketty). If the Democrats back even an "optional" 2% net wealth tax (excluding $500,000 retirement and $15,000 cash) and low 8% income with no payroll taxes (to create full employment) the nearsighted Republicans (and the top 5%) will have no legal or political place to hide.


Perhaps Prof. K. means ...

On May 1, 2014 Prof. Krugman wrote, "We have, all along, had the knowledge and the tools to restore full employment." and on May 8, 2014 (just a week later) his readers are told, "Fighting climate change ... if we ever get around to doing the obvious, it will be easier and more successful than anyone now expects." Apparently a truly great liberal mind should not be bothered with details. Forcing his readers to speculate may actually be part of the great learning process.

In regard to full employment I suspect Prof. Krugman agrees with Bill Gates that the job killing payroll taxes need to be replaced. That one is easy and it wouldn't cost a dime.

In regard to climate change I suspect Prof. Krugman agrees with massive worldwide tax changes on a scale that would make Thomas Piketty, author of "Capital in the Twenty-First Century" blush. The pain of a carbon tax exchange must be so severe that carbon molecules no longer dare to show their ugly head in public. I'm actually still trying to nail that one down. I know it has something to do with fish or fisheries that will make it easier and more successful.


The "7 percent of GDP anti-stimulus" will be on top of:

the 7.5% of GDP "tax expenditures" which overtax the working poor.

the 6% of GDP payroll taxes that destroy U.S. jobs and consumer spending.

We are running out of GDP because the capital is not shared and is entirely concentrated at the top. In 1995 the wealthiest 10% of the U.S. population owned 67.8% of the assets. This share gradually increased to 74.5% by 2010. This 10% increase in share was made possible through a gradual 70% loss of net wealth by the poorer half of the population.

The speed of this economic disintegration of the population is staggering.


"Fraudulence" and ObamaCare

The survey would be more useful if it showed what percentage of the 33% in unpaid premiums were past due. I am not holding my breath waiting for Prof. Krugman to supply an answer. Does it make any difference if only 20% of the premiums were overdue?

The more serious problems with the ACA are the 2,000,000 full time job equivalent losses (that will begin with the tax penalties) and the insurance discounts which increase the health care costs for the uninsured - (the very people that should have been helped by reform).

"There is no sign that they pay any political price when their [health care promises about keeping the same doctors and policies] are proved false".


The Inadequate Demand for Marriage

1. Everyone knew, "how fragile [mortgages] had become".

2. That is why mortgages were bundled

3. The number of two parent families with children remained constant for 40 years.

4. The number of single family homes doubled.

5. The banks made a fortune on new construction loans.

6. The builders found non-traditional buyers looking for a quick buck.

7. The liberals convinced themselves that it was politically correct to push home ownership to couples who were not married and did not have children because the investment would keep them together.

8. The liberals continue to believe that the promotion and formation of traditional families [remember marriage and then children] can be delayed or ignored contrary to thousands of years of civilized [and admittedly some religious] norms.

9. Liberals, and especially liberal economists, believe in the myth of overpopulation and are committed to using poverty as a form of family planning (for the greater good).

10. The poorer (and younger) half of the U.S. population lost 70% of their net wealth between 1995 and 2010 and now share only 1% of the wealth.

11. Birth control is free thanks to Obama.

12. Abortion is cheap.

13. Liberal economists pretend there is an inadequate demand for marriage and children.

14. Conservatives blame the job killing trifector: ACA - minimum wage - immigration reform.

15. The government finds it easier to promote recreational drugs than replace the job killing payroll taxes.


Krugman's Job

Prof. Krugman admits that, "shocking the liberal bourgeoisie is not how I see my job" which is very different from stating that some of his best and truthful ideas would not be, "shocking the liberal bourgeoisie" if he chose to write about them.

When someone like Bill Gates says the U.S. needs to eliminate and replace the payroll taxes to create jobs, Prof. Krugman can opine that Gates is wrong, or that Gates is correct (and shock the liberal bourgeoisie) or he can pretend (like the trembling popular political economists out there) not to know Bill Gates ever spoke at AEI on March 13, 2014. No one can honestly argue that what Gates said was not important.

When someone like Thomas Piketty writes almost 600 pages to justify his call for a wealth tax and Prof. Krugman is asked to write the leading book review in the New York Review of Books, for the economics book of the decade, he simply said the idea is admittedly utopian, rather than shocking the liberal bourgeoisie by mentioning a more politically feasible "optional" net wealth tax or pretending not to about an "optional" net wealth tax (described at TaxNetWealth.com). No one can honestly argue that a wealth tax will not be the economic "climate change" issue of our century.


Is Democrat, Bill Gates Wrong?

So Prof. Krugman drives to Massachusetts on holiday and this should cost the country $302 billion over the next four years. The, "roads are in pretty bad shape" and (well paid Democratic leaning) union construction workers could use some more work. Why not approve the oil pipeline from Canada and have some construction without tax money? Many states like New York simply don't need the money and are telling new businesses that they don't have to pay taxes for ten years and telling the very rich that estate taxes will go down.

All of this is about Democratic political posturing. Bill Gates made it clear last month when he spoke at AEI that jobs could be created by replacing the payroll taxes. A VAT would work nicely but actually creating jobs does not fit in with the short range political objectives of the Democratic party. All major Democratic legislative programs (ACA, minimum wage, immigration) have a negative impact on U.S. jobs.


Paradigming What Is Not What Can Be

Thomas Piketty has shown great skill in understanding and predicting the long range trends in the economy. Similarities among countries tend to negate variations in local taxes and regulations and give the impression of a global economy occasionally wounded by shocks and continuously searching for equilibrium. George Cooper, in his new book tries to improve the economic paradigm by replacing, "utility-maximizing economic man with a Darwinian fellow who simply wants to do better than the next guy" and compares the economy to a circulatory system with capitalism pushing wealth up the pyramid and progressive taxation (rather than work) bringing it down.

Both men understand the status quo but neither perspective gives any particular advantage in the design of a more fair and robust system. For this we need a new economic reform paradigm with modest goals like full employment, universal retirement, health care, and modest family wealth.

Government should help people be average and let the markets produce the exceptional (no tax breaks for the above average).

Government should not harm any below average people to help others (ACA, minimum wage).

Low wealth people are overtaxed.

Some forms of taxation are bad (payroll taxes destroy jobs).

Net wealth taxes can be optional.


Mr. Bundy got in big trouble wondering out loud about the injustices that he has seen. He lost all credibility because he is a Caucasian who used the words Negro and slave on TV. These words are politically suspect - (unless you riding the A train where anything goes). For people of a certain age and upbringing the term "Negro Democrat in the Oval Office" would be respectful and use of the color black to describe a person would be offensive. I certainly don't like being described as a white anything and don't like prospective employees asking how I might self-describe. Bundy spoke rather poorly about unfair forms of historical control and seems to have no real beef (no pun intended) outside the BLM overreaching.


In Nevada 85% of the land is under federal rather than state control to preserve open space - not to make a profit. Ranchers play an important role and certainly deserve no less support for their way of life than our native Indians. There is no shortage of land in the Nevada desert and no reason civil debts should not be enforced by attaching bank accounts or the proceeds from the sale of cattle or other assets of the ranch property when it is sold or otherwise transferred. This is the way debts are handled in a civilized society even if the debtor comes across as a racist deadbeat (with considerable NRA support). I suspect fancy, politically correct ways of "talkin about the Negros" and slavery and economic choice may come a lot slower to remote desert Mormons than to the owners of professional basketball teams for example.

Prof. Krugman's use of the term, "theft" in describing an economic choice to intentionally breach a contract illustrates how offensive an Ivy League professor can be. Indeed, it illustrates how the good professor, like Rancher Bundy, fails to understand and appreciate our civil freedoms to say and do errant things. Criminal sanctions were reserved for slaves who exercised a choice to breach a contract with the master. In this case the BLM (and its political mentor, Sen. Harry Reed) can make rules and determine contract prices with little oversight (like a slave master). BLM can even arrange to use the land for solar power if it profits the Reed family.


How Shocking

There are some shocks, like war, that require retooling and much revaluing of the middle class. It is their labor and the new assets which they produce which get us all out of the mess. Many non-essential businesses will lose value and that may reduce the share at the top while creating new opportunity in other businesses at the bottom. Other "shocks" are not well defined and finding a mechanism "to approximate a power law" will give Bill Kristal an opportunity to find voodoo economics. A large standing army provides a cushion to smaller shocks and explains the traditional political distinctions in military spending attitudes.

When the subject turns to Piketty and Kristol says he sees no rational need for a capital (net wealth) tax, Prof. Krugman might ask if he would consider supporting an optional net wealth tax. One that creates full employment by eliminating the job killing payroll tax and imposes a low 8% income tax rate on anyone willing to pay a 2% tax on net worth (excluding $15,000 cash and $500,000 retirement savings). This would encourage more families to pay off debt and accumulate a small share of wealth (and retirement supplement) without forcing the high earners and high wealth individuals to do anything they don't want to. Then again, the Kristol - Krugman debate would never get that interesting.



The link to Larry Bartells article contains the following, "Matthew Yglesias chides the Heritage Foundation for harping on the steep progressivity of federal income taxes while ignoring payroll taxes and state and local taxes". Few realize how regressive the payroll, state and local taxes are and that together they generate more tax revenue than the federal income taxes. The working poor are so overly taxed by the payroll taxes that both parties agreed years ago that the Earned Income Tax Credit (a form of welfare redistribution) was necessary. Of course the EITC is only a tiny part of the $1.3 trillion in tax expenditures that redistribute 7.5% of GDP primarily to those with above average wealth and income.

Prof. Krugman reveals his liberal bias when he interprets the survey data about government spending along the lines of class warfare. Most other affluent democracies have similar class distinctions in terms of wealth and income and share caution when it comes to government spending. Bartells suggests a U.S. racial factor given the fact that South Africa was the lone country with pole results similar to the United States. The results are more likely due to political factors where one party caters to the whims of any minority while the other seeks economic efficiency with no preferential treatment (outside of business competition).

In this war which class would support a replacement of payroll taxes with a VAT to boost the economy and create full employment?


Three of Thomas Sargent's dozen points directly relate to incentives.

The safety net (point 3) doesn't work when people try to maximize their benefits by earning less than they should. Food Stamps, the EITC and ObamaCare may have gone too far. The EITC would not be needed if we did not have payroll taxes and a VAT replacement of the payroll tax would make businesses taxes more fair and create full employment.

We each have professional reputations to build and maintain (point 7) so we should not make promises that our masters  will not let us keep. Even if Bill Gates stands above the fray and says the payroll taxes are holding back jobs; you may be obliged to be silent. Let the French like Thomas Piketty talk about why a capital tax is needed and do nothing more than add his name to the list of Wealth Tax Pioneers. See http://www.taxnetwealth.com/06_Wealth_Tax_Pioneers.aspx.

"Governments and voters respond to incentives" (point 8). This enables the wealthy to economically incentivize both sides, polarize the issues and maintain the status quo. The wealthy minority rules.

Perhaps consideration of Sargent's 2007 graduation address is not "stealth anti-Keynesian propaganda" but rather an effort to have economists and policy makers think about both positive and negative incentives; and how the well intended efforts in health care, minimum wages, family planning, home ownership, tax reform and immigration reform can have unintended economic consequences.


Means Other than Monetary Policy

Prof. Krugman's link to "mainly macro" is informative:

"For some time the only potentially competing goal was keeping unemployment low: hence the dual mandate in the US. However there was near universal agreement amongst economists that the only sustainable level of unemployment or output that monetary policy should try to achieve was precisely the level that kept inflation stable. If that level of unemployment was too high, then means other than monetary policy should be used to address that problem."

Another commenter here, Star Thrower, writes, "The idea that our low employment and our underemployment can be influenced by monetary policy is an idea whose time passed away with the advent of globalization."

Monetary policy be dammed, it is time to rock the political comfort zones and let inflation breath a little. Bill Gates told the American Enterprise Institute last month that payroll taxes were the problem and need to be replaced. AEI's Mr. Brooks suggested a consumption tax as a replacement but policy makers in every developed country have learned that a VAT is a better way to apportion taxes among businesses and across borders.


Prof. Krugman admits he was wrong (about the economics of solar energy) and avoids blaming the GOP for anything. I suspect Sen. Harry Reed and the BLM's sad attempt to go after ranchers has something to do with Krugman's neutrality. The equipment may now be competitive with carbon based energy as long as the land is cheap (or taken from the ranchers). If the government pretends that a turtle is endangered they can keep the cattle out and lease the federal land to solar companies for very little money. This could make the 87% of Nevada land under federal control to be very important. "Oh, wait." Prof. Krugman is right. Stop the pipeline. Save the planet. ... and we don't even need the darn carbon tax. Jobless energy is a dream come true.


CBO's Crystal Ball

"CBO’s projection has deficits quite low in the near term, but starting to widen a few years from now"

It is hard to predict what interest rates might be given the market interference (dominance) by the Fed. Less interference (QE) seems to be trending and government interest rates are expected to go as high as 3.3% in 2024 (apparently to compete with substantial private sector investments that the CBO imagines).

While the latest CBO's projected deficit may be high according to the IMF interest rate assumptions, it is quite low considering the strong likelihood of a Democratic repair of ObamaCare with a single payer system (HillaryCare). Forty million people remain uninsured and private businesses will soon start to pay $130 billion in higher taxes or penalties for low paid workers that the government will have to insure at a much higher cost.

Thus while the CBO projected interest rates may be too high the projected deficit may be too low absent repeal of ObamaCare and/or real tax reform - (like Piketty's net wealth tax).


Why Not an Optional Tax on Capital

Piketty does not mention Eric Cantor in his book but Prof. Krugman cannot help himself and reaches back to a 2012 Labor Day tweet, "Today, we celebrate those who have taken a risk, worked hard, built a business and earned their own success" said to imply how the GOP is on the side of capital - as if this is a bad thing.

In contrast to Krugman's near constant partisan polarization, Piketty seems to have written over 600 pages (with an extensive online appendix of historical data) for the primary purpose of convincing the world in a non-partisan manner that, "A Global Tax on Capital" is needed. See Chapter Fifteen. Piketty is trying to save the world from destructive economic trends and Krugman opines "out of the blue" that the GOP will be the kiss of death.

The kiss of death lies in Piketty's French style, soak-the-rich progressive wealth tax, not in his correct conclusion that a net wealth tax or optional net wealth tax is needed. Consider a flat 8% income tax rate combined with an option to pay either 2% of net wealth tax (excluding $15,000 cash and $500,000 in retirement savings) or paying an additional 18% on income. (Note that the 15.3% combined payroll taxes would be eliminated). Read more at TaxNetWealth.com.



When Ezra Klein was leaving the Washington Post I commented here (at http://krugman.blogs.nytimes.com/2014/01/21/the-washington-post-is-de-kleining/?comments#permid=10999266) and have no doubt that Ezra is on his way to demonstrating why and how he will be the best of the best.

I admit to being a man-induced-significant-carbon-climate-change denier because I do not like the idea of a carbon tax and have so far avoided making an independent and reasonable scientific inquiry into the subject. (For what it's worth it has historically taken many years for me to accept the unthinkable - that some mommies wanted to kill the babies growing in their belles and that some priests sexually molested children). I assume Prof. Krugman, Warren Buffett and Sean Hannity - (featured by Klein) have equal credentials in the field of geo climatology and earth science and, for now, I accept their opinions as a stalemate.

It seems that when things are unthinkable or when the simple or obvious solution is distasteful some of us protect our comfort zone with blinders. It is easy to choose to mentally stick with intellectual friends who reward our inclinations and avoid the mental risk of strangers. Some refuse to believe that the payroll taxes have gotten so high as to destroy middle class jobs and the families that depended on them, because the middle class voting patterns are distasteful.


High Unemployment Must be Good for Congress

In November, Pope Francis wrote, "the economy can no longer turn to remedies that are a new poison, such as attempting to increase profits by reducing the work force and thereby adding to the ranks of the excluded". Prof. Krugman seems to identify a small group of culprits as, "the 0.1 percent, who receive 'only' 4 percent of wages but account for more than 20 percent of total wealth".

This feeds my wildest fears that both political parties want high unemployment albeit for different reasons. We know the stock market and business owners have been doing fine with a shrinking middle class workforce. The Democrats are aligned with business owners because workers (above $50,000) tend to vote Republican in congressional races. See http://enikrising.blogspot.com/2011_09_01_archive.html. In contrast, government handouts subsidize low wages and Democratic votes.

Even if Republicans would benefit from the votes of a growing middle class, business owners subject to large payrolls might be hurt by full employment and higher wages. If Bill Gates (March 13 at AEI) is correct about replacing the payroll taxes to create full employment why is neither party is ready to take the plunge? Prof. Krugman will likely excuse congress and continue to ignore the structural problem of the payroll tax while pretending that fiscal inflation targets are the problem.


How Bad Can it Get

President Obama deserves credit for his leadership and the law-be-dammed Executive Order delay of the $130 billion in business penalties. If the 2,000,000 in job losses (actually full-time job equivalents) started to go into effect now, the independent voters would be up in arms and the Democrats would have little chance of maintaining control of the U.S. Senate. The promised leniency in enforcing the individual hardship exemption is a de facto elimination of the individual mandate for anyone prepared to claim that the dog ate their homework. In any event, free birth control is the law of the land because the government expects you to need it. It will be a very long time before most young people can afford to procreate thanks to ObamaCare and the mismanagement of the economy.

Full employment can be created and maintained but an expanded and prosperous middle class tends to vote Republican. Even Democrat, Bill Gates, agreed last month that the elimination and replacement of the payroll taxes is the key to U.S. job creation. This reform can be done without changing the Social Security and Medicare programs but full employment violates the welfare agenda that produces Democratic votes.

The ACA has never been about good policy design. It is bad policy that produces voter majorities at great cost to the country and the economy. If Prof. Krugman had wisdom to match his intellect he would not support it.


Manifest Dishonesty

Rep. Paul Ryan invites Prof. Krugman (not personally) along with all members of the public, to comment on the proposed budget at mailto:budget.republicans@mail.house.gov. Sending two or three suggestions to improve the budget is better than making fun of those of us who believe that, "sensible moderates must exist in the GOP".

I would certainly support Ryan's top 25% income tax rate if, and only if, all tax expenditures for high earners were eliminated. Those on the left always want to raise the top rates but say very little about tax expenditures. Very high earners often pay 11% to 18% of gross income and it would at least be nice to know what percentage the left thinks high earners should actually pay. If the left wants to double or triple the tax liability of the high earners just say so (before the next fund raiser). If the left doesn't want to say and their leaders in the Senate want to extend and make permanent the expired tax expenditures just admit that the left is just as guilty of "manifest dishonesty" as the right.

Of course President Obama has already released his proposed budget which his own party leaders won't touch. Are they all guilty of a, "stunning misjudgment of character" when it comes to the transparency and honesty of this president.


Republicans Didn't Break It

Unfortunately, Prof. Krugman has no plan to use economics to improve either insurance or health care.

Insurance discounts remain the biggest problem because they unethically raise the rates for the uninsured and those insured under competing plans. The price setting function of the free market is destroyed along with the health providers incentive to compete and provide better service. The ObamaCare system is no better than a single payer with price controls. "[I]n a better world [Prof. Krugman's] call for single-payer, and a significant role for the government in directly providing care" has some incremental merit but it is far from ideal.

We should ban health insurance discounts and post prices online to level the field. The important reform that prohibits discrimination for preexisting conditions can be maintained. Many like Howard Dean have admitted that after further study, the individual mandate was not necessary. The fear that too many would remain uninsured until they became sick is speculative. The risk can also be minimized with a financial penalty for those who join outside an open enrollment period and limit the coverage to a basic plan for a year or more - depending upon the length of time the person was without insurance.


Too Old: Someone who paid 3% payroll taxes.

Too Young: Someone willing to pay 15.3% payroll taxes just to have a job.

Skills Gap: Too few attorneys willing to work for minimum wage.

Payroll Tax Economy: "an economy that punishes workers".


Left Out

"Bad mouthing public spending and actively disrupting public programs in education, health coverage and income security is what Tea Party and neo-Con politics is all about."

The Tea Party united people who wanted to fight corruption and wasteful government spending. The main target was earmarks and political pork added to bills and used to buy sufficient political votes to pass legislation in congress. With the notable exception of ObamaCare the pork tended to be shared by both parties. The Tea Party members of congress have left their mark with the consequence that much less legislation is passed. In the area of tax reform the Tea Party members have also taken a general position that the $1.3 trillion in tax expenditures which distort the tax code and redistribute 7.5% of G.D.P. are not good. Any tax expenditure program considered "essential" could be rewritten as a spending program with annual budget review.

Rep. Ryan's review of 92 poverty programs found some to be good, some ineffective and others in need of consolidation. The review of these, "education, health coverage and income security" programs should be welcomed as a good start to better spending. If every good intentioned study of government spending from the right is met with mindless claims of, "Bad mouthing public spending and actively disrupting public programs" ignorance on both sides will prevail.


"[Over-taxing] income discourages excessive pay" and if correct, it would explain why the pay of those earning under $115,000 has been discouraged. After all, a payroll tax is a tax on income in addition to the income tax. Workers used to split 50% of G.D.P. and now split 40% of G.D.P.

Executives get paid with stock options which avoid tax and the owners of stock pay no tax on appreciation (capital gains) unless they fall on hard times and have to sell. This is why higher income tax rates cannot work and certainly could not raise enough to replace the payroll tax revenue (unless all tax expenditures were eliminated). Congress will not eliminate tax expenditures which were enacted to avoid already high income tax rates. The Senate Democrats are in the process of reviving the tax extenders for high earners and businesses that have already expired. I hope you are sitting down because it is the Tea Party Republicans that are willing to let them expire and bring in more tax revenue.

A value added tax is no more of a consumption tax than a business income tax. Both start with business gross sales or income and the differences lies in how the taxable amount is computed. A VAT permits a deduction for VAT taxes paid by other businesses in the chain of production and distribution but a VAT does not allow the other credits, deductions, exemptions or deferrals of the income tax.



Prof. Krugman states, "disasters brought on by inadequate demand have an easy economic answer — just spend more!" He pretends that there are no "tough choices" to make about spending. He even blames "the psychology of policy elites" for being in denial about more spending rather than disagreeing on how more spending should be encouraged (union projects, more money in the hands of families, federal construction or state choice).

The policy elites deserve a little more sympathy for their disagreements and ineptitude. Obviously the least attractive kind of spending is the federal "borrow and spend" approach that will necessarily be small and temporary and would be subject to much executive discretion and political bias. Earlier stimulus programs heavily favored unions and the president's political supporters and the two percent payroll tax holiday had mixed reviews.


Still Experimenting With Taxes

Thomas Piketty contends that it was an American invention to use taxation to reduce income and wealth disparities, rather than to raise money. After the Great Depression top income tax rates were increased from 24% to: 63%, 79%, 81%, 88% and finally to 94% in 1944. These confiscatory rates also led to a wide range of tax expenditures that enabled the high earners to avoid paying the high rates.

The payroll taxes begun in the late 1930s, reached a combined rate of 6% in the 1960s and are 15.3% today. The payroll taxes are undisputed job killers and economic suppressors. The earned income tax credit has sought to minimize the harm on the working poor but it (and the food stamp program) has actually expanded low wage work to maximize government benefits for the recipients. Obama-care business penalties of $130 billion will make it worse in 2018.

Raising income tax rates on high earners would likely accelerate the loss of gross wages (down from 50% to 40% of G.D.P.).

Bill Gates said two weeks ago that payroll taxes should be eliminated to create jobs and a VAT replacement is considered by the world to be the fairest business tax. Piketty thinks we need a net wealth tax at the top, but a 2% net wealth tax (excluding $15,000 cash and $500,000 retirement) could be combined with an 8% income tax for those at the bottom. The wealthy could pay a flat 26% on income (plus capital taxes on gains, estates and gifts) if they elect to do so.


Almost Anything is Possible

When it comes to the ACA it is not necessary for the Democrats to establish it works. It is sufficient to stonewall until after the Senate elections and make voters believe it can work.

If anyone signs onto the web and checks a new "I tried" box by March 31, 2014, they get an automatic extension of the individual mandate penalty. ObamaCare seems to work because it hasn't really started full scale.

The $130 billion in business penalties will not be good for jobs but the big harm (equal to 2,000,000 full time jobs) will not be felt before 2017 or 2018.

Independents, outside the GOP, have a right to be concerned. Prof. Krugman's phrase, "desperate ploys to save a sinking ship" is hard to dismiss based upon projections of Mr. Gaba that cannot be confirmed by the government. The "the website woes" appear to be deliberate sabotage to justify regulatory delays necessary to minimize harm to the voters and keep control of the Senate. The web/computer links between the government and the insurance companies continue to be delayed after three years. The persons responsible have the full confidence of the President.

If we ignore the job losses, the lies about keeping your doctor and your plan, the cancellations, the religious objections to government family planning and the uncertainty about the number of new insurance policies, Prof. Krugman is certainly right about a, "possibility that this thing might work."


We need an economic behaviorism that can evaluate the contingencies of reinforcement associated with the tax code and poverty programs. Look at the economic behaviors right down to the level of family net wealth and identify the reinforcements that cause them, and make them more efficient.

Most importantly, stop using legal and economic contingencies that help some but cause harm to others. The tolerance of harm has created the Economy of Exclusion and gradually caused the poorer half of the country to lose 70 % of their net wealth. The loss of modest family wealth has destroyed families and children. For example, payroll taxes destroy jobs and can easily be replaced by the fairest business tax ever invented - a VAT.


"An Affront to the Constitution"

Thank you Prof. Krugman for bringing a smile to my face with the email.

The U.S. has a collection of laws and regulations that redistribute wealth much more than income. For decades, all increases in the share of net wealth have been redistributed to the top 10%. The trend lines over the decades are fairly straight for the wealthy (up), the middle class (down), and the poor (sharply down) - with the poorer half of the population losing 70% of their net wealth just since 1995. See http://www.taxnetwealth.com/01_The_Wealth_Gap.aspx. The redistribution is accomplished with cunning and complexity that befits the $1.3 trillion in tax expenditures that redistribute 7.5% of the economy each year.

The, "high [income and estate] taxes on the rich" have come and gone and each new high rate ("the confiscatory tax") has given congress a reason to authorize a dozen tax exemptions, deferrals, credits and deductions. The corruption and unfairness are "American as apple pie".

Getting back to the anonymous Republican spokesperson who emailed, "All workers, poor and rich, should be protected from high taxes equally" perhaps he or she would support replacing the job killing payroll taxes with a VAT and taxing net wealth as Piketty suggests. Tax 2% of net wealth (excluding $15,000 cash and $500,000 retirement) and 8% on income. Let businesses pay a 4% VAT and the same 8% on income. One fair rate for all is the American way, right Mr. Republican spokesperson?


Political Failure

President Obama never had good economic advisers and he had no economic education or experience himself. He thought the Bush stimulus plans would work and the economy would rebound. He ignored unemployment and focused on a multi-year health care plan that should not cause any business harm until after the economy recovered. A push for higher minimum wage and immigration reform could follow. Of course, he has always given support to any government spending plan to employ union workers of any type - it's in his DNA. The Buffett Rule was all that tax reform required.

The President never changed course and the four years of high unemployment hurt the middle class and devastated the net wealth of half the country. Between 1995 and 2010 the poorer half of the population lost 70% of their net wealth. It turns out that families can survive a lot of job and income changes but when family net wealth is gone marriages fail, children suffer and inheritance is no longer there. Workers with much talent are forced to take low wage jobs and the over educated unemployed keep wages low for all.

The President and the Democrats never understood the harm caused by $1.3 trillion in tax expenditures (because a few helped the poor and blue states) and the job killing payroll taxes (because a new funding source for Social Security and Medicare was unthinkable at the time).


Honest Headline

Mr. David Koch is a fiend who has donated $100 million dollars to a local hospital to save the lives of NYC liberals. Perhaps he just wants to make them suffer longer. Prof. Krugman is sure both Koch brothers are, "serious evildoers who use their wealth to push hard-line right-wing, anti-environmental policies", like constructing a pipeline from Canada. How evil for them to want to reduce reliance on imports from the middle east.

Gates and Buffett get a pass because that are Dems, not because they, "made money for other people" or "identified with innovation".

The claim that, "Koch-bashing is a way of making Piketty personal and concrete" relates to an unfounded and unprofessional attempt to distinguish net wealth from inheritance (bad) versus new ventures or publicly traded corporations (good). The problem is that the workers in most of the Fortune 500 are getting much smaller salaries as a percentage of sales. Don't be a hypocrite and try and separate the good 1% from the bad 1%. They are all good men operating with very bad government tax policies. Piketty knows we need a net wealth tax, Gates knows we need to get rid of the job killing payroll taxes and only a blind economist would refuse to support a VAT.


The Buffett Rule says that Mr. Buffett's taxable income (about $40 million) should be taxed at the same (no less) rate as an average family. Big deal.

The Buffett Rule protects Mr. Buffett's $3 billion in annual unrealized capital gains that Mr. Piketty would tax. There is a big difference between taxable income and economic income which every American should learn. Every American should also learn why the Democrats are not ready to replace the job killing payroll tax (while preserving Social Security and Medicare without change).


Book of the Decade

Prof. Krugman summarizes Thomas Piketty's description of patrimonial capitalism where, "the commanding heights of the economy are dominated not just by wealth, but also by inherited wealth". There is nothing wrong with inherited wealth or the inherited skills needed to manage the business or other investments.

The claim that, "the rise of America’s one percent has mainly been driven by executive salaries and bonuses rather than income from investments, let alone inherited wealth" is misleading because it speaks only to a very small group of executives that deserve the $10 million needed to enter the bottom rung of the 1% net wealth club as much as anyone else.

There are narrow minded tax reform advocates who see "distributional neutrality" and payroll taxes as necessary. The genius of Piketty lies in his understanding that overtaxing income is destructive. A net wealth tax can capture real economic income (much of it now avoiding tax) and a VAT can fairly apportion taxes among businesses - both without slowing the economy.

Consider eliminating the job killing payroll taxes (as Bill Gates said two weeks ago) and combining a low 8% income tax with a 2% net wealth tax (excluding $15,000 cash and $500,000 in retirement funds). The net wealth tax might even be optional for those willing to pay a 26% income tax (plus capital taxes on gains, estates and gifts). A VAT of just 4% would also enable the C corporation rate to be reduced to 8%.


Workers Are Overtaxed

The claim, "America’s top one percent still owes its high incomes largely to compensation rather than wealth" cannot be supported by the numbers because the numbers don't exist. By this I mean there is only a survey every three years which enables the government to link net wealth to both unreported economic income (including inheritance) and reported taxable income and other demographic data.

For example, Warren Buffett has economic income (including unrealized capital gains) of about $3 billion a year not reported to the IRS but he only has taxable income of $30 or $40 million a year. Mr. Buffett, like many at the top can determine if he wants taxable income in the form of dividends or salary or perhaps he will take just a little bit of spending money. [Corporations can also defer taxes]. In fact, Mr. Buffet can give away a billion dollars (in stock) to a charity and claim a deduction for the full appreciated value. If the charity sells the stock (which is not often sold) for a good price, the market value of Mr. Buffet's remaining shares can increase much more than the actual value of the stock that was given away.

Bill Gates is another charitable fellow and a Democrat who last week told Mr. Brooks at AEI that the job killing payroll taxes need to go in order to create full employment. Social Security or Medicare stay the same. The revenue could be replaced by a VAT. We won't blame the Democrats for high payroll taxes and high unemployment.


Wealth Trends

I generally think it is an aesthetic mistake to chart the gains of the 1% rather than the losses of the 99%. It is the identical data set of course but the trend lines for the 99% and particularly the bottom 90% and bottom 50% are something we see in our neighbors and their extended families. Looking back 35 years shows the truth of how the Democrat and Republican administrations have each changed the direction of our dwindling share. Only a blind man would think that one party has helped the poor more than the other (although beliefs to the contrary are hard to change).

Since 1995 the net wealth trends have been clear. All of the substantial gains have gone to the top 10%, the middle class lost 8% and the poorer half of the country lost 70% of their net wealth. The tends have been gradual and are not the result of a recession or two. The trends are the result of the tax codes including both payroll and income taxes. In spite of the trends which have destroyed both jobs and families, almost all tax reformers have been committed not just to revenue neutral reform (understandable) but also to distributional neutrality which is insane.

The new book by Thomas Piketty takes a broad look at tax reform with an appreciation for wealth distribution (and wealth taxation). Forty percent of the U.S. population is bankrupt in the sense of having more debt than assets. Only half are considered poor and that is ridiculous. See TaxNetWealth.com for more information and suggestions.


Stop Taxing Jobs

While Prof. Krugman contends, "influential groups fiercely opposed to any policy that might put the unemployed back to work" this is simply not true. There is opposition to increased government spending but there is no reasoned opposition to eliminating and replacing the payroll taxes.

On March 13, 2014, Democrat, Bill Gates spoke before the conservative American Enterprise Institute and said the payroll taxes need to be eliminated to encourage full employment. Jobs should no longer be taxed. While AEI President, Arthur C. Brooks suggested replacement of revenue with some type of (regressive) consumption tax, a value added tax (VAT) is considered the fairest business tax worldwide. In fact, the U.S. is the only developed country without a VAT.

Replacing the payroll taxes with a VAT would reduce the business cost of each worker by 7.65% and give all workers an immediate 7.65% raise to boost the economy. Because the VAT would be revenue neutral there would be no pressure for businesses to increase average consumer prices.

Full employment, once created, can be maintained with transitional jobs in the nonprofit sector at a little below private business sector rates. The jobs can be funded by simply permitting the charitable deduction to be used only with those charities that sponsor new transitional jobs with a portion of the donations they receive. Further destruction to America's workers and their families can be prevented without new government spending.


Taxes and Jobs

I don't need a graph to imagine $2 trillion being reduced to $1.5 trillion. I need a description of what this money is.

The reference to tax filings suggests that it might be profits of foreign subsidiaries which are tax deferred until repatriated to the U.S. (and C corporate taxes paid at up to a 35% rate). Apple found it less expensive to borrow money to buy back its own stock than to repatriate its foreign profits.

Of course the deferred profits could be invested overseas such as Microsoft's purchasing of Skype and Nokia for about $16 billion. This reduces the value of deferred foreign profits while obviously increasing the value of Microsoft's assets and intellectual property. Are other U.S. corporations investing heavily overseas and reducing tax deferrals by as much as $500 billion? Perhaps the tax code is working as planned (against workers). Perhaps that is also why Bill Gates said last week at AEI that the job killing payroll taxes need to be eliminated to encourage investment in domestic jobs. http://www.aei.org/events/2014/03/13/from-poverty-to-prosperity-a-conver...


Racialized Liberalism

Prof. Krugman cites Rep. Paul Ryan's explanation: "I was not implicating the culture of one community—but of society as a whole. ... I also believe the government’s response has inadvertently created a poverty trap that builds barriers to work. A stable, good-paying job is the best bridge out of poverty." There was nothing to justify Krugman's use of: "Mr. Ryan’s black-men-don’t-want-to-work theory", "racial dog-whistle" and "Those People".

Krugman writes, "many behaviors that used to be held up as demonstrations of black cultural breakdown — the breakdown of marriage, drug abuse, and so on — have spread among working-class whites too". With apparent intent Krugman then declares, "These awkward facts have not, however, penetrated the world of conservative ideology". Krugman tries to inflame all with "conservative ideology" as foolishly equating poverty with racial minorities and the, "breakdown of marriage, drug abuse, and so on".

At least Rep. Paul Ryan has demonstrated a commitment to  the poor regardless of color and has used the resources of the House Budget Committee to study 92 poverty programs for the purpose of seeing which work, which don't and which might be improved with consolidation. In contrast, the liberals hide from the facts in the CBO reports which show that 500,000 jobs will be eliminated by a higher minimum wage in 2016 and 2,000,000 job (equivalents) could reduce hours as a result of the ACA penalties ($130 billion) in 2017.


Josh Barro charts how worker earnings have shrunk about 20% as a percentage of GDP. See http://economix.blogs.nytimes.com/2014/03/14/people-think-were-in-a-recession-dont-blame-them/?ref=economy The Barro piece also makes it clear that apart from seeking to raise the minimum wage, the president has no real policies to help the men who need good jobs to support a family. More importantly, the CBO reports show that 500,000 jobs could be eliminated by the minimum wage in 2016 and 2,000,000 job (equivalents) could reduce hours as a result of the ACA penalties ($130 billion) in 2017.

The House Budget Committee report on poverty is a review of 92 poverty programs and obviously not a tax reform document. It is the tax code which funnels the growth of income and family net wealth with the top 10% getting all growth in wealth while the middle class lost 8% since 1995. The poorer have of the population have lost 70% of their net wealth - a trend which coincides with the 41% loss of earnings for men with a high school diploma since 1970.

Even if tax reform needs to be revenue neutral, it is insane for it to maintain distributional neutrality.


Try Being Open Minded

"Doesn’t generous aid to the poor reduce their incentive to work?"

"Yes" - but there would be no reduced incentive to work if the aid was in the form of a good job. Narrow minded people think more government spending would be required or simply associate any government intervention with socialism. Open minded people know businesses would create jobs if the job killing payroll taxes were replaced with a revenue neutral VAT. Full employment could then be maintained by restricting the $30 billion charitable donation to public charities willing to use 20% of their donations to create new jobs (at a little below business sector rates). The open minded know it is at least possible to achieve generous aid and full employment with no financial downside.

"Don’t taxes on the rich reduce their incentive to get even richer?"

"Yes" - but if the income tax were a flat 8% there would be no disincentive to earn more income. If the low income tax were combined with a 2% tax on net wealth (excluding $15,000 cash and $500,000 in retirement funds) any "disincentive" becomes a "use it or lose it" negative reinforcement. To prove the point, a taxpayer could optionally choose to replace the net wealth tax with a 26% flat income tax (plus capital taxes on gains, gifts and estates). The open minded know it is at least possible to achieve no disincentive to income growth while making sure those with high net wealth pay a fair share. The 1% can be put to work for all of us.


A few months ago President Obama said, "the top 1 percent has a net worth 288 times higher than the typical family, which is a record for this country". That deviation from average net wealth represents a very large Gini index. The underlying study on Redistribution, Inequality, and Growth uses before and after tax income rather than changes in net wealth to estimate inequality. More importantly, the study seems to be justified as a guide for policy makers who might influence inequality by evaluating whether more or less redistribution will affect GDP.

A more direct and honest evaluation can be seen by looking at changes in net wealth over time. In the U.S. the top 10% received all gains in the share of net wealth while the next 40% (the middle class) saw an 8% decline since 1995. The poorer half of the population saw a gradual 70% decline with many suffering from negative net wealth due to student loans, consumer debt and underwater mortgages. The trends for each group are clear and thus the actual changes in redistribution are known. The change in GDP are also known so it is fair to conclude that the combined tax and transfer programs are causally related.

This leads to tax (and transfer) reform and the insanity of distributional neutrality as a goal.

Average Wealth

The 92 programs identified in the new poverty report finds good and bad in the mix. Prof. Krugman insists the analysis is sufficient at the partisan level - Democrats support all government help.

In a healthy economy a low paying job is turned down by a worker who has confidence in finding a higher paying one. In our sick economy the worker takes the low paying job or part time job to qualify for government support. The nonpartisan CBO finds that 2,000,000 full time ("equivalent") jobs will be lost as a result of the $130 billion in penalties from business which cannot afford to provide health insurance to their workers. The combined effects of the safety net programs will cause full time workers to seek part time work in order to qualify for more government support. Prof. Krugman may turn a blind eye to these work disincentives but it is not a "Hammock Fallacy". Workers will do what is best for themselves and their families and they cannot be blamed for stupid government programs which need to be improved.

In fact, the entire conversation of being, "trapped in poverty" stems from a false and transient notion of an "income" poverty level when poverty actually is, and always has been, about family wealth. Reform must keep families together and reverse the 70% loss of net wealth for the poorer half of the population since 1995. It is insane to waste tax money (including tax expenditures) on individuals and families with above average net wealth.


Overfull Employment

"So even if we believe that full employment is now 6.5 percent", has to be the scariest line ever written by Paul Krugman. It gives political cover to Democrats who have done more to destroy jobs than to create them. With "full employment", the 500,000 loss from the proposed minimum wage ($30 billion in 2016) or the 2,000,000 (equivalent) loss from the ACA penalties ($130 billion in 2017) is of little concern. If we believe "full employment" exists we might even support immigration reform (and the political good will that comes with it).

Earnings for men with a high school diploma and no further education fell by 41 percent from 1970 to 2010. Decent raises for this group will be less expensive than domestic revolution and a lot less expensive than the ever growing government hand-outs which (according to Cato) can tax work at up to 100%. The point (for readers experiencing a Cato alert) is that the left can't increase hand-outs anymore without reducing both the size of the workforce and the size of the full time workforce. Perhaps this workforce reduction has been the real stealth plan which has been unfolding before our eyes.

In a healthy economy a low paying job is turned down by a worker who has confidence in finding a higher paying one. In a sick economy the worker takes the low paying job to qualify for government hand outs. In the political economy we can call a 6.4 rate, "Overfull Employment" and continue to fool the voters.


Some Work

The new Ryan report is an intelligent attempt to identify which  programs work. In most cases the assessment comes directly from the agency administrating the program or from a subcontractor retained by them.

The programs are not discussed with ideological prejudgment. Prof. Krugman contends, "conservatives in general - claim to care deeply about opportunity, about giving those not born into affluence the ability to rise". Even assuming this insight into the conservative mind is correct, it does not impair the report's disappointing assessment of most pre-school programs. The kids from the poor side of the tracks have little to no chance of competing with the affluent no matter how much is spent on pre-school, early pre-school or after school programs.

The Ryan report is also good for not making comparisons with foreign countries. Incentives, or contingencies of reinforcement as B.F. Skinner would say, are much more complicated because they depend upon real families in real world circumstances. We have a collection of uniform federal laws yet the welfare of people varies considerably from one state to another. This negates the inference Prof. Krugman attempts to make because variations among countries are similar to variations among states.

Poverty and mobility is all about family wealth and neither political party is willing to reverse the negative trends of the last several decades. Distributional neutrality must be reversed with bold tax reform.


Family Structure

Rep. Ryan's report blames poverty on "family structure" (at page 4) citing to the work of then assistant secretary of labor Daniel Patrick Moynihan. In fact, net wealth, rather than income is the only true measure of poverty and the most important factor in family stability and upward mobility. If your family has some money, no one has to work for minimum wage or worry about basic necessities. The adults will hold out for better pay and upward mobility will be both possible and likely. Extended families can pool their resources and will take care of one another during tough times.

The right is comfortable with blaming poverty on family "structure" because it is not a government problem. It is a problem of individual choice, extra martial relationships and ill advised births. The left has long abandoned opposition to any "family structure" as politically incorrect. Income supplements are so popular with the voters that good jobs, low taxes and increased wealth are not even close to the top of their list and not needed for voter majorities.

Neither party is willing to own the tax code that contains a negative distribution of net wealth for 90% of the population and caused a 70% reduction for half the people since 1995. Neither party is willing to say men, no longer women, have the real employment problem because it reveals the true problems in the failed war on poverty. Prof. Krugman apparently finds the solutions too hot to discuss - so he blames Rep. Ryan.


The Wealthy are The Deserving

I agree that people are not envious of the 1% or even the top 10% that own 75% of the net wealth. Most people actually "worship" rather than "envy" great wealth.

How else could we explain why most of the $1.3 trillion in tax expenditures are given to individuals and corporations that have no need while most individuals have great need. Like the gods of centuries past we dutifully pay tribute so a heavenly life may be preserved for the wealthy and passed from generation to generation.

If people were "angry", as Prof. Krugman contends, we would tax net wealth rather than destroy jobs and families by unnecessarily taxing payrolls. The truly sacrilegious of the imaginings of permanent wealth might even think tax blend and VAT.


A February 26, 2014 report from JTC provides analysis of the GOP tax proposal from Rep. Camp and includes the following language. "Under the “Aggressive Fed” policy, it is assumed that the Federal Reserve Board would work to counteract any demand incentives resulting from fiscal policy. For this proposal, since the policy results in a net decrease in income tax paid by individuals, providing them with more take home income for consumption purposes, the aggressive Fed simulation would include an immediate increase in interest rates to counteract these demand effects. The “Neutral Fed” simulations assume that the Federal Reserve Board targets a fixed monetary growth rate, and does not try to counteract fiscal policy."

The relationship between “r”, the real interest rate, and “g”, the economy’s long-run growth rate may have something to do with projections about Fed policy. And yes, the decimation of the labor force is the "new normal". Unemployment rates are not higher, it is participation that is lower, and lower, and lower - how normal.


Godwin's Law

According to the folks at Wikipedia, "Godwin said that, given enough time, in any online discussion—regardless of topic or scope—someone inevitably makes a comparison to Hitler or the Nazis." Wrong "Godwin’s Law"? It might take the fun out of his prose if the good professor (or any economist) was expected to be clear and unambiguous to, "everyone else who matters".

The, "process of bubble inflation is a natural Ponzi scheme" according to Professor Krugman but it is difficult to see how doubling the number of single family homes was "natural" when the number of two parent families with children remained constant for decades. Perhaps progressive thinkers saw the stagnation of the traditional family as "natural". The new amorphous family units, whether headed by single parents or unmarried couples might be part of a "natural" evolution in spite of thousands of years of wisdom suggesting it would be an unwise and unstable trend. The economic importance of family net wealth and emergency support across multiple generations was lost on policy makers who believe the government can pick and choose the characteristics of what makes the best families and the best homeowners. The actual loss of percentage share of net wealth for more than 90% of the population was intentionally ignored.

Government that knows what is best for families, whether free contraception, houses, health insurance, part time jobs, pre-school, etc. really does lead to Godwin’s Law central planning.


A Healthy "Workable" Majority

Prof. Krugman is correct about the misleading political advertisements which seek to stir up anti-Obamacare sentiment rather than present the facts. Health care will be "workable" for some. Losers are generally limited to the following:

• people with cancelled insurance policies

• people who must reluctantly find new doctors

• the 30 million uninsured who will pay higher medical costs because of the unethical discounts

• the doctors and hospitals not covered by the insurance plans

• the men who pay higher rates

• the young who pay higher rates for the elderly

• healthy people coerced into buying health insurance (with money that would have gone into their retirement savings)

• the businesses which cannot afford employee health insurance (and pay $130 billion in additional taxes)

• consumers who will pay all health care costs sooner or later

• workers affected by, "a decline in the number of full-time-equivalent workers of about 2.0 million in 2017, rising to about 2.5 million in 2024" according to the CBO

• religious objectors to abortion type devices and drugs

• the taxpayers (who did not understand that a fiscal regulation works just like a tax)

The Democrats have engendered the good will of a "workable" majority in spite of clear harm to a sizable few. "If it helps more than it hurts", is still a poor (and rather subjective) standard on which to evaluate government policies. It should be replaced with, "do no harm".


Sustainable Jobs

When a business is taxed, penalized or simply told to spend money not warranted by business necessity, jobs are lost.

Prof. Krugman reports that, "Government spending, which had been temporarily boosted ... began falling ... [and] destroyed millions of jobs." The CBO estimated that 500,000 full time jobs would be lost as a result of the $30 billion to be spent on the proposed $10.15 minimum wage and another 2,000,000 full-time-equivalent jobs (many people will switch to part time work) will be lost when the $130 billion business health care penalties begin in 2017.

Another source of job loss in the private sector is with the charitable deduction. The government uses $40 billion in tax perks to induce wealthy individuals to transfer $300 billion in business investments to charity. A gross rule of thumb suggests that a million private sector jobs are lost for every $60 billion taken from business. This would make the charitable deduction responsible for the loss of about 5,000,000 private sector jobs (offset by some U.S. spending and hiring).

The payroll taxes generate almost one trillion dollars a year and applying the same rule of thumb would be responsible for the loss of another 16,000,000 private sector jobs each year (offset by government spending).

Better policies could encourage jobs without deficit "stimulus". Replace payroll taxes with a VAT, encourage nonprofits to create transition jobs, repeal the ACA and let states determine the minimum wage.


The Party Line is Easier to Understand

Prof. Krugman correctly points out that the ability to simplify and communicate a concept to a non expert is an important skill that may actually be the true test of the expert's understanding. In economics, opinion writers for the general media often feel compelled to include the apology "[wonkish]" in the title because they cannot simplify even basic descriptions of tax reform, tax bases or tax expenditures without jargon and shortcuts that will likely lose the untrained reader.

Far fewer than 25% of the population has ever taken a course in economics (and I strongly suspect that President Obama is one of them). With no disrespect to the President, consider how difficult it must be to explain competing versions of what the economy needs. Now take the exercise and multiply it by 535 to convey sufficient information to each member of congress to enable an independent informed decision about the consequences of almost any economic reform.

It is much easier to explain the party line and garner support without understanding. ACA: Yea, Health Care: Nay.


I am sure that even Prof. Krugman will agree that the $130 billion in tax penalties for businesses that do not provide insurance will have some type of a negative impact on jobs come 2017 (or 2018). No one is disputing that some full time jobs will be lost and part time jobs gained for a net "decline in the number of [full-time-equivalent workers] of about 2.0 million in 2017". If the increase in part time work offsets the loss of full time work then technically there will be no loss in the number of jobs.

The broader question remains about whether it is good for combined government policies to encourage some people on the brink to stop working full time at the increased expense of others who do. We cannot measure programs simply on what the winners get and must always remember who is paying the bill and be mindful that all business taxes, penalties and costs are passed to the consumer.

Under the ACA, 30 million will remain without insurance a far larger number than those who will get insurance. The uninsured will pay more for their health care due to volume discounts that drive up prices. It is not unreasonable for some to conclude that the ACA has caused more harm than good.


Political Good Fortune

Whether Prof. Krugman wants to call the $130 billion in ACA penalties "work disincentives" or incentives to part time work (and government hand-outs) there was no question that there was going to be a net "decline in the number of full-time-equivalent workers of about 2.0 million in 2017" according to the CBO.

The further ACA administrative delay for 50-99 employee businesses announced yesterday will significantly reduce job loss until after the presidential race. Perhaps Hillary has a phone and a pen too, or maybe it was just a lucky coincidence that the rate of unemployment will not be affected by a million or two full-time-equivalent workers (a/k/a jobs) during the heat of the campaign.

Those who will be coerced into switching to part time jobs (two thirds of whom are the same sex as Hillary) will not mind waiting another year for their extra vacation time. The conservatives will likely be blamed for that too.


A Man's Perspective

If people drop out and stop looking for work they get free health insurance and the unemployment rate goes down. You can call it "unskewing" if you like but it is quite the opposite to most men.

Unfortunately, the chickens will come home to roost when the $130 billion in ACA business penalties reduce full time jobs and safety net incentives encourage part time jobs for a net "decline in the number of full-time-equivalent workers of about 2.0 million in 2017" according to the CBO.

At some point he Democrats need to do more than just drive people out of the workforce to get the unemployment rate down. Women have taken jobs from men with 94% percent of men working in 1970 reduced to 81% in 2010. By 2009 women captured the majority of jobs in the country. Earnings for men with just a high school diploma fell by 41 percent from 1970 to 2010. Since the Great Recession women regained all of the jobs lost while men regained only 75%.

To add insult to injury, the ACA causes men to pay more for insurance to subsidize the insurance of women.


Too Complicated for Me

It is important to care about the design of a tax and entitlement system that helps those who don't need help and hurts those that do need help. It is also important to care about incentives that can coerce people into bad economic choices.

For example, the projected $130 billion in tax penalties under the ACA will soon reduce full time jobs and safety net incentives will encourage part time jobs for a net "decline in the number of full-time-equivalent workers of about 2.0 million in 2017," according to the CBO. [2.0 million may be more jobs then the economy will create this year]. Two thirds of those switching to part time jobs will be women and many will seek to qualify for health insurance and save on expenses with reduced days commuting to work. The loss of future social security benefits is not likely to be considered in the short term computations.

The tax and safety net programs have become so complex that millions of people will make decisions in haste without the ability to compute the full economic consequences. These big decisions seem like a crap shoot and lives are wasted by a congress that does not care about fixing it. The good from the ACH does not outweigh the harm and disruption it causes. There are better ways to provide health care and most other safety net programs.


Eliminate Long Term Unemployed

There is no moral distinction between tax avoidance practiced by high earners and C corporations; and individuals applying for  every entitlement and benefit the government offers.

For example, the tax penalties under the ACA will soon reduce full time jobs and safety net incentives will encourage part time jobs for a net "decline in the number of full-time-equivalent workers of about 2.0 million in 2017 ...", according to the CBO. The NY Times Editorial Board (Feb. 5) describes the move to part time jobs to qualify for government hand-outs as, "mostly a good thing, a liberating result of the law". If (for the sake of argument) enough workers rejected full time jobs without health insurance a labor shortage could encourage higher salaries and better benefits.

This fantasy of a tight labor market with a controlled rate of unemployment could actually be created by offering transitional jobs in the public nonprofit sector to the 4 million long term uninsured. This would replace extended unemployment benefits, maintain or improve skills of the workers and help nonprofits willing to expand their services. The jobs could be full or part time, skilled to professional - whatever the charity needed. The main limitation would be a rate of pay of only 50% to 75% of the business sector rate. Funding could be fully paid by limiting the $40 billion charitable deduction to charities willing to create jobs and savings in safety net programs.


A look at the size of the labor force over time says nothing about the economic forces raising or lowering the number, the full vs. part-time positions or the relative size of the available workforce (i.e. the rate of unemployment or percentage of people actively looking for jobs).

In North Carolina the unemployment rate went down and Prof. Krugman concludes that it is "probably" due, "in large part because workers who could no longer get unemployment benefits - which require that you search actively for work - gave up on what they knew was a hopeless quest ... it has to do with reduced job search rather than increased employment." So it seems that Prof. Krugman is arguing that the reduction in labor supply (i.e. reduced job search) combined with an increase in actual jobs to produce exaggerated favorable unemployment numbers.

In North Carolina no doubt some stopped looking for work after extended benefits were stopped (some have savings) but others did get jobs. Perhaps some retired but it remains unclear how the drop-outs who worked only 26 weeks earlier will continue to support themselves. They need some work to qualify for Food Stamps and the EITC. Prof. Krugman offers no economic explanation of the incentives at work or perhaps he is simply wrong about extended unemployment.


"the difference between job loss and reduced labor supply"

The good news is that $130 billion rather than $140 billion in business investment will be forfeited as a tax penalty for not providing insurance. The penalty will cause both fewer full time jobs and more part time jobs for "a decline in the number of full-time-equivalent workers of about 2.0 million in 2017, rising to about 2.5 million in 2024."

Some workers will not want to work (or continue) full time without getting health insurance because they will actually be better off working fewer days per week, qualifying for many government subsidies (including health insurance subsidy) and saving on commuting and other expenses. The NY Times Editorial Board spins this as, "mostly a good thing, a liberating result of the law".

The CBO cannot estimate the number of full time jobs that will be lost vs. the number of part time jobs created for government hand-out seekers. It is nevertheless clear that millions of workers will be encouraged to reduce their hours to qualify for government hand-outs and businesses will be happy to offer new part-time positions to avoid the health insurance requirements imposed on full-time workers.

The truth is, the ACA, tax policy and the safety net rules don't mesh in a rational way - no matter how you try and spin it.


More Part Time Government Hand-Out Seekers

The CBO report says: "The reduction in CBO’s projections of hours worked represents a decline in the number of full-time-equivalent workers of about 2.0 million in 2017, rising to about 2.5 million in 2024. ... The decline in fulltime-equivalent employment stemming from the ACA will consist of some people not being employed at all and other people working fewer hours;"

Neither the CBO report nor Prof. Krugman explain the mechanics of why there is a job loss or why the awkward phrase "fulltime-equivalent employment" is used.

When the ACA regulations for business begin (the President delayed them for a year) some companies with more than 50 full time employees will choose to pay penalties totaling $130 billion rather than pay for employee health insurance. A reasonable inference can be made that most of the $130 billion would have gone for additional full time jobs if there was no penalty.

Of course some workers will not want to work full time without getting health insurance because they will actually be better off working fewer days per week, qualifying for many government subsidies (including health insurance subsidy) and saving on commuting and other expenses. Other workers might switch to companies that will offer health insurance. The CBO cannot estimate the number of full time jobs that will be lost vs. the number of part time jobs created for government hand-out seekers.

The ACA, tax policy and the safety net don't mesh.


We can judge the ACA by the number of folks who are subsidized to buy insurance or on the health care available to the uninsured. Better competition among hospitals, insurance companies, and primary care providers is the key. Mandatory insurance is not essential.

Unfortunately hospitals are little more than local monopolies and their costs should be regulated by the states similar to the way utility rates are regulated (with fair adjustment for services provided to the poor).

Competition among insurance companies can exist only if the policy forms permitted are nearly identical as they generally are for homeowners and automobile insurance. Insurance companies control their profits largely by coercing volume discounts in exchange for placing the provider on an "approved" list. Unfortunately this limits doctor choice for those with insurance and, unethically, causes the uninsured to pay more to compensate for the discounts. Insurance is a regulated business with little competition in each state; and it is really the government (via the ACA) which harms the uninsured by continuing to allow volume discounts.

Fair competition in primary care, services, supplies and drugs can best be achieved by requiring prices to be posted online so the uninsured can shop efficiently.

Economists know that most people don't need the economic protections of insurance because they are living on the brink of bankruptcy. They need health care not insurance.


The ACA will impose penalties on businesses and individuals who choose not to spend their limited resources on health insurance and it will be interesting to see how government by coercion and central planning works in a democracy.

The ACA cannot be judged simply on the number of new insureds and the amount of welfare that is given to them during their low earning years.

The ACA cannot be judged on the stubborn refusal to admit its shortcomings even if you are the President of the United States or a member of congress running for reelection.

The ACA cannot be judged on the Senate's refusal to vote on the 40 House recall bills - at least not until November or whatever.


Polls and Politics

The "self-identifying" class poll results do not present real income and wealth distribution - it is just a game. The poll results do not show how family net wealth has changed over the last 20 years. If people knew the truth they might vote differently (or at least start to vote). Of course there are very few candidates who deserve the votes. We need to allow churches and public charities to fully and openly participate in politics without any loss in tax benefits. This might bring a voice advocating for the poor and middle class to the public debate and offset the political dominance of the rich.


Mr. President: More Inequality or Less

"Inequality" is usually something created by government policies that have helped one group at the expense of another. Equality can be restored by removing bad government policies.  Economic "Exclusion" has been the focus of Pope Francis because it goes beyond "exploitation and oppression" and tends to leave a family in a life threatening position with no job and no wealth because the government failed to do its job (or simply let bad policies fester).

The payroll taxes are a regressive individual income tax joined with a job killing tax on U.S. workers. We can keep destroying jobs or replace the payroll tax with a VAT.

Tax expenditures redistribute $1.3 trillion each year primarily to high earners that don't need it. [This is twice the net wealth of the poorer half of the population]. Let individuals choose between a flat 26% income tax (and estate taxes later) or a low 8% income tax, no payroll taxes and a 2% tax on net wealth (excluding $15,000 cash and $500,000 retirement funds).

Discrimination is not the same as inequality. The exclusion of straight white men from legal protections simply correlates with women regaining all jobs lost while men regained only 75%; and the further loss of 41 percent of salary from 1970 to 2010 for high school educated men.

A federal minimum wage increase tells the 50 year old guy on the job for 3 years that his labor is worth the same as the 16 year old girl hired yesterday. Why bother?


"Inequality" and "Do-Nothings"

"Conservatives have recently made a horrifying discovery ... [inflation adjusted] income actually falling for the bottom quintile," according to Prof. Krugman. The implication is that conservatives are wrong to argue that a rising tide lifts all boats when we know prosperity trickles down only to those who service the top and has always substantially excluded those at the bottom.

A chart [only through 2007] showing transfers (both entitlements and needs tested programs) is presented to prove only modest long range changes and not a massive growth in "takers" [Krugman's inflammatory word]. Just how much was taken by the "takers" after 2007 is omitted from the chart even though the professor admits there "has been a jump". To question spending, to study the difference between the needy and the not-so-needy or even to expect the data to be presented is apparently something only the right would demand.

The "right won’t be able to make the inequality story go away" according to Prof. Krugman. Unanswered is the nature of the "inequality story" or what the right supposedly wants to go away. Pope Francis may know something about religion, and he certainly has a worldwide army of economic advisors at his fingertips. He knows the difference between the do-nothings who give lip service to "inequality" and those who understand "exclusion" and expect government to fix it. If we knew how much the "takers" were taking we might find it less expensive to give them transitional jobs.


Go Ezra

Ezra Klein of Wonkblog deserves an 8 out of 10 when it comes to reporting on economic reforms. He is the very best in a very difficult field that he, more than any other journalist, is making better. He has an ability not just to explain the economic consequences of existing provisions but also to see the potential consequences of suggested reforms. He would make a great professor.

Prof. Krugman projects his own political and journalistic interests with the accretion that economic, "facts have a well-known liberal bias". Klein will deserve a 9 out of 10 when the label "liberal-leaning" doesn't quite stick because the political spectrum has been fairly covered.

Klein will deserve a 10 out of 10 when his readers understand the difference between income and net wealth, tax base and payroll, wealth tax and VAT, insurance discount and preferred list, inequality and exclusion, etc. Basic terms and concepts common around the world can remain as red flags to U.S. intellectual and political thought and are considered sacrilegious to the god of "American Exceptionalism". Klein may get so good that no one will hire him.


Tax Wealth More and Income Less

Prof. Krugman is at fault. He defends the upper middle class (earning only $200,000 to $300,000) and even blames those who, "avoid talking about the one percent" and "talk about the top quintile, or at most the top 5 percent". The problem is that Krugman is mentally stuck on taxable income and not talking about economic income (as in the change in net wealth) and he is not describing net wealth (the rich).

The richest 10% have 75% of the net wealth and the top 1% hold half of this amount. All 10% are well beyond upper middle class and they deserve every penny. They deserve it all because it is their family property, their trust fund and their birthright.

The wealth including all the businesses which are owned need to be protected and nurtured - whatever the cost. Educated and healthy workers, infrastructure, police and international defense must be furnished to protect the assets and life style at the top.

Income measures don't reflect the true glory that only individual net wealth and value added by business can show. Perhaps the best way to help the rich is to lower their income taxes (to 8%) and tax net wealth at a mere 2% (excluding $15,000 cash and $500,000 in retirement funds). The burden of payroll taxes might also be lifted with a 4% VAT and low 8% C corporation tax rate.

If the rich can't afford the tax rates of the poor and middle class let them pay 26% on gross income (and estate taxes later).


Mr. Warren Buffet is at the top and his IRS income is about $30 to $50 million a year while his economic income (including unrealized capital gains) is several hundred times larger. If his appreciated stock is not sold this income will not be taxed and will not even appear in the table (which therefore underestimates inequality in the tax burden).

Over decades sufficient wealth is inherited and trusts created so that those at the top do not need any taxable income in order to survive in comfort.

You can't really tax the rich unless you tax their net wealth. Read more at TaxNetWealth.com


Women (who are more likely to vote Democratic) have regained all the jobs they lost during the recession while men (who are more likely to vote Republican) have regained just 75 percent. One main question is whether the sex discrimination or political discrimination is the root cause. The other question is which political party cares.


Republicans are accused of being the enemy of the poor but the Democrats have not been their friend. Women (who are more likely to vote Democratic) have regained all the jobs they lost during the recession while men (who are more likely to vote Republican) have regained just 75 percent.

The poorer half of the population have lost 70% of their net wealth since 1995 in spite of gross expansion of all Democratic anti-poverty programs.

·       Education cannot create more jobs than the economy needs and over-education simply creates more losers, more student debt and lower salaries.

·       Health insurance discounts increase prices for the uninsured

·       Food stamps sustain low paying jobs.

·       Minimum wages expand the percentage of workers on the bottom rung (now at 25%).

Pope Francis has challenged governments around the world to insure that no one is excluded from a life sustaining share of work and wealth sufficient to support marriage, procreation, raising children and caring for the elderly. New approaches are needed for:

Jobs: see http://krugman.blogs.nytimes.com/2014/01/11/the-raleigh-experiment/?comments#permid=10937950

Tax Reform: see http://www.nytimes.com/2013/11/11/opinion/krugman-the-plot-against-france.html?comments#permid=10492509

Health Care: see http://economix.blogs.nytimes.com/2014/01/03/medicare-advantage-and-the-theft-of-156-billion/?comments#permid=10868683


Congress Can Create "Sustainable" Jobs

We need more jobs so the left wants to raise the minimum wage (humane, but reducing money businesses have available for new jobs) and extend unemployment benefits (humane, but creating no new jobs).

Millions of new jobs in the private sector can be created by simply switching the Social Security and Medicare tax base from the payroll taxes to a revenue neutral value added tax (VAT). A VAT is a business tax on gross income (i.e. sales) that permits an offset only for VAT taxes paid by the other businesses in the chain of production. Every developed country in the world considers the VAT to be the most fair and efficient way to tax different types of business across different taxing jurisdictions - qualities that cut against complicated U.S. tax principals. By actually reducing the cost of each U.S. job by 7.65% employers would have less of an incentive to outsource work. More importantly, all workers (not just minimum wage workers) would get a 7.65% increase in their take home pay. That would boost consumer demand and the economy by over $400 billion.

More than four million transitional jobs could be fully paid for through the $40 billion charitable deduction and savings in safety net programs. A small change in the tax code would restrict use of the charitable tax deduction to charities that were willing to sponsor jobs (at 50 to 75% of private sector rates) that would maintain worker skills until the economy improves.


Get Real about the Uninsured and the ACA

According to the abstract, "Faster growth in hospital services and in physician and clinical services was mitigated by slower growth in prices for prescription drugs and nursing home services." Thus Prof. Krugman's claim "the cost control measures that are part of Obamacare (and have been in effect for several years) are part of the reason" appears to be motivated by wishful thinking.

Hospital, physician and clinical service spending is up for the insured and the inflated prices devastate the uninsured who do not have the volume discounts given to the insurance companies. Continued indifference to those who remain uninsured is despicable.

Prohibit discounts in health care, post prices so patients can shop, and regulate the cost of hospital care just like all other local monopolies - (based upon its balance sheet and charitable services to the needy).


An Effective War on Poverty

Poverty continues as the left obsesses over equality of opportunity and, as Prof. Krugman laments, the right thinks social disintegration is the cause rather than the result of poverty. It seems that education cannot create jobs the economy does not need and that over education simply creates more losers, more student debt and lower salaries. Health insurance discounts increase prices for the uninsured and food stamps sustain low paying jobs.

A more effective war on poverty, at least the kind caused by economic downturns and unemployment, could be won by automatically shifting workers between the profit and nonprofit sectors of the economy. It would be a bit like the Fed keeping inflation low but all new spending would be offset.

There is no limit to the good work good charities might do - especially in times of economic downturn. If the $40 billion charitable deduction were limited to charities that expanded their services and sponsored new full and part time jobs during times of high unemployment, one to two million new jobs could be created. If congress wanted to cut extended unemployment compensation (or other safety net programs) perhaps four million new jobs could be created. The jobs could be full and part time and range from skilled to professional - whatever the charity needed. The main restriction is that the jobs would pay only 50 to 75% of the private sector rate and at least minimum wage - (thus no basic entry level jobs).

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Copyright 1985 to 2015 by Eugene Patrick Devany