Go to 2013
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
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.
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
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.
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
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 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
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
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
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.
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
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.
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
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
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
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
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
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
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
Family wealth and jobs matter. Replace the payroll taxes
Some look at government not only for the good it
accomplishes but for its efficiency and the unnecessary harm
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
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
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
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
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
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
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
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
The article at
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
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
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.
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
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 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
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
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
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
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
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
[link] The U.S. government says this group has only 1.1
percent of the wealth (down 70% since 1995). See [Wealth
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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
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.
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
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
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
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
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
Moore moved from the Wall Street Journal to the Heritage
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
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.
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
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
"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
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
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 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
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
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
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
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
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
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
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.
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
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
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
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
Maintain full employment with transitional jobs in the
nonprofit sector funded by earmarking the charitable
The Fed is not able to "achieve full employment" without tax
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
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.
"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.
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
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
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
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.
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
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
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
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
Let's Compete Until We Drop
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
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
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).
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
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
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
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
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
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
The Inadequate Demand for
1. Everyone knew, "how
fragile [mortgages] had become".
2. That is why mortgages were
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
14. Conservatives blame the
job killing trifector: ACA - minimum wage - immigration
15. The government finds it
easier to promote recreational drugs than replace the job
killing payroll taxes.
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
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
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
Some forms of taxation are
bad (payroll taxes destroy jobs).
Net wealth taxes can be
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.
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
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
"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
Means Other than Monetary
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
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
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
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
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
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
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
In contrast, government handouts subsidize low wages and
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
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
Rep. Paul Ryan invites Prof.
Krugman (not personally) along with all members of the
public, to comment on the proposed budget at
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
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
Too Old: Someone who paid 3%
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".
"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.
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
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
Still Experimenting With
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
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
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
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
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
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?
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
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).
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
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
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
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
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
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.
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)
Josh Barro charts how worker
earnings have shrunk about 20% as a percentage of GDP. See
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
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
This leads to tax (and
transfer) reform and the insanity of distributional
neutrality as a goal.
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
"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.
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
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
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
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
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
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
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
• people who must reluctantly
find new doctors
• the 30 million uninsured
who will pay higher medical costs because of the unethical
• the doctors and hospitals
not covered by the insurance plans
• the men who pay higher
• 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
• 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".
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
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
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
The Party Line is Easier to
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
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
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
Eliminate Long Term
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
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 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
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
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
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
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.
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
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
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
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:
Tax Reform: see
Health Care: see
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
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
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).