"People who really worry about
government debt" don't read enough Paul Krugman. Krugman's
"don't worry be happy" crowd doesn't care if Mrs. Clinton's
"sloppiness" has reached the level of criminal negligence.
Government spending and tax expenditures are out of control
and wastful - but who cares.
In the ideal, Congress should
let the Attorney General and FBI conduct the broad email
investigation, but political reality suggests that this
would be a whitewash - (unless Joe Biden throws his hat into
Benghazi was just a little
sloppy and it led to the loss of just a few lives. The
investigation to date also led to the disclosure of a much
wider email problem that revealed the potential for much
wider scandal, influence peddling and security breaches. It
is political only because Mrs. Clinton thinks she is fit to
run a government the size of the United States. It would be
foolish to stop the inquiry just as thousands of new emails
are becoming available. Hundreds of emails are being
classified for security reasons (that Mrs. Clinton
previously denied). Was Mrs. Clinton too involved is
personal matters to provide the proper protection in
Tweaks to the TPP don't offset
the fact that it is a way to boost big global U.S. business
and much smaller, yet important, foreign businesses - all at
the expense of free markets. Heaven help me but I agree with
Paul Krugman that the TPP is an, "agreement not really so
much about trade as about strengthening intellectual
property monopolies and corporate clout in dispute
settlement — both arguably bad things, not good, even from
an efficiency standpoint."
My broader concern is not
improving the balance to gain Democratic support and passage
in congress, but rather about locking U.S. public policy
into dependence on bigger companies that have less and less
connection to the U.S. and no interest in putting the
interests of U.S. families first.
The excellent article in
today's paper, "How
Did the Democrats Become Favorites of the Rich?"
explains how and why U.S. non-union workers have been
abandoned by the Democratic Party. The TPP is just another
step down that road.
If the GOP and the Dems
decided at some point to replace Obamacare with free
prescription drugs for all and to change the patent,
trademark and copyright rights so the nation reaped the
benefits of cures and both the insured and uninsured had
some treatment it would counter the TPP.
are intelligent and educated voters that believe that growth
in GDP will trickle down. They believe that $1.3 trillion in
tax expenditures (deductions, exemptions, deferrals special
rates and credits) mostly for the wealthy will help them.
They are sadly wrong.
We all know business needs investment and capital but
eliminating the estate tax does not add to investment. In
fact the charitable tax deduction rewards wealthy people to
take their money out of U.S. business and give it to foreign
charities. (Think Gates and Clinton).
The worst tax is the special income tax for workers know as
the combined payroll tax. The 15.3% rate does not apply to
high earnings (over $115,000) and makes U.S. jobs more
expensive than necessary. The payroll taxes could be
replaced by a 4% VAT and business tax expenditure reform.
This would increase take-home pay for all workers, encourage
full employment and eliminate most objections to better
My gripe with Krugman is that his constant criticisms of the
GOP gives the false impression that the Democrats have a
better way. They don't. In fact the Democrats continue to
destroy the tax code by pushing for more unfair tax
expenditures. There are bold tax reform alternatives which
should be considered by both parties. Seehttp://taxnetwealth.com/01_how_the_248_tax_blend_compares_to_FairTax_Fla...for
the FairTax, Flat Tax and 2-4-8 Tax Blend.
The explanation of Keynesian goals is most welcome but it
does not follow that deficit spending is the best or only
solution. Our country is blessed with a Social Security and
Medicare system which is funded by job killing, consumer
destroying combined payroll taxes of 15.3%. The good news is
that the tax revenue could be replaced with a 4% VAT and
elimination of unnecessary business tax expenditures. The
new tax base would strengthen Social Security for decades to
come and encourage both consumer spending (with 7.65% more
take home pay) and U.S. job creation (because each job
becomes 7.65% less expensive to the business). It would help
to keep jobs in the U.S. rather then send them to Mexico
(Nabisco and Ford according to Mr. Trump). Of course, one
might think Krugman was wrong about deficit spending on
infrastructure but it might help wealthy business owners and
union employees. The lower income workers will get nothing
and the rest of the taxpayers will get higher national debt.
The debate should be about which is a better way even when
it is clear that most want to do nothing.
Prof. Krugman admits that the Fed money printing and
purchase of old debt is intended to boost asset prices and
“starts a chain reaction” with the cash loaned out,
stimulating spending and boosting the real economy …[causing
] … wages and prices … to rise, solving the problem of
deflation.” In the U.S., individual wealth increased from
about $56 trillion 10 years ago to $83 trillion today, far
beyond the growth in GDP.
In Japan, taxes were raised in an apparent effort to reach
idle cash and Krugman argues that this set Japan’s recovery
back. He argues government should do just the opposite with
deficit spending on “stuff” rather than “assets” with no
apparent guideline or concern for the expansion of debt.
Mr. Abe was not crazy when he pushed for higher taxes and
any failure at least left the government richer rather than
poorer. Perhaps taxation is the better way to control the
economy if, and only if, the right tax blend is used.
Indeed, it may not be an issue of more revenue or less by
rather who is being taxed and how.
We can tax income, sales and/or net wealth. If asset prices
were inflating and there was too much idle cash the choice
of what should be taxed is easy. If workers were losing
family wealth even with two adults working the choice of
where to cut (and stimulate spending on stuff) would also be
easy. More deficit spending is not necessary.
Replacing the job killing
payroll taxes (with a 4% VAT and business tax expenditure
reform) can change the equilibrium. It can move the full
employment rate down and the GDP up.
Of course communism (China)
can go further by putting all to work with pay scales driven
by policy rather than a free market. The U.S. can, and
should, achieve the same government controlled full
employment by going even further than payroll tax
replacement by creating a program of transitional jobs in
the nonprofit sector. The nonprofit sector has grown
exponentially. Excluding churches, the nonprofit wealth
equaled the poorer half of the population and now is eight
times as wealthy. This has been fueled to some extent by
keeping government payrolls in check. In any event,
nonprofit payrolls and services can be better used by
limiting the charitable deduction to charities that are
willing to put people to work (at a little below private
sector rates). Real full employment (as is having a range of
jobs available for all who want one) will obviously drive up
salaries for all workers.
There is nothing wrong with
letting our nonprofit sector behave with social democratic
values while providing a constant well trained and
experienced labor supply that can adjust to the expanding
and contracting needs of business.
The great political debates of
our day (welfare, education, immigration, criminal justice,
family formation, etc.) can all be greatly improved if we
first focus on actual full employment.
Prof. Krugman's view of
conservative principles is quite true when it comes to the
ruthless managers of business and wealth. It is not their
job to support family or to have a workplace that is more
pleasant or offers more benefits than necessary. A business
should seek an advantage with the monopoly granted through
intellectual property and destroy as many competitors as it
can. Donald Trump is quite good at this.
All people need to be ruled in
a manner that makes them feel modestly happy and free. The
masses are poor with half the population sharing just 1% of
the net wealth (down 70% since 1995). Businesses do not and
cannot manage all of "those" people with all of their social
and cultural baggage, not to mention their low IQ. They are
the under employed, the unemployed and the unemployable that
need to be handled by government.
Liberals and conservatives
generally share the view that "they" should stay on their
own side of the tracks except when providing a necessary
service as a servant. The government must give them enough
to keep them in line and no more, so they stay hungry.
Unfortunately, the scales have
tipped so far, that the middle class in the U.S. are
beginning to be treated like the poor. Their share of wealth
is down to 24% and trending toward the global average of
12%. Unfortunately, those at the top can't expand unless the
middle class suffer. The poor have nothing left to give
(except future Social Security and health benefits). Even
Trump won't go there.
"I’d say probability, that
excess savings and persistent global weakness is the new
The phrase "excess savings" is
identical to excess wealth for the top 10% of the
population. In the U.S. the share increased from 67% to 75%
over the last 20 years. On a global basis the top 10% have
87% of the wealth.
The phrase "global weakness"
is identical to the loss of family wealth (and political
power) for the bottom 90%. We need to focus less on where
the money is and more on where it is no longer. The 40% of
the population that represents the middle class has
historically been the measure of strength for any economy.
The U.S. remains strong with a 24% wealth share for the
middle class - twice the global average. The problem is that
the middle class share is down 4% since 1995 but is
accelerating downward. The pressure on the middle class is
getting worse because the rich can no longer take from the
poor (except their future benefits). The poorer half in the
U.S. went from a 4% share 20 years ago to just a 1% share
today. Too many young adults can no longer afford to marry.
The wealth trends tell the
whole story. Tax policies over tax the poor and middle class
(i.e. payroll, sales and property taxes) and under tax
returns from wealth (causing "excess savings").
Consider a taxpayer choice of
a 2% wealth tax (with $500,000 retirement-education-health
care exemption) versus a 26% income tax (plus gift and
estate taxes). Choose: be middle class or be rich and very
The current federal tax system operates like climate change
slowly shifting wealth to the richest 10%. Over 20 years the
wealthy increased their share by 8% taking 3% from the
poorer half and 5% from the middle class. The numbers sound
small but half the population now shares just 1% of the
wealth. In fact, the 30% at the very bottom are below water
with more debts than assets.
the growth in wealth at the top is the indirect result of
unnecessary deficits and progressively expanding government
debt. Much of it can be seen in the untaxed growth of
wealth. People like Warren Buffett increase their wealth
(stock value) by about $3 billion a year yet they only pay
taxes on about $30 million in taxable income. Another
$2,970,000,000 goes without tax year after year. If anyone
thinks Mr. Buffet should not pay more in taxes I remind you
that even Donald Trump thinks he should.
focus of reform is to make wealth a measure of taxation
while lowering taxes on the poor. Imagine an optional 2% net
wealth tax (above $500,000 retirement-health-education
savings) and its effect on interest rates and government
bonds combined with an 8% income tax rate (and no payroll
taxes or estate taxes). An alternative 26% income tax and
hefty estate tax would be an available option to the wealth
tax. Imagine the equity of using the now optional estate tax
to pay down debt and the market incentive to keep interest
rates above the wealth tax rate.
If everyone paid SS/payroll taxes on all income (at 7.65%)
we could give everyone the option of paying a 2% wealth tax
(excluding $500,000 tax free savings) or a flat 18% income
tax. With a 4% VAT (the lowest in the world) we could
eliminate the corporate payroll tax and lower the business
income tax to 8%. See TaxNetWealth.com for details.
With Capital in the Twenty-First Century, Pickety had the
bully pulpit on tax reform. He foolishly called for a global
"soak-the rich-style" wealth tax which made him seem like
Donald Trump calling for a 14.25% wealth tax (in Trump's
2000 book, The America We Deserve).
Pope Francis has been pounding the pavement for reforms that
might keep the good in capitalism while using tax and
regulatory reform to see that a bit more than 1% trickles
down to the poorer half. The middle class share of wealth
has also been shrinking - to 24% in the U.S. and just 12%
globally. The need for the top 10% to have a slightly
smaller share (around 65%) of a bigger pie seems like a no
brainer. Pickety was the most prominent visionary economist
that could be expected to overcome his youthful exuberance
and give us a workable model tax blend with built in checks
In a more equitable world, perhaps all could choose between
low 2% wealth (with large exemption) and 8% income tax rates
verses a high 26% income tax rate and no wealth tax. Perhaps
a small 4% VAT and tax expenditure reform could replace the
job killing payroll taxes and the corporate income tax could
be lowered to just 8%. Low business taxes, an optional
wealth tax and transitional jobs are at the heart of "The
Economics of Equality". We don't need another "The Economics
of Inequality" book.
Minimum wage studies comparing NJ and
PA should not be a basis for rejecting market based labor
economics because a study showed no, "clear negative effect
on employment". Local economies differ. Small increases in
the minimum wage (i.e. to $9.00) may not hurt jobs anywhere,
while an increase to $10.15 would cost 500,000 jobs (in the
weakest economies). Projections about President Obama's
proposal made just two years ago by the Congressional Budget
Office under a Democratic Congress, don't fit with Krugman's
political spin and his defense of his beloved and clueless,
Mrs. Clinton. When the minimum wage is too high it can lead
to an awful economy as in Puerto Rico.
Workers have little hope under
"Clinton-Krugman-many liberals" labor economics. Krugman
argues that, "Mrs. Clinton’s core message was that the
federal government can and should use its influence to push
for higher wages" yet her proposal for a two-year 15%
corporate tax credit to corporations that pay bonuses up to
10% does not change the base wage, encourage promotion, or
create new jobs. It helps Wall Street.
I agree that the government should
push for higher wages through structural change rather than
stimulus. Replace the payroll taxes with a 4% VAT and tax
expenditure reform. All workers would get an immediate 7.65%
increase in take home pay and new job creation would be
permanently stimulated. This can be a revenue neutral change
that actually strengthens long range funding for Social
Security and Medicare.
The obvious solution to the debate
about "bums" - (a rather sexist term) is to provide a range
of jobs to all. The idea of full employment is something
which can be achieved with a combination payroll tax
replacement and transitional jobs with nonprofits. A small
4% VAT and elimination of business tax expenditures would
provide more than enough revenue to replace payroll taxes.
The lower cost of creating jobs and reduced incentive to
outsource jobs overseas would create near full employment.
Anywhere from 10 to 40 million
transitional jobs could be created by using the 40 billion
charitable tax deduction only with charities that are
willing to provide transitional jobs (and savings from
reducing welfare payouts). While transitional jobs would pay
a little below private business sector rates the types of
work could range from entry level to professional in
whatever area the charities needed. The transitional jobs
would be upwardly mobile and rewarding.
If an able bodied adult did not want or need to work that is just fine. I
certainly would not call him or her a bum.
It is hard to understand the economic
claim, "if workers are paid their marginal product, the fall
in GDP from the ACA is equal to the lost wages, but workers
choosing to work less clearly prefer to have the extra time
to the extra wages". If you deny the role of family wealth,
the worker has an economic choice. No doubt the richest 10%
with 75% of wealth have a free choice. The next 40% (the
middle class) share just 24% of wealth and while those near
the top of the spectrum have a choice those near the bottom,
with assets below $50,000 clearly cannot enjoy the life of
leisure for long. The poorer half of the population (62
million families) with just 1% of wealth cannot not afford
not to work, yet they are the ones who may profit most. Low
wage workers only have to work 26 weeks to get an earned
income tax credit and expenses for meals, transportation and
child care can make the real take home pay quite small.
There is nothing good about the economic pressures that
encourage workers to work less and qualify for Medicaid.
"[T]he Davos Democrats ... have lost
much of their credibility". President Obama has become the
leader of the Davos Democrats. Individual wealth has
increased from $56 trillion to over $83 trillion in just the
last five years and very little has been taxed as ordinary
income. Plans to expand the jobless growth with intellectual
property monopolies enforced by the pending Pacific Trade
Agreement are backed by both the GOP and their Davos
Obama has helped the poor with free
contraceptives as half the population now struggles with
just 1% of the wealth. The top 10% have 75% of the wealth
(trending toward the global 87% average). The large middle
class, with 40% of the population, has slowly declined from
a 27% share of wealth to 24%. Unfortunately, the middle
class is poised to more rapidly decline toward the global
middle class average wealth share of 12%.
Bill and Hillary Clinton remain the
Davos Divas giving lip service to the poor while serving the
rich and the Clinton Foundations. Bill Clinton gave us the
Earned Income Tax Credit and this has encouraged both the
largest expansion of low paying jobs in the world and a 70%
loss of family wealth for the poorer half of the population
(62 million families). Hillary Clinton failed in her attempt
at universal health care, failed to articulate and implement
a sound foreign policy and failed to achieve anything on her
own. She has been little more than a cheerleader for the
very serious men in her life.
"dispute settlement and intellectual
property deals that pretend to be about trade"
The U.S. intellectual property laws
are no longer fair and that is why they work well for big
business. Empowering businesses with monopoly rights
destroyed free trade by destroying competition. Once
congress decided to copyright non-human expressions such as
computer software, it was downhill from there. Even the
judges can't understand it so they had to form intellectual
property courts to handle appeals. Now the President, with
the urging of businesses that avoid U.S. taxes, is
attempting to expand U.S. intellectual property laws to
generate profits for global businesses at the expense of
U.S. jobs. Prof. Krugman should not just be a "lukewarm"
opponent. It's like saying I'm not too sure about Obamacare
because I haven't had time to read the bill. Even Rep.
Polosi seems to have learned the lesson about trusting
others to supply the details.
With all due respect, Prof. Krugman,
Obamacare is history and this year's change in insurance
rates means little. Even the New York State Assembly is
preparing for the switch with a Single Payer Bill. See
The (still Republican controlled) Senate could vote any day
- or not. The Senate may be waiting to see if the
(Democratic controlled) Assembly brings up the tax credit
bill which would provide scholarships for private schools.
Whatever the temporary logjam may be
New York is poised to eliminate health insurance companies
(and their jobs), provide free abortion and contraception
(the envy of China) and double the payroll tax rates to over
30% (just shy of our socialist friends in Greece). The
STATE, rather than the free market (the little that is left
of it) will determine all health care costs. Prices will go
down in election years and up the rest of the time. The best
is yet to come in health care and the program will be
"highly successful", comrade. All will be equal regardless
As an economist, Prof. Krugman should
be concerned about who is paying for the insurance
expansion. Rather than asking business to pay $130 billion
Mr. Obama has delayed this tax penalty provision and simply
directed the Treasury and IRS to give the money to private
insurance companies on behalf of some people. This increases
the deficit and forms a rather large slush fund for
ObamaCare supporters. Deficit spending was not the intent of
Congress but the giveaway has been a sick and very expensive
way of buying votes for Democrats.
If the Supreme Court puts an end to
most subsidies, Mr. Obama will not be able to restore the
money that he has recklessly authorized. Those who lose
their health insurance may think it would have been better
not to have it in the first place - (at least the vast
majority that suffered no major illness). The president
known for being politically correct and defending the good
name of Indians from the spirit of football may ironically
be remembered as the "health care Indian giver". (I can
think of no other way to vividly describe it.)
Confusing Politics with Economics
The Keynesian approach justifies not
just any stimulus but rather government spending on union
jobs that provide election support to Democrats. If you like
you can call it infrastructure spending to make it sound as
if the private economy would flourish if we only had a few
new bridges and schools. Keynesian stimulus must also be run
from Washington (not by Republican governors) so the wiser
Democrats have the final say on which union jobs will be
most helpful to the economy (and perhaps the next election).
According to Prof. Krugman's spin, it is not about bigger
government. It is about a temporary boost to the economy
(and perhaps to the party). Of course, only a Keynesian can
tell good stimulus from bad. Reducing payroll taxes and
letting workers keep more of their own money only helps
those that the Keynesians' already have on their side.
It seems that, "low taxes on the rich
and harsh treatment of the poor" aptly describes the payroll
taxes. The rich pay no taxes on their income over $118,000
and workers below that level have no deductions to offset
the combined 15.3% rate. The tax reduces salaries and
discourages new jobs within the U.S.
The payroll tax could be replaced by
less regressive taxes such as a 4% VAT and reduction in some
non-essential business tax expenditures. It would actually
help workers in Texas and Kansas and 48 other states.
The poorer half of the population (62
million families) lost 70% of their net wealth since 1995.
They (meaning 50% of the people) share just 1% of the
wealth. Young adults from this group no longer marry and
make babies as earlier generations did. The poor are perhaps
not so conservative and that is why the Pew survey numbers
seem skewed. It is nevertheless quite true that the wealthy,
whether conservative like Romney or liberal like Clinton,
have little idea of the desperation that causes young people
to become losers.
The U.S. could create full employment
with tax reform that replaces the payroll taxes and provides
transitional jobs through wealthy nonprofits (that have
eight time the wealth of half the population).
The Clinton Foundation is certainly
not helping the poor in the U.S. It has enriched the
Clinton's at the expense of the poor.
There is no question that "high
unemployment" has been a problem. The solution is to replace
the payroll taxes with a small 4% VAT and reduction in some
business tax expenditures. Opposition to this sensible
reform comes from "crazy people" on both sides of the aisle
who don't see their self interest aligned with putting the
unemployed to work. Both sides are too busy picking the
pockets of the wealthy and making sure that the rich get
richer and the poor get poorer.
"productivity growth finally took off circa 1995."
Indeed 1995 was the start of the 20 year wealth gap trends.
The top 10% increased their share from 67% to 75%. The next
40% (the middle class) went from a 27% share to a 24% share.
Unfortunately this left just 1% of individual family wealth
for half of the population. It is true that the pie has also
grown from $56 trillion five years ago to $83 trillion
today. This accelerates the growth at the top but does
little to offset the losses at the bottom.
There is a big difference between productivity and progress.
" Doctors Without Borders is worried
that the deal would make medicines unaffordable"
A far more important issue relates to
health care reform and the Obamacare replacement. The best
tradeoff would be to tax employee health insurance benefits
and use the $200 billion to have the U.S. government provide
free drugs to all which would reduce the cost of health care
to all. Such a change should put the U.S. government as the
patent holder for drugs and reap the benefits of all cures.
The government (or nonprofit), rather than drug companies,
should authorize world manufacture and distribution.
The trade agreement could prevent a
revolution in medicine.
Lied into War (on Poverty)
Prof. Krugman repeats his description
of Rep. Paul Ryan as a "fraud" and wants to persuade us that
Ryan's "real goal [is] dismantling the welfare state". There
is no question that Rep. Paul Ryan supports major reform of
the "welfare state" and before switching from Congress's
point man on the budget to the more powerful leader of tax
reform he outlined the waste and duplication in, “The
War on Poverty: 50 Years Later”. Ryan's solution is an
optional “opportunity grant” (not quite war) to replace,
dollar for dollar, the amount of money states currently
receive to implement means-tested federal poverty programs
such as food stamps, housing assistance, utilities
Being "lied into war" in Iraq assumes
an intentional "fake case about WMD". Prof. Krugman suggests
that Rep. Ryan has made a "fake case" about poverty
programs. It seems that even smart people like Bill Gates
may have been deceived into thinking the
government must do a better job of helping low wage
workers. Gates even went so far as to suggest that the job
stifling payroll taxes should be replaced with a better tax
base (speaking at AEI on March 13, 2014).
Should we continue to fight poverty
in the same way; and with the same vigor, honesty and
efficiency Mr. Obama has used in health care? If the left
won't change course, the right will soon rule.
More spending can be achieved by the
government (through union infrastructure programs) or by
consumers (through lower taxes on workers). Which is better:
another trillion on roads or a replacement of the job
killing payroll taxes with a VAT to encourage full
employment and higher salaries? It is better for the
Democratic party to go with union programs, better for the
GOP to do nothing and better for workers to replace the
payroll taxes (with no change to Social Security).
The Value of Intellectual Property
Individual family wealth was about
$56 trillion in 2010 and is now over $83 trillion thanks to
the "Obama stock market" and the Fed fuel. Foreign
investments were not promising, so "US holdings abroad [saw]
no comparable boost." Prof. Krugman explores why "current
account deficits have been small compared with those of the
bubble years" given expected "borrowing ... from
Perhaps the government was borrowing
from corporate assets captured overseas. After all, two
trillion is a sizable sum. More to the point may be to
question Krugman's view of the "bubble years" and his
potential failure to see that the housing bubble has quickly
been replaced by the intellectual property bubble.
Google spent $12.5 billion for
Motorola to gain intellectual property and monopoly rights
in the wireless universe. Microsoft did the same thing with
its purchase of Nokia for $7.2 billion. Enforceable
intellectual property rights can prevent other companies
around the world from the creation of similar or derivative
works for decades. This is why President Obama is willing to
risk division within the Democratic party and push for the
GOP version of a new trade agreement.
Intellectual property will be either
the new bubble or the new wealth depending largely upon U.S.
political and economic domination. Political uncertainty is
why Krugman seems unsure as to whether the U.S.
international investment position is a sign of weakness or
... (reply omitted)
China is not dumb enough to agree to
U.S. intellectual property laws. China will suffer only when
the U.S. creates full employment by replacing the job
killing payroll taxes. Eliminating the tax on jobs and
giving workers more take-home pay will restore U.S.
The long range threat is the decline
of the consuming middle class. The top 10% will have to
settle for a slightly smaller percentage share of wealth in
a much larger economy. The elite in the U.S. have 75%
trending toward the global average of 87%. Wealth inequality
has translated into less wealth.
... (reply omitted)
Bill Gates thinks that the tax on
jobs harms job creation and salaries. So does economist
Casey Mulligan. See "How Payroll Tax Cuts Can Create Jobs",
NY Times, September 14, 2011.
A replacement of payroll taxes with a
4% VAT and/or other tax reforms does not require any change
in Social Security benefits.
Prof. Krugman is right about the
"intellectual property" focus of the trade agreement because
it increases the "rent" or premium that can be charged for
most U.S. exports. The trade agreement helps the owners of
global C corporations but does little for other U.S.
Importers rely on labor to resell
products and they are subject to the job killing payroll
taxes and the insurance burdens under Obamacare. Exporters
increasingly manufacture overseas and avoid U.S. tax and
Congress should be doing more to help
U.S. workers and the best thing would be to eliminate the
payroll taxes and impose a small 4% VAT. Every developed
country in the world is adding a VAT onto our exports and we
should return the favor while making U.S. jobs less
President Obama has been trusting big
business and the GOP a little too much.
Professor Rogoff concludes his
excellent article with, "the view that we have lived through
a debt supercycle, marked by a severe financial crisis (Lo
and Rogoff 2015), is far more constructive for policy
analysis than the view that the world is suffering from
long-term secular stagnation due to a chronic shortfall of
His arguments about why inflation has
been measured so low include the belief in the need for a,
"true economic real interest rate; that would require a
utility-based price index that is extremely difficult to
construct in a world of rapid change in both the kinds of
goods we consume and the way we consume them." As inequality
expands it may be fanciful to think that a single price
index, however weighted, could fairly reflect the different
purchases of the top 10% (with 75% of the wealth) and the
bottom half of the population (with just a 1% share of
Rogoff believes that in "the debate
over the size of government, there is far too little
discussion of how to make government a more effective
provider of services". Going one step further, we might
consider what services would be needed if full employment
were established through payroll tax replacement and
transitional jobs provided through charities. Rogoff's call
for "higher taxes on urban land" to combat "inequality in
wealth trends" ignores rent control as the source of market
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.