I am not posting this because I agree with it (I don’t). However, it is interesting to see how the centrist leftists think.
http://www.nytimes.com/2010/09/03/opinion/03reich.html?_r=1&ref=opinion
Robert Reich is an idiot. He is simply saying take property from people who earned it and give it to people who have not. In other words, tax the heck out of everyone above a certain level. Why not just cut to the chase and expropriate here, there and everywhere? After all, what Reich is advocating is just watered down Marxism.
So here is my fix:
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Implement a 10% sales tax on EVERYTHING. No exemptions, no deductions. Everyone pays in based on what they purchase in order to pay for the basic government services that we all need (roads, military, courts, etc.). Several credible economists say 10% is plenty.
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Eliminate the personal income tax. As tax rates rise, people are LESS incentivized to work because they see diminishing gains. The orthopedic surgeon who used to work 80 hour weeks will see that it is not worth it and he will cut back to 30 hours. Believe me, work reductions happen because I have seen it and I have done it. Also, consider this. You were paying roughly a third of your income in taxes. Now you keep all of your income but you pay 10% on what your purchase.
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Eliminate corporate tax. With a decent legal system, reasonably good infrastructure, able workers in most areas, the US would suddenly be very attractive as a location for many corporate headquarters from around the world. Instead of having companies move out because they are over taxed, companies would be moving in. Likewise with manufacturing.
Addressing the trade imbalance is a separate issue. Perhaps we would need a sales tax rate of 10% for US made goods and 15% for foreign made goods.
Little man, big taxes.
Gotta love his opening paragragh. Either you are in organized labor,or you are screwed. Pretty much you have a federal job or you are screwed.
Great growth during the Depression- ya those were the years. Things went well after WWII- How about we lay waste to the rest of the world and see how well we do then, duh.
Lots of things are wrong with the economy, low taxes aren’t one of them.
Higher taxes are that lepruchans rainbow to gold. Wait till cali pays his Berkley salary in IOUs.
This hurts the low income more that the high income because low income spend a much greater percentage of their income buying necessities. How about a flat tax or fair tax on income instead?
Eliminate the personal income tax. As tax rates rise, people are LESS incentivized to work because they see diminishing gains. The orthopedic surgeon who used to work 80 hour weeks will see that it is not worth it and he will cut back to 30 hours. Believe me, work reductions happen because I have seen it and I have done it. Also, consider this. You were paying roughly a third of your income in taxes. Now you keep all of your income but you pay 10% on what your purchase.
I agree with you on this one, but would rather see it replaced with a flat or fair tax on income instead of a sales tax.
Eliminate corporate tax. With a decent legal system, reasonably good infrastructure, able workers in most areas, the US would suddenly be very attractive as a location for many corporate headquarters from around the world. Instead of having companies move out because they are over taxed, companies would be moving in. Likewise with manufacturing.
Agreed.
I’ve done this myself. I spend a fair amount of time working 7 days a week, 12+ hours a day. That last day, a Sunday, is sure hard to get up for. You’re pretty much working for nothing. 6 12’s will get you within a hundred bucks or so of 7 12’s. On that schedule, a day off is worth a hell of a lot more than $100.
That reason gets run out all of the time. Make two exceptions, in the original law not amendments, no sales tax on foodstuffs and medicines. The other is that the first X KW of electricity and Y CF Natural Gas are tax free.
tax on certain foods can be exempt like it is now from sales tax. A consumption based tax is far preferable than an income tax. Consumption tax encourages savings and production while discouraging consumption.
So his plan for “recovery” is to tax those that work/produce/employ people 90%? What a fucking brilliant idea…:rolleyes: That’ll really show those evil rich people
All this will accomplish is completely destroy and semblance of private sector growth, and people will be jumping over mountains to divest from any American enterprise.
Another reason we need to vote out every single Democrat out of office. Every one. :mad:
Keynesian Economics is very popular with the left. Its basically a shitty economic model that justifies liberal thinking, and has never worked well.
There was a depression after WW1 a lot of people do not even know about. Taxes were lowered, and spending decreased. This led the nation out of that depression, and resulted in the roaring 20’s. The 20’s was a boom decade until 28/29. Keynesian Economics will tell you the GD was caused by the low tax rates, and people had more money to spend. The way Keynesian Economics works (in theory) is basically that government can spend money better than the people, and if the government controls most of the spending they can prevent boom and bust cycles.
You can make up your own mind about the Great Depression but do your own research, and come to some conclusions. The Great Depression was pretty bad but its not the end all be all of our history. MOST people went on living their lives, and did pretty well for themselves. Kinda like now. MOST people still have jobs but it does suck for the minority who don’t. People are still buying houses, cars, eating out, taking trips, ect.
What was different about the Great Depression is unlike the late teens depression Keynesian Economics were used by FDR during the GD. You’ll find a lot of lefties who look at FDR like some kind of God but he was a socialist through and through. Like Obama he thought if the government just controls things, and we spend tons of money it will bring us out of it. That didn’t work in the 30’s, and it’s not working now. Government cannot spend money enough or well enough to bring a country out of a Great Depression. Taxing people does not alleviate a depression. We got over the late teens depression pretty quickly because taxes were cut big time, and government spending went down by a huge amount. The people were able to keep more of their money, and spend it in the economy. The Great Depression was basically stretched out until the early 40’s. Think about that- from 1929 to say 1942. Even in 1941 the unemployment was still over 10%.
Lefties will also use the 50’s, and the high taxes (on paper anyways) to say taxing the rich it good for the rest of us. If you go back then there were not nearly as many taxes as there are now, those rates effected far less people than the top rate effects now, and there were a lot more deductions so no one was really paying that rate anyways. What has changed is middle class people are paying a lot more in taxes now than they did then. Do some research on sales taxes, state income taxes, property taxes, all the little nickle and dime taxes, ect. Most of those just flat out did not exist in the 50’s OR were at a much much lower rate than they are now. What was the SS tax back then? Medicare? What percentage of GDP was SS in the 50’s? Medicare didn’t kick in until the 60’s so no one back then had to pay that. In the 50’s sale taxes accounted for less than 1% of a persons income, and today its 4 times that. Not only do most people pay more direct taxes but we also pay much more in indirect taxes through the things we buy. Business costs are higher now. Liability, conforming with regulations, taxes, employee costs, ect. Wonder why so many now have to have dual incomes to make it when in years past a family could do well with just a single income? Now a dual income means the 2nd income earner is basically making up for the tax liability that didn’t previously exist. Go back 100 years, and see what the Federal budget was. Look at what the states budgets were. As a percentage of the economy they were much lower than they are now which basically means each persons tax liability was much lower. Even if a person had to pay 4% property tax their overall liability was much lower, and the things they bought had much less “hidden” taxes behind them. Even if you made less money less of it got eaten up with your tax liability. And again, that top tax rate applied to VERY FEW people, and was targeted at the “barons” like the Rockefeller types. It wasn’t even close to a ‘oh you make 300k a year so you owe us half you income’ type thing like we do today. If a person makes, say, 300k in California what percent on their income gets eaten up through direct and indirect taxation? In the 50’s it wouldn’t even be close to what it is now.
The problem isn’t with Keynesian economics, the problem is the abuse of his principles by the left which has discredited it but it can work IF one actually pays attention to his principles which no one has done since FDR.
Keynes explicitly gives three caveats.
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Government spending is ALWAYS supposed to be a short-term/temporary fix. It is not a model for long-term fiscal policy.
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While running deficits is a good idea in recession (hard cutting of spending will lead to a contraction, no economist denies this only whether the risks are worth the costs) government MUST pay down the debt in boom times. The Clinton Administration (Reich) FAILED to do this in the 1990s. There was some mitigation of the deficit but that was in spite of Clinton’s policies not because of them.
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Large structural deficits (exactly what we have now with non-discretionary spending) were to be avoided AT ALL COSTS.
Keynes said of Fredreich Hayek’s [i][u]Road to Serfdom[/u][/i] (the dour Austrian) “In my opinion it is a grand book…Morally and philosophically I find myself in agreement with virtually the whole of it: and not only in agreement with it, but in deeply moved agreement.”
Simply put we have gone beyond where Keynesian economics will work and he would be as horrified as anyone else.
You need a sales tax. An income tax has many other disadvantages.
With a sales tax you really see it every time you need to buy something. So you can see your money pissing away and be aware of it. Everyone, including the poor. So they put pressure on their representatives to not spend money which needs to be covered by taxes.
Another advantage of a sales tax is that since the states (most of them) already have a sales tax, you can pay the states to run it for you and basically get rid of 99% of the IRS.
In terms of greater impact on the poor. You can structure it similar to what Massachusetts does with their sales tax. Don’t tax food items (basic food items) and clothing (basic clothing). I think that in Mass, but am not sure, the lack of tax only applies to normal food and clothes, not so-called luxuries like caviar and fur coats. This was how it was explained to me when I lived there but I did not research it so I may be wrong.
Since the poor spend most of their money on food and clothing, their tax impact will be less than the middle and upper class, but they will still have to pay tax on their non subsistence items, which they should – they use gov services as well and need to have skin in the game.
You don’t need a huge system of exemptions, and credits, etc.
Is this one of those assumptions that everyone believes but has never been tested?
In a recession, the govt LOWERS spending and also LOWER taxes that made up the spending. Taking less money out of the economy by the govt is always a better thing in terms of economic activity. Witness early 1920s recession.
Oh, I forgot, we want to run a deficit because we already spend so much that we run deficits anyway so there is no taxes to lower in a recession if we were to lower spending.
I think this mindset comes from the fact that spending and taxes are already disconnected, not from any virtue of spending by the govt in the first place.
The problem is that the govt already spends so much without regard to income that they would stop spending but not put money back into the economy by lower taxes.
Keynesian Economics or at least principles of it are what was used in the GD and now by Bush and Obama. That government intervention and management of the economy is better than letting the market take fix itself.
This has never been shown to work well. Government managed economies and markets never work as well as free markets.
There are some good points in Keynesian Economics but it is used a model by leftists to push their agenda. Its not exactly free market friendly.
No, there have been ample tests…see Hoover.
In a recession, the govt LOWERS spending and also LOWER taxes that made up the spending. Taking less money out of the economy by the govt is always a better thing in terms of economic activity. Witness early 1920s recession.
Based on what? The early 1920s “recession” was a normal function of the business cycle. There is no comparison to the Great Depression or the current one. Like I said the Keynesian model is really only appropriate in extreme cases it is NOT to be used as a persistent fiscal policy. Moreover the “Great Depression” wasn’t a single event, it was a bunch of smaller events what made it “great” was the persistent unemployment.
Oh, I forgot, we want to run a deficit because we already spend so much that we run deficits anyway so there is no taxes to lower in a recession if we were to lower spending.
You’ve missed the point. Debt in and of itself isn’t a bad thing, it’s structural debt that’s bad. See Alexander Hamilton. Did you buy your home/car with cash? or did you borrow?
I think this mindset comes from the fact that spending and taxes are already disconnected, not from any virtue of spending by the govt in the first place.
The problem is that the govt already spends so much without regard to income that they would stop spending but not put money back into the economy by lower taxes.
Exactly what I said, Keynesian economics won’t work now because of the abuse of his principles not because he was wrong. Government can spur SHORT-term demand which is what Keynes said, Reich/Obama et al believe that Keynes works in the long-term which even he disputed.
You have to cut deficits now because the pump has been overprimed by the abuse of Keynes and so there is no other option but you’re deluding yourself if you think there won’t be a cost in terms of an economic contraction.
There is a huge gulf between Keynes and so-called Keynesians.
Pretty much. Our countries economic model has been “spend spend spend” no matter how much we actually take in.
Clinton was dragged by republicans into not running up huge deficits, and then took credit for it. Remember he wanted unniversal health care which would have cost a ton of money. When was the last time we had a president that did not increase the debt from when they took office to when they left?
Boom times has nothing to do with it when no matter what shape the economy is in we are piling onto our debt. At some point you spend all the money in the world and/or print so much of it that value of that money is literally worth less than what its printed on. Continually spending more than you take in or have eventually has to come to an end. Its a matter of simple math and thinking.
Also borrowing to stimulate the economy or going into debt because of it doesn’t really do anything, and is worse in the long run. You are basically robbing from the future to pay for today, and with interest. Inflation helps some but its hard to beat compounding interest on hundreds of billions of dollars that you are not actively paying down. The Stimulus for instance…at some point we have to pay that back so, again, at some point we are going to take over a trillion dollars out of the future economy to pay for today. What you gain now will be lost in the future, and government spending isn’t all that efficient anyways. Its like trying to paint a bus by standing on a ladder and dumping a gallon of paint out on the roof.
Which is a violation of Keynesian principles.
When was the last time we had a president that did not increase the debt from when they took office to when they left?
Uhm, President doesn’t control spending. That said Reagan signed budgets that led to a huge increase in debt but no one denies that it helped. He pushed to cut taxes during the recession (which raised deficits but was stimulative) but did NOT reduce deficit spending when the economy started to grow…hence the debt grew.
Boom times has nothing to do with it when no matter what shape the economy is in we are piling onto our debt. At some point you spend all the money in the world and/or print so much of it that value of that money is literally worth less than what its printed on. Continually spending more than you take in or have eventually has to come to an end. Its a matter of simple math and thinking.
Monetizing debt isn’t the same as paying it off.
Also borrowing to stimulate the economy or going into debt because of it doesn’t really do anything, and is worse in the long run.
Flatly incorrect. Individuals, businesses and governments borrow all the time to stimulate growth. It’s in how it gets spent that determines stimulus. If what you said were true than there would be no need for banks. Again see Alexander Hamilton. Our economy was founded on the principle of “good debt” the problem we have now is “bad debt.”
You are basically robbing from the future to pay for today, and with interest.
Do you have a mortgage? Did you pay cash for your car? Does buying a house free up money you’d otherwise burn in paying rent? Does your car help you get to and from work? Are those costs/debt/interest worth it in the long run? There is a difference between a mortgage and a credit card.
Reich is flatly wrong but that doesn’t mean Keynes was all wrong.
So, did Hoover cut spending AND taxes to go along with it?
Based on what? The early 1920s “recession” was a normal function of the business cycle. There is no comparison to the Great Depression or the current one. Like I said the Keynesian model is really only appropriate in extreme cases it is NOT to be used as a persistent fiscal policy. Moreover the “Great Depression” wasn’t a single event, it was a bunch of smaller events what made it “great” was the persistent unemployment.
I wasn’t arguing about your points on Keynes and his caveats, only the deficit spending part that cutting spending in a recession is bad.
You’ve missed the point. Debt in and of itself isn’t a bad thing, it’s structural debt that’s bad. See Alexander Hamilton. Did you buy your home/car with cash? or did you borrow?
I disagree that debt in and off itself is not a bad thing. While some very specific cases, like a house, are not normally something you can pay cash for, a car should be. So very narrow cases like a house could be financed, within ones means.
I do not claim to have lived by this and will admit to abusing the debt part, which I am trying to rectify, but am adopting such a mindset for the future. Btw, we rent and would like to buy a house but have not been in a position to do so.
Debt for day to day operations and short term non capital uses is dumb in my book, even in a non structural sense (as defined by Wikipedia as debt that is incurred in low points in a business cycle and counter acted by the high points).
I guess in my book there is nothing the govt should be paying for which would cause a structural deficit. Proper savings and rainy day funds (like states do, or are supposed to do) along with only spending money that the govt is constitutionally supposed to be spending would negate the need to run any sort of deficit.
Exactly what I said, Keynesian economics won’t work now because of the abuse of his principles not because he was wrong. Government can spur SHORT-term demand which is what Keynes said, Reich/Obama et al believe that Keynes works in the long-term which even he disputed.
You have to cut deficits now because the pump has been overprimed by the abuse of Keynes and so there is no other option but you’re deluding yourself if you think there won’t be a cost in terms of an economic contraction.
There is a huge gulf between Keynes and so-called Keynesians.
Gutshot John is spot on with his assessment of JMK. I was startled when I learned that he generally agreed with the Austrians. At some point though it’s like Greenspan writing a paper titled “Gold and Economic Freedom.”
The part that everybody forgets is that even if you agree with Keynes, we should have stopped this crap many years and hundreds of billions of dollars ago.
That’s one of the biggest issues I have with Keynes, if we were a creditor nation and full of production and savings…then in the very short term it would probably work(although I still wouldn’t agree with it because it either requires theft through taxation or theft through inflation.) But just like Social Security was supposed to last only a few years, people get addicted to the false security and artificial growth and the policies never disappear.
The president doesn’t directly control spending but they work with Congress, and eventually sign the budget into law (unless a veto is out voted by Congress).
I never said some borrowing is bad but it can quickly become bad. You should really only borrow if it offers a long term economic advantage to you. If it hurts you in the long run then, no, its a bad thing.
Consumer borrowing is not quite the same thing as government spending. Government cannot spend money effectively the way a free market can. The Stimulus, over a trillion with interest, would have been a lot effectively spent if that was turned into a tax cut than actual government controlled spending. Look at what they have spent money on, and they still have around 400 billion of it to spend. If they’d used it as a tax cut instead that money would have been much more effectively spent in the market, and been much quicker.
Now we have 13.5 trillion that has to be taken out of the future economy to pay back even if we never ran a deficit again, and that figure would actually rise because of the interest. Borrowing works only if its going to create a pay out for you in the future. Like borrowing to start a business. It doesnt work if you borrow that money, and then don’t pay it back letting the interest grow on it. Then if you want to borrow again in the future to stay start a 2nd business you arent going to be able to borrow because you never paid the 1st loan back. Government borrowing doesn’t exactly have the same return as consumer borrowing. They spend that money, and never get it back. They arent borrowing to eventually get a 10X gain on their initial loan.
While I don’t like Alexander Hamilton whatsoever, you’re correct about two kinds of debt. A HUGE part of America’s problem is that we’ve been borrowing money to consume, as opposed to making capital investments.
If you don’t have money to build a factory, but have a product worth selling and a workforce to man the factory, then assuming debt to get it up and running is fine. We’ve seen little of that in the past thirty or forty years though.