Taking on Entitlements
Taking on entitlements has become the rallying cry of the supposed revival of conservatism in America. I applaud and support any ideas which lean towards a return to fiscal responsibility. I am just no longer sure that this is even possible. We've become so attached to our rattles and pacifiers, that I wonder if we'll be able to let go.
As time goes by I can't help but to be reminded of the old adage that those in power do not stay there because of good deeds. They actually stay in power because they reuse, reduce and recycle tired old ploys and plugs like so many plastic bags and bottles.As much as I would like to think that the new wave of Conservatives in Washington can back their own slogans with actions...I am starting to think it will not ever happen.
Can America become a lean, mean capitalist machine again? Can Wall Street go back to being a stimulant for the economy rather than Washington's ditzy heiress shopaholic housewife? Can the following ideas... ever be taken seriously.
First term GOP Rep. Allen West suggest three drastic changes. Many of us have hinted around some of these possibilities in our own daily commentary. But are they actually feasible? I'd like to hear your thoughts...here they are:
Three Drastic Changes
1) Abolish The IRS and federal income tax
Rather than drone on about why I always have and always will support the idea...I'll just say that yes it can and yes it should be done. It's more of a challenge to my mind to figure out why it shouldn't be...
2)Retain Tax Cuts for Billionaires
Ooooh...here it gets interesting. Allen's suggestion is backed by the notion that "billionaires will shut down their charities" if their taxes are raised. Hmmm...how big of a factor in economic growth and stability are charities? I'm not being facetious, I just don't know. This is actually a point I debate myself on often. I can certainly see both sides of the coin and though some may call me a traitor for it...I am starting to see the case for taxing billionaires harder, with each passing day.
3) Stop Extending Unemployment Benefits
...to reward bad behavior.
Now here is one that's really tricky. It makes perfect sense on its face. But how do you actually get the measure to pass? First off, what is our collective stance on unemployment? Equally important, how effected are the unemployment numbers by expiring 99 week unemployment terms?
Is unemployment becoming a perpetual state of existence for some Americans? What exactly do you do with people overqualified for positions which are quickly disappearing?
My Conclusion and Confusion
Though I shit on the system with infinite glee, thinking about some of these questions has me feeling like a hamster on a wheel. They seem simple enough to answer, but when I begin to think about them I get back to the same doubts I have had since late 2007. They all focus around the same idea and the same discouraging question...
Do you have to destroy in order to rebuild?
Can structural improvements be made while the old hut is still standing?
Are the preceding suggestions actually feasible or is it more preaching from a disingenuous pulpit.
1) I agree that the IRS should be abolished. Doing so would save 10-15 billion per year, and there are more effective ways to collect taxes than an income tax. In particular, a ~15% flat sales tax on ALL goods (plus additional pigovian taxes) purchased domestically and imported would be far more effective. No need to file taxes, plus you hit the substantial black market earners (drug dealers, prostitutes, etc) when they spend the money they earned. The flip side is that you don't hit income spent on black market products.
2) Entitlements should definitely be reformed. You hit the nail on the head when you talked about encouraging bad behavior! Consider two options: 1) pay 8k/yr to all unemployed adults (unemployment insurance) or 2) pay 8k per year to all adults (lump sum payment). Now lets say the unemployed person can only get a crappy job paying 15k at McDonalds. In 1) the tradeoff is 8k to not work vs 15k to work (not even taking into account that commuting and other costs will eat away this difference). In 2) the tradeoff is 8k to not work vs 23k to work. Clearly, 2) is a much better entitlement since it provides stronger incentives to actually go and get a job rather than mooching of the system.
So in short, I think we should replace income tax with a flat sales tax to lower marginal rates and hit the black market, and replace current entitlements with incentive neutral lump sum payments to all citizens.
Its an interesting idea to institute a simple flat sales tax in order to more equitably distribute the tax burden and include those who would otherwise not be taxed at all. The issue then arises that there would be a disincentive to consume. Since about 70% of our economy is based upon consumption, (remember Y=C+I+G+NX)that sounds like a quick road to recession/depression. The only way that a sales tax would be viable is if Investment were to increase enough to offset the loss in Consumption. (This doesn't take into account imports, that I assume would be exempt from an American sales tax) I dont see this as all that likely due to the fact that there would be no need to expand plants/factories if consumption was flat to down.
Americans consume too much already. You also forget that is the GDP equation, where the key letter is D; most of our consumption is of Chinese shit we shouldn't be buying anyway. I don't know why imports would be exempt from a sales tax - in my opinion, the Chinese are guilty of unfair trade practices, and we should slap import duties on everything coming from that country until it explodes. Nothing wrong with hurrying along the inevitable revolution; it's either that, or we send in the marines in 15 years when they get too uppity for their own good.
I'm 100% for a fair/flat tax hybrid system while abolishing the IRS.
Preach on MMM!!!!
If you abolish income tax, what do you fund the Federal government with? I'd love lower taxes, we all would, but you can't just say you want to do that without identifying specifically how you would fund it, and in good conscience call yourself a fiscal conservative. There are two sides to a balance sheet.
Billionaires WILL NOT stop donating money if tax cuts are eliminated. I can say that unequivocally, and I am an expert in the matter (one of my parents runs a number of billionaires' foundations, has helped set up some major charities, and consults to several more). Most of them genuinely feel they should give away the money, and enjoy doing so. It is not at all about taxes. The majority of billionaires I know give away their money anonymously, unlike that schmuck Buffett, and their decision would not be affected by a change in the tax code. However, it is affected by economic unrest; when hedge funds got hammered, a number of programs had to be shut down because some very wealthy fund managers didn't have the liquidity to keep paying for them.
Unemployment benefits make sense in the short term, because they allow people to conduct an actual job search rather than settling for the first available position, which would result in significant skill mismatch. After 99 weeks, though, they are just another form of welfare, and I agree they should not be extended.
See Drex, I still haven't been convinced of any need for a Federal government. Outside of: 1) border security (which they ignore) 2) defense (which should not be propagated under their current modus operandi of "a good defense is a strong offense) 3) settling disputes between states (can't recall a serious one in quite a while) I am still struggling a need for one at all.
Though I don't like to generalize, I think your point's valid. Also, I am not sure that billionaire donations are at all a necessity as much as carrot for the donkey sort of appeal. +1 for shitting on Buffett. TARPass welfare dinosaur.
Impossible to ever truly valuate optimum number of weeks. Also, not sold on notion that unemployment benefits are stimulants to the job search. In an odd way, this whole drama about whether we are supporting sloth vs. stimulating job searching makes me think that PROPERLY RUN unions could make this whole problem disappear. In my general opinion, however, there's nothing wrong with people working a lower paying, lower skilled job for a while. No better motivation for a white collar worker than a weed whacker or telemarketers booth. Though I applaud people on the grind, can't help to feel that many more are taking advantage of a free check. Definitely not an easy subject to address, when taking a look beneath the hood.
I agree in principle, but you still have to fund those three things somehow. I'd also add that a Federal judiciary makes sense, though you can put that under point 3. Having a consistent set of rules for doing business is at the core of a functioning economic system (although you might be able to argue Delaware is a pretty good substitute for this).
TXJustin seems to be saying that a flat tax would be the logical substitute, although that wasn't explicitly spelled out in the proposal. The issue is that that just transfers the burden of taxation to lower income classes. The UK has 20% VAT, yet they seem to somehow manage to find ways to spend that on top of the 50% they collect in income tax (not to mention council taxes, television licenses, and congestion charges).
Billionaires' donations are not necessary, but I'd say they do a lot of good; whereas getting the Federal government to act on something can take months and result in endless bureaucracy, a charity can simply write a check and get to work immediately, without worrying about regulations and politics.
Agree and disagree. I certainly wasn't saying it should take 99 weeks to find a job; that is absurd. My point with unemployment would be that it is not actually a government program; it is actually a form of insurance, which is why it is called unemployment insurance. You pay in to it while you work, and you receive money when you're unemployed. When that insurance ran out, the Federal government should not have stuck their hand in to things.
I think it'd be very interesting to see a detailed proposal for privatizing unemployment insurance. The government doesn't insure my house (except if there's a hurricane, which is a bunch of bullshit); why should they insure my job?
Are we trivalizing the need for these three items a tad, particularly the first two? Also, are we going to be throwing the entire federal government out, as in no need for a supreme court? Are we going to maintain a relatively unified set of laws or is going to soley be up to state legislatros? Also, who is going to print our money, or should we just have 50 different currencies, that sounds grand doesn't it! Who will maintain federally funded organizations like the FBI, CIA, NASA or should we just get rid of them too? We have the best interestate system in the world, that's pretty cool, think that would exist without the federal goverment?
What do you mean? You would fund it with the fair/flat tax.
Abolish the income tax and institute a progressive sales tax.
We shouldn't tax income generation, we should tax frivolous spending.
This would go a long way to solving our national (both public AND private) debt, by encouraging income generation while at the same time discouraging spending on frivolous shit.
For example, buying a used car, no tax, buying a new cheap car, some tax, buying a Ferrari, a ton of tax. We want to encourage rich people to reinvest, and we should never punish wealth creation. We also need to end this addiction to living beyond our means...
There already is a luxury tax on expensive cars. The issue with something like this is the motor lobby; considering they got the government to pay people to get rid of cars, I'd be pretty amazed if we could get away with subsidising used cars, as great an idea as I think that is.
I know there's a luxury tax on many goods. But with no income tax, they would be greater...
The car thing is just an example. Obviously, every industry involved in selling high priced items targeting a wealthier demographic would lobby very hard against such tax reform.
I'm just saying what we SHOULD have. Like the OP, I don't see anything truly useful passing. i think we'll have our ass handed to us by the international bond markets and only then will we reform anything (and my guess, we'll reform things rather poorly because we'll be scrambling to do it and doing it against our will...and seeing mass protests like there have been in Greece and every other country that's gone through this shit).
This. But every fucking tv show, commercial, etc. promote having the newest/lastest/best shit out there. If you are lower class and don't have a college education you shouldn't own a McMansion/new car/etc. That's just how it is...
Wouldn't the idea of settling for a lower paying job or skill mismatched job discourage near retirement aged people to stay in the job market and cause an influx of social security and medicare users, thus further burdening the systems?
Playing devil's advocate here;
If it weren't for frivilous spending there wouldn't be a Wallstreet. Spending is the lifeblood of any economy and a sales-only tax would result in increased savings -> decreased purchasing -> decreased business/tax revenue -> rich able to leverage the poor into slavery.
Our gov't is responsible for a great redistribution of wealth, but not to the point of deterring one from strving for wealth. If you completely eliminate this redistribution of wealth, bottomfeeders will still be bottomfeeders and instead of a stipend keeping them satisfied with a lifestyle we'd rather die than endure, they will resort to crime and violence.
Just some thoughts,
When you invest in a business, don't they spend the money? Investments in increasing productive capacity are what drives economic growth. The fact that mainstream economists believe in this bullshit voodoo that "consumption is what drives economic growth" is part of the reason we are in this mess. What is China's savings rate? How fast is their economy growing? Case closed.
Poor people do not resort to violence when stipends are cut off if there are jobs available, plus I'm not saying we totally cut off all social welfare programs (though I think we should cut the spending on them). Besides, we could subsidize basic food staples under such a system. No one is going to starve to death. I'm sick of news of welfare recipients buying all this frivolous shit like too many clothes, etc. and then complaining that food prices are too high and they want more in food stamps.
Far too simplistic (and idiotic) view of capital investment. Point of capital investment is to either: (a) growth / expand business or (b) reduce costs in existing business, with a much higher % of capital being allocated towards (a).
Capital investment in growth depends on increased consumption to create returns on that investment, or else that capital is wasted. Unless you're the kind of person who believes paying people to dig a ditch and then fill it up again counts as a smart investment.
Their savings rate is a result of their economic growth, and not a cause. The cause is our consumption rate.
If there's an excessive luxury tax, I'll just go to Paris, Milan, or Tokyo to shop. And then get their non-excessive tax back at the customs. So instead of making $825 from 2 jackets and a pair of shoes, US makes $100 on my flight ticket, and forces Neiman Marcus out of business. Sad :(
This is not a big issue and could be fixable. I'm just throwing out the concept. Enforcement would not be inherently more difficult than enforcing the income tax.
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That's the biggest benefit. Freeing up human capital to actually do something productive rather than having a huge useless industry built around collecting and avoiding taxes (IRS, H&R Block, etc)
Great stuff Midas. Enjoy a delicious banana, my treat.
As long as you have a Federal Reserve Fiat Note, you need to have an income tax (and a tax on gold, and an IRS, and a Federal Government to crack down on any alternative currencies - hence the risk in BitCoin. Midas, as much as I admire dreaming of a day with a small Federal government, that day is long, long passed.
The most interesting dichotomy of our generation is the increasing consolidation of power in the hands of an elite government (Check out this WSJ article) while at the same time power is decentralized and dispersed throughout the internet. We can't fight the first, so we might as well stake our freedom online.
VAT is an extremely effective tax that could be a solution to government budgetary issues. However, there 2 problems: 1) It is regressive, and how do you choose which goods are taxed at higher rates if you try to make it more progressive? Way too much gray area imo. 2) It is such an efficient tax that politicians may raise VAT rates to cover up other inefficiencies.
Higher taxes does affect billionaires' charitable donations. Whenever this comes up, I point people to the case in Europe. They simply don't donate like Americans do because they get their assholes torn apart to support a welfare state.
Read the books "The FairTax Book" and "FairTax: The Truth: Answering the Critics". They are great books. While I was skeptical at first after reading the first book, when I talked to Neil Boortz and asked Ron Paul a question at CPAC in 2009, their answers were great. Boortz was really upfront with he things I specified and gave me a copy of his second book. Reading it definitely answered many of the questions that I had from the first bok. And Ron Paul essentially told me, and the others at his speech, that he would support the FairTax as long as it became impossible to institute an income tax alongside. All for it.
Why tax billionaires more? 10% of 1,000,000,000 is far more than 10% of 100,000 they are taxed far more even under a flat tax system. It seems stupid that we are going to disproportionately punish the top earners who contribute more to society (in terms of economic wealth). Charity donations WILL decrease if the rich are taxed more, but it is ludicrous to believe that they will end. Less $ = Less donations that's obvious. But the PR and other associated benefits with charity (along with just feeling good about what you're doing with your money) will mean that charitable foundations will never end completely.
3.Unemployment benefits are simply stupid after a point. Yes, its ridiculous to just throw someone out of a job and then cut off their income, health insurance, etc. But it is equally ludicrous to have unemployment benefits lasting two years +. It's honestly not hard to find a job, its simply that people believe that the job is beneath them or they apply to jobs that they are not qualified for. The paradox of employment at its finest. If you post a job for $8.50 an hour you will only receive applicants that believe their worth is less than $8.50/hr.
Welfare will be hard to reduce simply because their is such an engrained entitlement culture in America right now. I think that since it took time to build up (FDR-Carter maybe?) it will take equally as long to break down. Just as the socialists are trying to build it up over time (and are succeeding as of now) Republicans and moderate Democrats need to make an effort to do the opposite. I'm not proposing a return to fend for yourselves type government, but at least a welfare system that is a tiny, tiny fraction of what it is today.
FairTax + less welfare + social reforms (like less hate crime laws- hate those things, legalization of marijuana, libertarian-esque reforms) + less interventionist foreign policy = a great system in my view
MMBinNYC, I echo everything you just said. Great post!
Its simple, you get rid of income taxes but you tax sales at different rates according to income. It basicly keeps all groups happy.
For example if you make 20k or less a year your sales tax rate is like 8% and if you make more than 250k your sales tax rate is like 20% or so. There would be a progressive increase for different income groups in between those levels. Then to keep the IRS jobs and shit the corporate tax rate would be 11.5% will allowable deductions for costs of busienss. The only problem would be trying to determine who makes what and who pays what rate. Im sure it could be easily be solved by technology.
One last thing before some of you jump down my throat and say that I hate the poor and I am evil for wanting them to pay taxes, 8% is close to the national average for sales tax all ready.
This is my point...
Is the government going to issue income ID cards now? So every time you make a purchase you show your Visa and income i.d?
I am sure there would be a nice under the table market for 10k/year income cards...
."So you'll take that Patek Phillipe sir and you will pay with...of course the AMEX Black Card, if I can just see your income card...
O...another 10k/year income earner.... thank you for shopping at Selfridges"
I totally agree with you on the problems, I was more giving a simple idea about how to approach it. I will be the first to admit that it has problems and obstacles that would have to be overcome, but it takes ideas to get solutions. Its like the old saying, "the definition of insanity is doing the same thing over and over and expecting different results." That is exactly what politicans have been doing for the last 40 50 years, the same old shit and expecting different results. Everyone loves to villianize the rich for taking advantage of every loophole and tax break they can, yet the same people who call them out on it take advantage of every social welfare program they can. Its the pot calling the kettle black.
All valid points have been made throughout the post... end result.. execution. is key.
To all these problems we can all come up with academic answers and theories that would yield ideal solutions, but the problem is, they are theories. Public policy is a very tough job, there are a lot of socio-economic factors that need to be taken into consideration when implementing these new policies ie. Human behaviour on spending habits to name a easy one.
Long story short, this is a problem that will/can be solved not in the next couple of years but on a mid-long term time horizon of 4-6, that will require a lot of tweeking during the process to ensure that these new rules and regulations are implemented accuratly and effectively.
At least that's what I think.
*side note BUTLER WTF worst NCAA final EVER!
And on that bomb shell....
I am out
Last thing I would want even now, nevermind when I make over 500k a year, is to advertise my income bracket to some sales clerk, whose buddies are just waiting in the parking lot for a tip on whom to follow home.
I should try this! Thanks for the post...
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