Archive for January, 2008

For the McCain supporters in the crowd, is it at all concerning that, after tonight’s debate, you have been forced into a position of hoping that deception is more persuasive than truth? Even a little? Particularly since, you know, McCain is supposed to be overflowing with integrity and “straight talk”? No?

Update: For those who didn’t see the debate, the deception I refer to is on display here.

The stimulus package isn’t going to do any damn good. The stimulus package is not that complex, but for details see this site. Essentially, people are getting a one time tax “refund” which is nothing more than a loan that will be taxed by the government. And before Tom says “any money returned by the federal government to the people isn’t a loan because it wasn’t theirs to begin with,” yes, I know, but let’s assume some of the money being returned is actually the “government’s money” especially since some of the people getting “refunds” didn’t pay taxes in the first place.

The federal income tax only seeks to tax personal consumption and personal savings (which neatly excluded all funds used to make money). It is the government’s hope that John Q. Public will take the funds and spend it on items, which will increase GDP growth. This is not the case. In general, people take one-time payouts of the size we are talking about and throw it into savings or to pay down debt, which will not influence GDP growth. Even if this one time people go against the historical trends and do spend, it’s a one-time event, and essentially just postponing recession. Something bigger, more long-term, and hopefully more cost-cutting, needs to be done.

Most of these are not my ideas, outside of some extrapolations and minor refinements. A lot of them wouldn’t be popular, but I think they are relatively rational.

1) Abolish the corporate tax. Here is where I am going to lose the majority of you. I want to abolish the corporation tax primarily because it does not really tax corporations.

What do I mean? First of all the vast majority of business organizations (partnerships, sole proprietorships, even S-Corps and LLCs) are not taxed. They are “flow through” entities, meaning that the profits and losses obtained by the corporate level are taxed on a pro rata share on the owners’ returns. In C-Corps (which you pretty much have to be to trade in a stock market), the income suffers from the infamous “double tax” as profits are taxed at the corporate level and again when issued out as dividends. Some could argue that the double tax is in exchange for the protection for the C-Corp shareholders have from lawsuits, but other business foundations have the same protections from liability (LLC) and do not have the corresponding tax burden. There is no need to tax them twice.

But even if the above were not the case, it is inefficient to tax corporations because the entire “burden” is shifted to other non-corporate parties, namely consumers. If all corporations are taxed at comparable rates, and assuming that these C-Corps are competing with each other, the firms can raise all of their prices to cover the tax burden without being concerned about losing sales based on the higher price. After all their competitors, also C-Corps, would be doing the same thing. In short, the corporate tax is actually a hidden regressive consumption tax that individuals do not know they are paying.

Further, the way the tax system is set up it encourages corporations to move their manufacturing facilities overseas. The system only taxes the percentage of the profits generated in the US. By shifting their manufacturing base out of country, only the profits attributed to the act of selling, advertising, and possibly product development are taxed. The majority, those profits attributed to manufacture, is not. This hurts employment rates and ultimately wages.

By taking away the corporate tax we can lower the cost of doing business and manufacture, which would in turn lower aggregate prices, further limit inflation, and increase aggregate wages.

2) Raise individual income tax rates. This is where I would lose the majority of conservatives, but it is a direct corollary to the above. By rescinding the corporate tax, while it would eliminate an unfair regressive consumption tax, it would cause the government to lose out on income. To ensure that a prohibitively large amount of income will not be lost, individuals tax rates would have to be raised. By combining the two steps intelligently we can ensure several things. First, people can know what they are actually being taxed as opposed to hidden governmental levies. Second, there would be a consistent progressive tax policy as opposed to a mix of assorted philosophies. Finally, if balanced correctly, the effective tax burden will decrease. A higher tax rate at the end of the day can still be less of a burden to the taxpayer, so long as their other aggregate expenses decrease, which should happen with the abolishment of the corporate tax.

Any of the above must obviously be coupled with a significant curtailment of federal spending, revisions of intellectual property law, revising Social Security by both increasing the tax burden to some degree and raising the age of receipt, revision of the nonprofit categorization, and several other issues. I don’t want to go into them right now because then the post would be pages long, and I don’t want to bore anyone.

This should be enough to pretty much get me yelled at by everyone. I look forward to the upcoming intellectual disembowelment.

I have stayed out of trying to predict who the Democratic ticket will be because I am not a democrat and do not think I would be able to predict what the democrats want.

However, I have been reading about how Florida and Michigan, due to some primary tomfoolery on their part, have been somehow denied delegates, and how the primary results in those states don’t matter. As part of the Democratic Parties punishment, Obama and Edwards pulled out of Michigan entirely and did not campaign in Florida at all. However, Clinton, going against the party’s wishes, did campaign, at least to a higher degree, than her opponents and won both states.

Now, if this primary somehow goes to the convention without a decision, Florida and Michigan’s “delegates” become very important. Are they counted? And if they are, is that really fair as Obama was complied with the party’s rules and could not win, while Clinton would be rewarded, essentially, for breaking the rules? Evidently there are a lot of people with liberal leanings on this blog. How should Michigan and Florida be treated in a close primary race?

So was that speech boring or what?

Sebelius was pretty decent, I thought. The response speeches always seem a little creepy to me, but she did well, considering. It seemed pretty much like a campaign speech for Obama, serving as a prelude to the actual campaign speech she’ll be giving for Obama tomorrow when she endorses him.

What’d everybody else think?

There are several grounds for attacking the stimulus package being brokered between Congress and the Administration. This post proposes one method to counteract one of the most often asserted flaws of the stimulus plan: the trend that a high percentage of Americans will not spend their stimulus check (and therefore not directly stimulate the economy), but will instead pay down debt or save the $600 dollars they are getting back from Uncle Sam.

Instead of cutting a check to “the people,” the Treasury Department should issue $600 dollar spending cards that can be used anywhere a credit card is accepted. However, the card could not be used through sites like paypal, and could not be directly deposited into a bank account, but the card could be used in any retail store just like a credit card, and for the retailers it would be treated functionally like a credit card but substantively like a money order from Treasury. The tab on the account could accumulate interest which would go back into the account tied to the card until the amount is used up. A photo id could be tied to the account to make sure folks don’t buy or steal other Treasury cards.

I recognize that industrious holders of the cards will find a way to save the money or pay down debt if they really want to, maybe by simply purchasing something, and having it refunded, or selling whatever they purchase online. The point is most folks wouldn’t hassle with going to these lengths, and they would just spend it.

I also recognize that some people would just save or pay down debt with $600 from their paycheck and spend the $600 Treasury card, and there would be no net spending, just a shell game. Even though this will surely happen in some percentage of cases, both the total percentage of people spending money and the average amount spent/refundee will be higher. This is the underlying policy goal of the stimulus package.

Here are some of the problems with this proposal, in no particular order:

1) a philosophical/political problem – opponents will complain that the government is trying to tell people how to spend their money
2) a political problem – proponents of this plan would be accused of catering to the interests of credit card companies or the predatory lending industry
3) administrative costs of implementing the program – I’m pulling this analysis out of my ass, but it’s hard to imagine the federal government could implement this switch for under $10 million
4) timing – implementing this approach would also insert additional delay into the process, which is already one of the most significant criticisms of the stimulus bill. How long would likely be at least in part a factor of #3, but the additional delay could introduce costs that aren’t yet predictable.

Given the significant percentage of Americans who would be more likely to spend the check, the only one of these factors that I think would make this a net loss could be #4. I’m interested in hearing your comments.