Best Tax Reform Plan of All Time

Disclaimer – I got this entire idea from the Grumpy Economist.  I heard him give a talk and he had the most sensible idea I’ve ever heard.

The idea is how to reform taxes.  At this point, the income tax is a living nightmare, unimaginably complex, full of loopholes, giveaways, and self-contradiction. It requires that some of our best and brightest spend their lives as tax preparers, and corporations spend billions on evading taxes.  This is all time, money, and brainpower that could be spent on making the world a better place.

So his idea is – eliminate it completely. There’s no way to keep this monster tamed, even if there was a “reform” (which is very unlikely) in a couple years the lobbyists would have it back to where it was.

Replace the income tax with a sales tax – a flat 10% or 20% on everything, no exceptions. Simple and neat. Your tax form is “how much did you sell? Multiply by 0.15 and remit.”

If we did this, we could eliminate the IRS. We could eliminate all the tax-planning departments of every corporation in the world. We could free up all the tax-preparers.  All that money and brainpower could go to curing cancer, writing better iPhone apps, or perfecting self-driving cars. Every taxpayer would get hundreds of dollars and hundreds of hours back.  Startups could run leaner. All the loopholes created by nasty, greedy lobbyists, gone, poof, never to return.

One big objection might be “OMG, a flat sales tax is regressive!” Yes, that’s true.  But the GE has another good point: we have over 100 federal programs, not to mention state, local, charity, and church programs, to help the poor and “even the playing field.” You don’t need to use the tax code as well, it just muddles two things together. Taxes are for getting money for the government, end of story. If you want to help poor people, use one of the hundred programs we already have.  Send everyone a check who makes under a certain amount.  Whatever.

This plan is so simple, so fair, so obviously vastly superior to what we have, so elegant, so tamper-proof, so low-cost, that I’m pretty sure it hasn’t a snowball’s chance in hell of ever getting passed.

My Plan

I want to go a step further. Geniuses like Paul Krugman and his ilk keep saying that “debt doesn’t matter.”  Then let’s do this: let’s abolish the income tax, have no national sales tax, and fund all government activities via debt.  What a magical boost to the economy!  Because debt doesn’t matter, it wouldn’t matter what goverment spends. Instead of our paltry $4 trillion annual budget, we could jack it up to $8 or $10 trillion annually.  And it wouldn’t matter!!

Hormegeddon

I really enjoyed this book.  It’s easy to read and entertaining, yet it really makes you think about the way our society is arranged.

The central concept in the book revolves around “negative marginal utility.” Bonner explains it like this: if you are starting to learn French, and you spend a minute and learn “Bon jour”, you have increased your vocabulary from 0 to 1 – an infinite amount!  If you spend another minute and learn “Je m’appelle Bill”, you have doubled your vocabulary: 100% increase!  If you keep doing this for, say, a year, when you do one more minute of study, the gain is very small, maybe 0.1%.  The “marginal utility” (how much extra benefit you get) of an extra minute of study is declining.

Bonner’s thesis is that for many activities, marginal utility can actually go negative – what used to help now can hurt.  Take eating: if you are on the verge of starvation, a mouthful of food could save your life.  Getting good, complete nutrition could add years to your life. But pigging out on 5000 calories a day will likely kill you very quickly – the marginal utility of the extra food is definitely negative!

I’ll reproduce Bonner’s recipe for Hormegeddon (negative marginal utility pushed so far it blows up):

1. It is the result of rational thinking
2. It is the result of large-scale planning, usually backed by the police power of goverment.
3. The feedback loop is twisted.  Those who make the mistakes are isolated from the pain.
4. It creates its own support.  Rather than self-limiting, public policy disasters are self-perpetuating.

He then goes through several examples: economics, government, war, healthcare, and demonstrates declining or negative marginal utility.  (Government, for example, dpends 1610X more money per capita, and has 11,000 times more debt per capita, than a century ago – and still growing!) For the example of war, he uses Hitler’s Germany, where unemployment went negative and GDP was soaring – the only problem was the people were starving and eventually the entire economy collapsed.  Hormegeddon.

Maybe a few quotes of his will illuminate it more. After discussing what a disaster the Iraq war was, in terms of money and lives, as well as not coming close to achieving its objectives, he writes:

And where were the intellectuals who pushed the [Iraq] war? Were there no gallows? How come they walked around and still made TV appearances?

They claimed US troops would be greeted as liberators. They claimed the war would pay for itself with Iraqi oil. Thomas L. Friedman said an invasion of Iraq would be one of the great revolutionizing events of history.  The American GIs weren’t really fighting men, they were ‘nuturing’ a great new democracy. Surely there is some corner of Hell, dark and hot, reserved for these miscreants.

One of the phenomena that he notes is that these bad, hormegeddonistic policies usually attract “zombies” – people who benefit (draw a salary) from the program, but actually contribute nothing to the wealth of the nation.

How much of the world’s trouble is caused by guys with hammers or wrenches in their hands?  How many bakers cause depressions? How many masons are mass-murderers? How many steelworkers or cabinetmakers or deliverymen cause mass starvation?

The common workingman may be a bumbler and a fool, but he is rarely responsible for anyone’s troubles but his own.

They guy who causes trouble is the fellow in a suit. …

In all, this book is a great read and offers a very interesting, and seldom-heard, perspective on our society and the source of our troubles.  It’s very much worth reading!

That Which is Seen, and That Which is Not Seen

Bastiat has become one of my all-time favorite authors.  Writing from early 19th-century France, his words still ring so true.  This, book like his masterwork The Law, is very short, less than 50 pages. So it’s very easy to read.  This one is a bit less accessible than the Law, because the English translation feels a little older and Bastiat refers to several contemporary events and personalities.  But it’s still a great read.

This set of essays contains the great fallacy of the broken window.  The story goes that a fellow ends up with a broken window, and has to pay to have it fixed.  This “stimulates the economy”, because it provides jobs for the glassmakers, and for the carpenter that install is.  So this is a great thing.

That is what is seen.  What is not seen is what might have been.  Had the window not broken, the fellow might have bought some new shoes with that money, thus providing jobs for shoemakers and leather tanners.  The “stimulation of the economy” is the same level as with fixing the window.  However, in this scenario, our lucky protagonist ends up with a window and a nice pair of shoes.  Obviously, he is better off in this scenario. And since “society” got the same stimulus from his spending (assuming there that the prices were the same), then society as a whole is better off not breaking the window.

Here in 21st-century America, almost 200 years after Bastiat wrote, economic “journalists” still don’t understand this simple argument.  We just experienced Hurricane Harvey in Texas, and they tell us with a straight face that it will “stimulate the economy”.  Please send them a copy of Bastiat next time you hear that.

Destruction of capital is never, ever, ever good for society.  In fact the wealth of the entire civilization is entirely bound up in how much capital they have saved. If you don’t get it, start reading Austrian economics!

 

 

The Creature From Jekyll Island

I started this book with great trepidation – it’s almost 600 pages!  But it actually is a very quick read.  And, as advertised, for a book that is about banking and government monetary policy, it really is a entertaining read.  You won’t be bored.

The author covers how the Federal Reserve was created.  At the turn of the 20th century, most of the country’s wealth was concentrated in NY banks.  Financial panics were a recurring theme.  This annoyed the citizens. So the idea to create a central bank was, for the third time in American history, put forth. Only the people who set it up were Wall Street bankers! It turns out that Wall Street was starting to lose business big-time to small and regional banks out of their control. The Federal Reserve act was intended to preserve New York’s stranglehold on the nation’s money supply, which it did.  Ten years later an even larger percentage of the country’s wealth was held by Wall Street.  The author tracks down exactly how the whole thing went down.  It’s a fascinating whodunit.

If the book stopped there, it would be fun.  But it goes on to give a brilliant explanation of what money is, and what the Fed does to our money.  It’s a longer version of what you can read about in this book.  This is something that every citizen should read, because the Fed is used to take some of your money, every day. It’s a way for government to fund itself without raising taxes, which might be unpopular.  You can read my feeble attempt to explain the process here.

What was amazing to me was that all of our money in modern America is backed by debt. If everyone paid all their debts back, there would be no money left!  A sobering thought.  It gets worse – since almost all the money in circulation is created by Wall Street banks as debt, that means that every dollar in existance is paying a stream of income (the interest on its originating debt) to Wall Street.  The banks collect a permanent rent on all the money you use.  No wonder they can pay themselves such big bonuses.

There are some great quotes in the book.  For example, Thomas Jefferson wrote:

It is a wise rule never to borrow a dollar without laying a tax at the same instant for paying the interest annually and the principal within a given term. … We shall consider ourselves unauthorized to saddle posterity with our debts, and morally bound to pay them ourselves. … The earth belongs to the living, not the dead. …We may consider each generation as a distinct nation, with a right to … bind themselves, but not the succeeding generation….

The modern theory of the perpetuation of debt has drenched the earth with blood, and crushed its inhabitants under burdens ever accumulating. – Thomas Jefferson

Jefferson always seems to get it right.  He also said “A private central bank issuing public currency is a greater menace to the liberties of the people than a standing army.”  Ha!  We got both!

The author also exposes a lot of conspiracies, and postulates a lot of others.  You may or may not agree with him when he spots a possible conspiracy, but he seems to have all of his facts documented and correct (I have heard that in 20 years, not one fact in the book has been successfully challenged).

If you are interested in how the Fed works, and how Wall Street chokes the life out of you, this is a must read.

 

Women’s Rights

I saw an article about how women have to deal with unappropriate advances from men at work.  Apparently I’m supposed to be outraged and “something must be done.”

Let’s talk about women’s rights and outrage.  I imagine a panel of women.  They are asked, “what’s the worst thing that ever happened to you?”

• Afghani woman: I had to use my bare fingers to dig through the rubble that used to be my home, looking for the bodies of my children.
• Yemeni woman: My child died of starvation in my arms, saying “Mommy, I’m hungry” but I had nothing to give her.
• Saudi woman: I went to grocery store by myself, and as a consequence I was gang-raped, arrested, beaten, whipped, and forced to marry my rapist.
• Yeonmi Park: While escaping from North Korea, I saw my mother raped in my place so that we could get to South Korea.
• American woman: a guy at work asked me out inappropriately.

And I suppose my sympathies are supposed to lie with the horrible plight of the American.  I think I’m going to vomit.

Now let’s talk about outrage: every day, money is taken out of my paycheck against my will, and used the fund the first 3 sets of horrors.  Yes, I am the financier of what is happening in the middle east.  So that’s what outrages me.

I have a hard time understanding the mainstream American anymore.  The mass murder of tens of thousands of innocent people, the impoverishment of generations, the destruction of entire countries…”meh”.  What CNN tells me to be outraged about is that Trump made an insensitive tweet.

Maybe my moral compass is off.  Maybe insensitive tweets are the handiwork of the Devil and raining death from the skies is nothing to be concerned about.

Or maybe America is screwed up, demented, and quite literally insane.