A Thought on some Taxes

Romain Hatchuel, Square Advisors LLC Managing Partner, has an excellent op-ed in The Wall Street Journal, but I want to comment on one small part of it:

In his November investment commentary for bond giant Pimco, [billionaire investor Bill] Gross asks the “Scrooge McDucks of the world” to accept higher personal income taxes and to stop expecting capital to be taxed at lower rates than labor.

Gross is right, partly.  The use of tax code to effect social engineering does not achieve the goals of the “engineering” effort, but it does effect coarse distortions in a free market.  These distortions range from slanting business decisions toward (or away from) debt according to the differential ways in which debt interest and capital gains are taxed; they impact individual investment decisions according to the way debt interest, capital gains, or dividends are taxed; they even distort the price (and so availability) of housing according to the way in which mortgage debt interest is taxed.

Capital should not be taxed at a lower rate than labor.  Businesses should not be assessed tax at all—the ones who actually pay those business taxes, after all, are the final customers—us—as that tax bill-as-cost-center gets figured into the prices charged.  Nor should there be deductions, credits, etc on individual income, with or without variation according to the source or amount of income.

Contra Gross, though, a single, low flat rate that every individual pays on the total of that individual’s income would achieve a market neutral tax that would impose the minimum of distortion on the market even from the tax’s existence (a 10% rate that everyone with an income pays even would represent a significant increase in total revenue to the Federal government).

Wealth Redistribution, Industrial Style

…additionally, with industry as helpless victim, a taxpayer bailout.  It’s an Obama two-fer: spreading the money around and bailing out an industry.

Built in to Obamacare, it turns out, is another form of wealth redistribution.  In order to guarantee every insurance company a profit (as opposed to, more properly, engendering an economic environment within which every insurance company has an opportunity for a profit), Obamacare has embedded in it something called a “risk corridor.”  Here’s Power Line‘s description of what this corridor is:

The risk corridor program, by its design, is basically a risk sharing program among insurance companies, administered by the government.  Companies that make out better than expected provide funds for companies that make out worse.

Wealth redistribution on an industrial scale.  But wait—there’s more:

If essentially all insurance companies make out much worse than expected, as may well be the case, the risk corridor concept won’t work as intended.  It will work only if reinvented to force taxpayers to subsidize the industry.

The Obama bailout.

Two Government Stimulus Plans

…from a redneck Conservative18th Century Liberal, yet.  The idea from this post came from an op-ed by Martin Feldstein in a week ago Monday’s Wall Street Journal.  He wrote, in part,

A successful growth and employment strategy would combine substantial reductions in the relative size of the future national debt with immediate permanent tax-rate cuts and a multiyear program of infrastructure spending.

However, I have a slightly different couple of takes on the path to recovering our economy.

I have a dim view of government spending, based on the ultimate source of the money and the inherent inefficiencies of government spending.  Many others have gone into this, also; I’ll not belabor them here.  Instead, and in keeping with the spirit of those objections, I’m proposing something of the following.

President Barack Obama’s 2009 “Stimulus” Bill was $830 billion over and above the “ordinary” budget already passed during Bush the Younger’s last year.  The 2010 budget deficit was $1.17 trillion as Obama continued profligate spending as “stimulus.”  Or would have been had there been a budget passed.  Given the deficits of the preceding years, let’s take $830 billion of that projected/planned deficit as “excess” deficit whose sole purpose was to be stimulative.  For those two years, then, the spending targeted at stimulus totaled $1,660 billion.

The Federal tax rebates of 2008 went as high as $600 for a single person whose adjusted income was under $75k, and $1,200 for a couple whose income was under $150k.  If the $1,660 billion were divided evenly among households regardless of income (just to keep the arithmetic simple in this post), then those billions could have been used to pay to each household a rebate of…$14.

The rebates didn’t work in 2008 because they were temporary.  Instead of spending the money—the rebates’ purpose being to stimulate consumption—most Americans saved the money against an uncertain future or they used it to pay down existing debt.  Both of these were very important to the long-term health of the economy, but they didn’t do anything for near-term stimulation.  Even so, the money was used far more efficiently than the government could have—that saving and debt reduction—vs the government’s inherent friction of many bureaucratic middlemen absorbing much of that money.

But instead of rebating those $1,660 billion—and the $14 likely would have been spent; it’s about a beer and a pizza, and so stimulative, at least for the pizza house and its employees—government just ran up the debt going for shovel ready jobs that weren’t shovel ready after all.

That brings me to my preferred option.  As Feldstein noted in that op-ed,

The only way to reduce future deficits without weakening incentives and growth is by cutting future government spending.

I propose, though, more government “spending,”* albeit of a less traditional form: a reduction in our tax rates (with a commensurate reduction in “normal” spending forms to pay for this alternative spending program).  In 2010, the Federal government collected right at $1,600 billion in total tax revenue from all sources.

Hmm….

Maybe the Feds should spend all that “excess” deficit in the form of a permanent tax rate cut—not the simplistic one of 100% to absorb all of that “excess;” the government needs some funds for the things it’s legitimately required to do: national defense, Federal law enforcement (we have too many Federal laws, but that’s a different story), regulation of interstate commerce (and not intrastate commerce, but again, that’s a different story), and so on.  Let’s go for a permanent reduction in our tax rates of 10% across the board.

With a permanent cut, instead of a temporary rebate, folks not only will save and pay down their debt, they’ll spend more, too.  They’ll also spend far more efficiently than government because there’s no middleman involved, and they’ll be spending on what they want and/or need, and not taking what the government thinks they should want and/or need.

Senator Mike Lee’s (R, UT) tax proposal makes an interesting start in this direction.

 

*In quotes because, of course, it’s not the government’s money; it’s ours, and so the government leaving what’s ours in our hands isn’t actually government spending.

Another Non-Existent Idea for Health Care Reform

The Republican Study Committee has offered yet another Obamacare alternative in a long line of Obamacare alternatives Republicans have offered in the past two-three years.  The gist of the latest alternative is this:

Title I – Repeal of Obamacare

Title II – Increasing Access to Portable, Affordable Health Insurance

  • levels the playing field between those who receive insurance from an employer and those purchasing it in the individual market: replacesthose with qualifying health plan receive an SDHI of $7,500 (individuals) or $20,000 (families) which will apply to income and payroll taxes, and will increase at CPI-U
    • 1) the current uncapped tax benefit for employer-sponsored health insurance
    • 2) the self-employed tax deduction with an above-the-line standard deduction for health insurance (SDHI)
  • full SDHI goes to the individual or family regardless of the cost of the policy bought—the SDHI above the cost goes right into the individual’s or family’s pocketbook
  • expand access to and allowable expenses for health savings accounts (HSAs), increase the maximum allowable contribution into HSAs, and allow employers to offer a larger benefit for successful completion of a wellness program

Title III – Improving Access to Insurance for Vulnerable Americans

  • expand federal support for state high risk pools to $25 billion over 10 years
  • guarantees that individuals with pre-existing conditions can move between the large group, small group, and individual health insurance markets, so long as they maintain continuous coverage

Title IV – Encouraging a More Competitive Health Care Market

  • allows Americans to purchase health insurance products across state lines
  • permits small businesses to pool together to negotiate better rates

Title V – Reforming Medical Liability Law

  • caps non-economic damages, and limits attorney fees

Title VI – Respecting Human Life

  • prohibits federal funds authorized or appropriated by this act from covering abortion, except in the case of rape, incest, or when the life of the mother is jeopardized
  • ensures that no state pro-life or conscience protection laws will be preempted

But this doesn’t exist; Democrats say Republicans have offered no alternatives.

Because Stuff Happens

Another seemingly mendacious defense of Obamacare.  Congressman Jackie Speier (D, CA) decries objections to unqualified or even unvetted Obamacare “Navigators” having access to individual Americans’ health and financial data.  Speier dismisses the concerns as just a

systematic effort by some Republican state officials to obstruct implementation of the Affordable Care Act[.]

She’s joined by HHS spokesman Brian Cook, who insists,

The navigator program is similar to Medicare counselors, which have existed for years and never faced this kind of criticism from Congress.  The shameful and unprecedented attempt by some in Congress to bully and intimidate these private organizations is clearly an ideologically driven attempt to prevent uninsured Americans from gaining health coverage.

Never mind that personal medical and financial data weren’t so easily hacked into when Medicare was being gutsed up.  Hey, stuff happens, and we should just live with it.

Wrong.  These people know stuff happens, and they should be getting in the way of it, not excusing it.