Why are you cowards so scared to discuss the HONESTY of Rand Paul?

I think I misunderstood, Munchie. Never mind.

It is more likely that the FED will abolish Congress, rather than the other way around. If they haven't done that already. The Creature From Jekyll Island describes how the FED was established by JP Morgan, the Warburg family and the Rothschild family. By the banks and for the banks. The FED obstructs Congressional oversight, and are only beholding to the banking system. The best hedge against inflation is a sound backed currency. Let the market do what it does best.

But getting rid of the FED by itself does not solve the problem. What's wrong with America goes much deeper. If the FED were abolished, control would return to Congress, where it belongs. But Congress is fucked, thanks in no small part to the 17th Amendment. Congress is not stable, because the Senate is no longer the sober, second look. The states have no say anymore in Federal legislation. Instead we are governed by carnival barkers and snake oil salesmen, which is what the Senate was supposed to prevent. That happened in 1913, as well, and it is still wrong.


Now the states are fucked because the Federal government has assumed most of their duties. We really don't care who we elect on a state level. All the states really do is fund education and roads, and the Feds have their hands in that, too. That never would have happened without the 17th Amendment.


And to add insult to injury, 1913 brought us the income tax. From then on, government owned your income and could decide how much of it you can keep. Ultimate communism, and exactly against what the founding of this country was about. Some in Congress in 1913 wanted to add a cap of 2 or 3% to the income tax, but that was defeated because no one thought the rate would ever get that high. Fools. Duped fools.


1913 was essentially the end of freedom in this country. We have an illusion of freedom, but it is more like tolerance. The government can now crack down at any time. Gradually our "freedoms" are being rolled back. The most obvious culprits are the income tax, Patriot Act and NDAA. But there are smaller encroachments hidden in the mountains of regulations promulgated by the bureaucracy. Look at all the Federal regs you have to comply with to just build a house, or start a business, or buy a car, or anything. It's insane.


So ending the FED is not a cure all. Neither is the FairTax (but it comes close) or repealing the 16th and 17th Amendments. And none of it is going to happen anyway, because the owners of this country have set it up like this, and no one with an idea to change it will reach a position of power. The only thing that will change it is when we realize the battle is not black against white, gay against straight, rich (middle class and lower upper class) against poor, or any of the sub categories the military, government, media establishment has divided us into. It's US against THEM. if we ever figure out that we can unite and defeat them, we can establish a true representative republic. That's not going to happen. People will need to see who is eliminated on Dancing With the Stars first. Originally Posted by CuteOldGuy

Oh, my!

If you're going to post stuff like that, don't you think it might be wise to refrain from statements like the following?

Do your research. Or not. If you remain ignorant, it's your choice. Not my problem. Originally Posted by CuteOldGuy

"End the Fed" is a snappy little bumper-sticker slogan that's popular in some circles. But when pressed for answers, you anarcho-capitalists always dodge the question when asked what you propose replacing it with. What do you envision? Something akin to the "free banking" era, or something like what existed in the U.S. for a few decades following the National Bank Act passed during the Civil War? And how do you think we can get away with no entity acting as an LOLR? Maybe you think we can get the modern-day equivalent of J. P. Morgan (the man, not the bank) to convene a few key players and hammer out a rescue as in the Panic of 1907. Maybe, too, you think the answer is, "Go back on the gold standard. Let free markets work!" Surely you must realize that the very discussion by policymakers of such an idea would be chaotic in the extreme and would shake the world's financial markets to the core. Just what we need right now, isn't it?

And you describe the income tax as "ultimate communism?" Somehow I always thought the brand of communism that sprang up on the other side of the world at about the same time the Sixteenth Amendment was created was a hell of a lot more "ultimate!"

At least you said that ending the Fed would not be a cure-all, but followed up by opining that the FairTax "comes close" to being a cure-all. You'd have to try very hard to become any more hyperbolic.

You will recall that we discussed the FairTax in some detail a couple of years ago. Thus you should understand that if we enacted the FairTax while leaving federal government spending untouched, the annual deficit run rate would explode to about $1.7 trillion, and grow from there as about 10,000 baby boomers turn 65 every day. Put another way, you would have to cut spending by over 40% in order to balance the budget if you replaced the entirety of our current tax regime with the FairTax. You do realize that, do you not?

Yet, while continually touting the FairTax, you have often bemoaned deficit spending. What would you cut if you could wave a magic wand? Would you eliminate large portions of Medicare, Medicaid, and Social Security, as well as other transfer and entitlement programs? Good luck with that! There's no math that allows you to enact the FairTax without blowing up our already large -- and growing -- deficit outlook beyond all reason without extreme cuts.

Look, I probably dislike paying income taxes as much as you or anyone else. But you must know that the FairTax is as much of a pie-in-the-sky fantasy as anything that's ever been proposed. Since it would allow people like me to reduce my total tax burden to a fraction of what it is now, it's as much of a political non-starter as you can possibly imagine. That website promoting the FairTax is as bullshit-laden as anything I've ever seen, and if you paid any attention to our debate on the topic, you cannot possibly fail to realize that.

You are fond of saying that "the truth is out there."

Indeed it is, but you're not likely to find it on websites run by charlatans or in books written by conspiracy mongers.

Good points, Cap'n. Now that we know what won't work (e.g. the FairTax) how about your views on what will? I don't concur with your suggestion that ANY reform that lightens the tax burden on (some) top earners is necessarily DOD. I want to see something that broadens the base and is either revenue-neutral or slightly and affordably revenue-negative. The guiding principle is to pay for lower and flatter rates by closing loopholes.

I am not as familiar as you are with the details of each candidate's tax proposals. Do you like any of them or are they all built on pie-in-the-sky projections? Originally Posted by lustylad

And, since Captain Midnight has joined the conversation about taxes, I'd like to ask how would you, Captain, change the tax code? What would you keep? What would you change? Thanks. Originally Posted by CuteOldGuy

Good points, Cap'n. Now that we know what won't work (e.g. the FairTax) how about your views on what will? I don't concur with your suggestion that ANY reform that lightens the tax burden on (some) top earners is necessarily DOD. I want to see something that broadens the base and is either revenue-neutral or slightly and affordably revenue-negative. The guiding principle is to pay for lower and flatter rates by closing loopholes. Originally Posted by lustylad

Although I'm not sure anything that could be credibly described as even slightly revenue-negative would ever fly, I am in agreement with you on the basic principles here. In my view, simplification, loophole-closing, and base-broadening should be hallmarks of any good tax reform.

That was the basic guiding principle in the discussions leading up to the 1986 tax reform. However, at the time, people didn't realize the severity of the adverse consequences arising from jettisoning the pre-1986 code in one fell swoop. The problem was that the value of hundreds of billions of dollars of commercial real estate was drastically reduced by the elimination of a taxpayer's ability to deduct depreciation on highly-leveraged assets, which of course was incentivized by 50% tax rates. Countless S&Ls went bankrupt and every big bank in Texas, save one, went spectacularly bust. That problem occurred to a lesser degree in various places around the country, but was much worse in Texas owing to the early '80s construction boom in cities like Dallas and Houston.

However, that situation no longer exists, and I know of no serious adverse consequences likely to arise from any similar sort of reform.

Another key feature of good tax reform, in my view, would be the overhaul (or preferably elimination) of the corporate income tax. A lot of progressives would demagogue this as a "giveaway" to the rich, but that's misguided and based on a misunderstanding of the corporate tax incidence.

Robert Barro suggested a couple of years ago that the corporate tax should be eliminated and replaced with a consumption tax that would produce less deadweight loss to the economy. That's actually a similar notion to the proposals offered by Rand Paul and Ted Cruz. However, many conservatives vehemently oppose the idea on the basis that it hands a new, very large revenue tool to big-spending politicians who would just start pushing the rate higher and higher, like they've been doing in Europe for decades with the VAT. The "camel's nose into the tent" metaphor has been used by a few people when writing about this. It looks to me, though, like the Cruz and Paul tax rates are much, much too low to make the proposals anywhere near revenue-neutral. I think a key question here is what marginal tax rate you could sell to voters without making it too easy for progressives to paint the plan as a "giveaway to the rich." Although loopholes today are nowhere near as juicy as they were 30 years ago, I still think there's a good case to be made for having some rate-lowering accompany loophole-closing. In fact, the bipartisan Simpson-Bowles commission did just that a few years back. Now someone needs to do it again. Maybe that's a heavy lift in today's hyper-polarized political environment, but I don't see why it couldn't be doable if presented properly.

Several people I know, and whose opinions I respect, have suggested that it's extremely likely we're headed toward a consumption tax within the next decade, and the best we can hope for is that it's coupled with something like a simplified flat income tax, or at least one with no more than a couple of brackets -- and that it, hopefully, swaps loophole-closing for at least some rate-lowering.

Barro suggested that a well-designed 10% consumption tax could raise about 5% of GDP, and that's enough to cover the corporate income tax plus finance quite a bit of personal income tax rate-lowering as well.

That may reasonably beg the question of how you prevent future progressives from jacking up the rate. But then, how do you prevent that with any tax, whether on income or consumption?

Captain, you talk around things, but never land. What would YOU recommend now, as tax reform you support?

One more question, asked with respect: Why are you content to have our monetary policy decided and dictated in secret with no oversight?

Although I'm not sure anything that could be credibly described as even slightly revenue-negative would ever fly, I am in agreement with you on the basic principles here. In my view, simplification, loophole-closing, and base-broadening should be hallmarks of any good tax reform.

I added "slightly revenue-negative" because we can never be 100% accurate in forecasting the actual impact and I would prefer to err on the revenue-negative side. Harry Reid killed any chances of tax reform during Obama's second term when he explicitly rejected the goal of keeping it revenue-neutral. Like all big-spending liberals, he wants to turn “reform” into a huge new revenue grab. That's something we need to avoid at all costs.


That was the basic guiding principle in the discussions leading up to the 1986 tax reform. However, at the time, people didn't realize the severity of the adverse consequences arising from jettisoning the pre-1986 code in one fell swoop. The problem was that the value of hundreds of billions of dollars of commercial real estate was drastically reduced by the elimination of a taxpayer's ability to deduct depreciation on highly-leveraged assets, which of course was incentivized by 50% tax rates. Countless S&Ls went bankrupt and every big bank in Texas, save one, went spectacularly bust. That problem occurred to a lesser degree in various places around the country, but was much worse in Texas owing to the early '80s construction boom in cities like Dallas and Houston.

That's an interesting take on what happened during the 1980s. I agree the 1986 tax reform had a negative impact on commercial real estate values, but I wouldn't blame it for the entire S&L crisis. Prior to the 1986 reforms, sale-leasebacks of office buildings were very popular – afterwards such transactions dried up when the tax benefits to limited partnerships were rescinded. But I think the Texas bust owed as much to the crash in oil prices (from $35 a barrel in 1980 to under $10 in 1986) as it did to tax reform. Also, many S&Ls in the early 1980s were crippled by asset-liability mismatches. Deregulation was supposed to correct this problem – but it eventually opened the door to other problems as some of the thrifts loaded up on Michael Milken's junk bonds and loaned recklessly to local developers and cronies. I really respected the guy who came in and cleaned up the mess – Bill Seidman. He ran the Resolution Trust Corporation with competence and professionalism. We need more people like him these days.


However, that situation no longer exists, and I know of no serious adverse consequences likely to arise from any similar sort of reform.

Well, you may not forsee them but there are always unintended consequences. Besides, I am certain most of the industries that stand to lose their tax breaks (real estate, renewable energy, charities, private equity managers, to name a few) will scream loudly about the terrible consequences of reform well before anything is passed or implemented.


Another key feature of good tax reform, in my view, would be the overhaul (or preferably elimination) of the corporate income tax. A lot of progressives would demagogue this as a "giveaway" to the rich, but that's misguided and based on a misunderstanding of the corporate tax incidence.

I agree on both points – we need a lower corporate rate, and the liberals will demagogue against it. They will use two additional arguments. First, they will say the high nominal rate is meaningless because most corporations actually pay a lower effective rate. Second, they will argue that corporations today pay a lower share of total federal taxes (around 11%) than they used to. You will need to smash all of those arguments with strong counter-points about the economic benefits of lowering the corporate rate.


Robert Barro suggested a couple of years ago that the corporate tax should be eliminated and replaced with a consumption tax that would produce less deadweight loss to the economy. That's actually a similar notion to the proposals offered by Rand Paul and Ted Cruz. However, many conservatives vehemently oppose the idea on the basis that it hands a new, very large revenue tool to big-spending politicians who would just start pushing the rate higher and higher, like they've been doing in Europe for decades with the VAT. The "camel's nose into the tent" metaphor has been used by a few people when writing about this. It looks to me, though, like the Cruz and Paul tax rates are much, much too low to make the proposals anywhere near revenue-neutral. I think a key question here is what marginal tax rate you could sell to voters without making it too easy for progressives to paint the plan as a "giveaway to the rich." Although loopholes today are nowhere near as juicy as they were 30 years ago, I still think there's a good case to be made for having some rate-lowering accompany loophole-closing. In fact, the bipartisan Simpson-Bowles commission did just that a few years back. Now someone needs to do it again. Maybe that's a heavy lift in today's hyper-polarized political environment, but I don't see why it couldn't be doable if presented properly.

I am also very suspicious of the idea of a new consumption tax. Would it be “invisible” to consumers and embedded in the prices we pay for everything? We already pay sales taxes at the state level – why add to them? Roughly 70% of our GDP is generated by consumption – why slow down the growth engine? Do we really want to follow the Europeans down their VAT-paved road to slow-growth hell? And yeah, it would hand every spendthrift politician out there a brand new revenue gusher. So it would be an uphill battle to persuade me to support such a tax.

The tax proposals of some of the candidates running for President are as irresponsible and extreme as their authors. Trump would blow up the deficit the most on the GOP side, and Sanders wins the prize on the Democratic side. Trump would blow it up with tax cuts, Bernie by opening up the spending floodgates. Pick your poison. If either is elected, we can only hope Congress will act like a wet blanket. Here's a story from yesterday's NYT about Bernie the Free-Spending Socialist. Even left-wing economists think he's nuts. He would take federal spending from $4 trillion to $6 trillion a year in a heartbeat. If you think Obamacare is a disaster, wait until Bernie rolls out single-payer:

http://www.nytimes.com/2016/02/16/us...rss-plans.html

As for Trump, here is a WSJ opinion piece from last year when he first rolled out his tax plan. Even using dynamic scoring, the Tax Foundation estimates it would add $1 trillion a year to the deficit:

http://www.wsj.com/articles/a-trumpi...orm-1443657274


Several people I know, and whose opinions I respect, have suggested that it's extremely likely we're headed toward a consumption tax within the next decade, and the best we can hope for is that it's coupled with something like a simplified flat income tax, or at least one with no more than a couple of brackets -- and that it, hopefully, swaps loophole-closing for at least some rate-lowering.

Barro suggested that a well-designed 10% consumption tax could raise about 5% of GDP, and that's enough to cover the corporate income tax plus finance quite a bit of personal income tax rate-lowering as well.

My own preference is for some kind of modified Simpson-Bowles reform swapping rate-lowering for loophole-closing. I need to be convinced on the merits of a new consumption tax. 5% of GDP is about $900 billion. Corporate income taxes currently bring in roughly half that amount.


That may reasonably beg the question of how you prevent future progressives from jacking up the rate. But then, how do you prevent that with any tax, whether on income or consumption?

The more tax spigots are available, the easier it is for the fuckers to turn one on without everyone noticing. We need a Constitutional amendment to put a lid on federal taxes. Something akin to a national version of California's Proposition 8, except it would cap ALL taxes, not just property taxes. I don't know why Grover Norquist hasn't pursued something along those lines. Originally Posted by CaptainMidnight

.

"End the Fed" is a snappy little bumper-sticker slogan that's popular in some circles. But when pressed for answers, you anarcho-capitalists always dodge the question when asked what you propose replacing it with. What do you envision? Something akin to the "free banking" era, or something like what existed in the U.S. for a few decades following the National Bank Act passed during the Civil War? And how do you think we can get away with no entity acting as an LOLR? Maybe you think we can get the modern-day equivalent of J. P. Morgan (the man, not the bank) to convene a few key players and hammer out a rescue as in the Panic of 1907. Maybe, too, you think the answer is, "Go back on the gold standard. Let free markets work!" Surely you must realize that the very discussion by policymakers of such an idea would be chaotic in the extreme and would shake the world's financial markets to the core. Just what we need right now, isn't it? Originally Posted by CaptainMidnight

+1

LOLR = Lender of Last Resort

The amount of ignorance out there when it comes to the Fed's role, purpose and activities is enormous. But then, 98% of people don't understand how banking works, let alone the Fed. At the end of the day, every bank has to balance its books. Banks with excess cash normally lend it overnight to banks that are short of cash via Fed funds or other short-term money markets. There is little risk in overnight loans - but perceptions can change during a panic. When Lehman failed, parts of the interbank lending market quickly froze up and the Fed stepped in as LOLR. Afterwards, all kinds of idiot conspiracy mongers suddenly noticed that the Fed has a discount window and various other bank lending facilities. Suddenly any use of these facilities by the banks meant they were being "bailed out".

Yeah, let's abolish the Fed. Shut down the discount window, stop all that open-market stuff, let interest rates and the dollar fly. Let's have some fun and start the next financial panic now.

exactly right. he's half the president we need, half the president we don't need.

he's exactly right about the FED and the deficit, and big GOV, exactly wrong about foreign policy. it's too late to be "isolationist America" like Woody Wilson, we are too entrenched in world politics for that.

the allegiances we've made since 1945 bind us to NATO, Israel and the rest of the free world. we can't break that now. to do so would invite a resurgence of "Communist Domination" which is why we did what we did during the cold war.

we can cut off the world's foreign aid, regardless what that does to the world economy. America's economy and debt matters more.

no demmycrat will do that. only a republican might, to save America. Originally Posted by The_Waco_Kid

Good point.HELP the american people.

Have you ever watched Yellen testify before Congress? I can't believe they let her get away with so much lack of cooperation. Originally Posted by CuteOldGuy

I watched Yellen just last week. She answered every question they asked and stayed until they were completely out of questions.

Why are you content to have our monetary policy decided and dictated in secret with no oversight? Originally Posted by CuteOldGuy

You're begging the question. The minutes of every Fed Board meeting are made public. No secrecy there. And there's plenty of oversight - you just mentioned how Yellen testifies before Congress all the time.

What would you like to know about the Fed, COG? Maybe I can help out. If not, I will put my research assistant on it. She's easier on the eyes than Janet Yellen.

I like Rand Paul and would vote for him if he stood a snowballs chance in hell of wining.
Much like his father, people do not understand the truth and the plain speak they dish out.
People are conditioned to the talking heads and the talking points that are meaningless to the reality of what is really going on. In the flock the bleating of the sheep masks the sounds of the wolves as they pick off the fringe of the flock. The sheep in the largest flocks feel the safest and are content to leave things as they are. They are conditioned to not stray from the flock or start smaller flocks as there is less perceived protection outside that which they have been conditioned to.

Now comes the wolf in sheep's clothing bleating loudly that his flock will be better, safer, and provide better protection to the flock and to jmoin him as the rest cannot do for you what he can and the other leaders of the flocks are idiots and liars. Within the flock a ram stands out and declares the other is a wolf but the sheep cannot see it. But, slowly they begin to smell the stench of the wolf and return to the flock looking for a better leader within the flock.

Meanwhile a pack of two wolves are laughing at the sheep because they have convinced way too many sheep that they do not eat mutton and the sheep foolishly believe them because they are told they will have to do less to get more and the flock that does not follow them will pay for it all..

I watched Yellen just last week. She answered every question they asked and stayed until they were completely out of questions.




You're begging the question. The minutes of every Fed Board meeting are made public. No secrecy there. And there's plenty of oversight - you just mentioned how Yellen testifies before Congress all the time.

What would you like to know about the Fed, COG? Maybe I can help out. If not, I will put my research assistant on it. She's easier on the eyes than Janet Yellen.
Originally Posted by lustylad

Yeah. Put your team on it. That's the ticket. Believe what the government wants you to believe. They have your best interests at heart. Everyone knows that.

(CaptainMidnight's original statements in black. Lustylad's replies in blue. CaptainMidnight's answers in red.)

Although I'm not sure anything that could be credibly described as even slightly revenue-negative would ever fly, I am in agreement with you on the basic principles here. In my view, simplification, loophole-closing, and base-broadening should be hallmarks of any good tax reform.

I added "slightly revenue-negative" because we can never be 100% accurate in forecasting the actual impact and I would prefer to err on the revenue-negative side. Harry Reid killed any chances of tax reform during Obama's second term when he explicitly rejected the goal of keeping it revenue-neutral. Like all big-spending liberals, he wants to turn “reform” into a huge new revenue grab. That's something we need to avoid at all costs.

Not only did Obama, Reid, and other Democrats hunger for new revenue, their idea of "reform" has pretty much been limited to jacking up rates on top-bracket taxpayers as much as possible. Never mind the obvious fact that much of the anticipated additional revenue from such measures (especially from the capital gains tax) tends to pull a disappearing act.

That was the basic guiding principle in the discussions leading up to the 1986 tax reform. However, at the time, people didn't realize the severity of the adverse consequences arising from jettisoning the pre-1986 code in one fell swoop. The problem was that the value of hundreds of billions of dollars of commercial real estate was drastically reduced by the elimination of a taxpayer's ability to deduct depreciation on highly-leveraged assets, which of course was incentivized by 50% tax rates. Countless S&Ls went bankrupt and every big bank in Texas, save one, went spectacularly bust. That problem occurred to a lesser degree in various places around the country, but was much worse in Texas owing to the early '80s construction boom in cities like Dallas and Houston.

That's an interesting take on what happened during the 1980s. I agree the 1986 tax reform had a negative impact on commercial real estate values, but I wouldn't blame it for the entire S&L crisis. Prior to the 1986 reforms, sale-leasebacks of office buildings were very popular – afterwards such transactions dried up when the tax benefits to limited partnerships were rescinded. But I think the Texas bust owed as much to the crash in oil prices (from $35 a barrel in 1980 to under $10 in 1986) as it did to tax reform. Also, many S&Ls in the early 1980s were crippled by asset-liability mismatches. Deregulation was supposed to correct this problem – but it eventually opened the door to other problems as some of the thrifts loaded up on Michael Milken's junk bonds and loaned recklessly to local developers and cronies. I really respected the guy who came in and cleaned up the mess – Bill Seidman. He ran the Resolution Trust Corporation with competence and professionalism. We need more people like him these days.

I do not think the Texas bank and S&L bust was caused solely by collapsing real estate valuations, and that energy was certainly a significant contributing factor. It was sort of like a "perfect storm" with one whammy followed quickly by another. Institutions weakened by the 1985-86 oil price plunge were simply slaughtered by the post-1986 real estate debacle, for the real estate loan portfolio numbers were so much larger.

Although a number of office building sale-leasebacks obviously went sour, the really big dollars went into limited partnerships created and sold to countless small investors. High inflation of the 1970s pushed large numbers of high-income professionals into the top tax bracket, so they were incentivized to get into some sort of tax shelter since the top marginal tax rate was so high back then. (It had long been possible for wealthy investors to avoid paying anything remotely close to the top statutory rate.) IRS rules at the time allowed capital contributions to be structured such that the LP investor got a "2:1 write-off." Often the capital contributions were stretched out into equal installments over, say, five years. Then, assuming the investor was in the 50% bracket, he could reduce his tax bill to an amount equaling the capital call, and in essence get his partnership interest "for free!" It's obviously not difficult to see how this idea could be appealing to many people.

A large and growing number of apartment complexes, office buildings, and shopping centers were chased by tax-motivated partnerships, and prices skyrocketed. Post-1986, of course, it all came unwound, once it became so painfully apparent that such a large portion of real estate appreciation over the previous decade was attributable to tax-related considerations.

And, yes, I do believe we need more people like the late Bill Seidman today!

However, that situation no longer exists, and I know of no serious adverse consequences likely to arise from any similar sort of reform.

Well, you may not forsee them but there are always unintended consequences. Besides, I am certain most of the industries that stand to lose their tax breaks (real estate, renewable energy, charities, private equity managers, to name a few) will scream loudly about the terrible consequences of reform well before anything is passed or implemented.

True that!

Another key feature of good tax reform, in my view, would be the overhaul (or preferably elimination) of the corporate income tax. A lot of progressives would demagogue this as a "giveaway" to the rich, but that's misguided and based on a misunderstanding of the corporate tax incidence.

I agree on both points – we need a lower corporate rate, and the liberals will demagogue against it. They will use two additional arguments. First, they will say the high nominal rate is meaningless because most corporations actually pay a lower effective rate. Second, they will argue that corporations today pay a lower share of total federal taxes (around 11%) than they used to. You will need to smash all of those arguments with strong counter-points about the economic benefits of lowering the corporate rate.

I think there are some very good counter-arguments here, but the problem is that most voters have no idea how the corporate tax system works, so efforts aimed at meaningful reform are easy for demagogues to chew into.

First, it clearly is the case that most large corporations pay an effective rate that's far, far below the statutory rate. And the larger (and more international) the player, the lower is likely to be the effective rate. I think this is the main reason that very large corporations don't see the corporate tax code as that much of a problem, since they find it much easier to game than their smaller and intermediate-sized potential competitors. Smaller players can't maneuver to reduce their corporate tax liability so easily, let alone engage in inversions and other dodges, so they are at a clear competitive disadvantage relative to the behemoths in an industry. This is why one observer opined last year that the corporate tax code is just another "crony capitalist shuffle." (I think he's exactly right.)

Another problem is inversions and the related practice of "earnings-stripping." The latter involves arranging loans between subsidiaries located in different tax jurisdictions with widely differing tax rates. For instance, one subsidiary in a high-tax jurisdiction (like the U.S.) borrows huge sums from another in a "tax-friendlier" place and streams tax-deductible payments to it. How can stuff like this possibly not have adverse consequences for the U.S. economy?

Robert Barro suggested a couple of years ago that the corporate tax should be eliminated and replaced with a consumption tax that would produce less deadweight loss to the economy. That's actually a similar notion to the proposals offered by Rand Paul and Ted Cruz. However, many conservatives vehemently oppose the idea on the basis that it hands a new, very large revenue tool to big-spending politicians who would just start pushing the rate higher and higher, like they've been doing in Europe for decades with the VAT. The "camel's nose into the tent" metaphor has been used by a few people when writing about this. It looks to me, though, like the Cruz and Paul tax rates are much, much too low to make the proposals anywhere near revenue-neutral. I think a key question here is what marginal tax rate you could sell to voters without making it too easy for progressives to paint the plan as a "giveaway to the rich." Although loopholes today are nowhere near as juicy as they were 30 years ago, I still think there's a good case to be made for having some rate-lowering accompany loophole-closing. In fact, the bipartisan Simpson-Bowles commission did just that a few years back. Now someone needs to do it again. Maybe that's a heavy lift in today's hyper-polarized political environment, but I don't see why it couldn't be doable if presented properly.

I am also very suspicious of the idea of a new consumption tax. Would it be “invisible” to consumers and embedded in the prices we pay for everything? We already pay sales taxes at the state level – why add to them? Roughly 70% of our GDP is generated by consumption – why slow down the growth engine? Do we really want to follow the Europeans down their VAT-paved road to slow-growth hell? And yeah, it would hand every spendthrift politician out there a brand new revenue gusher. So it would be an uphill battle to persuade me to support such a tax.

The tax proposals of some of the candidates running for President are as irresponsible and extreme as their authors. Trump would blow up the deficit the most on the GOP side, and Sanders wins the prize on the Democratic side. Trump would blow it up with tax cuts, Bernie by opening up the spending floodgates. Pick your poison. If either is elected, we can only hope Congress will act like a wet blanket. Here's a story from yesterday's NYT about Bernie the Free-Spending Socialist. Even left-wing economists think he's nuts. He would take federal spending from $4 trillion to $6 trillion a year in a heartbeat. If you think Obamacare is a disaster, wait until Bernie rolls out single-payer:

http://www.nytimes.com/2016/02/16/us...rss-plans.html

As for Trump, here is a WSJ opinion piece from last year when he first rolled out his tax plan. Even using dynamic scoring, the Tax Foundation estimates it would add $1 trillion a year to the deficit:

http://www.wsj.com/articles/a-trumpi...orm-1443657274

Although I do believe that a consumption tax is in many respects less harmful to the economy than most other taxes, I share your concern about handing a shiny new revenue machine to big-spending politicians. Several conservative and libertarian economists have spoken to this issue recently while voicing concerns about the proposals offered by Rand Paul and Ted Cruz.

Several people I know, and whose opinions I respect, have suggested that it's extremely likely we're headed toward a consumption tax within the next decade, and the best we can hope for is that it's coupled with something like a simplified flat income tax, or at least one with no more than a couple of brackets -- and that it, hopefully, swaps loophole-closing for at least some rate-lowering.

Barro suggested that a well-designed 10% consumption tax could raise about 5% of GDP, and that's enough to cover the corporate income tax plus finance quite a bit of personal income tax rate-lowering as well.

My own preference is for some kind of modified Simpson-Bowles reform swapping rate-lowering for loophole-closing. I need to be convinced on the merits of a new consumption tax. 5% of GDP is about $900 billion. Corporate income taxes currently bring in roughly half that amount.


That may reasonably beg the question of how you prevent future progressives from jacking up the rate. But then, how do you prevent that with any tax, whether on income or consumption?

The more tax spigots are available, the easier it is for the fuckers to turn one on without everyone noticing. We need a Constitutional amendment to put a lid on federal taxes. Something akin to a national version of California's Proposition 8, except it would cap ALL taxes, not just property taxes. I don't know why Grover Norquist hasn't pursued something along those lines.

I don't doubt for a minute that Grover Norquist would love such a constitutional amendment more than almost anything. But I doubt that the probability of that occurring is any greater than that of repealing the Sixteenth Amendment.

In other words, absolute zero.

I agree. The 16th Amendment will not be repealed. It should be, but it won't. Adding a consumption tax on top of the income tax will further harm the middle and lower classes, while those on top will continue to reap the rewards. And the beat goes on . . .

Hey, Cap'n! Hypothetical for you. A brand new country is forming. They haven't decided on a constitution, or anything yet. It's brand new. They come to you and ask, "What is the most efficient, fair and reasonable tax system we should implement?"

What do you tell them, and why?


Let's say the country is about the same size and diversity as the US.

Impeccable timing - could be a bloodbath if oil stays down, though I think it bottomed out in the high 20's. Originally Posted by DSK

I was right about that oil bottoming out - up to the high 30's already.