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Now consider deficit spending. Government retrospectively increases GDP, but does so by borrowing from tomorrow, which must eventually be paid in some form. It thus prospectively decreases GDP! It must, because you must either pay higher taxes in the future or you must suffer devaluation of your purchasing power through monetary and credit inflation.

Hmm...don't the big spenders argue that if I borrow money today I can build an even bigger road that if I tried to just pay cash? That way I will get even more traffic thru my town and be much more prosperous and then be able to pay for the road more easily. That is the argument that is made.

The real catch is that we borrowed and spent on leisure and on feeling good. We borrowed to live beyond our means. We didn't borrow to increase output or productivity. We borrowed and sent the money overseas often in return for cheaply made foreign goods. We dug ourselves a hole and now don't even have a shovel to use to dig our way out.

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Hmm...don't the big spenders argue that if I borrow money today I can build an even bigger road that if I tried to just pay cash? That way I will get even more traffic thru my town and be much more prosperous and then be able to pay for the road more easily. That is the argument that is made.

Except that it doesn't work that way because the cost of the money is never zero (among other things time has value) and everyone always seeks to make a profit. That is, you always net-net (looked at from the start of the program's cost to its final execution) spend more and get less by borrowing.

Put tax rates at the level above $250,000 at 100% if you want. But then provide a clause that states that anything anyone pays in above 33% of their total income on any taxes (cigarette, gas, liquor, real estate, local, etc) is refunded to them. I know this isn't fair because of all the jurisdictional differences but my point is that no person should have to pay more than 1/3 of their total pay into the government. And I'm talking both sides of SS and MC. Once you get to 1/3 of your income for all taxes paid that's enough.

I'm in at a pretty low tax rate. We paid about 13% of our income in taxes. But let's add 15% for SS and Medicare. Lets add 3% for property taxes. 2% for state income taxes, 7% of what we spend or about 3% of total income. A little for gas tax. Well that puts me (solidly middle class) at about 37% or more of our income is taxed away. And each additional dollar I earn is taxed at about 50%. Hardly worth working at that point.

And this is not even counting the invisable taxation of the deficit spending.

Genesis wrote..

That is, government depresses GDP today in the hope of improving it tomorrow. Government can accomplish this; it can tax you today and use the money to build a road. The road increases (you hope) the number of vehicles and thus warm bodies that pass through your town. That in turn results in more spending, which filters through to more entrepreneurs starting businesses.

Government retrospectively depressed GDP but, with wise management, produced a future GDP increase. This is good, for it is the future we should be concerned with, not the past.

That Which is Seen, and That Which is Not Seen http://bastiat.org/en/twisatwins.html#pu....

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As a temporary measure, on any emergency, during a hard winter, this interference with the tax-payers may have its use. It acts in the same way as securities. It adds nothing either to labour or to wages, but it takes labour and wages from ordinary times to give them, at a loss it is true, to times of difficulty.

As a permanent, general, systematic measure, it is nothing else than a ruinous mystification, an impossibility, which shows a little excited labour which is seen, and bides a great deal of prevented labour which is not seen.

Hard to argue with a common sense analysis. Much of our deficit spending is spent on Medicare which essentially is not building infrastructure or future GDP.

Couple items - the japanese trade deficit went negative. If Japan is going to a chronic current account deficit (yen are leaving the country) They can't recycle surplus dollars into treasuries to manipulate the yen. If Japanese stop buying treasuries I would expect treasury yields to go up which might end all the bull**** as inflation will start. Since there is no purpose to buy yen, expect the Japanese currency to weaken and since they are now energy dependent they may spiral out of control.

I see Romney and Ryan are now portraying Obama as the medicare grinch who stole Christmas. Let's call bull**** on the fiscal conservative Ryan.

I will be flamed, but:

1. Let the Bush tax cuts expire - all of them.
2. Let C corporations deduct their dividends paid. (The dividends received deduction goes away.) This gets rid of the "double taxation" of C corporations. GE can fire its tax department and hire some more engineers instead.
3. Tax capital gains and dividends the same as other income.
4. Eliminate the $3,000 limitation on deduction of capital losses against other income. Let taxpayers decide how much to deduct this year and how much to carry forward.
5. Repeal the estate, gift and GST taxes. Eliminate (or modify) the income tax exclusion on gifts and inheritances. With some exclusion amounts comparable to those in the current estate and gift tax system, gift and inheritance recipients pay income tax on the amount of cash and marketable securities they receive. They take hard-to-value assets (real estate, closely held business interests, etc) with no current tax but a tax basis of zero.
6. Eliminate the straw-man tax deferred exchanges for real estate under Section 1031.
7. Eliminate or at least limit the home mortgage interest deduction.

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your children are forced to inherit the prospective consequences of the decisions we make today.

No they won't. That "money" won't get paid back, it will be defaulted, as it should be.

Jimg, I won't flame you. I laud you. KD will disagree on cap gains. My main change would be to NOT eliminate the estate tax. If someone wins the genetic lottery, they're no more deserving than someone who wins the Powerball. The estate tax is assessed on the recipient of undeserved inherited wealth. Yes, the estate was amassed with after-tax money, but lottery ticket purchases (and thus lottery winnings) also come from after-tax money. I would allow an exemption to estate taxes up to $3-5 million in order to allow family farms and businesses to continue to operate untrammeled. Between KD's preference of 0% capital gains tax and yours of treating it as ordinary income, a reasonable compromise might be to leave rates where they are.

Also, the corporate rate should be cut in half to match Canada's.

PS, eliminate the "step up in basis" allowance for stocks within estates.

Anybody want to wager money that Obama (after he beats Romney) keeps the evil bush tax cuts.

Mortgageguymn wrote..

The estate tax is assessed on the recipient of undeserved inherited wealth.

Why are they undeserving ? What makes it so?

Mortgageguymn wrote..

I would allow an exemption to estate taxes up to $3-5 million in order to allow family farms and businesses to continue to operate untrammeled.

Why do they get an exception from your confiscation plan ? Why are not their heirs also undeserving ?

The Tax Foundation shows some interesting statistics concerning the top 1% income earners for the year 2007.

The top 1% earned AGI of $2.T
On which they paid taxes of $.451T
Which is an average tax rate of $22.5%
The cut off to be in the top 1% is $410,000 or more of AGI.

This year's budget deficit is estimated to be about $1.4T.

http://taxfoundation.org:81/article/summ....

No inheritance taxes.

Capital gains taxed at the regular rate but indexed to inflation if, you hold the item over a span that covers at least 14 months. That way we can throw out the first and last month (they are probably partial months anyway unless you bought on the 1st and sold on the 30th) and do the inflation calcualtion on the full 12 months in the middle.

No double taxes on dividends, just tax the recipient at the regular rate.

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Eliminate the $3,000 limitation on deduction of capital losses against other income. Let taxpayers decide how much to deduct this year and how much to carry forward.

Agreed, I would move toward taxing income more evenly so the distincition between capital losses and ordinary losses would be going away so the $3,000 limitation can go away as well.

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7. Eliminate or at least limit the home mortgage interest deduction.

Agreed again. The deduction distorts the price of housing and makes paying cash look less attractive when paying cash should be the most attractive.

Switch SS over to a true pay-as-you-go system with SS taxes staying where they are. If SS takes in more than it needs, it can do refunds to those who are paying in. If it is not taking in enough, then those who are getting benefits have to take a cut. Adjust retirement ages up to reflect longer lifespans.

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Anybody want to wager money that Obama (after he beats Romney) keeps the evil bush tax cuts.

They should now be called the Obama tax cuts for the rich. He had the opportunity to end them in 2010, he and the democratic controlled congress chose to extend them.

Why are we borrowing money to pay union wages and benefits again? So we can go broke faster!

If there is no tax currently imposed on inheritance of hard-to-value assets on death, but a zero tax basis, there is no forced sale of family farms or small businesses to pay estate taxes, regardless of what the exemption amount may be. No expensive appraisals or court fights about value as we see in the current estate tax system. The tax man get his cut when the property is ultimately sold instead.

I disagree with an inflation adjustment for capital gains. Other forms of income have an inflation compensation component as well (e.g. a certain portion of bond or CD interest), and there is no adjustment for that. Long term capital gains are HUGELY tax-advantaged even when taxed at the same rate as regular income because there is no tax until the asset is sold.

For example let's say you have a $100,000 bank account that will earn 5% interest per year. Let's say you also buy a $100,000 piece of land that appreciates at 5% per year. In a tax-free universe, at the end of ten years, the bank account and the piece of land are both worth the same amount - $162,889.50.

In a world where there is a 20% tax on both capital gains and interest income, the result is very different, because you pay taxes on the 5% bank account interest every year. At the end of ten years, you have $148,024.40 in the bank account after all taxes have been paid. If you sell the land after ten years, you pay 20% tax on the capital gain of $62,889.50 which is $12,577.90, which leaves you with a net of $150,311.60. At higher appreciation rates and over longer periods of time the difference becomes much greater.

Capital gains do not need a preferential rate. They are already tax-advantaged. The ONLY reason I ever saw to justify a capital gains preference is the double taxation of C corporations and the limitation on deduction of capital losses. I propose to eliminate both of those justifications.

Thanks for the link Bsfootprint! I see here Bastiat also trounces the idea of federal loan backstops:
http://bastiat.org/en/twisatwins.html#cr....

Frederic Bastiat wrote..

In all times, but more especially of late years, attempts have been made to extend wealth by the extension of credit.

I believe it is no exaggeration to say, that since the revolution of February, the Parisian presses have issued more than 10,000 pamphlets, crying up this solution of the social problem. The only basis, alas! of this solution, is an optical delusion - if, indeed, an optical delusion can be called a basis at all.

The first thing done is to confuse cash with produce, then paper money with cash; and from these two confusions it is pretended that a reality can be drawn.

It is absolutely necessary in this question to forget money, coin, bills, and the other instruments by means of which productions pass from hand to hand; our business is with the productions themselves, which are the real objects of the loan; for when a farmer borrows fifty francs to buy a plough, it is not, in reality, the fifty francs which are lent to him, but the plough: and when a merchant borrows 20,000 francs to purchase a house, it is not the 20,000 francs which he owes, but the house. Money only appears for the sake of facilitating the arrangements between the parties.

Peter may not be disposed to lend his plough, but James may be willing to lend his money. What does William do in this case? He borrows money of James, and with this money he buys the plough of Peter.

But, in point of fact, no one borrows money for the sake of the money itself; money is only the medium by which to obtain possession of productions. Now, it is impossible in any country to transmit from one person to another more productions than that country contains.

Whatever may be the amount of cash and of paper which is in circulation, the whole of the borrowers cannot receive more ploughs, houses, tools, and supplies of raw material, than the lenders altogether can furnish; for we must take care not to forget, that every borrower supposes a lender, and that what is once borrowed implies a loan.

This granted, what advantage is there in institutions of credit? It is, that they facilitate, between borrowers and lenders, the means of finding and treating with each other; but it is not in their power to cause an instantaneous increase of the things to be borrowed and lent. And yet they ought to be able to do so, if the aim of the reformers is to be attained, since they aspire to nothing less than to place ploughs, houses, tools, and provisions in the hands of all those who desire them.

And how do they intend to effect this?

By making the State security for the loan.

Let us try and fathom the subject, for it contains something which is seen, and also something which is not seen. We must endeavour to look at both.

We will suppose that there is but one plough in the world, and that two farmers apply for it.

Peter is the possessor of the only plough which is to be had in France; John and James wish to borrow it. John, by his honesty, his property, and good reputation, offers security. He inspires confidence; he has credit. James inspires little or no confidence. It naturally happens that Peter lends his plough to John.

But now, according to the Socialist plan, the State interferes, and says to Peter, "Lend your plough to James, I will be security for its return, and this security will be better than that of John, for he has no one to be responsible for him but himself; and I, although it is true that I have nothing, dispose of the fortune of the taxpayers, and it is with their money that, in case of need, I shall pay you the principal and interest." Consequently, Peter lends his plough to James: this is what is seen.

And the Socialists rub their hands, and say, "See how well our plan has answered. Thanks to the intervention of the State, poor James has a plough. He will no longer be obliged to dig the ground; he is on the road to make a fortune. It is a good thing for him, and an advantage to the nation as a whole."

Indeed, gentlemen, it is no such thing; it is no advantage to the nation, for there is something behind which is not seen.

It is not seen, that the plough is in the hands of James, only because it is not in those of John.

It is not seen, that if James farms instead of digging, John will be reduced to the necessity of digging instead of farming.

That, consequently, what was considered an increase of loan, is nothing but a displacement of loan. Besides, it is not seen that this displacement implies two acts of deep injustice.

It is an injustice to John, who, after having deserved and obtained credit by his honesty and activity, sees himself robbed of it.

It is an injustice to the tax-payers, who are made to pay a debt which is no concern of theirs.

Will any one say, that Government offers the same facilities to John as it does to James? But as there is only one plough to be had, two cannot be lent. The argument always maintains that, thanks to the intervention of the State, more will be borrowed than there are things to be lent; for the plough represents here the bulk of available capitals.

It is true, I have reduced the operation to the most simple expression of it, but if you submit the most complicated Government institutions of credit to the same test, you will be convinced that they can have but on result; viz., to displace credit, not to augment it. In one country, and in a given time, there is only a certain amount of capital available, and all are employed. In guaranteeing the non-payers, the State may, indeed, increase the number of borrowers, and thus raise the rate of interest (always to the prejudice of the tax-payer), but it has no power to increase the number of lenders, and the importance of the total of the loans.

The true libertarian position is to get rid of the income tax. It is also to get rid of the big central government, which is sucking about 1/3 of private resources away from productive purposes. A property based tax system, mainly on real estate would be a much more legitimate way to go. Live in a little house pay a little tax. Live in a big house, pay a lot of tax. But, this would limit the amount of money banks could lend on property and would destroy the capacity to inflate credit. It would also put a bill in the mail to everyone who owned property, which would raise a massive protest in a matter of no time.

I would take the protest this far. Don't let your state get in over its head in debt. Even if you have to school your own kids, don't allow it to occur. The United States is going to go broke. Look up the definition of the United States in most US law. Washington DC, Guam, Puerto Rico, US Virgin Islands...
The result is the states are going to have to pick up the functions of government. I would sense that succession would be likely again. Of course, the bankers would foreclose on the US military and invade us.

@Morla, I find it interesting that Bastiat and Locke were so prescient. Or, put another way, I find it depressing that so many people are ignorant of these elementary tracts on why and how the statists screw people...

The inheritance tax is paid only by the ignorant or ill-prepared. Ever heard of trusts?

There are plenty of legal, legitimate ways around the inheritance tax. Why do people speak of it as if the targets will not act to avoid it?

All these tax schemes do is to force people to employ small armies of tax attorneys and accountants (thus forcing you to engage with these creatures.)

Trust me, Kennedys, Gores, Obamas, Bidens, Kerrys, Kochs and Buffetts don't stand idly by when these laws are aimed at their wealth, and allow taxes to strip their accumulated wealth from their progeny.

Like all taxes, inheritance taxes are avoided by those who have the means to do so -- and the wealthiest have the greatest means, don't they?

Or did you think each generation born into wealthy American families starts from scratch?

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If someone wins the genetic lottery, they're no more deserving than someone who wins the Powerball. The estate tax is assessed on the recipient of undeserved inherited wealth.

What a crock of ****. Taxing inheritance, is to lay claim to something that's already been taxed AGAIN. No different than the blatant THEFT of charging sales tax on a used car. If somebody inherits a crapload of stock from a company...they'll still have to pay tax to realize any gains there...so, why do you want to repeatedly tax the same money?

"Undeserved" = "got more than me"

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For example let's say you have a $100,000 bank account that will earn 5% interest per year. Let's say you also buy a $100,000 piece of land that appreciates at 5% per year. In a tax-free universe, at the end of ten years, the bank account and the piece of land are both worth the same amount - $162,889.50.

Those two items are not the same. The bank account is a short-term investment that also pays you every year, thus giving you flexibility. The land may or may not yield some rent but is also much more illiquid.

The real catch is that the land may not go up in value at the inflation rate, in which case you may actually lose purchasing power on your money and also owe income tax on it as if you gained purchasing power. Some friends of mine just sold the family farm that had been in the family for 60 years. The majority of the capital gains tax they have to pay is the result of inflation, not in gain of purchasing power.

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You have to pay that same tax on nominal gains in your bank account.