Rethinking economic reform

by - 09:18

Remember when I talked about fixing the economy? I still consider that my best post to date but I’ve been thinking about my proposals and considered some refinements. Now of course I am still all about ending fractional reserve banking as well as the federal reserve system and replacing it with a monetary policy where the treasury prints true fiat money in the form of United States Notes totally debt free. In the same way I still support dismantling the present education system and replacing it with a dual system of primary schools that teach only language and mathematics and secondary schools that only teach marketable job skills. However I am getting ahead of myself.

The refinements I have thought of mostly pertain to my taxing and spending proposals. I’ll begin with the negative income tax which is really the foundation of my economic ideas. Production means nothing without consumption after all. If you had fully automated factories that could produce any commodity you wanted a no cost you would still be fucked without a market to sell it to. Like it or not we have to stimulate consumer spending in some way. I think a variation of the negative income tax is the ideal way to do this. There are some problems though:

1. Cast in negative terms

“Negative income tax” contains both the word “negative” and the phrase “income tax”. Nobody likes either of those. I think it should be recast as “Guaranteed minimum income” and no this is not just rebranding the same thing under a more palatable label. This renaming will also bear out policy differences which I will get to presently.

2. Income tax is probably not a good idea period

The more I think about it the less I like the idea of an income tax in principle. My original idea was to have a general income tax sans deductions and credits that would go negative at some point. I now think this is ill advised. A lot of my economic thinking of late has focused on the relationship between production and consumption. I often read that businesses are gun shy about hiring because of weak consumer spending and consumer spending is weak because employment is weak. These two negatives reinforce each other. Stimulation has to happen somewhere and I have come to believe that stimulating consumption is best done without taxing production. I have some ideas on how to tax without impeding production which I will get to shortly. Lastly the whole idea of “withholding” which is endemic to the income tax is actually contrary to what I want to do. I want people to be walking around with more money in their pockets period and taking a chunk of their paycheck off the top every month is counterproductive to that goal.

3. Discourages productive employment

I want both production and consumption to go up and reinforce each other. I don’t want an incentive for people who can work to not work. A negative income tax encourages people to not work. They will stay home to ensure that they get the full amount possible. If you have a negative income tax of ten thousand dollars nobody is going to work for five thousand and get the other five from the government when they could get the full ten by not working at all. But what about a guaranteed minimum income? If everybody is guaranteed ten thousand dollars no matter what there is still an incentive to go out and work for more if you want it. It is also more fair. EVERYBODY gets an extra ten thousand a year no matter how much they make. This will help the middle class pay their bills and keep the underclass in hot pockets and spinner rims.

4. Encourages dysgenic breeding trends

This is more to do with family subsidies than the negative income tax but it needs to be mentioned. Paying people to get married and have children is probably not the best idea when the people most likely to take advantage of that will be the worst of the worst. If anything we should try to discourage that. I would do that by limiting the guaranteed minimum income to adults. Kids get nothing. You have to turn eighteen to collect your ten thousand a year.

Now that that is out of the way we need to talk about employment. The guaranteed minimum income can help but Americans need to be working to spend significant money. The way to get Americans employed is to make Americans employable. Did you know it costs four to five times wages for a business to hire a worker? In other words if you make ten dollars an hour your net cost to that business is actually more like forty or fifty dollars an hour. This has to stop. In exchange for the guaranteed minimum income most or all labor regulations need to go. Unemployment and minimum wage are chief among those on the chopping block. Think about it. If you are already guaranteed ten thousand a year suddenly working for five bucks an hour doesn’t seem so bad, in fact it becomes workable to open businesses and factories on this side of the pacific again. Entry level work would return. It isn’t a great deal but it is better than not working at all.

Another barrier to consumer spending is the fact that most people are so crushed under debt. Now having a full on jubilee year and just canceling it all is probably not workable. That could cause catastrophic deflation. The answer is to kick the debt upwards. The federal government should take on the obligations of all state, municipal, and consumer debt with the understanding that state and municipal entities are now forbidden to run a deficit or incur new debt. All creditors will get their money. Without the crushing burden of a mortgage or credit card payments and without the state withholding his paycheck Joe Blow now has a lot more spending money. We are halfway there.

But what about all this debt? How will we ever pay it off? If not with an income tax then with what? Now I’ve been talking a lot about consumer spending. Did you know 70% of our economy is consumer spending? I think that is insane but that isn’t really the point…consumer spending is not actually the holy grail of economics. Getting people spending is not the most important thing. Consumption is only valuable in its relationship to production. If people dissolutely spending without producing anything was what made an economy healthy then America would be doing great. No, the important thing is consumption feeds off production and vice versa. We need to make it so America both produces and consumes again.

This can be done in a myriad of ways. The first thing we can do is to reduce the direct tax burden by eliminating the income tax. People will spend more if they get to keep their paycheck. We also have to take steps to assure that American consumption is stimulating American production. I think you know where I am going with this. I am talking about protectionism.

We can’t do this all at once of course. Suddenly erecting huge barriers to trade would cause the economy to tank. This needs to be done gradually. A five percent tariff on every import with no exceptions would probably not freak anybody out. We can raise it five percent a year until it is where we want it (we also need to be furiously paying down our debt held by sovereign nations to reduce their economic leverage over us, I’d say we need to run a surplus of at least a trillion dollars the first year and pay off all our debt held by China all at once so they can’t hold it over our heads).

The tariff is a handy revenue generating tool as well but that is only half of the government revenue picture. If the government is going to be assuming all of this new debt then the government is going to have to tax something. I propose we tax sales. Consumption is good…but it is not that good. If we have to tax something it is better to tax consumption than production. To meet our financial obligations this tax may have to be pretty high at first (and the IRS will have to be real nazis about prosecuting black market sales). I would say start with a national sales tax of 25-35%. We should then fiddle with it for Laffer curve maximization. Once we find the sweet spot for maximum federal revenue that will be where our tax rate sits.

Lastly spending at present levels is totally unsustainable (especially when we MUST run trillion dollar+ surpluses every year to pay down debt). I would say 90-95% of discretionary spending will have to be cut and federal entitlements will have to be gradually phased out to the point where the guaranteed minimum income will be the ONLY entitlement. The whole idea is to increase economic participation. We need more Americans making things, buying things, and paying taxes. We need to grow the economy to pay off the debt. If this was done with discipline we could probably pay off the national debt in less than a generation. Think about what that would mean: passing on to your children a nation with no debt and a job for everyone willing to work where nobody goes hungry. We could do it.

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