Sunday, November 9, 2014

the debt- it reflects the cost of busines

 The reason we have a $17 trillion national debt is because politicians try promise people $4 trillion in government services while charging only $3 trillion in taxes.  The missing $1 trillion comes money printing and loans. Printing money and unless it get's paid back loans increase the money supply which devalues the money in your pockets.  Right the government is paying on loans with new loans. This is what the debt ceiling debate is always about.
There only way this will be solved would be to increase government revenues and decrease government spending.
For to many the notion of increasing government revenue = higher taxes. The simple problem with this formula Economists from the 14th century Arab writter Muqaddimah to the modern Arthur Laffer have pointed out there are plenty of examples where tax cuts that correlated with an increase in tax revenue and tax hikes that correlate to a decrease in tax revenue. 
While correlation =\= causation, the correlation does so there are a lot of variable that can effect economic growth and thus the tax revenue.  
Arthur Laffer accounts for this with something called the Laffer which basically states if taxes are to high you'll see a decrease in revenue and like wise if they are to low you'll see a decrease in revenue.
I'd contend that the goldielocks zone of taxes- is also dynamic as well as it is shaped by the policies of other nations. 
This is easy to explain- if you have two strip malls- the first one at 1776 North American, the other at 1867 North American- and they are nearly identical except for rent- and you are planning to open a business you will naturally go to the one with cheaper rent.
So raising taxes across is to be rejected flat out. Next we have the possibility of tax simplification  two of the examples that people like Art laffer will give to tax cuts leading to an increase in revenue are the JFK and Reagan tax reforms. In both cases eliminated loopholes and deductions and lowered the rates.  I would personally favor tax rates being as low as possible and the code being as easy to figure out as possible and the code to be as simple as possible.  So I believe a simple flat tax of 10% or so would be fair this is less then our current payroll with holdings. A lot of people claim the problem with a flat tax is that the wealthy need to pay their fair share of taxes. How ever the current system results in that- first we have people like Warren buffet who structure their lives to avoid taxes then there are figures showing that the some of the upper tax brackets pay a larger share of the tax burden than their share of the GDP in terms of income.  If we only had one tax bracket lets say 10% the tax system would be a lot more fair. I do not ask for some one else to pay more in taxes than I would want to pay myself- as that is asking someone else to pay my fair share. 
The Next issue that could result in more revenue by expanding business is regulation. The typical arguments for our current regulatory code come accross like they believe the code was handed down by God and that with out it- all the food in the local grocery store would contain arsenic and if we even consider repealing a single regulation society would break down and we'd live in a world like mad max.  There might be some good arguments for some regulations- but that does not mean all regulations are good ideas.
A few things to remember- first business don't stay in business if they poison their customers.  next the current regulatory code at least at the national level is written by the agencies tasked with enforcing the rules and thus have a vested interest in expanding the code and third regulations only apply to the jurisdiction for which they are written. So if it is to expensive to comply with a regulation a company will simply locate over seas which means a reduction in tax revenue.
The bare minimum I would like to see done with the regulations would start with the CBO to figure out the cost of business in terms of taxes and regulations in 1975- the last year we had a trade surplus and today. Then congress should go segment by segment voting on what should remain law and repealing the most expensive regulations. Our current process is unconstitutional and written with an inherent conflict of interest.
Also state and cities should be doing the same with their codes as well- there might be a good argument for a regulation against dumping toxic waste in the water as it clearly hurts people but does their really need to be a state cosmetology board regulating hair cuts?
I would also target regulations that only kick into effect once you get X number of employees- as they tend to strike me as being the type of regulations that were designed to stop companies from growing.
So combine regulatory and tax reform you will see more business open up and lower prices.
then we look as spending cuts.
I support cutting government foriegn aide it might be 1% of the total budget but it is  at least 4% of the budget deficit- and since it does not effect US tax payers that is 4% that should be easy to cut.
Next we have our overseas bases there may have been an argument for bases in Europe in the early years of the cold war but now there is not.
Then finally we have welfare- corporate and individual welfare, between the two I would like to see corporate welfare cut first. One of the programs I want to see cut the most are farm subsidies and price supports which are designed to increase the price of food and thus starve people.
As we see from this video from an ethanol lobbyist https://www.youtube.com/watch?v=zyNRl-YzX4Q arguing for the RFS because it increased corn prices.  Bio fuel might some day be a goo fuel source and I'll admit I do find the idea of growing fuel to be appealing but the only way it would happen would be if the market demanded it because it was cheaper than petroleum and not because it  was mandated by the government to appease the farm lobby. I've heard some claims running a car on hemp biofuel would cost about the same as using petroleum with a much lower carbon foot print. I don't know if these claims are true but even if they are not ending subsidies and allowing farmers to grow hemp would still help the average American. Even if corn prices remained the same their will be some use for the hemp which will lower other prices.
Then once these programs get cut you can look at reforming and cutting welfare and food stamps.
Cutting individual welfare programs flat out might be political suicide but they can also be the easiest thing to cut in the budget as long as you start with the question- how are government policies increasing the cost of living? I answer some of the ways above. We might be losing the midle class because of jobs disappearing. Some scream the whole reason is the cost of labor- Americans had a history of being the most well paid workers in the 20th century and we normally had a trade surplus until 1976.  So we have to look at the difficulty in starting up and running a business and how to reduce these costs. Once they are done the deficit and the debt will slide into place

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