70 Senators agreed with Joe Stack

The main issue Joe Stack seemed to have with IRS when he crashed his plane into their offices yesterday was the “Section 1706” provision which made it difficult for “information technology professionals” to work as independent contractors. NY Times’ David Cay Johnston reports that 70 U S Senators, including original sponsor Moynihan, had agreed it raised little or no revenue and should be repealed, but somehow it survived.  Johnston also says it originated as a favor to IBM.

Is it inevitable that anything like a tax on earned income must become so complex that it virtually can’t be fixed, even when “everybody” agrees how it should be done?

How corporate taxes caused the crash

Well, not entirely, but the deductibility of interest and the nondeductibility of dividends certainly encouraged corporations to borrow more than they otherwise would have.  Combined with tax incentives, interest payments were effectively subsidized more than 100%, as explained here.

Crash recovery manual

After the Crash: Designing a Depression-Free Economy.  By Mason Gaffney, edited and with an intro by Cliff Cobb. Published by Robert Schalkenbach Foundation, 2009.

From time to time, a Georgist will suggest to me that one or another politician or academic, who seems sympathetic but ignorant about economics, should be given a copy of Progress & Poverty.  I usually reply that such persons are too famous and wise to be influenced by new ideas or logical analysis.  But now I might propose that, if one is serious about promoting wise economic policy, one might make the investment to give such a distinguished person After the Crash.

Georgists know that the crash could have been avoided by a simple policy of taxing privilege, not production.  But here we are, in a real economy which is doing poorly.  Mason Gaffney explains how we got here, and what needs to be done to get us out. Everyone who wants to understand the situation should read this book.  It is as long as it needs to be– a bit over 200 pages– and doesn’t seem to be available on the free Internet, so unfortunately some of the most vocal advocates won’t read it. Wealthy institutions– Lincoln, Cato, New America, EPI, etc.– could do no better service than to buy whatever rights are necessary to make it widely available.

Although it is listed on Amazon, Schalkenbach seems to offer a much better price.

Here are what appear to be the main points.

1. Speculation in land titles, and other types of privilege, was the main cause of the crash.  It was made more severe because banks and similar institutions financed it liberally.

2. For a job-rich recovery, we need to recognize that some types of capital investment create a lot more jobs than others. The best type of investment for this purpose turns over rapidly. Compare the number of jobs generated by a major infrastructure project— high speed rail, for instance— with the same amount of money invested by small scale businesses in working capital for inventory and payroll. Done properly, this analysis needs to cover the entire time period while the infrastructure project is amortized.

3. Current government policy at all levels focuses mainly on big projects that generate few jobs per million dollars invested.  This involves not only direct government investment, but tax laws and other practices that favor these kinds of investments.  One reason for this is that the beneficiaries– banks and monopolies– have the resources to lobby effectively.

4. Wise policy is to eliminate such programs, but not to create new ones subsidizing job-creating investments.  Rather, if we just let the market function, without taxing labor to subsidize the privileged, the recovery will be faster, broader, and more stable.

5. The “property” (real estate) tax has much better economic effects than income taxes or consumption taxes.  Even though it penalizes building construction, the effect is to channel more investment away from job-poor and into job-rich forms.

6. Banks have repeatedly got into trouble by lending on real estate, with the current crash only the most recent example.  Wise policy would insist that banks make mainly “self-liquidating” loans, such as for inventory or accounts receivable, and require that real estate purchasers provide hefty equity.

There is much much more in this book, and I started to write a much longer review, but will not complete it because no one (including me) would have the stamina to read it.  I will post some pieces of it later. Meanwhile, if you are concerned about our economic future, you should read this book.

Remember the Laffer Curve?

As a result of high taxes on cigarettes, UIC economist David Merriman estimates that “75 percent of cigarettes smoked in Chicago come from packs that don’t bear city tax stamps.”  Many, of course, also lack county and state stamps. And according to the Tribune.

In 2006, city revenues from cigarette taxes came in at a little less than $32 million. By 2008, they had declined to about $25 million. This year, they’re projected to drop again.

Helluva way to run a railroad

According to the November issue of Trains Magazine (not on the web afaik):

[T]wo key players …on the Amtrak board, Federal Railroad Administrator Joe Szabo and Amtrak president Joseph Boardman, cannot have any contact or even be in the same room together for one year due to federal ethics rules, because Boardman was the previous FRA administrator.

Couldn’t they just hire a lobbyist, or maybe get one of BHO’s Chicago buddies,  to contrive a way around the ethics laws?

Unnatural Causes

This broadcast documentary looks at the relationship between income (and other status considerations) and health, including life expectancy. Statistically, your income is strongly associated with how long you’ll live.   And recent statistics indicate that Americans’ life expectancy is lower than that of 29 other countries.

One of my favorite points regarding health care is made:

NICHOLAS CHRISTAKIS: But the vast majority of improvements in health in our society over the last century have had very little to do with medical innovation. What really counts is other kinds of things we can do, and those other kinds of things tend to be non-medical things. Like, thinking about the distribution of wealth in our society, or providing public health infrastructure, or better education for people, better housing – all of those things which aren’t medical phenomena. It’s all those that are really material for public health.

Social Security reportedly provides a higher monthly payment, relative to the amount put in, for lower income workers.  But because low income people have shorter lifespans, this doesn’t mean that it redistributes income downward.

And any post about income inequality, including this one, should include a disclaimer such as the following:

Any system of taxes and subsidies intended to equalize incomes will do so inefficiently if at all, and is likely to be perverted. An effective solution to the problems of poverty requires the elimination of privilege and the preservation of opportunity for people to earn a good living.

Originally broadcast last year, this seems to be a four hour program, and I’ve only read part of the transcript for the first hour. Thanks to Bob Matter for pointing it out.