Keynesians Have Shot Their Only Bolt -- How Will They Spend Their Way Through The Next Crisis?

Governments have spent so much, to so little effect, to try to stimulate the current economy, I wonder where they will find the resources to spend more the next time?  Because you can be sure that despite the fact that we are likely near the top of a weak cycle, no one is paying back what was spent in the last recession or proposing to reduce central bank balance sheets.

This is a couple of years old, but tells the story pretty well:

The financial crisis that began in late 2007, with its mix of liquidity crunch, decreased tax revenues, huge economic stimulus programs, recapitalizations of banks and so on and so forth, led to a dramatic increase in the public debt for most advanced economies. Public debt as a percent of GDP in OECD countries as a whole went from hovering around 70% throughout the 1990s to almost 110% in 2012. It is now projected to grow to 112.5% of GDP by 2014, possibly rising even higher in the following years. This trend is visible not only in countries with a history of debt problems - such as Japan, Italy, Belgium and Greece - but also in countries where it was relatively low before the crisis - such as the US, UK, France, Portugal and Ireland.

So over a third of the debt that has been built up in all of history by Western nations was added in just a few years from 2007-2012.  At the same time, the central banks of these countries were adding to their balance sheets like crazy, essentially printing money in addition to this deficit spending.  In the US, the Fed's balance sheet as a percent of GDP hovered around 6% until the second half of 2008.   That had tripled to over 18% in 2012 (source).  At the same time, European central bank assets grew from about 7% to over 16% of GDP.

James Taranto has a regular feature named after a reporter named Fox Butterfield.  The feature takes statements such as "Despite Mary getting a PhD in Peruvian gender studies from Harvard, she has struggled to find a job" and argues that the "despite" should be replaced by "because".

This is certainly true of the statement that "despite record stimulus and Fed balance sheet expansion, the economy has remained sluggish".  That "despite" should be "because of".  The government continues to distort the allocation of capital and wonders why investment is sluggish and tends towards bubbles in certain assets.  Japan has stimulated for 25 years to absurd levels of debt and has gotten 25 years of sluggishness in return.

All this reminds me of a story in one of my favorite business books, "Barbarians at the Gate."  Back in the day, tobacco companies had a practice of jamming inventory into the channel just ahead of the semi-annual price increase.   They called this "loading."  The channel liked it because they got cheap product to sell at the new higher prices.  The tobacco companies liked it because it boosted quarterly revenues at the end of the quarter.  But that boost only happens once.  To show growth the next quarter, one must load even more.  Over time, they were jamming huge amounts of inventory into the channel.  I have never been a smoker, but apparently freshness is an issue with cigarettes and they can go stale.  Eventually, the company was loading so much their sales started to drop because everyone was buying stale cigarettes.

In find this a powerful metaphor for government interventions in the economy today.

Postscript:  I will give another example.  In Arizona, we are on a July-June fiscal year.  Years ago, some government yahoo had the bright idea to close a budget hole by passing a law that all businesses had to pre-pay their estimate of sales taxes due in July a month earlier in June.  For that one glorious year, politicians had 13 months of revenue to spend rather than 12.

But to set things aright the next year, they would have to live with just 11 months of revenue.  No way they were going to do that!  So they did the pull-forward thing again to get a full 12 months.  And they have done it every year since.  It has become an institution.  All this costs a ton of money to process, as the state must essentially process a 13th return each year, presumably paying overtime and temp costs to do it.  All for the benefit of one year where they got the use of one month of revenue early, we have been stuck with higher state operating costs forever.


  1. DaveK:

    Another example of "channel stuffing" is seen in the automobile industry... To push sales, the auto companies come up with ever more complicated schemes to reduce the monthly payment for a new car. The problem is that the only real way to reduce the payments is to lengthen the term of the contract, and so car owners and lessors find themselves upside-down with value vs debt for not just the first year or two, but for perhaps the entire term of the contract that may now extend out for 10 years!

    If your trade-in value is negative, how can you afford to buy the next new car? How can the auto company sell you one when you can't even afford to make the required payments on that fully-depreciated beast you are still driving around?

  2. Joe Mama:

    "... I wonder where they will find the resources to spend more the next time?" I suspect they will attempt to tax companies like Facebook. The rational will be that Facebook has a larger capitalization than Walmart yet pays nearly no taxes. Facebook records will be subpeoned to calculate the number of users on a nation-by-nation basis as preparation for a "head tax". Facebook will purge their zombie users to minimize their tax exposure. As many as 70% of their user-base, that number that they breathlessly report every quarter, might qualify as zombies. The roaches will scuttle for safety when the light is flipped on and transparency occurs. Market Cap will drop to 10% of what it is now.

  3. morganovich:

    keynsiansim is a form of "bigger hammer theory."

    they will simply claim that the last one was not big enough and demand a bigger hammer. they will use the "it would have been much worse if we hadn't" argument.

    "find the resources?" they'll print them.

    the fed will buy another 5 trillion in debt.

    nothing need be found except a fed chair willing to run a ponzi scheme, and those appear plentiful.

    they will crank up the tier one capital ratios and limit acceptable assets and makes the banks buy too.

    add to this the impending catastrophe in the oecd of massive welfare state promises made that cannot be kept along with no will to cut or fix the system, and you get a recipe for horrific currency collapses.

    this is exactly why (over the next 20 years) i am so bullish on the rise of non governmental currencies and bearish on government scrip.

    democracies and welfare states lead to inevitable collapse.

    at some point, the size of the hammer crushes you.

  4. SimonF:

    This is a really good Cato podcast that explains why the Fed is causing a miss allocation of funds and more.

  5. mlhouse:

    The way to bring back growth is to reform the tax code in a way that delivers efficiency and supply side incentives.

    My plan replaces all of the existing taxes with the following:

    1. Gross income tax: a 15.4% tax on all gross income: earned W-2, dividend, capital gain, interest, subchapter-S. You earn a dollar, $0.154 is withheld from your earnings and paid to the federal government.

    2. "Net" income tax: a 10% tax on all earned income over $250,000. You get a single $250,000 exemption and pay the 10% on everything but your investment incomes (dividend, interest, cap gains).

    3. National Sales Tax: A 3-8% tax on all sales.

    This plan is efficient, replacing tons of ridiculous tax codes, forms, and accounting. It is at least revenue neutral because the rates and exemptions basically match to what effective tax rates (total taxes divided by total income) is around these factors. It is supply side growth orientated dropping the marginal tax rates from 40+% to 25%.

    And while the national sales tax might not be favored by many, the current corporate income tax is in actuality an excise tax. But that tax is on the back end of the revenue stream and corporations and businesses go to great extent, often inefficient, to reduce their tax burden. In fact, many corporations essentially transfer their taxes to offshore entities in countries without corporate income taxes. It is also really difficult for the public to understand all of the lobby inspired tax benefits that these corporations get.

    Further, while the sales tax would be tacked onto the cost of a good or service, in the end efficiencies generated by the simplicity of the tax would probably allow cost savings that then can be passed onto consumers.

  6. morganovich:


    that plan would never work as it carries in it a terrible, distortionary flaw.

    to tax gross income is to destroy investment and skew industries terribly. imagine this as a business.

    very few businesses even have a 15% operating margin. taking 15% off the top would bankrupt the majority of us businesses.

    further, it's massively distortionary. if you sell a low gross margin product, then you're cooked. no one will sell socks. everyone will want to focus on software.

    this level of taxation is INSANELY higher than current taxes. for a business, i'd bet it's a tripling of tax burden.

    this plan is not efficient, it's outlandishly destructive to business.

  7. mesaeconoguy:

    Yep, outstanding explanation morg.

    Keynesianism is also an excuse for politicians to behave dangerously and irresponsibly. It gives all politicians an out for couching catastrophic profligate spending as “stimulus” or similar, facilitating payments to politically connected parties without fear of immediate consequence, and zero incentive to curtail.

    It is carte blanche for fiscal catastrophe.

  8. mlhouse:

    Sorry, but you are the INSANE one.

    1. Taxing "gross income" does not destroy investment. Currently the capital gains tax is 15% for long term, your marginal tax rate for short term. That means that in some cases capital gains are being taxed at 39.6% plus FICA. In this situation the capital gains tax is 15.4%. The tax in interest income: 15.4. Right now the current tax rate on interest income is your marginal tax rate. Tax on dividends, 15.4%. And interest, cap gains and dividends are exempt from the "net tax"

    2. What the "triple tax burden" is just a figment of your imagination. C-Corps would not be taxed at all. S-Corps would be taxed at a top marginal tax rate of 25.4% versus 39.6% plus FICA today.

    3. Your babbling about "operating margin" just demonstrates you have no concept of what you are trying to talk about. The taxes do not apply to GROSS, but only net income distributed as dividends or S-Corp distributions. So, please, try to comprehend first, comment second.

    4. As far as the gross margin products, there already is sales taxes at state and local level. The sock industry exists. Having Hanes Brands worry about collecting a sales tax rather than distort their income tax, set up sham companies in the Netherlands, Ireland, and Grand Caymans, and employ an army of tax accountants to figure out other inefficient schemes to avoid taxes is a highly efficient process. Taxes collected at POS are easy to account for, easy to collect, and easy to measure. They are very visible. A VAT or sales tax is a much more effective way of taxing corporations and business than the system we have now. And these efficiencies would be passed onto the customer, mitigating the sales tax to a great degree.

  9. vikingvista:

    Plans that require the bad guys to suddenly start doing a good thing, I find as odd. Maybe, if it were a big enough undistracted political issue, you could get something simple like a partial cut in rates, a simplifying elimination of some deductions, an increased deduction on savings, or possibly a 1 paragraph Constitutional amendment. But even those things are rare and short-lived (e.g., how long does a Constitutional restriction last before governments find a way around it?).

    If you want to achieve a significant lasting improvement in the government's impact on society, your first best option is to give up, and instead focus on something you can affect.

    Your second best option is to strive to create a culture of irreverence for politicians and their dictates--ways that encourage people to find safe means of ignoring legislative authority (e.g., encrypted internet commerce, Charles Murray's legal defense fund idea, various peaceful black markets).

    Of course, people have a fairly good irreverence for politicians already, but there is that weird glaring disconnect when it comes to politician's dictates, with almost everyone believing that disobedience to our master's commands *should* be dealt with brutally, rather than with praise.

  10. Matthew Slyfield:

    1. The longest auto loan contract I have seen or heard of is 6 years, (I just bought a Ford F150).

    2. A lessor can never be upside-down with value vs debt because a lease is not debt and the lessor does not own the vehicle, so the value/debt on a lease is by definition 0/0. There is never any trade in value on a lease, because again the lessor does not own the vehicle.

  11. Matthew Slyfield:

    Next time you talk to a Keynesian, ask them if they want to see your Hammerfor.

  12. morganovich:

    "What the "triple tax burden" is just a figment of your imagination.
    C-Corps would not be taxed at all. S-Corps would be taxed at a top
    marginal tax rate of 25.4% versus 39.6% plus FICA today."

    seriously, can you be this unsophisticated? no tax for c corps? fantastic! i'll have 3 by tomorrow. they will take in all my income, i'll pay not tax because, personally, i have almost no income. they will own my houses, my cars, my investments, even my furniture. hell, i can probably create a fashion website that will own my clothes.

    you appear to have no idea how people respond to incentives.

    i won't own my house or car, a c corp will. the speed with which we will all start engaging in inefficient and ridiculous tax planning structure to avoid this will stun you. employers will not pay you, they will provide benefits. company car, house, travel, name it. if you think your system is hard to game, then you are an utter naif.

    you also get your facts wrong. cap gains is not 15%, it's 20% +4% for obamacare.

    your plan will make it worse. 15 +10 is still higher than that and cap gains for those earning under 250k is pretty immaterial for overall investment.

    of course, i'll just shunt all my investments into my c-corp...

    you are clownishly naive here.

    you are also moving your goalposts. originally, you said:

    "Gross income tax: a 15.4% tax on all gross income:"

    you are now trying to exempt c-corps. but you did not say that in the first place. you are just trying to cover for your stupidity and hide you inability to write clearly behind attacks on others comprehension.

    exempting c corps just creates a new problem that you appear not to understand.

    there are arguments for a VAT (and against it), but a gross income tax is just stupid.

    you cannot apply it to companies but if you fail to do so, everyone will incorporate. all you are doing is shifting the tax avoidance game and making it more, not less complex.

    loud, ignorant, and rude is no way to go through life son...

  13. mlhouse:

    1. Everything you say about having a C-Corp own your house, cars, investment exists in today's environment. You can do all of that. The incentives are probably even greater today because the marginal tax rates are higher. The problem with this concept is that it is illegal. While you may believe that you can just set up such an entity, you simply cannot. Your "corporation" would have revenue of $0 and expenses. Even the fools at the IRS would figure that one out.

    2. With the concept of illegality, when responding to incentives the lower rates will have a tendency to move economic activity into the light. It is one thing to play loose with what is a deductible expense when the tax rates are 40+%. It is another when they are 15%.

    3. As far as having wrong "facts", it really is not that important. That the current capital gains tax rates are higher than what they would be under this plan only makes reform better.

    4. The claim I am just covering for not saying that C-Corps would be exempt from taxes really isn't my stupidity, it is yours. I explained this. The current corporate income tax isn't an income tax at all, it is an excise tax. So, instead of putting this tax at the back end of the revenue stream and put one of the highest rates, put it at the front end were it is more efficiently collected, is more transparent, and more efficient economically. A sales tax cannot be moved offshore like many corporations do to avoid taxation and it does not need an army of tax accountants.

    5. As far as your comments about a "gross" income tax being stupid, it really isn't. In fact, almost every American already pays this in FICA taxes on every dollar they earn. For those individuals that make more than the Social Security maximum, with the $250,000 single exemption the "gross" plus the "net" income taxes is very similar to the average tax rates wealthy individuals currently pay but comes with the growth providing reduction in marginal rates.

    6. I think you should review who is loud, ignorant and very, very rude. I think you have already failed in life dude.

  14. randian:

    You could have all your personal stuff corporate owned, but it would be tax fraud under current law and presumably would still be tax fraud under the proposed law.

  15. morganovich:


    you seem to be getting the facts wrong.

    yes, i can have a c corp own whatever. i don't because it would largely be a push. c corps pay 35%. for most people, that would be a tax hike. you pay 15% even on the first 50. you pay 25% to 70. on the money from 100-335 you pay 39%.

    this would make it far more expensive for folks to do this. so, no one bothers. but if this tax rate were zero it would be exceedingly worth it.

    my corporation would have revenues. it would be a consultancy. it would take in any income i earn as fee revenue. it would have expenses including a tiny salary paid to me. it would retain the other earnings.

    have you ever run a business or done anything at all in finance? you seem remarkably unable to think in terms of these structures.

    2. you are wrong on tax burden. most people in the US would pay far more tax under your system. the 15% off the top would see to that. the average federal tax rate is only about 17%. but that is on adjusted income, not full income. 40 some % of americans today pay NO income tax. if you take away tax deductions, people will just find new forms of shelters and tax arbitrage. have you ever actually done any corporate taxes? you seem to have no idea how this works. your system is higher tax for most americans. but that does not even really matter much. an arb as big as the one you propose will be exploited like crazy. that fact that this is not painfully obvious to you is automatic evidence that you are not qualified to speak on taxes. the system you describe is obviously and fatally flawed.

    3. it's just more evidence you do not know what you are talking about. further, cap gains rates right now are much too high and yours wind up higher for most of the important part of the investment community. under 250k in income controls a small. 75% of us wealth is owned by the top 10%. a third is owned by the top one %. you breakpoint is irrelevant to them.

    4. you still do not get this, do you? the issue is not one of dollars or ease, it's one of tax arbitrage. you can hit a corporation with a sales tax, but that is paid by the customer. if the corporation pays no tax, then i will run nearly all my income and costs through it.

    5. fica is not paid on gross income. it's paid on taxable income. that is nothing like the same thing. if you are clever, your taxable income is WAY lower than your gross income. it's also capped at $117k. this is a helluva lot more expensive to a high earner.

    6. i have. it's you. i have a no first use policy on calling people idiots. you went first, now you reap what you sow.

    you appear to have little grasp of the facts and less grasp of how a business works and none at all of how people respond to arbitrages.

    you'd have a massive industry crop up overnight to game your system. hell, i'd fund it.

  16. morganovich:

    let's take a simple example to demonstrate why your system wouldn't work.

    a married uber driver takes in $50k a year for his household. this is pretty much bang on the US average.

    in your system, he pays 15.4% of gross income in tax. the customers pay the sales tax. this makes his offering more expensive and reduces demand, but let's leave that aside.

    that's 7.7k in tax. he takes home 42.3k. of course, that 42.3 k does not buy as much because prices are higher. for simplicity's sake, let's use a 5% fed sales tax. that means that makes is $40.2 in comparable buying power.

    (of course, he has not paid for his business materials yet. we'll get to that.)


    now let's look at today's system. he takes in $50k. he has a car lease for his ubercar. it's $300 a month. he pays another $100 in insurance. he spends another $250 on gas. he spends another $150 on a smartphone service. that's $9600 a year. he also owns a home. let's call that 200k. the interest on his 160k mortgage is 4%. that's 6.4k.

    let's leave all the other deductions aside. that's 34k in taxable income. (he files as a sole proprietor)

    he pays nothing on the first 18150. he pays 15% on the rest. 15% X (34-18.15) = 2.38k in tax. you'll also pay about 4k in fica.

    OK. so, total tax is 6.38k. that leaves him with 45.62k, 5.42k more. that's 13.5%. NOT a small difference.

    of course, under your system, he'd just game it. he'd incorporate "uber by mlhouse inc". this company would hire him. it would own his house and lease it to him for $1. (which would be about all he could afford as he'd pay himself so little). it would reimburse meals. it would buy "uniforms". it would lease the car etc. it would retain nearly all the earnings. ti would pay no tax on them.

    i mean, i can whip this up in 5 minutes. give me a team of serious tax lawyers and 6 months and i'll come up with such a bewildering array of structures that no one will even have any idea what owns what. i'll create a service that sells them turnkey. after all, once you figure this out once, the cost to sell it again is very low.

    a system with no corporate income tax and an individual income tax with no deductions is simply not viable. even having grossly different rates is not really viable. the tax arbitrage on it is simply too attractive.

  17. mlhouse:

    1. C-Corp. Sure a C-Corp can own a home. But you are imagining things incorrectly. I actually own an S-Corp. Why don't I transfer my homes (multiple) into my S-Corp and treat their costs as an expense (and lower my total income)? The answer is obvious and the answer to your "gaming" is the same. It is not a legitimate business expense. It is not deductible. Nothing changes with in this aspect of the business world.

    2. Sorry, but in #2 you are incorrect. The bottom 40% of people may not pay income taxes but they are taxed 15.3% of their gross income in FICA taxes. The 15.4% is deliberately chosen to match that rate. So, for those 40% of households their tax burden remains exactly the same. For people who currently pay income taxes and earn under $118,000 their gross tax is actually less than what they pay now because they would pay 15.3% plus their income taxes. For people who make more than $250,000 their taxes would be very similar to what they pay now given the historical average tax burden.

    3. Capital gains tax would be 15.4%. Capital gains, interest and dividend incomes would not be subject to the "net tax. That was clearly stated.

    4. It is true that a sales tax is paid by the consumer. But so is a corporate income tax. The difference is that a sales tax is more efficient. Since the sales tax is collected at POS Apple or Google cannot move the profit centers to off shore corporations and avoid US taxes. They cannot create other tax schemes to avoid paying taxes. Since most of these processes are inefficient, designed just to save a little more than the 35% the corporate tax would take and the point of sales tax is easy and efficient to collect, much of the savings can then be passed onto consumers. If the sales tax was 8% I would estimate that around 2-4%, or about half, could be recouped in efficiencies from the better tax system.

    5. FICA is paid on gross income. The only way to avoid FICA taxes is to have legitimate qualifying expenses, such as health insurance or child care. You even pay FICA taxes on the amount of money you put into a 401(k).

    6. Again, the person who claimed that FICA is paid on taxable income is calling someone an idiot.

  18. mlhouse:

    Here is an actual example.

    A person (or household) has $100,000 in income. $18,000 in itemized deductions. 4 standard exemptions.

    They would pay $15,300 in FICA taxes, Call it $70k in taxable income so they would pay $9,596 in federal income taxes. Total tax burden would be $24,896.

    In my tax plan they would pay 15.4% of the $100,000 or $15,400 in gross income taxes. They would also then pay 3-8% of what they purchase. Lets say $65,000 of their income was subject to the sales tax spent on consumption. That is a sales tax of $5,200. Their total tax burden would be $20,600.

    As far as your idiotic "gaming", that can all be done today. The problem is that leasing your house and expensing it as a business expense would not be a legitimate business expense. And it would still not be a legitimate business expense. SO some may try to game the system, as they do today, but very few would because the savings just are not worth getting caught. Tax compliance is inversely correlated to tax rates. The tax "arbitrage" you dream of simply does not exist.

  19. John O.:

    You come from a very strange universe, who in their right mind would try this in any ordinary circumstance. While economics is nothing but a study in incentives, there's very little motivation for the proposal you are criticizing to allow this type of fraudulent accounting and tax dodging. I would expect the taxing authorities to be very ruthless in prosecuting this type of accounting and tax fraud.

  20. morganovich:

    wow. you are clearly just never going to get this.

    you keep babbling this same moronic point. "As far as your idiotic "gaming", that can all be done today" uh, sure it can. in uncommon cases, it is. the reason it is not is that there is no INCENTIVE to do it. it does not generally save money. mostly, it puts you in a higher bracket. the tax arb does not exist in most cases today. it would under your system. this is absolutely elementary stuff. my cat could see this.

    you are also utterly un-innovative.

    "The problem is that leasing your house and expensing it as a business expense would not be a legitimate business expense" sure it is. it's an employee perk. it's office space. my corporation is a conglomerate that has a division that runs as a reit or as a landlord. there are a hundred ways to do this. the fact that you cannot see this is exactly why you have no business speaking to this topic. you're just going to set off a new arms race for tax dodging. the IRS will close loopholes, clever tax lawyers will kick out new ones, and the game goes on. the IRS moves slowly and has low end talent. they keep up because they get to make the rules. but if an arb this wide is left open, no way they can manage it. if you think so, you're clownishly naive.

    then we come to your laughable example.

    your cherry pick of an an example is both wrong in its specifics and non-representative. i chose a pay level at the national average for a reason. your example is for the 90th percentile. then you make up nonsense facts. you think such a person would have less that $2k a month in itemized deductions? they'll have more than that on mortgage alone. realistically, that number is going to be more like $40k, more if they are self employed. nice try, but your example is total bunk. the fact that you have to use such a non representative example to make your case then distort it's facts tells it all. further, ALL their income is affected by the sales tax in real terms. we care about real, not nominal. you have effectively increased the price level. that reduces the scope of buying opportunities in real terms.

  21. morganovich:


    that is simply not so. "allow"? the tax code must make allowances for businesses. the laws have to suit them. those laws do not get to change based on who owns them.

    so, if a c corp pays no income tax, just how do you tell me i cannot start one to run a consulting business and pay no tax on the income?

    i do not think you understand this situation. it's not fraud, it's structure. if you open up an arbitrage opportunity this wide, people will structure to suit. the only way to stop it would be to ban business entirely or to close the loophole. that, of course, is not possible with a tax in gross revenue. business cannot be taxed that way.

    that's why this whole idea is a loser. it creates a fundamental an inescapable tax arbitrage that breaks the system.

    it also demolishes the most vibrant part of the new economy: the one man business.

    what does this proposal do to an uber driver, an IT consultant, a free lance journalist, a website owner, or a contract engineer?

    they will either be taxed to oblivion or they will incorporate and retain the earnings in the inc.

    there is no fraud there. are you going to tell a business that it's offices, equipment, travel, marketing, uniforms, tools, insurance, and a thousand other things are not business expenses?

    i do not think you have thought this through.

    you're just making an appeal to authority fallacy into an argument.

  22. bigmaq1980:

    Yep, if gives them cover. Lest anyone think it is just Dems, we see the GOP on this wagon too, just that they buy votes from a different constituency.

    Japan should be evidence enough that a country with a strong currency (vs other western nations, beside the US) just cannot rely on government (or its entities) borrowing to spend its way into prosperity.

    But, in much the say way as people (who should know better - e.g. Krugman) ignore the success of the freer market of the US to provide prosperity to its citizens (vs other countries currently and in history), while proclaiming that government must provide, they ignore the Japan example.

  23. bigmaq1980:

    Having reviewed many tax plans, the best seems to be to eliminate taxes (and so called "fees") and replace with a VAT.

    For the poor, would eliminate all programs (and their accompanying inefficient, costly bureaucracies) and consolidate it into a single tax rebate program that operates on a declining schedule as people earn more money (i.e. each dollar earned reduces an increasing share of the rebate, so the individual ends with a net positive by earning).

    Don't know about praising disobedience, as it is highly situational. Nonetheless, turning that irreverence into a call for less government is key. Murray's legal defense fund is also an excellent idea on how to combat the increasing encroachment of the public sector.

  24. morganovich:

    fica is NOT paid on gross income, especially on the employer side. clearly, you have never hired anyone.

    it is also not paid on net income for the self employed.

    all your system will do is jack up the number of self employed. you'll be a consultant to cisco, not an employee. the employers will LOVE this. they would love you to do it now, it's just that you have so little incentive to want to.

    taxing income at all is a bad, fraught, and distortionary practice that gets worse and more harmful the more progressive that taxation is.

    all the taxes that can be should be moved to a use basis. you pay per mile driven for roads, a fee on you plane ticket for the FAA etc. there should be no ponzi healthcare and retirement schemes. it should all be private accounts. we can do a national property tax as well. we can do a national VAT which is very different from the sale tax you propose. a sales tax on "all sales" is too simple and too repetitive. if i pay tax to buy a product from a distributor who paid tax to buy it from the manufacturer and then charge my customer tax, that is triple taxation. thus, your idea of "all sales" is just ridiculous. you either need to exempt non final sales or you need to use VAT.

    i'd be find with a head tax as well. but cap gains for risk capital should NEVER be taxed, neither should income.

    those are the two most destructive and distortionary forms of taxation.

    we also need a much lower tax burden, not the higher one you suggest.

    the federal government has collected 19% as a % of gdp as taxes since ww2. it has varied incredibly little year to year. this is drag and waste.

    what we need is to figure out how to get that down to 10%, not up to 21.5.

  25. vikingvista:

    I hope your assessment of "best" includes a rational analysis of the political system. E.g., it should include the fact that once a government breaks new ground in its powers, the cat is out of the bag. You may want to eliminate taxes and fees, but they will of course quickly return. Whatever new power you ever want to give government, it will almost always wind up an addition to, rather than replacement for, existing powers.

    "Don't know about praising disobedience"

    Well, whatever the solution, it must be something that does not employ the political system. Government solutions to government problems have a comical if not tragic history. A knowledge of history (not to mention incentives) is all that is needed to dismiss such fantasies.

  26. bigmaq1980:

    Well, I couldn't write a treatise here on how all this would have to go down.

    Of course, there is the politics of the situation. That alone, ceteris paribus, means we probably won't get any change other than incremental, which makes mine and other proposals above just fantasy.

    "it must be something that does not employ the political system"

    People have ignored the political system all along, and that is the problem. It requires care and feeding just like our family, our jobs, etc.. What we see is the result from the few interested parties that have been active in the political system.

    So, yes, there was (and is) an asymmetry of incentives that these people took advantage of. If we all continue to "ignore" the politics nothing better will happen, guaranteed.

    Too many will see "Disobedience" and think we all mean "in general". We saw such "disobedience" in action in places like Ferguson, MO. We don't want a complete breakdown of law and order, leaving it to any thug to fill a power gap.

    It has to be a specific kind of disobedience, along with support for organized approaches such as Murray's legal defense fund, AND involvement in the political system to push our desired changes through.

  27. vikingvista:

    "That alone, ceteris paribus, means we probably won't get any change other than incremental"

    More important, it means that the vast bulk of the changes (incremental or not) can be expected to expand government power and abuses at the expense of individual liberty and social order. A planner who doesn't account for this well-understood and long-observed effect of coercive monopoly, would do as well to plan a trip to the moon without accounting for gravity.

    "People have ignored the political system all along, and that is the problem."

    Sure, there are what governments' label as "criminals", and some large minority of them actually are genuine sociopaths. But unless you want to live the life of a mafioso, drug dealer, illegal alien, escaped slaves "draft dodgers" during wartime, Eric Garner, etc., you'd best obey the dictates of your gun-toting masters. I'd say the problem isn't that too few people obey our masters, but rather too many (and out of reasonable fear for their lives).

    "So, yes, there was (and is) an asymmetry of incentives that these people took advantage of."

    These people? Now you make it sound like it is an aberration rather than the expected consequences of political incentives--as though there is some class of person that will make it better. Don't tell me your solution involves having the "right people" do the theft, extortion, kidnapping, and political imprisonment.

    "If we all continue to "ignore" the politics nothing better will happen, guaranteed."

    How can we "all continue", when almost none of us ever even tries? Please explain to me how YOU manage to ignore the political system. I would love to, but fear trumps conscience for me, and everyone I know.

    "Too many will see "Disobedience" and think we all mean "in general""

    I do mean "in general". Are you saying there should be a class of masters who can nearly indiscriminately punish those who disobey them? You seem to think civility stems from an imposed master-slave relationship rather than voluntary cooperation.

    "We saw such "disobedience" in action in places like Ferguson, MO."

    You do realize, don't you, that the rioting in Ferguson happened under state hegemony? You ever consider that maybe the riots are *because* of state lawlessness? Maybe without nearly everyone *obeying* wage bans, government education restrictions, capital-depleting taxes, licensing prohibitions, penalties for marriage and childlessness, assault and kidnapping for the use and trade of unapproved intoxicants, and countless other socially-disruptive violently-imposed dictates, there would be no Ferguson. You might want a population that has been culturally and economically devastated by rampant state lawlessness to obey those few hypocritical state demands for inaction which happen to be lawful. But perhaps you should consider instead removing the source of the lawlessness. Too much disobedience surely isn't the problem with Ferguson or anywhere else.

    "We don't want a complete breakdown of law and order, leaving it to any thug to fill a power gap."

    Government action IS a breakdown of law and order. You think widespread routine day-to-day extortion, theft, kidnapping, and assault is lawful?

    "leaving it to any thug to fill a power gap"

    That is what has happened. Decision makers in high office have been, are, and will continue to be malicious megalomaniacal sociopaths, because there is no place such a person would rather be. If they didn't have control of overwhelming violence to back up their malice, decent people would have nothing to do with them. I am arguing, that we should strive for ways to be able to safely ignore the thugs' threats against us just as we normally would if they did not possess such enormous threatening power. To the extent it is successful, we could help to increase lawful order to this society, by replacing choice from fear with choice from conscience.

    "It has to be a specific kind of disobedience"

    This is only true because disobedience is usually dealt with brutally, and we don't want to see any more people hurt. But if possible we of course would want a *completely* disobedient society. It's called a "free society". In a free society--a civil society--if you want a person to do something, you use nonthreatening persuasion, not promises of police action again him if he peacefully ignores you.

    Either we are talking past one another, or you and I live in two different universes.

  28. John O.:

    "you're just making an appeal to authority fallacy into an argument."

    Nice try, but you just sound like an idiot. I never appealed to a supposed authority in the debate. I was addressing its logical flaws and made a statement of personal opinion. Read up on fallacies of argument and learn how to spot real ones:

  29. mlhouse:

    LOL at your idiocy from the guy that claims that FICA taxes are not paid on gross income (I will give you a hint, you are confusing revenue with income).

    AS far as the IT consultant or Uber driver, if they have any clue they are already incorporated as either a S or C corp, or perhaps a LLC.

    In today's enviroment if you can figure out a way to move a personal expense to a business expense it saves you significant taxes. For example, if you own a corporation like I do you would be foolish to subscribe to a magazine, newspaper, or any internet subscription without expensing it as a business expense. I pay the 39.6% marginal rate so anything I can expense is a tremendous tax savings.

    But, there are limits to what you can deduct. My subscription to ESPN magazine is a stretch. IF you deduct mortgage expenses and clothing etc, etc, etc like you claim then those are clearly not legitimate business expenses and not deductible. In fact, that is tax evasion.

    And, since the marginal tax rate is so significant it has tremendous value. When the tax rates are much lower, compliance goes up because it isn't as valuable to divert income.

    Further, lets look at your claim about the "game" people would pay by creating a C-corp to avoid taxes.

    First, you probably missed a point in that all of your GROSS REVENUES would be subject to a 8% sales tax. For a UBER driver or IT consultant or any of the other examples you gave this is probably at BEST a tax wash. The UBER driver has expenses: fuel, fees, insurance. If his income was under $250,000 he would be taxes on his income. But as a C-Corp he would be taxes on his gross revenues.

    Second, then this UBER driver needs to either cheat the governemtn by using the C-Corp to create expenses that are not legitimate business expenses and take a risk of being caught, or pay a dividend that will be taxed at 15.4%.

    In other words, it aint worth it. It isn't the loop hole you were looking for.

  30. bigmaq1980:

    Yes, we are in different worlds.

    You see a world with intractable problems and the solution is "general disobedience", conflating it as "free society". Those two concepts only connect by the thinnest of threads, even if one assumes "anarcho capitalism" is the model for a "free society".

    Anyway, hard to see that the "general disobedience" on display in Ferguson would lead
    us anywhere than to chaos, which has an extremely low percentage likelihood of leading to a world we both would prefer.

  31. vikingvista:

    “You see a world with intractable problems and the solution is "general disobedience"”

    If I think the problems are intractable, how could I also think that there is a solution?

    “, conflating it as "free society".”

    Do you know what “free” means? For example, is your action free if you voluntarily agree with me to do it, or is it free if you do it because you fear, for good reason, that I am going to attack you or your property if you don’t? Which of those two types of actions add up to a free society? You appear to think blind obedience to the punishable dictates of the political class is what defines a free society.

    “Anyway, hard to see that the "general disobedience" on display in Ferguson”

    Can you explain what it is about Ferguson that you keep thinking is “general disobedience” to the state? Is it that the state is commanding citizens of Ferguson to stop attacking their neighbors, and yet those citizens are disobeying that command? I’m just trying to make sense of why you keep referring to Ferguson in this way, because it appears rather like blaming the Chicago fire on human milk consumption, the Nat Turner massacre on slaveholder leniency, or escalating drug violence on too little prohibition enforcement.

  32. bigmaq1980:

    It is clear we are in different worlds, where English words have different meanings.

  33. vikingvista:

    Now I see why freedom is slavery, and disobedience to the state is attacking one's neighbors. I don't know why I didn't think of that before. Thanks, bigbrother1984.

  34. bigmaq1980:

    Sure, twist it around, if it makes you feel good.

  35. vikingvista:

    Twist WHAT around. You won't explain what you mean! When you write ""general disobedience" on display in Ferguson", who is the commander, what is the command, and who is disobeying?

  36. bigmaq1980: