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A Most Impractical Guide To Small Government

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   Begin by eliminating the tax on labor.   The immediate effects of this change would be to raise the income of everybody earning less than $110,000 by nearly 7%, and to eliminate direct taxes on business payrolls by a similar amount.   This in turn will stimulate the economy by reducing unemployment and placing more money into the hands of workers to spend, thus further increasing aggregate demand and inviting additional capital investment to satisfy that demand.   All of these consequences generate additional personal and corporate income, a part of which would be converted to tax revenue!

   Now look at personal income taxes.   Simplify the whole system by treating every person as a taxpaying entity and eliminating all exemptions and deductions from the code.   Provide a schedule of rates that starts at zero and adds 5% for each $10,000 of income, to a maximum rate of 35%.   Eliminate distinctions among types and sources of income to level the playing field.   The immediate effects of this change would be to generate more tax revenue among high earners and to provide significant relief to those in the lower 4/5 of earners, thus further stimulating demand and further capital investment throughout the economy.   High earners will get an infusion of income from changes in corporate tax policy -- read on.

   Simplify corporate taxes by eliminating all incentives and penalties in the code, instead taxing at a flat rate of 35% on income based upon generally accepted accounting principles -- GAAP.   One exemption from GAAP income, an allowance for dividends paid, will eliminate double taxation.   The immediate effects of this change would be to unlock trillions of dollars in hoarded cash, which could now be paid out to shareholders to reduce corporate tax liabilities.   This will in turn stimulate spending and investment by shareholders and further increase aggregate demand throughout the economy.

   So far, we've done little to reduce the deficit.   I estimate that a deficit of just over $800 billion would result from these changes without factoring in growth stimulus.   With expected economic growth resulting from the above changes, I estimate a remaining annual deficit of less than $250 billion.   Note that these estimates are more favorable than the baseline scenario, but they do not address the very real threat of a large and growing national debt.   In order to begin to pay down the debt without harming the economy, we need additional revenue that doesn't threaten growth.

   Our understanding of microeconomics -- especially the law of supply and demand -- shows that this additional revenue ought to come from either income or wealth rather than a tax on commodities such as labor.   A temporary surcharge on either would be effective.   For example, a 1% tax upon wealth, excluding equity in a primary residence, would generate enough revenue to begin to reduce our national debt within a few years.   Doing so would also demonstrate our national financial responsibility and thereby discourage future increases in the cost of borrowing in the form of higher interest payments.   After just a few years, the tax on wealth could be phased out entirely without creating a budgetary deficit.

   This plan would generate changes in federal expenses as well.   An effective increase of 7% in the minimum wage would change the number of people living in poverty, and in the long run, how many receive public assistance.   An increase in labor demand and a corresponding decline in the unemployment rate would cause a reduction in the cost of unemployment benefits.   Lower rates of structural unemployment would restore a level of effectiveness to both fiscal policy and monetary policy, mitigating the need for stimulative government spending, and reducing federal deficits even further.   A simple tax code would free up thousands of IRS agents who could pursue tax cheats and the money they owe, further reducing deficits and the national debt.   Eliminating the favorable treatment of capital gains and dividend income would slow the concentration of wealth, further stimulating the economy with increased aggregate demand among wage earners.

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   This is only one theoretical tax structure that would yield huge benefits to America's economy and its citizens; a wide variety of simple and rational plans could be conceived within the discipline of sound economic theory that would yield similarly favorable results.


   What is described above is nothing short of a revolution that starts with a change in the way America thinks.   Pervasive critical thought would itself bring about an awareness of just how manipulated we are by those using established tradition for their own ends. How perversely ironic it is that the documentary legacy of the greatest critical thinking revolution in world history is used today by moneyed interests to defend their tradition of concentrating wealth and power for themselves.

   That's why universal instruction in critical thinking techniques in public schools is so critical.   Given the powerful interests arrayed against revolutionary thought, we can expect a long conflict on the battleground of curricula.   But the stakes are high, and the rewards could be enormous.   We need to begin immediately, vigorously advocating -   demanding -- universal instruction in critical thinking techniques.   Years may pass before we accomplish this, and generations may pass before critical thinking becomes, once again, a national value.

   But imagine a well-equipped populace willing to ask questions and demand answers to challenge inane public policies.   Why are corporations afforded the same rights and privileges as their human counter parts?   Why should US armed forces be committed to defend the interests of American multinational corporations abroad?   Why do economic bubbles keep happening?   Why has the concentration of wealth accelerated in recent decades?   What purpose does the electoral college serve today?   Why does Congress create a budget only to have to approve any borrowing needed to fund it?   Why are so many Americans behind bars?

   Imagine -- America could change the world.   Again.

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Years ago I made a decision to commit to a life of business management. Kids do the dumbest things! After thirty five years as a small business consultant, CFO, and university educator specializing in quantitative business and economic (more...)

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It appeared to me that you were building toward wh... by lvtfan on Thursday, Oct 24, 2013 at 8:11:40 AM
The effects of such a shift of taxation [to LVT] c... by Charles Roll on Thursday, Oct 24, 2013 at 1:30:51 PM
Thanks for the comment, lvtfan.  I aree that ... by Larry Butler on Thursday, Oct 24, 2013 at 3:13:17 PM
Thanks for the comment, lvtfan. I aree that land ... by Larry Butler on Thursday, Oct 24, 2013 at 3:16:43 PM
"Eliminate distinctions among types and sources of... by Charles Roll on Thursday, Oct 24, 2013 at 1:21:15 PM
Thank you for your comment, Mr. Roll. Let me clar... by Larry Butler on Friday, Oct 25, 2013 at 9:53:36 AM