kicking the can down the road

Obviously, people really dislike paying taxes. And arguing about taxes, economics and politics is akin to a sectarian religious battle. Mix in American exceptionalism, a chosen nation, and what you have is highly combustible.After all, America was founded over a grubby spat over taxes. About eight months ago, Obama  was in a hostage style quandary: Republicans threatened to block an extension of middle-class tax cuts unless the President folded and extended tax cuts for the wealthy as well. And the president gave in, giving the G.O.P. a victory.

The issue has always been whether higher taxes give rise to less work and more leisure, a kind of substitution effect. However,  they also lower after-tax incomes, leading, somewhat theoretically to more work and less leisure  which is known as the income effect.However, some studies, empirical studies, indicated that high taxes either did not substantially affect work effort and might even increase work effort among executives and the professional class.That is,  people work as hard or even  harder to recapture their previous incomes or to reach  income goals. ..

---Income tax cartoon John Bull scratches his head at William Pitt's introduction of income tax. Pitt is shown as an angel playing a harp. Hand-coloured cartoon in the style of James Gillray, 1798. Ann Ronan Picture Library.---Read More:

Like animals trained to jump through circus hoops or leaping like trout at fresh bait, we try again , inexorably to avoid paying our allotted portion of sales and income taxes and some are willing to go to extremes to uphold the principle.This reticence is really a special instance of the more general trend, which is that people hate paying for things.Like pirated software, illegal downloads etc. But the fact that taxes get singled out in this way,almost as a scapegoat, and are capable of provoking such profound and passionate anger and resentment, is something of a social phenomenon, in particular one that has been appropriated by the Republicans.In the same way, many people think that having corporations pay taxes represents some sort of an alternative to having individuals pay taxes. So, taxing whether indirectly or directly is a question of nuance and public perception.

Red Foxes. Turkey. Sep. 2010. ---Ferguson:there is absolutely no doubt that Federal Deficits of $1.4 to $1.5 trillion, at this time, are not sustainable. They need to be brought under control. However, the Democrats are misrepresenting the situation in order to find cover for tax increases and the Republicans are misrepresenting the situation in order to cut programs with which they disagree. Neither is giving an accurate representation of the actual situation. Furthermore, for whatever reason, the pundits are not correcting the demagoguery. Read More:

What sets the issue of taxation apart is the concept, made popular by successive waves  of economists, that taxes are not just a personal inconvenience to the taxpayer but are also objectively bad for the economy. As a general claim this is simply false, but specifically in a guns or butter argument…

From Michael Ferguson at Polymathica:

229 House Republicans and 5 Democrats passed the Cut, Cap and Balance Act. It first cuts 111 billion from the 2012 budget. It then sets spending caps that require Federal expenditures as a percent of GDP to fall to 18% by 2017. Lastly, it sends a Balanced Budget Constitutional Amendment to the States for ratification. It is, of course, like nearly everything that comes out of Washington, a very poor idea.

---"The main, underlying idea of Henry George is the taxation of land and other natural resources. At the time, people thought, "not really that too," but what was underlying his ideas is rent associated with things that are inelastically supplied, which are land and natural resources. And using natural resource extraction and using land rents as the basis of taxation is an argument that I think makes an awful lot of sense because it is a non-distortionary source of income and wealth. ... ... The question is: "Would it be better if we had more taxation of land and natural resource, and more revenue from natural resource management, and I would include atmosphere and spectrum." And less tax on income and savings. And I would say, "Yeah." And I think many economists would agree with that. So, if you want to sell it as a "Single Tax," then, no, you won't get anyone to agree that there's enough revenue there. If you look at is a more "central" tax, then, yes, you will get most economists to agree with you. Joseph Stiglitz, Nobel laureate in Economics (2001) in 2002 interview Read More:

Having said that, it does contain some good aspects. As I stated in my last post, we should cap our debt as a percent of GDP. However, rather than an arbitrary percent, it should be driven by the requirements of the triple A bond rating. Next, while I haven’t discussed it before, setting Federal expenditures as a percent of GDP is a wonderful communication tool between voter and representative. Read More:

---There is a Debate Over Whether or Not Gambling Can be Good For an Economy. Proponents of the view that gambling is harmful use a quote of Nobel Laureate Paul Samuelson. "(Gambling) involves simply sterile transfers of money or goods between individuals, creating no new money or goods. Although it creates no output, gambling does nevertheless absorb time and resources. When pursued beyond the limits of recreation, where the main purpose after all is to kill time, gambling subtracts from the national income." Other economists have taken exception to Samuelson's characterization of gambling. They point out that his criticism could be applied to movies or Disneyland. These are products that don't add to the ability of the economy to produce more. But they still have value because they provide satisfaction, or utility in the economist's jargon, to consumers. These economists are more concerned about the costs of banning gambling, that is the ensuing enforcement costs and the incentives to lobby and bribe public officials to allow illegal gambling to occur. Gambling Can be a Powerful Economic Development Tool. La

gas is a testament of the powerful ability of gambling to foster economic development. Because of gambling, Las Vegas has shown impressive job growth, developed into a major city with a low tax burden that many state and local governments look at with envy, and has spawned significant private and public sector investment. But can the Las Vegas model be duplicated? ---Read More:

The picture underlying this fallacy can be viewed as  relatively straightforward, especially from the left.  Government services, such as health care, education, national defense, seemingly “cost” us as a society. We are able to pay for them only because of all the wealth that we generate in the private sector, which we transfer to the government in the form of taxes. A government that taxes the economy too heavily stands accused of ruining the entrepreneurial spirit  by disrupting the mechanism that generates the wealth that it itself relies upon in order to provide its services. Thus the government gets labeled as a consumer of wealth, while the private sector, the good cop, is regarded as a producer.The left will say this is  confused. Their assertion is that the state  produces exactly the same amount of wealth as the market, which is to say, it produces none at all. People produce wealth, and people consume wealth.The institutions, such as the state or the market, neither produce nor consume anything. They simply constitute mechanisms through which people coordinate their production and consumption of wealth.And so it goes. What happens is a battle then of Veblenian proportions over the invidious nature of how we consume…

---Has heavy taxation hurt the Danish and Swedish economies? If so, how much? Begin with GDP per capita. America’s is higher than Denmark’s or Sweden’s. But that’s a legacy of the distant past. Growth of per capita GDP in the three countries has been virtually identical, both in the five decades since 1960 when the divergence in tax levels began and in the three decades since the 1970s (shown in the chart) when the tax difference has been most pronounced.---Read More: image:

Michael Ferguson:However, establishing a specific percentage in legislation, such as the proposed 18%, or any other percent for that matter, is a terrible idea. For example, one wold expect the percent to be lower in peace time than when the nation is at war. Recessions tend to increase demands for Federal expenditures while simultaneously lowering the GDP. Earned Social Security, as a percent of GDP is likely to first go up and then go down. Why should other government programs suffer or benefit because of it?

So, rather than a fixed percent, this metric should be used as a primary point of discussion. It is hardly a panacea, however. Almost surely, if the public discourse became couched in terms of the Federal government’s percent of the economy, legislators would attempt to move expenditures ‘off balance sheet’ or to the States. Still, it is better than the current state of affairs.Read More:

Michael Ferguson can be followed at The Future 101 blogspot and the Ploymathica Greoup on Facebook: A balanced budget is a very dangerous idea that, even if it were to pass the State Legislatures, would, like the eighteenth amendment, be repealed in relatively short order. To refresh our memories, technological unemployment creates deflation. Deflation is best counteracted by monetizing debt. Monetizing the debt to counteract deflation ‘earns’ deficit spending that can be used to retrain the displaced workers. We don’t want to create a Constitutional Amendment that would interfere with this very powerful tool….

---Nobel Prize-winning economist Joseph Stiglitz said that countries adopting an austerity-based economic policy were sure to fail. Speaking in Copenhagen on Friday, he accused European leaders of what he called “deficit fetishism,” arguing that budget cutting in lean times retards rather than encourages economic growth. Bloomberg News quotes the Stiglitz, a Columbia University professor, paraphrasing the famous Einstein quote about insanity. Said Stiglitz: “Austerity is an experiment that has been tried before with the same results.”---Read More: image:

…This, however, just kicks the can down the road. Is it enough? Is it too little? The debt ceiling, to be sure, will need to raised again and likely very soon. Are we any closer to a rigorous structure within which to have the next conversation? What is needed is a structure by which Congress and the President are forced to exercise fiscal responsibility consistent with the expectations of the investment markets and the rating agencies. If the plan, or one like it, passes, we will have lost any sense of urgency that may have been created by this crisis.

That can be considered either good or bad. On one hand, the sooner we start running the Federal Government’s financial affairs in a “state of the art” professional manner, the faster the various stakeholders will calm down. The markets will calm down. The rating agencies will calm down. The business community will calm down. The voters will calm down. On the other hand, getting it wrong just to get it done is just not acceptable.Read More:


Joseph Heath:simply by “following the money” to see where it ultimately comes from, or where it ends up. Yet it is also important to have the right sort of “picture” of what these institutions are and what they do. Management theorists have, in recent decades, taken to referring to the firm as a “nexus of contracts”. The firm is nothing more than a mechanism for organising a very complex set of transactions between individuals…

---My own take is that what is key to economics is not selfishness, but the assumption that different people want different things. If we all wanted the same thing (i.e. exactly the same allocation of resources), there would be no conflict, most of the "economic problem" of scarcity and choice would be reduced to production engineering, and there simply wouldn't be very much for economists to talk about. If all people were perfect altruists, who also shared all values, we would all want the same thing. Any other case will almost certainly result in some conflict from different people wanting different things, so we might as well call it "self-interest", even if it isn't.---Read More: image:

…The state should be thought of in exactly the same way, at least with respect to its economic role. The primary difference between the state and the corporation is simply that membership in the former is universal and compulsory, while in the latter it is not. Because of this non-voluntary aspect, it would be misleading to call the state merely a “nexus of contracts”, even though that is, in a sense, what it is. For now, let’s call it a “nub of transactions”….

---What was Marc Rich's alleged crime? In 1983, Rich was indicted in federal court of evading more than $48 million in taxes. He was also charged with 51 counts of tax fraud and with running illegal oil deals with Iran during the hostage crisis. Read more:,8599,99302,00.html

…The state, as people on the right never tire of reminding us, grew spectacularly over the course of the 20th century as reflected by increased spending on welfare, unemployment, pensions, health, and housing, as a percentage of GDP. As far as the economy is concerned, the state went from being a bystander to being the single most important actor.

The standard way of distinguishing this new state-as-economic-behemoth from its precursor institution is to call it “the welfare state”. This is not a great term, insofar as it suggests that handing out welfare cheques is one of the major functions of modern government, which typically is not the case. A better idea would simply be to rebrand it as something else, like “the public goods state”. Read More:

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Paul Krugman:Now, there are good reasons to believe that the G.O.P. isn’t nearly as willing to burn the house down as it claims. Business interests have made it clear that they’re horrified at the prospect of hitting the debt ceiling. Even the virulently anti-Obama U.S. Chamber of Commerce has urged Congress to raise the ceiling “as expeditiously as possible.” And a confrontation over spending would only highlight the fact that Republicans won big last year largely by promising to protect Medicare, then promptly voted to dismantle the program.

But the president can’t call the extortionists’ bluff unless he’s willing to confront them, and accept the associated risks. Read More:

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