The 6-6-6 plan

by John Quiggin on October 23, 2011

Inspired by Michelle Bachmann, I’ve been thinking about what a 6-6-6 response to Herman Cain might look like. Being multiply disqualified from seeking election to the US Presidency, I decided to put in as much work as Cain and his team appear to have done, but no more. Hopefully, the magic of crowdsourcing will turn this into a comprehensive blueprint. So, here are the basic goals, and over the page, some of those devilish details.

The aim of the plan would be
(a) Reverse pro-rich and anti-worker policy changes of the past three decades to reduce, by 6 percentage points, the share of market income going to the top 1 per cent.
(b) Increase, by 6 percentage points of national income, the personal income tax revenue raised from the top 20 per cent of the income distribution
(c) Reallocate, or use more efficiently, current public expenditure equal to 6 per cent of national income

The aim would be to raise post-tax incomes for those in the bottom 80 per cent of the income distribution by around 20 per cent, while making around 10 per cent of national income available for new or better public expenditure.

For reference, US national income is currently around $13 trillion, so 1 per cent is $130 billion.

Part (a) is the hardest as far as attaching specific numbers is concerned, but the number of policy options is huge. First, there are the many anti-union laws and policies implemented beginning with Reagan (and before him, for that matter) – increasing the bargaining power of workers is clearly central to a more equitable distribution of market income. Second, there are a wide variety of corporate tax breaks that could be removed.. Third, but perhaps most important is the need for a smaller, and less highly rewarded financial sector. The Tobin tax would be my first step in this direction, but there are many more.

For part (b), the main component is obviously a more progressive income tax scale. But a substantial amount could be generated by ending the concessional treatment of capital gains, treating inheritances as income, and removing concessions that primarily benefit the top quintile. My back of the envelope estimate (to be corrected later) is that a 5 per cent increase in the marginal rate above 100k and a 10 per cent increase above 250k (relative to the Bush scales) would be sufficient

For part©, lower defense spending could yield savings of 2-3 per cent of national income while still leaving the US by far the world’s greatest military power. Improvements in health spending (for example, a redesign of Bush’s prescription health benefit) could yield 1-2 per cent. Scrapping the mortgage interest deduction (in combination with a once-off reset of current mortgage debts as part of the expenditure package) would save about 1 per cent. After that, there is the long list of pork-barrel items like the Farm Bill, bridges to nowhere and so on.

What to do with the 12 per cent of national income generated in parts (b) and©? I’ve assumed that a couple of percentage points would go to reduce state and local taxes paid by those in the bottom 80 per cent of households, leaving 10 per cent of national income for new or better programs. Although that seems like a huge amount, it’s not so much when you look at the big areas of need. Among them

  • Poverty, which is at record levels relative to the poverty standard first set out in 1962, and updated only for inflation since then[1]. I’d favor some form of guaranteed minimum income, but even a patchup of the existing safety net would be expensive
  • Health care. The US government spends a lot in this area, but relatively ineffectively. A single-payer health insurance system is the obvious way to go, but even a public option would be a big improvement
  • Education. I know more about post-secondary education, where the US used to be the world leader, but has ceased to be so, than about school education, so I’ll focus on the former. The biggest area of need is probably for an upgrading of standards in the community college sector. Success in that sector would imply more articulation into the four-year sector, which would therefore also need funding for more places and lower tuition charges. Then there is the huge problem of reforming the student loan system.
  • Infrastructure. Another area where the US once led the world, and is now lagging badly in many respects.
  • Debt and mortgages: Most of this plan is set out for the long term, but some action to deal with the burden of household debt, particularly mortgage debt is urgently needed. As I mentioned, this could be offset in the long run by removal of the mortgage interest deduction, which serves to inflate housing bubbles
  • Overseas Development Aid: Most Americans falsely believe that the US spends much of its budget on foreign aid, and that it is still, as it was during the Marshall Plan era, the most generous nation in the world in this respect. Raising ODA from its current level, about 0.15 per cent of national income to 1 per cent would make the second of these claims true, and would be far more cost-effective in all respects than military spending
  • Climate/Environment As I’ve argued before, fixing the problems of the global climate will cost much less than many people (on both sides of the debate) imagine, at least if we get started soon. Spending 1 per cent of national income now would save an awful lot in the future.

A few points about the plan. Obviously, it’s way outside the realms of political feasibility, but there’s nothing in it that’s remotely as drastic as the measures in Cain’s plan, or the proposals put forward by Paul Ryan. Many of the measures would simply reverse changes of the past few decades. If implemented in full, it would still leave the US as a relatively low-tax, low-spending government with a highly powerful military, and would only partly reverse recent growth in inequality.

In setting it out, I haven’t made any attempt to give a timescale, or to relate long-run proposals to the short-run need for fiscal and monetary stimulus (except as regards the mortgage debt proposal).

Obviously (I hope) this is just meant as a discussion starter. Pointers to omissions and errors will be accepted with the good grace usual in such cases, and suggested improvements with even more.

fn1. As will doubtless be pointed out, the CPI probably overstated inflation before the Boskin Commission changes of the 1990s, and there are various other problems with the numbers. Nevertheless, the important point is that this was designed as an absolute poverty standard, taking as its starting point the capacity to have an adequate “economy” diet by the standards of 1962.

{ 65 comments }

1

ifthethunderdontgetya™³²®© 10.23.11 at 2:52 pm

You’ve got my vote, Mr. Quiggin.
~

2

jfxgillis 10.23.11 at 3:21 pm

John:

Fail.

You did way, way, WAY more work on this than Cain and his team did on their plan.

3

praisegod barebones 10.23.11 at 3:38 pm

Ah: finally liberals come out and admit they’re in favour of Satan.

4

ben in el cajon 10.23.11 at 4:00 pm

Let us think. Which deity has promised to return to the world in the End Times and commit genocide, torturing and killing a number of people easily in excess of four billion? Could it be Satan? No? Then Satan might be the lesser of two evils.

5

marcel 10.23.11 at 4:03 pm

@praisegod barebones:

Looking, first, back on the last decade, then forward on the next, brings to mind the line attributed to Voltaire on his deathbed:

Now is no time to be making new enemies

6

praisegod barebones 10.23.11 at 4:23 pm

ben in el cajon @ 3: Hey, some of my friends have been waiting three hundred and sixty years or so for that guy to show up. Kind of shakes your faith in predestination when you keep on hearing ‘Sorry guys: something cropped up again’.

7

Omega Centauri 10.23.11 at 4:28 pm

Unless, you meant it to be included under your general category of infrastructure, we have a whole lot of development to do in areas related to learning to live on a finite and fragile planet. Stuff like dealing with climate change, converting our energy systems to something that is sustainable over the long haul, sustanable agriculture, etc. These things won’t come cheap. Nor will they be granted with anything near the needed urgency by the invisible hand.

And of course converting health care from for profit to nationalized is a big deal!

8

John Quiggin 10.23.11 at 4:36 pm

@Omega I was just meaning to add that point, which I realized I had omitted. Thanks for the reminder.

9

Peter K. 10.23.11 at 5:00 pm

As others have been pointing out 9-9-9 upside down is 6-6-6. (thank you Captain Obvious)

I could support this plan but would add one more facet since we’re being unreasonable: reform of the central bank. You could make it more democratic one of two ways: 1) no longer allow banks to appoint representatives to the government agency that regulates them OR 2) balance the bank votes with representatives appointed by labor unions.

If democratic reforms were carried out then you could change the mandate to target NGDP so the press and politicians would no longer obsess over the inflation bogeyman. An economy growing at full capacity would help the government budget with higher tax revenue so it could invest more in clean energy, education and infrastructure upkeep. It would also mean full employment which would help with inequality.

10

MPAVictoria 10.23.11 at 5:19 pm

Quiggin/Satan 2012!

More seriously though I would be happy if a program of reforms half as ambitious as those outlined here were implemented.

11

straightwood 10.23.11 at 6:03 pm

A tax plan that achieved perfect social justice and harmony would begin to degrade as soon as it was implemented, under the influence of lobbyists. Within a few years, it would be as riddled with loopholes and exceptions as our current mess of a tax code. That is why I agree with professor Lessig that there is only one issue in American politics today: the corruption of our government through campaign contributions made by special interests.

12

marcel 10.23.11 at 6:26 pm

@ Peter K:

While we’re at it, can I have a pony?

13

Henri Vieuxtemps 10.23.11 at 6:28 pm

Through campaign contributions? Please. Direct bribery. Almost everyone of them, from the congress – straight into a million/year no-show lobbying ‘job’, to collect their deferred wages. Not to mention the loot their wives and children collect during the term.

14

The Raven 10.23.11 at 6:39 pm

Maybe it could be the 7-7-7 plan?

15

SamChevre 10.23.11 at 7:02 pm

Well, for (a) with a side of (b), one of my top reforms would be to tax corporations on GAAP income – dividends paid, at the top individual rate. One major advantage of financial businesses historically (I think still, but haven’t looked at numbers in a couple years) is that tax income is very different from GAAP income, and so their taxes paid are on a much smaller and more manageable income basis.

This has three effects: it makes market capital cheaper relative to retained earnings; it makes tax income management much harder; and it makes leverage more expensive. All three reduce the advantage of large existing firms, but hit the finance sector especially hard.

16

Peter K. 10.23.11 at 7:19 pm

@ 12

Dream one impossible thought every day!

17

superdestroyer 10.23.11 at 9:15 pm

A 2-3% of GDP cut in defense would mean a 75% cut in DoD costs. That means that 1-2 million people would be laid off. Nationalizing healthcare would mean that 0.5 million people in the insurance industry would be laid off along with an a large number of health care workers and providers give up providng procedures where the CMS reimbursement is below costs. Increasing the costs of labor would mean that the last of manufacturing would move off-shore.

If you want to spend much more on education, what will the students be trained to do. If there is no more industrial base and a much smaller healthcare and financial sector workforce, what will people do for jobs.

Also, if healthcare is nationalized, it pays less taxes, and millions lose their jobs, they pay less taxes, as the financial sector slows down, it pays less taxes.

Such a high tax, high entitlement plan would put the U.S. into a death spiral of lower revenues but more spending.

18

Glen Tomkins 10.23.11 at 9:27 pm

The Mark of the Beast

Just a note for the scripturally illiterate, a 666 plan really ought to include some feature whereby every citizen has to get an implantable ID chip. It will be expected by the scripturally literal, and if you don’t have it you’ll be accused of it anyway, so might as well throw it in to get them salivating and give them something to chew on.

19

Dirk 10.23.11 at 9:53 pm

Apparently, Cain has flip-flopped and now endorses the 6-6-6 plan. The NY Times published a photo today showing Cain explaining his new plan to a voter (left):

http://graphics8.nytimes.com/images/2011/10/23/us/politics/JP-CAIN/JP-CAIN-articleLarge.jpg

20

phosphorious 10.23.11 at 10:19 pm

“Just a note for the scripturally illiterate, a 666 plan really ought to include some feature whereby every citizen has to get an implantable ID chip.”

We can call it “The Mark Of Cain. Herman Cain.”

Just to blow their minds.

21

icastico 10.23.11 at 11:59 pm

If man is five
Then the devil is six
And god is seven…

22

Watson Ladd 10.24.11 at 12:08 am

superdestroyer, defense spending is waste. You can’t argue its elimination will decrease consumption and at the same time argue that increased taxation later on will decrease consumption. Either Bastiat is right or he isn’t.

23

superdestroyer 10.24.11 at 1:05 am

Watson,

In the short term, cutting defense spending will cause more unemployment and it will not be evenly distributed but will affect places that are dependent on defense spending. It will also lower the demand for aerospace, mechanical, electrical, and computer engineers. And with the the cut to defense programs at the DOE, the demand for physicist will go down.

The question become what will the money be redirected to and who will that money employ.

24

John Quiggin 10.24.11 at 2:18 am

Better trolls, please!

25

Antti Nannimus 10.24.11 at 2:21 am

Hi Professor Quiggin,

You are “inspired by Michelle Bachmann”, you say?

If so, you need to immediately resign your CT Commission and go forth in shame to your despicable destiny.

Have a nice day,
Antti

26

chris 10.24.11 at 2:43 am

Aerospace has the fewest non-military/governmental applications (it does have some, but between peak oil and the potential for more nations to start getting serious about CO2 in one way or another, the future of aerospace seems bleak in any event), but the other varieties of engineers should get headhunted right into the increased infrastructure, energy efficiency and alternative energy R&D that is also part of the program. And Joe Production Line Worker can be retrained elsewhere in a matter of weeks.

If *total* spending dropped, that could be bad in the current economic conditions, but shifting from one sector to another isn’t going to cause nearly as severe a problem.

P.S. The really big project the US needs to undertake soon: moving more of its people out of low-density sprawl and into places with serious mass transit capabilities. (Also, building/improving same.) Gas prices aren’t going back down (growth in the Third World will make sure of that, even without cuts to gas subsidies or the US becoming one of those countries that takes CO2 seriously) and substantial portions of our current housing stock are on the wrong end of long, expensive car-based commutes from any potential job — permanently.

I’m not saying anyone needs to be pushed out of a McMansion at gunpoint, but at the very least, the governmental incentives to lower density (including, in many areas, outright bans on dense development) have to be reversed, and soon.

More efficient cars will help some (and are a pretty big project in their own right that could no doubt employ lots of engineers), but no single-person vehicle can match the energy efficiency per passenger-mile of mass transit — let alone the potentially even greater savings from living closer to work. American residence patterns are based mostly on arbitraging borders (avoiding city taxes or avoiding having your kids go to a badly funded school with the kids of people who can’t afford to move out of the city — while keeping your city job and taking advantage of the city’s infrastructure and services, of course) and the resulting inefficiency is awful.

27

john 10.24.11 at 2:46 am

on A). move some salaries and benefits from the deductible to the non-deductible part of corporate expenses. Do so when those those salaries and benefits are at some multiple of the median salary paid by that corporation.

28

mclaren 10.24.11 at 2:56 am

America has actually implemented the 9/11-9/11-9/11 plan: infinite spending forever on an ever-expanding wildly out-of-control military-police-terror-surveillance-prison complex.

As time passes, our obsession with 9/11 will grow to the point where all other words in the English language will vanish. Eventually, Americans will talk to one another by using nothing but the word “Nine-eleven,” with different inflexions (as in Mandarin).

“Nine-eleven?”

“Nine-eleven!”

“NINE-eleven!”

“Nine-eLEV-en, nine-Ee-leven, nine-eLEVEN.”

29

greg 10.24.11 at 5:03 am

a) should be about 15%, as that is what the damage has been, and what would be needed to get demand up to what it should be without continuous borrowing by the middle and working classes. Since 1980 (Reagan?) or so the percentage of income to the top 1% has increased from 9% total national personal income to to present day 24%.http://anamecon.blogspot.com/2010/10/what-income-of-top-1-means-to-rest-of.html
This will have to be undone. In fact, part (b)’s 6% could easily be borne by just the top 1%, who would see their real maximum marginal rates increase to 42% from the current real average of about 17%. This would only begin to undo the damage.
The next 19% could still chip in, so figure you’ll have 15 or 16% of national income to play with.

The financial sector has increased from 3% of the GDP, from about the 1970’s, to 8%, and is also unsustainable. Indeed, the interests of the financial sector now conflict with the interests of the rest of the economy. Their gain is our pain. Too Big To Fail is Too Big To Regulate. Rather than trying to fence in a bunch of King Kongs, we would do better to break them up, or allow the biggest ones to fail. We’ll get over it.

Good lookout on the climate/environment.

30

Elias 10.24.11 at 5:11 am

I prefer the 7-11 plan. 7*11 = 77% tax rate on the richest Americans.

31

Elias 10.24.11 at 5:15 am

Oh, and I forget… it’s actually 7-11-Oh-Thank-Heaven. When you die it’s a 100% tax on everything you have. No inheritance for the little brats. Oh thank heaven for the tax revenue anyways.

32

superdestroyer 10.24.11 at 10:30 am

Chris,

For middle class whites, it is too expensive to live in the areas of public transportation (the masses drive to work while only a few use pubic transportation). Private schools and homes in Elizabeth Warren’s “Good neighborhoods” are very expensive. Trying to force middle class whites to move into urban areas will never happen. The middle class whites will become extinct before they move into majority black or Hispanic neighborhoods.

A good way to look at employment is a high tech company like Google employs 31K worldwide. A company like Cargill employs 131K worldwide. Trying to have a high tech economy with the demographics of the U.S means having a permanent high levek of unemployment. Having a guaranteed income along with open borders and free healtcare will increase the percentage of people in the U.S. who live in poverty

33

Uncle Kvetch 10.24.11 at 11:09 am

The middle class whitesRacists like me will become extinct before they move into majority black or Hispanic neighborhoods.

Fixed.

34

rea 10.24.11 at 11:55 am

Then I saw another beast coming up out of the earth, and he had two horns like a lamb and spoke like a dragon. And he exercises all the authority of the first beast in his presence, and causes the earth and those who dwell in it to worship the first beast, whose deadly wound was healed. He performs great signs, so that he even makes fire come down from heaven on the earth in the sight of men. And he deceives those who dwell on the earth by those signs which he was granted to do in the sight of the beast, telling those who dwell on the earth to make an image to the beast who was wounded by the sword and lived. He was granted power to give breath to the image of the beast, that the image of the beast should both speak and cause as many as would not worship the image of the beast to be killed. He causes all, both small and great, rich and poor, free and slave, to receive a mark on their right hand or on their foreheads, and that no one may buy or sell except one who has the mark of the name of the beast, or the number of his name.
Here is wisdom. Let him who has understanding calculate the number of the beast, for it is the number of a man: His number is 666.

35

superdestroyer 10.24.11 at 12:12 pm

Uncle Kvetch,

I suggest you review Elizabeth Warren’s two-income trap. the middle class has gone into massive debt to avoid living in majority black or Hispanic neighborhoods. Progressive elites in NYC refuse to send their children to public schools. The same goes for upper middle class whites in DC, Boston, Chicago, LA, Seattle, etc.

Lowering wages and trying to force middle class whites to ride a bus full of Hispanic or blacks will never work. Middle class whites will adapt by refusing to have children, moving to smaller cities, or homeschooling before they will mix with minorities.

I guess you could not find a city where whites with children will send their own children to urban public schools..

If you are going to call whites who avoid minorities racist, I suggest you start with Rahm Emanuel who while having control of the Chicago Public Schools (10% white) will send his own children to the Univeristy of Chicago Lab School (80% White).

36

Henri Vieuxtemps 10.24.11 at 12:25 pm

Superdestroyer, I take your word for it that you’re a racist (because this is not something people usually brag about), but don’t you think people might have other reasons than ‘avoiding minorities’ for the things they do, whatever it may look like to you?

37

John Quiggin 10.24.11 at 1:54 pm

Superdestroyer, nothing more from you, please. It’s time to stop feeding this troll.

38

ragweed 10.24.11 at 4:56 pm

” The middle class whites will become extinct before they move into majority black or Hispanic neighborhoods.”

As you can clearly see with patterns of gentrification. . .

(I know we shouldn’t feed the troll, but it had to be said).

39

David in NY 10.24.11 at 8:13 pm

Thank you, ragweed #38. A pattern I watch around me every day.

40

Adrian 10.24.11 at 10:39 pm

To Chris,

I’m an aerospace engineer and based on some research I’ve done, I’m convinced it IS possible to make a single-person vehicle use less energy than any existing form of transportation, including mass transit. It would look something like what you see at http://www.celmoto.com. Not sure it could reach commercial viability, but even mass transit’s energy efficiency is actually a pretty low bar if a vehicle is designed with energy efficiency as its highest priority.

41

tedb 10.25.11 at 1:41 am

“more articulation into the four-year sector” I think you mean “matriculation.” Great post!

42

Xerographica 10.25.11 at 2:18 am

a : There’s much goodness to be found in considering the dialectic of unintended consequences.

b & c: I don’t mind b if c is determined by each and every taxpayer. Meaning…the only way to guarantee the best possible use of limited public resources is by forcing each and every taxpayer to consider the opportunity costs of their individual tax allocation decisions.

Yup yup…your devilish details fit nicely with this divine disparity.

43

boconnor 10.25.11 at 3:14 am

Maybe it should be a 6-6-6-6 plan: 6% increase in minimum wage every year until x% of the working poor are lifted out of poverty.

44

derrida derider 10.25.11 at 3:51 am

Gee, its a bit hard on superdestroyer. Assuming good faith on his part (and you’ve really no grounds not to) he was only pushing a positive proposition (Middle class whites WILL not move …), not a normative one (Middle class whites SHOULD not move …). One doesn’t imply the other, and the locational segregation (by class more than race per se) that has gradually developed in the US suggests his proposition may be true.

And he has a point about transition costs – shifts of this magnitude done quickly would impose heavy costs in the labour market, especially as many labour markets are already very sick (remember the Clinton defence cuts took place in a white-hot jobs market). Superdestroyer is quite wrong to think that even more new jobs won’t be created somewhere by the simple Keynesian stimulus, but whether they’ll use the same people the old jobs did is another question. John should be well aware of this point from Australian debates about industry restructuring in the 80s, in which he was an active particpant and regularly made precisely this point.

It took decades for the US to get the hole this deep, it will take decades to get out. But at least this sort of approach recognises they should stop digging.

45

Watson Ladd 10.25.11 at 4:30 am

boconner: yes, and then we will have nonworking poverty. As for energy efficiency, getting prices right is all you need to do. We have a giant nuclear reactor in the sky producing more energy then we will need for the next million years. Those who do not do arithmetic are doomed to speak nonsense.

46

boconnor 10.25.11 at 4:46 am

WL @ 45: “yes, and then we will have nonworking poverty.” OK, I’ll take that as the usual right-wing meme that raising the minimum wage increases poverty. If that is so, just curious if you have any solid data that this is true. You know, like poverty levels before an increase in the minimum wage, and poverty levels after the increase, showing that poverty levels went up (all other factors accounted for of course).

47

Andy B 10.25.11 at 6:47 am

How do you account for the slower economic growth that results from your (tongue in cheek) proposal? Does the rate of government-mandated re-allocation of the pie keep pace with the shrinking size of the pie? Ah, the perils of static analysis.

48

John Quiggin 10.25.11 at 9:46 am

@Andy B; I dealt with the overblown claims for “dynamic scoring” and similar weak versions of the Laffer hypothesis in my book Zombie Economics (the chapter on trickle down). The answer is pretty obvious from the experience of the decades leading up to 2007, when very little ‘trickle down’ was observed from the policies I’m suggesting be reversed. The answer is even clearer once the current crisis/recession is included in the data set.

49

Tim Worstall 10.25.11 at 11:48 am

@15. “Well, for (a) with a side of (b), one of my top reforms would be to tax corporations on GAAP income – dividends paid, at the top individual rate.”

Don’t understand your point. US dividends are taxed at the corporate income tax rate of 35% before distribution. The current top income tax rate is about 35%. So as far as I can see the US already does what you suggest.

50

John Quiggin 10.25.11 at 12:15 pm

“shifts of this magnitude done quickly would impose heavy costs in the labour market, especially as many labour markets are already very sick (remember the Clinton defence cuts took place in a white-hot jobs market). “

I disagree – on standard Keynesian grounds there is a big net stimulus here. Money is going from the rich and well-off to direct public expenditure and to the cash-constrained bottom 50 per cent.

The primary contraction is in the financial sector, whose participants have plenty of room to meet less favorable labor market conditions with some of that wage flexibility they are always talking about. The other target area, defense, is hugely capital intensive – in the previous thread I mentioned that it costs $1million a year to keep one US soldier in Afghanistan, and that’s without allowing for all kinds of deferred costs.

51

SamChevre 10.25.11 at 1:43 pm

Tim Worstall @ 49

Currently, the US corporate tax is based on tax-basis income, which is quite different from GAAP income, and which does not exclude dividends. My proposal is to change the basis to GAAP income (which is much more widely understood and scrutinized), and to exclude dividends from tax at the corporate level (currently, they are sort-of excluded at the individual level.)

52

ragweed 10.25.11 at 9:43 pm

SamChevre @ 51 –

Do you mean to exclude dividends from tax at the corporate level, but eliminate the lower individual tax rate on qualified dividends?

I am with you all the way on reducing the lower individual rate on qualified dividends and capital gains.

Allowing corps to deduct dividends is an interesting concept. For one, it changes the tax advantage of debt (interest is deductable) and lowers the cost of equity relative to debt. It also gives corporations an incentive to return excess cash to shareholders. But it also means that corporations are taxed primarily on retained earnings, which could be a disincentive to investing in real activity. Have to think through the implications of that one more closely.

John

53

SamChevre 10.26.11 at 2:24 am

Do you mean to exclude dividends from tax at the corporate level, but eliminate the lower individual tax rate on qualified dividends?

Yes; however note well that I’m trying to INCREASE the proportion of corporate income subject to tax, given current dividend levels. (Again–GAAP income is much much higher than tax income, especially in the financial sector.) And the increased taxation of retained earnings, and the lower cost of equity relative to debt, are the intended consequences; I think those features would increase both fairness (between established and new businesses) and stability (by substituting equity for debt).

54

Watson Ladd 10.26.11 at 2:59 am

boconner, the problem is that the minimum wage has lagged inflation for years, and employment is a very messy variable. But what you are suggesting is that labor demand is unaffected by a price floor, which is a pretty strong claim.

If we have 20 people all working at wage $x below the poverty floor, and then 10 work at $2*x which is above the poverty level, while the others are fired, we’ve not taken one cent from the capitalists, while reducing the poverty rate.

As for reforming student loans, how about abolition? When the government pays buyers a, and they will spend b, the price rises to a+b. We should subsidize the provision of spots instead.

55

Tim Worstall 10.26.11 at 10:43 am

“My proposal is to change the basis to GAAP income (which is much more widely understood and scrutinized), and to exclude dividends from tax at the corporate level (currently, they are sort-of excluded at the individual level.)”

Ah, OK, roughly, move to the UK system. Dividends are taxed at the corporate level but only because it is convenient to do so. That tax paid at that corporate level becomes a tax credit to those in receipt of the dividends. The tax credit is equal to basic rate tax paid on the dividends. So, higher rate taxpayers pay more income tax on their dividends than what has been taxed at the corporate level, basic rate taxpayers do not.

And yes, good idea. US corporations do pay out very low dividends (OK, “low” is a matter of taste really) and getting them to pay out more is probably a good idea.

56

chris 10.26.11 at 12:11 pm

But what you are suggesting is that labor demand is unaffected by a price floor, which is a pretty strong claim.

…and then you go on to claim that labor demand is reciprocal to the minimum wage, an even stronger claim totally unsupported by evidence.

If instead of 20 workers at $8/hr you have, say, 18 workers making $12/hr and 2 laid off (net, so we’ll assume they can’t find another job at the new minimum wage), is that an improvement or not? 90% of workers say yes.

Furthermore, once the 18 workers start spending their paychecks, someone else has to hire to meet the new demand. The fact that you’re distributing more money to the people with the highest MPC has a demand effect that has to be accounted for when calculating the net employment change (unless you’re already in a very tight labor market, which obviously the US is not).

Expansionary redistribution isn’t necessarily cost-free, of course — it could lead to either inflation (if the labor market becomes too tight) or high interest rates (if enough money is redistributed away from the investor class to dry up the supply of investable funds). Neither of those seems a particularly credible threat for the present-day US, so the only real argument against it is “it’s unfair to deprive the upper class of the enormous advantages they enjoy under the status quo because… well, just because they have them right now”. I don’t find that very convincing.

57

Cthuhlu 2012 10.26.11 at 7:12 pm

There’s the problems of implementing this–and keeping it implemented despite lobbyists and loopholes–when the top 20% pwn the political system.

But otherwise, yes, you badboy you: this appears to be a plan designed for something other than getting Republican primary votes.

However, if you’re quite set on convincing the right of your alliance with Satan, you need to somehow work in the fact that the leftwing pinko commie globalist WTO protester types support atheistic worldwide Shariah, and that they intend to fund it with their anti-corporate anti-capitalist Islamic-oil-addicted belief in climate change.

Biblically, this will prove that you are aligned with Satan both because of your violation of “go forth an multiply” AND by your intent to introduce a global trade system which involves microchipping all economic actors.

To this end, I would that we institute prohibitions on imports for countries with serious and systematic human rights violations, and/or lax environmental standards.

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James Wimberley 10.26.11 at 9:21 pm

The plan doesn’t address the unsustainably low rate of US household savings and wolud make it worse by the (otherwise excellent) wave of redistribution. Reforms to healthcare and higher education would further reduce the incentive to save to meet their rent-seeking.
Thi is of course a long-run, full-employment problem not a short-term depths-of-a-recession one. It’s hard because you don’t want the savings to be channelled into another housing bubble, and the finance industry has lost sight of its job to promote household savings and channel them into productive investment.

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Cthuhlu 2012 10.26.11 at 9:39 pm

James:

Household savings is low because consumers are not stupid.

In the last 20 years, we have seen the influx of artificially cheap goods from China. (The goods are artificially cheap because of lax human rights standards, lax environmental standards, and refusal to float the currency). Meanwhile, the interest rate you get by saving in a bank is pretty low.

On account of the time value of money in conjunction with artificially cheap goods from China, if I have ten dollars, I get more value by spending it on cheap goods from China than by putting it in the bank.

Further, trade with countries which do any of {lax human rights, lax enviro standards, manipulated currency} drives down wages (all else being equal), and (relatively) decreases the amount available to households (which need to buy food and clothes and shelter) to save.

The financial class turned shelter into a casino. That’s mind-boggling. That that can happen should destroy the confidence of Americans in their financial institutions. We need to institute regulations to prevent it from happening again. Meanwhile, we need to impose some restrictions on trade–not outright bans, but tethers to floating currency, envrio standards, etc. We should have done both of these years ago, and then the current cyclical downturn (a) would not have been aggravated by the financial sector, and (b) would not involve deficit spending on top of our already insanely huge debt–a debt which is insanely huge in no small part on account of our shoddy, sell-out trade practices.

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Watson Ladd 10.27.11 at 2:45 pm

Chris, we have idle machines and idle people. The way to get them together is not by increasing the minimum wage!

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Salient 10.27.11 at 4:17 pm

Chris, we have idle machines and idle people. The way to get them together is not by increasing the minimum wage!

True, the (most direct) way to get them together would be to eminent-domain the machines and hire the people directly, with a steely glance at other businesses that can’t seem to get their act together and provide enough welfare to the commons to justify their profit extraction. Ok ok, that’s not a good approach to actually try in most cases (except utilities and some communications/information-transmission services, I’d argue). I’m ok with (maybe resigned to) screwing around with complicated head-game “incentives” (coercions) to get businesses to hire rather than ever engaging or even reaching for the nationalization nuclear option, but the jobs these businesses are coerced into providing need to be good jobs that are at least giving fair (equitable) or more-than-fair compensation. If businesses can’t even provide that, I don’t mind them perishing. Businesses can’t experience suffering; people can.

And, as necessary, the government really should be the good job provider of last resort. If the incentives for hiring aren’t working, just start hiring people in depleted sectors until the labor market re-tightens. I can’t think of a single category of occupation that couldn’t be hired by the public sector to perform work useful to the general public. There’s just no excuse letting masses of people go without. There’s not much reason to mind the machines of various businesses sitting idle, if people are nonetheless living reasonably satisfying and secure lives.

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SamChevre 10.27.11 at 4:29 pm

True, the (most direct) way to get them together would be to eminent-domain the machines and hire the people directly.

To do what, exactly? Build more houses in the Inland Empire? Produce more pickup trucks that no one can afford to buy?

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Pascal Leduc 10.27.11 at 5:07 pm

How about fixing the infrastructure? or converting a significant portion of power generation to a less polluting form.

Are all the rivers and lakes of the united states dammed? you could build a few of those, did wonders here in quebec.

The power infrastructure itself is pretty poor too, could switch the high tension cables to 700kV would really help with energy waste.

Bridges and highways could use some help too, though grants and financing for cities to build some subways would be great too.

Thers like a billion important and essential things the USA needs to do, if only there was a supply of idle workers and machinery that … oh wait.

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Salient 10.27.11 at 6:16 pm

To do what, exactly?

It’s not clear to me what you’re asking. I thought I addressed this concern in my second paragraph, or even the sentences immediately after the sentence you quoted, where I acknowledge those particular machines (e.g. pickup truck making machines) might very well be useless, and matching existing workers to existing machinery is not a very coherent goal, because who cares about machinery? Machinery doesn’t suffer from disuse, as people do. So maybe we’re not in disagreement? I certainly couldn’t care less if some pickup-truck making machines sit idle while we hire the people that the pickup-truck maker laid off to work on other stuff (we would hire them for jobs for which their skill set is at least somewhat relevant, presumably–maybe mass-producing a fleet of energy-efficient emergency vehicles, I don’t know, there are a million options). Anything else I can add that would clarify?

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Watson Ladd 10.27.11 at 7:50 pm

Salient, businesses will hire whenever there is a profit to be made when doing so.

chris, I brushed off your last comment a bit hastily. My reasoning goes as follows: the minimum wage will not change anything about the structure of work in the short run. There will be workers who produce less then minimum wage. These workers will be fired as it is not possible to employ them profitably. Workers who produce more then the minimum wage won’t see a wage increase, as they take down more then the minimum wage. I don’t see any way short of denying that prices express something real to defend the minimum wage. I think taxing higher incomes more would shift the amount payed to lower income workers up by shifting demand.

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