Fair taxes - How taxes on Capital should be structured

If one assumes that all income should be taxed equally so people share the burden of expense of government equally here is how taxes on Capital should be structured:


Dividends should be treated as ordinary income (as they used to be before the Bush tax cuts).  They are distributed profits from a business and there is no reason to give them favorable tax treatment.


Capital Gain should also be treated as ordinary income.  But there should be two special provisions, one for fairness purposes and one to encourage investment.


For fairness gain should be reduced by how long you held the asset to account for inflation.


To encourage investment you should be allowed to sell an asset and immediately roll the proceeds over into a new asset.  All the rollover proceeds would not be taxed, and you would carry the same basis into the new asset (basis is how much of your own money you originally put in).  This would need rules to ensure it is not abused, particularly when you are using borrowed money to buy an asset.

Income inequality

Heard an interview of author Edward Conard, a Bain Capital guy, who has written a book called "Why Everything you Have Been Told About the Economy is Wrong".   The interview focused on what is apparently his main thesis, that income inequality is a good thing.  In the interview it seemed the crux of his argument was that we are richer than Germany or Japan, and we have greater income inequality, therefore the reason we are richer is because the investor class in Germany and Japan are more highly taxed.


His argument in the interview did not address some pretty basic facts, so it makes me wonder if he addresses issues like:


1.  He seemed to be focused on the period since WW II, does he address that time in our history that is most like our current situation, the roaring twenties and the Great Depression?  Where we had rising income inequality and then an housing and finance based collapse that led to years of economic weakness.


2.  In citing Germany and Japan does he address the fact we started from different places?  At the end of WW II our country, our infrastructure and manufacturing capability were untouched, and in fact had been pumped up on steroids by the war.  In Germany and Japan, on the other hand, the major cities were piles of rubble, big chunks of their infrastructure were destroyed and their manufacturing base was in tatters.  We had a huge economic head start and the fact we are still are richer says nothing about our economy beyond the fact we have avoided catastrophe and kept moving forward.


2.  Does he address population distribution?  Because of our success in WW II we had a ton of kids between 1947 and 1957, the so called baby boomers.  No such event occurred in Germany or Japan (or the rest of the world as far as I know).  A result of that explosion in the number of children meant that in the period from the late 1970's through the early 2000's we had an extraordinarily high percentage of our population in what economists consider the prime productive years - the time of our life we we create a lot of wealth and build our financial life.  The simple fact is if 5 out of every 10 people are in that time of life in country #1, that country is going to be richer than country 2 where only 4 out of 10 are in that period of life.


Perhaps he deals with these issues in his book.  I'm sure the Economist will review it soon, unless that review suggests he deals with issues like these I will see no reason to read the book.

Bain Capital and whether Obama understands the economy

A lot of commentators, including some Democrats, are suggesting Mr. Obama's criticism of Mitt Romney's ties to Bain Capital show he does not understand how the economy works.  What these comments suggest to me is that the commentators are the ones where the failure to understand is found.

Perhaps the commentator's could explain to we the audience how Mr. Romney's economic ideas differ from the  ideas of the Coolidge/Hoover era Republicans who led the nation into the great depression, with its 25%  unemployment.  Or how his ideas differ from the ideas of the Republicans who seized control of both houses of Congress in 1995, and led the nation into the Great Recession and the economic morass we are still attempting to climb out of?


Perhaps the commentators could convince me it was just dumb luck that Democrats could control both Houses of Congress for 14 year, 24 year and 8 year stretches between these two periods of Business Republican domination without managing to blow up the economy.  Perhaps the commentators could make the case the rising inequality, bubbles in housing and equities followed by spectacular economic collapse that marked the only two periods of Business Republican domination of government in the last 100 years were just coincidence.

The question isn't whether Bain Capital acted wisely or legally, or even whether hedge funds are a leech or a building block of our economy.  It is whether the ideas that made the folks at Bain Capital lots of money can be translated to Government successfully and history suggests the answer is a resounding no.  Business and Government have different purposes and goals, and business Republican's have a long history of demonstrating success in business is often an impediment to success in Government.  In the private sector firing a bunch of people and paying off investors often makes for resounding success because the fired folks aren't the businesses problem.  That approach does not work for Government because the laid off people are their problem, and are crucial to the consumer base on top of it.

Even the publication I read most regularly, the Economist, has gone down this "Obama doesn't understand" road. Yet that esteemed publication some months ago published economic data that suggested the initial collapse of 2008 was in fact worse than the initial collapse of 1929.  Mr. Obama's bad luck was that, although he has done a
remarkable job of preventing another Great Depression, since the Republicans left the scene of the crime as the collapse was happening, they now can come back and argue Mr. Obama is the cause of the countries economic problems, and offer the same solutions they offered that twice crippled the economy.  


Back when the great depression first began, luckily for FDR (unlucky for the country), Republicans remained in control for the first three years of the Great Depression, at which point unemployment was 25% so it was readily apparent to voters who really did not understand how to create jobs.  Democrats elected FDR and controlled both house of Congress for the next 14 years.

Bring back the item veto

One of the huge issues that Republican's and Democrats beat each other over the head with is earmarks.  Earmarks, those dollops of Federal dollars that members of Congress hand out to their districts to curry favor are made possible by the budget process where the President, when he gets a budget from Congress, faces an all or nothing choice.  He can either veto the entire budget, or swallow any objections and sign it.

Some states, including California, provide the chief executive with the power to veto individual expenditures while still approving the overall budget.  It is called the line item veto here in California.  Item veto's are not a cure for all government fiscal impropriety, but they are a useful tool, particularly in the sense that they give taxpayers one person to hold accountable for funding programs that really don't deserve taxpayer dollars.

Back in the early 1990's, Republicans trying to get back into power in Washington by hammering Democrats on the deficit, pushed through a bill giving the President a line item veto.  A year or two later the Supreme Court held it was unconstitutional.  One would think the Republicans, who by that time controlled both houses of Congress, would have proposed and pushed a constitutional amendment to allow the line item veto.  But, since they were now the ones handing out earmarks to curry favor with voters, they evidently lost interest - probably in part because Bill Clinton was President and they didn't want to give him the power to veto their pet projects.  The notion of a line item veto sank into oblivion.

It should be revived.  Whats happening in Europe is an object lesson on how hard it is to control government expenditures.  An item veto would be a useful tool.

On leadership

I heard often as I was growing up that God "puts up over men the basest of men" (Daniel 4:17).

While calling leaders "the basest of men" is pretty harsh and judgmental, I think there is some truth to the basic idea that the people that seek leadership are a little bit different than the rest of us.  They are prone to believe they are exempt from the rules that apply to other folks, and prone to mistake their own self interest for the interest of the enterprise.

We see a couple of examples in the news currently here in the Bay Area.  The recently elected Sheriff in San Francisco has just been convicted of spousal abuse, while here in Berkeley, after folks in town got pretty upset when an older fellow was beaten to death in his yard while the police were occupied elsewhere, the Berkeley police chief sent a uniformed officer to knock on the door of a local reporter about midnight to try to get a story in the newspaper shaped more to his liking.

In my experience the people that become leaders aren't necessarily smarter than others, but they are more ambitious.  They are good at focusing on their own self interest, and how to achieve their goals but often a little bit insensitive or downright oblivious to whats in the interest of the enterprise of which they are a part.

I think this is especially true in the public sector, where productivity is often hard to measure.  People that are verbal and social and focused on their own advancement can climb the ladder faster than people that are more focused on what is good for the enterprise.

In the private sector, although the politicians and the media often use the terms " entrepreneur " and "businessman" interchangable, to me they are usually completely different personalities.  It seems to me many Corporate CEO's are more notable for their ambition than for their management skill.  There are currently many in business that wrap themselves in the mantle of the entrepreneur to use the good will we all hold toward entrepreneur's that create new ideas and enterprises as leverage to gain advantages from Government that to not benefit the wider economy. 

Wish list - deleting electronic spam from my life

I waste a lot of time, and incur a significant amount of aggravation with unsolicited phone calls, emails and text messages from people trying to sell me something.

This blog is to throw out an idea in the hope some tech genius will pick it up and run with it.

Why can't some company provide phone, email and text services that provide that anyone who wants to contact me has to pay me a nickel.  I can create exceptions for family, friends, business associates or other people who I want to be able to contact me for free, but everyone else pays me a nickel.  Maybe my provider takes a $.01 commission from my nickel for providing the service.

I think the volume of phone, email and text spam would drop hugely if it cost spammers a nickel for each spam message then sent.  Life would be significantly less aggravating and I would be more efficient if I wasn't regularly interrupting what I am doing to respond to what turns out to be someone trying to sell me something I am not interested it.

When the guys you hired to fix the problem find new problems

One of the classic stereotypes of our age is the auto mechanic, or the plumber, or other skilled tradesman, that you hire to do a small job for you, then all of a sudden the mechanic "finds" something that will be a big, expensive job that the mechanic stands ready to fix.

In your mind the question comes up - did the mechanic screw it up intentionally or negligently and now seeks to make lemons into lemonade?

When I hear Republicans talking economics today I hear that mechanic, only in my mind there is no doubt the problem was caused by the mechanic that now wants to be hired to fix it.

The deficit?  Its easy to document that the biggest explosions in the deficit since WW II have always been directly traceable to Republican tax cuts and military spending, with one exception.  That exception is the deficit caused by the emergency bailouts that kept the world financial system afloat after Republican policies blew it up in 2008.

The jobless rate?  Republicans controlled the government from 1995 to 2007 and managed to blow the economy up more thoroughly than at any time since the Great Depression.  It took 25 years after the great depression before the economy got back to normal, and they are ripping Obama for only making modest progress in 3 years, even though they have been dragging their feet in every way possible to prevent Obama from making any progress.

Republican economic solutions?  More of the same policies that caused the problems.  They are like a guy who drove a car of a cliff who now wants to take the wheel of the tow truck trying to pull the car out  of the canyon.

In an ideal world voters would give the Republican's a reality check in this coming election.  But the one thing Republicans are really good at is wrapping their sows ear ideas up like a silk purse and finding a way to sell them to the voters.