Skip to comments.No to the Flat Tax, Gold Standard and Other Stale Ideas
Posted on 02/22/2013 7:41:35 AM PST by SeekAndFind
Free enterprise, free markets, competition, and choice: All are timeless economic principles, but their application can and should evolve with changing economic circumstances. When Ronald Reagan was elected president in 1980, the top income-tax rate was 70 percent, inflation was 13 percent, health-care spending was 10 percent of GDP, and publicly held debt was 26 percent. The average American was 30 years old.
Today, the top marginal tax rate is 40 percent, and inflation is 2 percent. Health-care spending and the debt have both risen by nearly 80 percent as a share of output. The average American is 37 years old. Economics and demography require a reworking of the conservative policy portfolio. But center-right politicians in Washington keep offering same-old, same-old stale solutions. A few examples:
1. The flat tax: In the 2012 Republican presidential race, candidates including Rick Perry and Newt Gingrich proposed a flat tax on personal income. The idea seems likely to pop up again in 2016. Most flat-tax proposals are a version of a flat consumption tax devised by economists Robert Hall and Alvin Rabushka. If you were creating a tax code ex nihilo, the flat tax might well be the way to go. Simulations, not to mention common sense, suggest that a flat tax with a low rate would produce a larger economy than the current mess of a tax code does.
But we are not starting from scratch. It would be problematic to transition to a flat tax — at least at the 15–20 percent rate typically proposed — from a tax code that has nearly half of Americans paying no income tax. A flat tax would probably generate too little revenue, making budget deficits worse. One smart way to tweak the idea would be to keep the consumption-tax aspect while adding a more progressive rate structure.
2. The gold standard: The party platform adopted at the Republican National Convention in Tampa included a plan calling for the creation of a commission to consider restoring the dollar-gold link. Been there, done that. A similar panel established by President Reagan dismissed the idea. More recently, a University of Chicago survey of 40 economists found unanimous and vehement opposition to resurrecting the gold standard.
Those results are hardly surprising. The gold standard played a central role in the Great Depression and the severe deflation that accompanied it. Its return would hamstring the Federal Reserve in any effort it made to prevent future recessions from morphing into depressions. The latter, by the way, tend to usher in dramatic expansions in the size of government. A better option would be to anchor monetary policy not in stuff mined from the ground, but rather in futures contracts linked to market forecasts of nominal gross domestic product.
3. The Balanced Budget Amendment: A hot issue in the 1990s, the BBA fell off the radar screen when it looked as if the U.S. faced surpluses as far as the eye could see. But the trillion-dollar deficits of the Obama era have revived the idea. Senate Republicans have submitted legislation for a BBA that would limit government spending to 18 percent of GDP. Putting aside the debate over the wisdom of tying the hands of future Congresses in unforeseen economic circumstances, 18 percent of GDP is too low a long-term spending target given the aging of the U.S. population. Over the next 25 years, 60 percent of the rise of health-related entitlement spending will come from aging, and only 40 percent from inflation in that economic sector. “Even in the unlikely scenario that we completely conquer health cost inflation, we would still have to confront the bigger problem of the growing number of people receiving federal health benefits,” explains former Social Security and Medicare trustee Charles Blahous in a recent analysis for e21.
If you want to implement a BBA, a better long-term target would be 25 percent higher. But why do we need to actually balance the budget? Representative Paul Ryan’s original “Roadmap” plan, for instance, lowered the debt-to-GDP ratio by 30 points over two decades without a single year in the black. Given that the average U.S. debt-to-GDP ratio was 37 percent from 1957 through 2007, a better bipartisan policy goal would be to immediately move the debt-to-GDP ratio onto a downward trajectory, back toward that 37 percent level (from a forecasted 76 percent this year) over the next two decades.
Timeless principles with timely policies: It’s time for Washington to start paying attention.
— James Pethokoukis, a columnist, blogs for the American Enterprise Institute.
Bring back US jobs.
Cut the federal budget.
The thing is it is all of those things. We cut off spending at the federal level, but then we export jobs to China.
No. Bring back US jobs now.
I have a great idea!
Let’s just create this entity that no one can oversee that will just TELL US how much money is in circulation by either printing it on paper or making a data entry in a database.
Then we’ll have all the money we need!
RE: Bring back US jobs now.
Easier said than done... how do we do it?
Only for the government programs/giveaways.
I earnd $100 and gov't took $80 ... OK .. done. And I don't "file for an income tax return"
Not to me
Don't know enough about gold to comment
A BBA should not be an A, but an annual plan based on what money THERE IS.
Even a child's lemonade stand does all that ... oh wait ... yeah ... that's right ... it's illegal for a child to sell lemonade without permission
The inflation rate is total B.S. If you don't drive, eat or have health care maybe you could keep you output to 2% more than you spent last year.
We need a party based on American manufacturing.
We need to return American manufacturing and do it quickly. We are selling out America’s future.
We need laws, which encourage American manufacturing. And American exports.
Both parties are sold out.
Either we get a party for American trade. Or we start one.
RE: . If you don’t drive, eat or have health care maybe you could keep you output to 2% more than you spent last year.
Also, if you (if you’re single) or your kids (if you are married) don’t have to go to college...
RE: We need laws, which encourage American manufacturing. And American exports.
Let’s take computers and smart phones for instance... how do you encourage companies like Apple and the makers of the Android to manufacture them in the USA, given that we can’t compete with Asia on wages?
“and inflation is 2 percent.”
Where, on Mars?
I don’t know, but what we are currently doing is simply selling everything in the plane before it crashes.
That is not a plan.
Not at all a plan. We need to stop sending American businesses overseas.
That is the first thing. We need to stop sending American businesses overseas. Period.
Then we need to start bringing US businesses home.
First of all though, we need to stop the damage from getting any worse.
RE: We need to stop sending American businesses overseas.
For businesses to stop sending manufacturing jobs overseas, they have to be convinced that manufacturing things here is more cost effective than profitable than manufacturing it elsewhere.
That’s just the way things are.
Whatever it is, you’re not going to compete on wages alone. There has to be other components that will attract businesses to manufacture here.
RE: and inflation is 2 percent.
Where, on Mars?
I didn’t know the Bureau of Labor and Statistics hire people on the red planet.... :)
Yeah... Screw stuff with a 3000+ year history of actually working...
Ownership of their business is a big one, which is not talked about nearly enough.
When you own an American business, you own it. Depending on which state you settle in, your boss can be somewhat meddlesome, but still you own it.
In China and virtually every foreign country, you own 49% and can be booted out at some time.
That day is approaching.
We need our own business base back.
Start by encouraging US businesses with law changes.
Our laws should ENCOURAGE business growth in America. Not chase businesses away.
Other than that, I leave the topic open for discussion, but we are going about it wrong at this point.
Now we really, truly need to get our focus once again on repatriation of US businesses.
The Gold Standard didn’t cause the Great Depression, the Federal Reserve did.
Quote from Ben Bernanke:
“Regarding the Great Depression. You’re right, we did it. We’re very sorry. But thanks to you, we won’t do it again. “
Don’t know if these people are lying or are stupid.
All distractions from the real question of the day - are we to be free or are we to subject ourselves to an ever harsher Federaly tyranny.
They don’t dare have that discussion.
If bringing back the gold standard will hamstring the fed I don’t see anything wrong with that. It will also hamstring the corrupt losers who are spending us into bankruptcy.
You replace all forms of income tax (including business) with tariffs on foreign goods....and American manufacturing returns. Worked well for our economy for the first 140 yrs of its existence. And, we also end trillions of dollars in trade deficits.....that wealth returning to our shores would eliminate the need for income taxes.
I agree, the Repubs are approaching complete worthlessness. Make note that Pethokoutis is the chosen mouthpiece on Economics for AEI + many other questionable publishers. Almost everything out of AEI and much of NRO is just more of the BS from the patsies for the Collective.
A Balanced Budget Amendment must have teeth. My proposal is that all members of BOTH houses that fail to pass a balanced budget are ineligible for re-election or for any other federal elective office, permanently.
Do you think Nike would spend the MILLIONS they give to OVERPAID NBA players to build a factory in the USA?
Read about US mfr of office equipment: “A Cautionary Tale Of Outsourcing To China: There Is No Recourse, You Could Lose Everything”
That's the point. The Federal Reserve causes the recessions through its incessant money-printing. I'd not only "hamstring" the Fed; I'd abolish it.
A better option would be to anchor monetary policy not in stuff mined from the ground, but rather in futures contracts linked to market forecasts of nominal gross domestic product.
Nonsense. The point of a gold standard is that money should have a fairly constant value. Gold provides that because the amount added each year through mining is a tiny, tiny percentage of the gold already in existence.
I'm disappointed to find out that Pethokoukis is just another advocate of "flexible" money. Very disappointed.
No, it only shows that conservative capitalist values were always correct and the whole reason we are in this mess is because socialist values have got us here. There is no easy way out now, but that is what liberal Republicans just cant understand. The gold standard did not cause the great depression. A recession was caused by the tariff act, and complicated by schemes which the Federal Reserve implemented to try to stop gold from outflowing from Britain. If America wasnt looking after the interests of another country (Britain) we wouldnt have gotten into that mess.
We should support free (but fair) trade. It was trade unions that helped destroy our manufacturing base with their excessive demands. Businesses found savings by moving overseas. You can't really blame them.
With that said, I don't consider China a fair trader, which is why I prefer products made in Korea (Samsung) or Taiwan (HTC) over Apple, which is made in China. If there was a retail outlet that provided Chinese alternatives I would shop there.
University of Chicago survey of 40 economists found unanimous and vehement opposition to resurrecting the gold standard.
Forty foxes vehemently opposed putting locks on the henhouse door...University of Chicago survey of 40 economists found unanimous and vehement opposition to resurrecting the gold standard.
People like Bob Dole used to be mainstream conservative Republicans. Then Jack Kemp slapped us alongside the head with a blinding flash of the obvious: by opposing Democrat spending and then supporting taxes to balance the budget to avoid inflation, Republicans were acting as enablers for the Democrats tax and tax, spend and spend, elect and elect strategy. Kemp struggled in the 1970s to get Republicans to stop doing it, and finally with Reagan in the White House committed to Kemp-Roth, Kemp triumphed when the income tax rate was slashed and tax revenue essentially doubled over less than eight years.That is relevant to the Gold Standard, in the sense that Jack Kemp published an open letter to Reagan before his inauguration, advocating that the US government should sell off Fort Knox. His purpose? He asserted that if the US did not have any significant gold reserve, that would ironically put the US on a gold standard. He argued that, without that gold, the only thing sustaining the value of the dollar would then be fiscal discipline. There would not then, in his theory, be any way to operate financially without keeping the books in good balance. The situation, IOW, would be so dangerous it would be safe.