Convenient Arguments

By James Kwak

Here’s my solution to our national debt. We have a one-time, 100 percent tax on all wealth (net worth) of all United States residents, with a $10 million per-person exemption. With household wealth at around $60 trillion, that should be plenty to pay off the accumulated debt and shore up Social Security and Medicare for the next century.* The government promises never to do it again. Since we only care about future behavior, a one-time wealth tax should have no impact on people’s incentives to work, and hence no distorting effect on the economy.

Don’t like that idea? How about this one. The Federal Reserve creates $20 trillion in money but, instead of crediting it to large banks’ accounts at the Fed, it credits it to Treasury’s account. Again, no more debt. Again, the Fed promises never to do it again.

Yes, those are stupid ideas. They are stupid because no one would believe that the Treasury or the Fed would never do it again. If the Treasury were to go and confiscate wealth from billionaires and double-digit millionaires, they would leave the country (along with many other people who wanted to be double-digit millionaires).** If the Fed were to hand $20 trillion to the Treasury, everyone would start dumping dollars and it would become impossible for the government to borrow money at low interest rates the next time it needed it. People’s actions (working, buying bonds) depend on their expectations of future government actions. The fact that the government has never done something doesn’t prove that it never will, and if it did it once that wouldn’t prove that it would do it again, but in either case it’s persuasive evidence.

So if no one could propose a one-time wealth tax with a straight face, how come people can propose a “one-time” corporate tax amnesty with a straight face? Yet that’s just what multinational corporations are pushing for; see this article by Peter Coy and Jesse Drucker or Drucker’s Fresh Air interview. The U.S. has a top average tax rate of 35 percent, but multinational corporations have gotten very good at shifting their income to overseas subsidiaries in places like Ireland and Bermuda that have much lower corporate tax rates, often avoiding U.S. corporate tax entirely. According to David Kocieniewski of the Times, for example, G.E.’s U.S. tax rate is 7.4 percent, and that’s including taxes it will not pay until it repatriates profits to the U.S. For 2010, it’s claiming a refund of $3.2 billion.

The “solution,” according to those same companies, is for the U.S. to offer a tax amnesty that will allow them to repatriate profits (which they have to do in order to, for example, pay dividends or buy back stock in the U.S.) at much lower tax rates — like zero. The lobbyists’ talking point is that if the companies have more cash in the U.S., they will invest it in ways that will create jobs. This doesn’t even pass the laugh test: as Coy and Drucker report, U.S. nonfinancial companies are already sitting on over $1 trillion in liquid assets within the U.S.

We’ve tried this before. In 2004, Congress passed a similar tax amnesty (companies were allowed to repatriate profits at a tax rate of 5.25 percent). Companies brought back lots of profits, the Treasury got a small bump in tax revenues, and companies learned that they should stash even more profits overseas and wait for the next amnesty. According to research by Thomas J. Brennan, the amount of profit stored overseas reached its 2004 peak as early as 2006 and has only grown since.

Tax amnesties may look good because they increase tax revenue in the very short term. But this is just an example of why, as Daniel Shaviro argues, it’s stupid to look just at the annual deficit, or even the next five or ten years. A tax amnesty unambiguously reduces the present value of future tax revenue, even leaving aside the incentive effects.

And how about those incentive effects? If we’re going to pretend that a tax amnesty for corporations won’t have any impact on their future behavior, then why don’t we pretend that a one-time wealth tax won’t have any impact on future behavior, either? In either case, there’s a short-term effect and a long-term effect. The same people who argue for the tax amnesty by pointing to its short-term effect would be horrified by a one-time $20 trillion Fed bailout — because of its long-term effect on the Fed’s credibility and the ability of the government to borrow money.

In other words, there are plausible arguments that can be made on either side of most issues, and people pick and choose the arguments they like to suit their political objectives.

By the way, there is a real substantive question as to whether we should even have a corporate tax. Much as we may like the idea of taxing corporations, the corporate tax flows through to real people, and no one is quite sure how it flows through. It also includes some obvious distortions, like the double taxation of dividends as opposed to interest on debt, which encourages higher leverage. I would be open to eliminating the corporate tax altogether and replacing it with more progressive income tax rates or a wealth tax. But as long as we have a corporate tax, it’s crazy to have it in a form that favors multinational corporations with expensive lawyers and shell subsidiaries all around the world and that penalizes domestic businesses without expensive lawyers. If nothing else, paying lawyers and setting up shell subsidiaries cost money and provide no economic value.

But instead of dealing with serious issues, it seems like the IRS is going after individuals for — get this — falsifying their income on stated-income loans. Yes, they’re going after borrowers. Joe Nocera tells the story of Charlie Engle, who is going to jail because an IRS agent saw him in a movie about ultra-marathoning and wondered how he found time to train for it; because the IRS sent an “attractive female undercover agent” after Engle on suspicion of money laundering; because Engle or his broker falsified his income on a mortgage application; and because the broker testified against him and got a shorter sentence, despite pleading guilty to falsifying multiple mortgage applications (since when do you give the more senior person a plea to testify against the more junior person in the conspiracy?). The kicker is that Engle is going to have to pay $262,500 in restitution to Countrywide, the “victim” in this affair.

I like taxes more than the next guy. As Oliver Wendell Holmes is reputed to have said, “I like paying taxes. With them I buy civilization.”*** I’m generally not sympathetic to complaints about overreaching government bureaucrats. But this is ridiculous.

* I haven’t actually done the calculations; if it’s not enough, just lower the exemption.

** They would also sue, but if the wealth tax were an act of Congress, I don’t think they’d have much of a case. Since we’re in fantasy land, we could pass the tax by an amendment to the Constitution. As law professors say, don’t fight the hypothetical.

*** And according to Ed Darrell, he probably did say something like that.

Update: And here’s Daniel Shaviro himself on the topic.

66 responses to “Convenient Arguments

  1. David Wilson

    Not such a stupid idea. The borrower is always servant to the lender. Why does a sovereign government (“We The People”) have to borrow money, with interest, from the private sector. Who gets the interest? How about taxes as a way, only,
    to control inflation/deflation? Which would be in the interest of all the citizens. Money is created as debt, a loan, but the money to pay interest is not created with the loan. So debt will only increase and never be paid back. And demagogues will use the “deficit crisis” to dismantle the government, privatize everything, and create a society ruled by a small wealthy elite–which is what is happening now.

  2. @ David Wilson

    Thanks for the excellent links :-) -00-

    Excerpts from “Damon Vrabel @ dvrabel” Blog/ Questions & Answers (8/20/10)
    Subject Matter: “Global Empire and the International Banking”
    Quote: (Question #1)…”I have a question. Would any type of document flow chart, with say the names of signatures by men of largess or their personal legal reps, be able to show how typical transaction proceed in this hierarchical control structure? Or is there no clear line to be found following market responses to the decisions of senior capital pools?
    After having personally investigated the collusion of mega-media incs., and noticing the inordinate occurrence of the same names on the bod’s of each megacorp I came to realize that a high level of behind the scenes organization was taking place. Is there no way to show some kind of name trail or paper trail that leads back to senior capital pools? If it is possible, is it safe enough to do so? The skeptics out there by and large will need some kind of visual proof to make it real to them. If possible and relatively safe then it’s time to put some faces on the farmers.”
    (Answer #1)
    “Unfortunately no. Their capital is distributed across hundreds of nondescript LLC’s, anonymous partnerships, “arms length” foundations, etc. Just like there was no clear line to the old mafia dons, there’s no clear line to the senior capital pools. RICO was necessary to bring the don’s. Same would be necessary here. The skeptics will never be convinced.
    If one understands the concept of financial leverage, then the lines are very clear. But the legal code of the U.S. treats financial leverage as sacrosanct rather than violent, bullying, ruthless reality that it is.” End Quote!
    PS. Question #2 & Answer # 2 will come later from “dvrabel (8/20/10).

    Thankyou James and Simon :-))

  3. “In other words, there are plausible arguments that can be made on either side of most issues, and people pick and choose the arguments they like to suit their political objectives.”

    Most economists don’t help this, because they pretend that all individuals are equally affected by their linear equilibrium models. They usually fail to mention that every economic policy decision favors some people over others: Inflation punishes creditors and helps borrowers; deflation does the opposite. The Great Recession has favored the plutocrats, whose wealth gains value in even a mild deflation, but it is punishing over-leveraged average folks by unemployment and foreclosures that are often legally dubious. Moreover, the plutocrats are using the crisis and attendant confusion to push their political agenda, as David Wilson writes.

    We should push politicians and economists (even the pols’ tame economists!) to tell the truth: “This policy suggestion (pick one) will help our wealthy sponsors, but will screw the middle class.”

  4. Here’s my grand idea: All large financial organizations to have an open book, i.e. all their financial resources viewable on a government web site we can all inspect. What’s the good of giving them privacy? Enabling them to con others? What social service does their privacy contribute to society? Why did they all suddenly refuse to deal with one another? Because they knew they were all prevaricators. Transparency is much stronger than regulation.

  5. At this point, with fraud writ large sitting right in front of the populace, they’re all sighing and returning watching their flat screens while financial companies do a victory lap. Between corruption in government and jaded apathy among the people, both regulation and transparency are useless. It will take a far more massive crisis to knock people out of their stupor, and by then it will be too late.

    The only possibility I see for change in this cycle (strangely) rests with emergent phenomena coming out of the Millennials as they reach the age where they realize the previous generations have well and truly screwed them. Should Anonymous ever decide to sink its teeth in to a real target with real damage as their aim, their revolt could be spectacular in nature.

  6. winstongator

    The idea that if the Fed instantly handed Treasury $20T would make it “impossible for the government to borrow money at low interest rates the next time it needed it” is just not true. Consider Donald Trump, the number of times his businesses have declared bankruptcy, and then how they can still borrow at non-exorbitant rates. You could look also to Latin American countries that have defaulted. Or you could look to banks that issued massive number of shares during the crisis, effectively ‘monetizing’ their debts. How much are they paying for their borrowing today?

  7. I wouldn’t rush to call your wealth tax or printing press ideas “stupid ideas.” How far are they from calls for one-time or short-term fiscal stimulus at levels greater than 10% of GDP? While these stimulus ideas are usually accompanied with a nod toward reducing deficits later, who really thinks either political party will deliver on budget tightening…more often, the plan is just to grow our way out of the deficits, led by the growth induced from the deficits.

  8. Just look at what happened during after WWII. Massive short term spending, far higher than now. Followed by a large reduction.

  9. CBS from the West

    I think you have your facts wrong. Spending did not go down–the reason debt to GDP ratio fell in the post WWII eras was that GDP grew very rapidly.

    But I don’t think we can count on a big spurt in GDP this time around. The Great Depression and WWII had suppressed consumer demand for decades. After victory, people were just raring to go. And, unlike the Europeans, our industrial infrastructure was intact–just needed to be retooled from wartime production purposes. And, a lot of scientific and engineering advances from the first part of the 20th century had reached the point where they were ready to be turned into consumer products, and we had a large cadre of engineers ready to re-deploy from war efforts.

    Our current circumstances are rather different. While aggregate demand has been way down for the past couple of years, before that it was quite strong, fueled by debt. Our period of relative deprivation has been fairly brief at this point. Our industrial infrastructure is hardly in great shape: in fact we have been systematically dismantling it for the past decade. Do we have a bunch of technologies now reaching maturity? I don’t know. There is much talk about the potential of genetic technologies–but as best I can tell these really need a lot more time in development before substantial numbers of real products can be produced. We are certainly still in the midst of a rapid emergence of new computing/telecommunications products. But just how large an economic boom these can sustain isn’t clear to me.

    So, yes, after WWII we grew our way out of our deficits. The Keynesians hope it will happen again. But I just don’t see our economy as being poised for that kind of exuberant growth any time soon. Hope I’m wrong.


    According to the above link, and many others, government spending went from over 50% of GDP back down to about 20%. That would require over 200% GDP growth within a couple of years for you to be right. Actual growth was more than 10 times less in the very best year. Spending must have been cut.

    Keynesians have no influence at all. We will never know if economic stimulus would have worked. The “stimulus” tried didn’t even cover the loss of revenue at the state level.

    Instead, we are going to do Tea Party economics. We’re going to cut spending which will increase unemployment which will reduce demand. Brilliant!

  11. CBS from the West

    Yes, you are right. I was confusing what happened to spending with what happened to total national debt. The massive debts incurred during WWII were never paid off: as a percentage of GDP they got whittled down over the subsequent decade due to explosive economic growth. But annual spending did, indeed, decline as you say.

    Another interesting thing about the link in your post: whereas WWI and WWII are associated with obvious spikes in spending, the wars in Iraq and Afghanistan are not really perceptible. Are we waging these wars very inexpensively? Or are they just not counted in the spending statistics because they are “emergencies” and “off budget?”

  12. a “one-time” corporate tax amnesty

    Just another trick up the sleeve of the Corporatist Kleptocracy.

    This will not be the last.

  13. or we could do the opposite and have a one time tax on all the unrepatriated profits. or better yet, tax it whether they repatriate or not.

  14. “corporate tax flows through to real people”

    And don’t individuals’ taxes flow through to business via a push for higher wages?

  15. “corporate tax flows through to real people”

    And don’t individuals’ income tax also flow back to corporations via reduced consumption and reduced demand?

  16. “corporate tax flows through to real people”

    And don’t individuals’ income tax flow back as a cost to corporations via reduced consumption and reduced demand?

  17. You say “If the Treasury were to go and confiscate wealth from billionaires and double-digit millionaires, they would leave the country (along with many other people who wanted to be double-digit millionaires).” like it’s a bad thing. Think of how productive our society would be if we didn’t have to pay 1/3 of every dollar to them.

  18. I think you don’t know much about how the IRS works (or doesn’t work) and would be better off not saying anything on this Charlie Engle guy. One criminal investigation agent is does not represent the entire policy direction of the IRS.

    CI goes after tax fraud. One old old old technique for going after fraud is summonsing mortage applications and comparing the income reported on the application to what is reported on the tax return. Sometimes these guys even give a tax return to the lenders that was not filed or is nothing like the return that *was* filed. That’s fraud. Either the lender or the government got defrauded if they don’t match. Apparently you have sympathy for some criminals but not others, and I’d like to hear you explain your criteria.

    Also, the IRS did not prosecute anyone. Criminal cases are prosecuted by the Justice Department. Whatever tax this guy owed or didn’t owe due to this fraud is not something that the IRS is allowed to divulge (unless it is part of the criminal fraud procedings as opposed to any civil fraud penalties that may have been involved)

    This is not something new and has never been controversial before. Where the hell does all this sympathy for a fraudster come from. If I promise to get some plegdges for the next susan komen run/walk in my town, does that mean I get a free pass on fraud too?

    Just because this was a “little guy” he is just as much a part of the problem as the rest. Because of his fraud, r/e values got pushed up and honest buyers got priced out of the market. Because of him in no small part, investors in banks and bonds (such as our pension funds and insurance companies) got defrauded and now have less money to pay out claims and someone else will have to pay the difference in higher premiums or deferred retirements

  19. Herbert Wetherby

    Ahh yes my young friend, watch True Grit and you shall see in the beginning that the real fraud need not have happened at all. It was set up to take down greed and all those who followed along. Unfortunitly the whole of the world had to get involved and take their cut off the top. When the top came back missing they sued and sued until they needed a taxpayer bailout, and now they are back for more. There is a lesson to be learned and it is this. If you are owed gold you should be the one who keeps track of it, just go for your gold and leave other peoples gold alone. And don’t keep suing to keep them from their money so you can get continually get yours now and in the future, there eventually is a price to pay.

  20. @ HW

    Nice putt! -0`0-

  21. Herbert Wetherby

    Why tyvm, again.

  22. m.d.henderson

    Dear Sir, As a northern neighbour may I propose a modest solution to both your unemployment problems and the massive fiscal deficit. Create a U.S. Jobs Export Tax exempting foodstuffs and clothing of about 20%.Yes, all the electronic goodies,cameras, Beemers,etc would cost more for those with jobs who can afford them.Inflationary,of course, but that is just what America needs. Sounds like political gold. C’est what? cheers

  23. James, I don’t understand why you cannot bring yourself to say it: “our debt based reserve currency is fraud”. Tell me why we as US citizens should we borrow money from ourselves and pay the IRS the interest. Please stop with the pointless gibberish you post on this website. Secondly give up regulating a fraudulent currency system.

  24. Herbert Wetherby

    You need to be talking to Uncle Ben and cousin turbo timmy, James has no drummer in this battle.

  25. If the Treasury were to go and confiscate wealth from billionaires and double-digit millionaires, they would leave the country (along with many other people who wanted to be double-digit millionaires).

    My only response has to be… You say that like it’s a bad thing!

    On a tax amnesty, I must completely agree, although the counterargument I usually propose to those who suggest such a thing is that we triple the penalty. Bring it back now or face triple the fine! Way back when I ran into arguments about the capital gains tax, I used the same argument (it didn’t work then either, I have to warn you :-(

  26. The United States Vitalization Credit (USVC) Program creates new sources of money and credit by which parties, public and private, use as a medium of payment for goods and services. The purpose of the Program is to provide complementary sources of money and credit to the existing Federal Reserve and thereby diversify the money and payment architecture of the US economy. Such diversification will establish a greater resilience and natural, systemically self-regulating payment and banking system for our businesses and communities. The USVC Program proposes two specific initiatives: (1) regional trade credit networks that use online accounts and (2) a nationally directed interest-free investment program for targeted, strategic infrastructure and social programs for our nation. These two sources of money and credit, combined and working in conjunction with our existing Federal Reserve banking system, create new ‘capillaries’ of money flow and counteract the brittleness of today’s centralized monetary system.

  27. “So if no one could propose a one-time wealth tax with a straight face, how come people can propose a “one-time” corporate tax amnesty with a straight face?”

    Quite simply, because corporations believe the government is desperate for revenue _now_ and will take whatever it can get _now_, thus offering them superior bargaining leverage.

    GE, the worst of the offenders, was bailed out (GE finance) via TARP, even as it evaded taxes on overseas income. But you are correct that the magnitude of the current overseas holdings directly goes back to precedent – those companies that repatriated profit in 2004 probably felt really dumb.

    The best part is the financial press proclaiming this is a “win-win”. Win-win relative to what? To the money staying offshore and unusable indefinitely. Perhaps, but that is not the real base case, is it?

  28. “So if no one could propose a one-time wealth tax with a straight face, how come people can propose a “one-time” corporate tax amnesty with a straight face?”

    Quite simply, because the corporations are running the government.

  29. “A tax amnesty unambiguously reduces the present value of future tax revenue, even leaving aside the incentive effects.”

    I don’t think this statement has been proven, at all. If there is some dusty old study that says profits are eventually repatriated (and taxed), I would guess that globalization has made it obsolete.

    Why should a modern global corporation ever bring profits back on shore unless there was an economic incentive to do so?

    And if that is right, the only question seems to be what level of incentive is appropriate, coupled with restrictions on how the repatriated capital should be deployed (i.e. job creation).

    It really doesn’t seem that complicated to create a win/win situation without getting into all the ideology….

  30. “Here’s my solution to our national debt. We have a one-time, 100 percent tax on all wealth (net worth) of all United States residents, with a $10 million per-person exemption. With household wealth at around $60 trillion, that should be plenty to pay off the accumulated debt and shore up Social Security and Medicare for the next century.* The government promises never to do it again. Since we only care about future behavior, a one-time wealth tax should have no impact on people’s incentives to work, and hence no distorting effect on the economy.

    “Don’t like that idea? How about this one. The Federal Reserve creates $20 trillion in money but, instead of crediting it to large banks’ accounts at the Fed, it credits it to Treasury’s account. Again, no more debt. Again, the Fed promises never to do it again.

    “Yes, those are stupid ideas. They are stupid because no one would believe that the Treasury or the Fed would never do it again.”

    Well, then, don’t promise never to do it again. Promise to do it rarely, under extreme circumstances. Like when we have a global financial crisis cum recession or depression. Once or twice a century. As needed. :)

  31. Fed lends printed dollars to Treasury; Treasury pays interest to Fed; Fed sends ‘profits’ back to Treasury ($82bn last year).

    We are not at $20 trillion yet, but we are getting there.

    see “Illusory Profits on the Way to JFK”

  32. 1. US corporations have made substantial profits overseas and have decided it is cheaper to keep those profits overseas than to bring them into the US and pay a tax to do so.

    2. If the US government reduces the cost of (the tax on) bringing those funds to the US the corporations will likely bring some (all?) to the US. After all, corporations respond to incentives just like people do.

    3. The US government has an infinite number of ways to reduce the tax, just one being a temporary reduction of the tax to zero percent.

    4. The US government also has the option to do nothing or raise taxes.

    5. Lobbyists are going to work to get the lowest possible tax rate (which is zero) in order to minimize their cost.

    6. The US government is going to work to keep the highest tax rate possible in order to maximize their (our) income.

    Unrelated to the above is what the US corporations will do with the money once they get it here. Spending it is one possibility that will be positive for the US economy as well as US government tax receipts. Spending decisions will be based on US corporations’ view of lots of business and economic factors only one being their cash on hand.

    I suggest reading The Myth of Corporate Cash Hoarding by Alan Reynolds of the Cato Institute.

    Another use of funds is capital expenditures on tangible assets — plant, equipment and inventories. Such capital expenditures by nonfinancial corporations (at home, not abroad) were growing at an annual rate of nearly $1.1 trillion in the third quarter of 2010 — a 42% increase from $752 billion in the second quarter of 2009. U.S. corporations obviously can and do increase their investments in plant and equipment at the same time they are increasing investments in so-called “liquid” assets (which include bonds, time deposits and mutual funds).

    The widely repeated notion that prudent corporate investments in liquid assets have somehow reduced real investments or hiring is unqualified nonsense based on inexcusable ignorance of elementary economics and accounting

  33. @ Speed

    CATO says “The Myth of Corporate Cash Hoarding” ?
    Says who?

    Excerpts of “Global Empire and the International Banking”
    (#2) Questions and Answers…from Damon Vrabel @ dvrabel blogsite (8/20/10)

    Quote: (Question #2) “When I heard of this banking cartel or elite families all over the world monopolizing the banking industry and governments’ was about15 to 17 years ago and I thought the first gentlemen that discussed this with me was anut, although he did spark a nerve, since I just went through the late 80’s recession. I started doing alittle research on the internet and books (The Jekyll Island Affair) and believe me I have watched this model of the one world government, or one bank world bank take place before my very eyes like a bad dream. The next was a prominent attorney in 2001. I believe this and try to talk with anyone I can about what is happening to our country, but most people don’t believe human beings could be that manipulative and evil to steal from their own country that gave them their wealth. This is a great site and I have emailed everyone I can with your website, because this is a war which is going to be hard fought and our economy is going down unless we get rid of the Federal Reserve and their cronies. I just hope it is not to late!!!”
    (Answer #2)
    “For some reason the system let me reply specifically to your post. Thank you for that perspective. I think it’s essential to understand the diverse perspective as opposed to engaging in typically narrow western thinking from within western borders.
    You ask why China would want to plug into a system controlled by westerners. Just look at the G2 relationship…they’re plugged into BIG time. The Bank of China has clearly jumped in bed with the bankers. Now the question is whether it’s really controlled by westerners. No. It’s controlled by the elite bankers who have no regional/national loyalties and they have given China a crapload of power that will likely torpedo the West in the end.
    I would just repeat this is an issue of class, not nationality, race, etc. The elitist class of the world (royal/banking/politburo types) realized long ago it’s in their interest to cooperate against the lower classes across all countries. For example, while ethnic Japanese culture might think in Japanese terms, their royal family has been aligned with the European royals and global bankers since WWII.
    So the question is, is China’s ruling elite loyal to China and the Chinese culture or is it just a typical narcissistic elite willing to cooperate with other narcissists? You would know the answer to that better than me, but it seems from the outside that their elite doesn’t care about the Chinese masses. A narcissistic elite would prey upon precisely the Chinese sentiments you describe toward the West to fuel warfare, ie.pit the Chinese masses against the western masses, in a way that serves the elite. In fact I think this is their plan and it’s how they’ll launch the Asian century as the world is fooled into thinking Asia is finally giving the West it’s due payback while the truth is it’s just a stageshow that hides the global elite working together.” End Quotes!!!

    PS. This is some food for thought regarding the misconceptions of a convenient truth turned upside-down into raw sewage via the Global Oligarchies of this soon to be “Flattened Planet” [?]

  34. What “foreign intervention” has the Chinese army been involved in lately? Nothing much, right? Shutting up those monks in Tibet…

    They’re exhausting the USA military just like Russia exhausted Napoleon Blownaparte :-)

  35. @ Annie

    The Chinese, Russian’s, European’s, and “God only knows who else”, are standing idly by as America squanders its resources in endless wars (sure they get to play with their weapon/toys[?] to tweak their accuracy in “War Games” at the expense of America’s infrastructure?) to satiate the “Military Complex Gigantic Ego”…this narcissistic, and hubris foiled lot!
    Libya is a “Pyrrhic Victory in Puberty”! The entire Middle East (ME) is about to blow up because of our intervention with the ultimate goal of finishing off Iran through a “Preemptive Israel Air Strike” in which , well…we have no choice now than helping their cause? Afghanistan, Kandahar U.S. AirField will destroy Iran’s (from the east) “Flank” while the Arabs (Sunni’s) have already given U.S. permission to use their airspace if such a need occur! It’s Sunni’s(all Arab States/Tribes[?]) against Shiite’s (Iraq/Iran)…sound (divide and conquer) familiar?
    As previous mentioned, the Chinese, Russian’s, European’s and others will just come in, and pick up the pieces (2nd largest Gas Reserves in the World, and 3rd largest Oil Reserves in World, WoW! , as they had their way in Iraq…and how are the happy Iraqi’s enjoying their penniless freedom?
    There you have it Annie, JMHO,…

  36. Herbert Wetherby

    Not that I want to, or could, make things worse than you described, but I just heard that a Saudi oil minister has gone to China to discuss what ever. If the administration wanted to double that call, we could dip into our oil reserves without telling the citizens. There has to be a shortage of gasoline somewhere.

  37. @ Annie

    First and foremost it is not a prophecy, period! It is a calculated, methodical trice that evolves through mission creep, such as AFPAK / Iraq, and Yemen.
    Why Libya? Why not Palestine’s “Prison Camps”? Libya is not the United States energy source but rather that of France and Italy, and small ancillary European neighbors. Is it safe to eat “French Fries” in america now [?]…seeing that France “ox” is getting gored?
    Tell me. Who are the rebels? Here’s a little tidbit ;Moammar Kadafi should never have stayed at “Trumps’ Tent City (Seven Springs Land Estate)” in Bedford, N.Y, during his Sept./2009 visit to the States. Huge mistake? The guy is a “NutJob” [!!!], but what’s that say about “The Donald”?
    “There’s a violent sirocco a brewing?”

    Ref: “Drugs money fills al Qaeda coffers in West Africa” (this story isn’t news – its been out there for years),,5146506_page_2,00.html

    Ref: “Comparison of Sunni and Shia Islam”

    Ref: “List of countries by Muslim population” (Note: 1.57bn adherents documented as of 2009…2nd only to Christianity)

    Lastly. “If the calculus turns turns out wrong?”

    “The Doubting Cassandra” (Virtual)

    “knowing the end, yet not the begin twas the beginning;
    cloven of incubated opaqueness, time cycles unbeknownst yet ubiquitously as of a randomness woven before inception;
    this mysterious quasi finite universe as the minds’ eye’s converges the espy within, outing the turmoil propagated by biased reason;
    what surfeit of sanity is quantifiable of endogenous thought manifesting within this spherical bottomless vortex of surrealistic imagery bound by cloistered refractions;
    this ambiguous logic in a vacuum taunting destiny’s ever amorphous excrements of distal turbid thoughts;
    scarring the turbulent hitherto illuminated inertia’s boundless crimson bloodline of multi-dimensional coherence, juxtaposed for shear sanctity of being;
    deep, deeper into the recesses of thy mind where light nor time are yet begotten dimensions, whereas a labyrinth of paralyzed conjecture bathes in continuum vacuums, haunts of ancient parallel ternary axioms;
    once internally fossilized with nurtured prejudices no more, hence my sight, a plethora of shadows past futures coming together as one, beckoning my soul to challenge the outer limits of ameliorated consciousness, mutating on the edge of darkness seemingly fraught with symbiotic aphrodisiacs gilded in dogma;
    a legacy of rebellious flux, this feigned, and fabricated mortality where gravities only functionality is grandiose osmosis of the ludicrous;
    thoughts hidden deep in the genesis of the mind, with the questions of ages beyond the fingerprint of the creator;
    beyond the knowledge of darkness ever so esoteric but to whom or who thou shalt inflame the tongue of thy masters reproach”

    That Annie, is how I shall reciprocate defeat with honor?

  38. @earle

    Just curious, since I don’t know you, what is your reaction going to be – in this particular case of war and peace – if your prophecy of future events turns out to be completely wrong?

  39. Herbert Wetherby

    If you look a bit deeper you will see the Chinese financial machine setting up the same type of scenero that occured shortly before the 29 crash. They ask trusting friends (people that owe them money), if they want to buy in and take a refurbished bankrupt company public. As they do the price of the company rises, then at the peak time, they withdrawl their majority shares causeing the share price to drop (sometimes significantly). This done globably at the right time ensures that Chinas currency becomes the new reserve currency from that day forward. That in turn would make all currencys not pegged to say, gold or silver, absolutely worthless and you are now a slave to Chinas products and prices. And that will go over about as well as people standing in a bread line in a polluted city.

  40. Here’s an idea my wife had when I recounted your article to her. Set a level of corporate charitable giving (related to income). Any company that gives that much pays no tax. Every company that doesn’t pays a flat rate (something realistic, higher than the current real tax rate). Charitable contribution records have to be public. No amnesties ever.

  41. It’s funny how much cheaper “civilization” was in Holmes times. Lots of people wouldn’t mind paying taxes to get “civilization” if it only cost as much as it did in 1927 (only about 12% of GDP) when he he said, “Taxes are what we pay for civilized society” in Compania General De Tobaccos De Filipinas vs. Collector of Internal Revenue, 275 U.S. 87.

  42. CBS from the West

    “Civilization” was a different thing in 1927. We didn’t live nearly as long. Those who survived to retirement generally lived in poverty and became dependents of their children. There was very little in the way of regulation of unsafe consumer products–and dangerous products were routinely marketed. There was no publicly funded health care back then–but even if there had been, health care was very primitive and inexpensive compared to what is around today. We didn’t build or maintain an interstate highway system, or support commercial aviation with airports and air traffic control systems. We didn’t… This could go on a long time.

    Actually, I think that’s the real point. The real ideological divide in our country is about just what “civilization” should consist of. I think the prototypical libertarian-conservative would say that government shouldn’t be doing most of these things, at any price. On the other side of the divide are those who, like me, think (most of) these things are important public goods that we should be willing to pay for.

  43. Well said. I totally agree.

    I also share your viewpoint. Infrastructure, education, healthcare and retirement are worth paying for.

  44. Honest LABOR brings into being “civilization”

    (infrastructure, education, healthcare, and “retirement” AKA being able to enjoy the fruits of one’s labor)

    We are living through a dark epic of global kleptocracy – the kind of darkness “modern” peoples thought was no longer an aspect of “normal” in the human species.

    Look, keep it simple – the kleptocrats are doing whatever the heck they want – total orgy of greed, hatred, revenge, fetishism, carnal depravity…

    they have slithered into the most cherished institutions – “church”, health, life-maintenance currency (symbolic money) – a Wrecking Crew of Nihilism…

    People need to aggressively do whatever they heck they want when it comes to LIVING the truths of generosity, beauty, goodness…

    stop playing the head games of the psychos…

    I was 15 when I realized that I would always lose the how-low-can-you-go “dare” contests with the male of the species – men can always go FAR lower than the normal female mind.

    Who thought that the “middle east” could get even worse?

    We MUST stop using their “money” – it’s filth and depravity and self-destruction – it’s Ebola bacteria at this point in time…stop “touching” it and for god’s sake, stop worshiping it…

  45. Except, you know, education, aviation, regulation and infrastructure don’t cost more than a few percent of GDP – they’re all in that tiny “non-defense discretionary spending” account. And even the trend of the defense budget relative to GDP has been gradually declining over the last few decades.

    The different between the 12% spending of Holmes’s time and the 24% we have today (without making real-purchasing power adjustments), is the debt and the entitlement programs. Medicare + Medicaid + Social and Income Security + Net Interest = 14.5% of GDP (and growing fast) so that means we’re only spending 9.5% on Holmes’ “civilization” + almost all the new things you mentioned despite the additional expense of three ongoing Islamic-World wars.

    It’s harrowing to think that if we simply canceled Medicare and Medicaid spending (almost 100 million dependents), and kept the taxes, we’d only fix half the deficit. They’ll kill us in the long run. I don’t believe for a second the government will be able to control long-term health care costs, and I’d be willing to bet money on it.

    If we kept everything else, and reformed transfer entitlements (for example, with means-testing), would that lack for “civilization”. At what point is civilization different from “every one of my political preferences for federal programs”?

    I interpret Holmes’ comment to mean that it is worthwhile to have a good government with the means to effectively perform it’s core functions, without which we couldn’t have a stable, functioning society, and so taxes are a price paid to receive a good value.

    Some additional functions, such as charity, are more “luxuries” or “redistributive social-models” but not at all, in my view, indispensable to the maintenance of “civilization”.

  46. Herbert Wetherby

    At what point is civilization different from “every one of my political preferences for federal programs”?

    Simply put. When it out lives you to the point of no return. And that may be awhile.

  47. Does everybody have to be so cynical?

    Obama has been right all along about the budget. It’s the rate of healthcare cost increases. It doesn’t matter if those costs are expenses to corporations, individuals or government. The other aspects of the budget are EASY. If we can get quality healthcare to inflation rate or lower, then we’re there.

    Of course, there are a lot entrenched interests that have no intention of being roadkill on the way to efficiency. But, there is no inherent reason why healthcare costs should be growing at the crazy rate that they are other than our rapidly aging population, which is a temporary problem.

  48. CBS from the West, you said:
    “On the other side of the divide are those who, like me, think (most of) these things are important public goods that we should be willing to pay for.”

    … most of … Ahh. But there’s the rub. What is “most of?” Where do you draw the line? What is the rule that determines what is included in “most of?” What isn’t included in “most of?” And how much are you willing to pay for “most of?” Since money is finite, every time you add something to “most of,” something else must be dropped. And how much “most of” can you/we afford. Money paid for “most of” is money that can’t be used to invent new things, become more efficient, labor less.

  49. Don’t we already know what “most of” is? It’s already in the budget to some degree: defense, infrastructure, education, healthcare and retirement. Everything else is a relatively small portion of the government budget. Education happens to mostly be funded at the state level.

    We should be focused on more efficient delivery rather than whether or not we want to be the only “civilized” country not to provide them.

  50. BradK asks, “Don’t we already know what “most of” is?

    I don’t and so far no one here nor anyone outside of the president’s Deficit Reduction Panel has come close to defining it. Instead we see squishy terms like “to some degree,”relatively small portion,” “mostly funded” and “more efficient delivery.”

    IRS forms bear hard numbers that determine what you and I pay to the government for services. Bank statements bear hard numbers that define my income and expenditures and must be in balance. The government (federal, state and local) also has bank statements that show income and expenditures and must be in balance.

    Rhetoric about “most of” ignores hard numbers and hard decisions.

  51. Herbert Wetherby

    Which brings me to ask once again, what will they do if he does strike it rich? The new balances will have the banksters juggleing and lieing as they never have before, and possibly get away with it too.

  52. I read that article by Nocera, and share you sentiments about it. It’s an unbelievable story, and one more piece of evidence that we are living in an oligarchy. I know that word gets thrown around a lot these days, but it seems to fit.
    Also, for the past few years, I have been wondering the same thing about corporate taxes. Although I don’t have your knowledge of the fiscal, or tax code implications, it is for philosophical reasons that I would question the existence of corporate taxes.
    Taxes are like dues for membership in a civilized society. They are paid by individual humans. In keeping with the idea that a corporation is not a person, having no constitutional rights, these legal entities should not have to pay taxes. A corporation is a group of individuals who enter into a legal agreement to conduct business. It is the individuals in a corporation that benefit from maintaining a civilized society.

  53. Keshav Srinivasan

    Actually, it is not true that a corporation is just an arbitrary contract a bunch of individuals agree to. Corporations are given Limited Liability status by the government. That means that if a corporation gets sued, you can mainly go after the assets of the company, you can’t go after the individuals who form a company too much. Since the government is providing a special privilege to individuals who form a corporation, it is only fair that those individuals pay for that privilege. That is the moral justification for corporate taxes. The theory is that people wouldn’t form companies if they weren’t protected from liability, so it’s not just a free-standing contract.

  54. @ KS

    Suppose my buddies and I decide to do a bank heist? We successfully rob a bank at night of all their money, say a million bucks. Several weeks later we get caught, but we never spent any of the money so we disclose it whereabout and all is made whole once again.
    Should we [I] be exempt of all liabilities as a convenient argument?

  55. Corporate taxes do flow through to real people. The question is which real people pay them.

    Anyone who’s studied the basics knows that what typically happens is that the consumer pays more for the product (but not enough to cover the entire cost of the tax), and the seller gets lower profits (but not the entire cost of the tax, because some of that is made up via the increased consumer price). The idea that 100% of the cost typically gets passed along is nonsense, pushed by people who stand to gain if the corporate tax rate is cut.

    Thing is, most of those who advocate an effective 0% corporate tax also advocate a lower rate on dividends and capital gains. Which also indicates exactly where their sympathies lie: their goal is to reduce the tax rate for investors by shifting it over to workers and consumers.

  56. Bayard Waterbury

    James, wonderful argument, which just shows the absurdity of our current taxation structure. The real issue is the 20,000+ pages of US tax code. The ways in which corporations find to dodge taxes are only due to the way in which our government has corrupted the whole process of taxation. I know lots of CPA’s. The ones who actually work say the the tax code is fondly known as the accoutants and tax attorney’s Relief Act. It’s a gift that keeps on giving, but mostly to those at the top. Notably, the crumbs it contains for the average citizen are generally worth a few hundred dollars, whereas the provisions protecting wealth and its accumulation provide millions to wealthy individuals and corporations. The tax code is the main reason why those ranked amongst the wealthy no longer actually care about America or being American. Sad for everyone.

  57. Here’s my solution: Let the corporations keep ALL their profits. But then also let workers keep all THEIR wages.

    What I am proposing is, no taxes on earned income. Moreover, no taxes on capital gains, dividends, or interest income either. In other words, a system of no taxes on any kind of income.

    I propose further that we replace them with a consumption tax on everything including, yes, food. The idea is to keep the tax simple. No exemptions. No “loopholes”. (No rebates to low-income individuals or families either, since under this system no one would be filing a tax return.)

    Now we turn our attention to luxury items such as expensive cars and clothing, mansions, New York apartments, jewelry, and (here’s a big one) FINANCIAL PRODUCTS AND SERVICES. Here it might be permissible to double or triple the consumption tax on these kinds of things that only the very rich buy and consume regularly. (Albeit at the risk of complicating the system.)

    In this fiscal utopia, there would be no income taxes whatsoever. Bye-bye 20,000-page tax code. Bye-bye tax “refunds” and “breaks” and “deferrals”. Bye-bye tax accountants and lawyers. Bye-bye tax industry altogether.

    Government will be financed solely by an easy-to-collect and hard-to-avoid consumption tax. One that will fall most heavily on the refined tastes and insatiable appetites of the very wealthy.


  58. Charlie Engle is going to jail, a veritable guppy in an ocean of huge great white man-eaters…how rich is this?

    The big banks set up an elaborate mortgage fraud, as many on this forum have pointed out. What happened to THESE guys?
    Huh? Nothing that I can point to.

    It’s sickening. As Sly said in another time: different strokes for different folks.

  59. How about eliminating corporate taxes, but taxing corporations’ returns on financial assets at a high rate? We want to encourage fixed investment, right? And fixed investment is inherently disadvantaged because at the and of Period X during which assets have been earning returns, the fixed asset is worth nothing, while the financial asset retains all its original value.

    To compensate for that — to make fixed investment as attractive as financial investment — businesses’s returns on fixed assets (true profits) should not be taxed, but their returns on financial assets should be taxed at a high rate.

  60. CBS from the West

    @ Speed

    Ironically, we are actually in agreement about some of the questions you raise.

    Certainly anything we do carries opportunity costs. In some people’s personal lives the decision to replace worn-out clothing requires them to miss some meals, or vice-versa. That’s a terrible situation to be in, but it is some people’s reality. For many of us, though, the decision to buy new school clothes for our children means giving up something like a few trips to the movies, or taking a shorter vacation. So there are opportunity costs and there are opportunity costs. And the decision will depend on where your values are.

    So it is with societies and their choices. A century ago, we were a subsistence society. A welfare state even of the skimpy magnitude of ours, let alone a European-style one, would have been impossible. The resources were simply not available. But we are still a very wealthy society as a whole and we can afford for some of us to sacrifice some luxuries so that others can be spared genuine hardship. It all depends on our values.

    And where we really agree, Speed, is that these issues should be the lead topics of our national public dialog, discussed and debated openly, vigorously, and in concrete terms with real prices and consequences disclosed (not fantasies, magic asterisks, or sound bites). If we did this, it would elevate the discussion considerably, and a lot of specious arguments would go out the window. You and I would probably be on opposite sites of many of the specific items, and neither of us gets to call the shots. It doesn’t depend on “my” political preferences; it depends on “ours.”

    In fact, I would argue that that is the most important responsibility of a political system. The ultimate tragedy we face is that our political system is so dysfunctional and dishonest that it does not even come close to being capable of doing this.

    My use of “most of” was deliberate: there are plenty of existing government programs that I wouldn’t vote for. There are probably others I wouldn’t approve of if I knew about them. And while I am convinced that markets cannot rationally allocate health care and believe we need a system that is largely or entirely government based, I am known on this blog as no fan of Medicare. The best I can say for Medicare is that it is slightly less wasteful of its resources than the rest of our dreadful health care system. So there is much in our current version of “civilization” that I would choose to eliminate or drastically change. But I still believe that the opportunities we must forgo in order to support a more generous version of “civilization” are luxuries that we can easily do without.

    @ Indy
    I share your despair about our ability to get health care costs under control. And, if we are right about that, I agree that it will be our undoing. But remember that health care costs = health care industry’s revenues. And if the legislative history of the ACA shows us anything it is that nothing that will decrease the health care industry’s revenues is politically viable. We’re doomed.

  61. “we can afford for some of us to sacrifice some luxuries so that others can be spared genuine hardship.”

    That’s about as well said as it can be. That’s the very crux of the disagreement now in the US.

  62. bornagaindem

    sorry as long as corporations use the court system , use the infrastructure of the US and enjoy the stability the military provides they should pay the taxes, This is especially true since the supreme court gave them the special status of being an invidual for the purpose of suing in the courts. And even more relevant since the recent supreme court turned over years of precedent and gave them the right to give unlimited amounts of money to buy our elections. How long before Rupert Murdock starts the argument that he should have the right to vote for his shareholders?

  63. A more lasting proposal that more directly bends the curve for the future would be a 100% inheritance tax (minus $100K), fully dedicated to universal children’s health care.

  64. Now you’re getting to it! Finally a suggestion that begins to make sensible our constant comparison between government spending/debt and GDP.

    I have long been impressed by the fact that over the years politicians have been able to focus budget discussions on comparisons between GDP and spending levels. The press has fallen for completely.

    But until this proposal, I used to wonder why it was appropriate to make that kind of comparison…after all the government does not have access to nor cannot spend our nation’s entire GDP. Now you’re “one time proposal” (how many times have we heard that from the government) to tax everything gets us closer to that “nirvana”.

  65. Time to look at the Fair Tax!