The Econometrix

My first attempt at putting together information about the constituencies of our representatives at the Federal level.

Feel free to play around with it.

When the Fed raises interest rates, it will pull an enormous amount of the world’s excess saving to the US.  This flow will cause the dollar to appreciate, and US Net Exports to fall.  All of our trading partners should be happy.   Europe in particular will find that the fall of the Euro provides a great deal of relief, I think.  As the money parked in Europe flows to the US, the falling Euro will bring much needed demand for European goods and services.  Perhaps it will even bring a little inflation, or at least a lessening of deflationary pressures.

Let me caveat this by saying that I am fundamentally in favor of a more progressive tax structure.  But this is easy to explain and implement and has at least a nod to progressivity.

Personal Income Tax:

1)      Everyone with a SS# gets a personal exemption tied to the Federal Poverty level for a family of 1.  For 2011, that was $10,890.   There would have to be some fiddling with the personal exemption level, to make a stab at a sustainable deficit level, but I don’t have time to work out the details today.

2)      Above the personal exemption, all income is taxed at 23.8%.  Where does that number come from…well it is federal outlays as a percentage of GDP (for 2010).  Although one might want to build a small amount of flexibility by basing it on estimated expenditures for the following year, or adding a percentage point(s) to make up for the personal deductions.  But tying it to Federal Expenditures neatly ties lawmakers hands.

a.       Also you could suspend the expenditure-and-tax-rate equivalence when Congress declares war, which would give everyone an incentive to do it properly.

3)      It does not matter what you do with that income, give it to charity, pay mortgage interest, pay college tuition, etc.

4)      It does not matter what the source of the income is wages, short vs. long term capital gains, interest, etc.

5)      The marriage tax penalty goes away, because it doesn’t matter whether people are living together in sin or married, they can combine their tax returns, or not, and pay the same tax rate.

Corporate Income Tax:

Corporations are people too…right?

1)      They get taxed at 23.8% of (GAAP) profits. 

2)      Any limited liability corporation pays its own taxes.  S-corp owners would have to decide which was more important to them profits being passed through without taxes or the limited liability protection afforded corporations.  They could however have the S-corp pay them a reasonable salary (or commissions).

Note: If you tax wages the business pays (as Herman Cain’s plan does) that would be double taxing.

TaDa!

1)      Instant Automatic Pay-as-you-go balancing of the budget.

2)      Very simple and easy to understand. 

3)      Lawmakers must take into account the cost to the taxpayers of anything they undertake.

4)      Does away with the whole Alternative Minimum tax, Millionaire/Billionaire tax surcharge, because even Buffet would be paying 23.8%, for him the personal exemption would be a rounding error.

5)      Everybody would literally be paying their “share” of the services that the Government provides.

...in "10 essential fiscal charts" http://www.pewtrusts.org/uploadedFiles/wwwpewtrustsorg/Reports/Fiscal_Analysis/Essential_Federal_Fiscal_Charts.pdf

Really interesting, if slightly depressing.

  THE GOVERNANCE OF A FRAGILE EUROZONE, by Paul De Grauwe

"When entering a monetary union, member-countries change the nature of their sovereign debt in a fundamental way, i.e. they cease to have control over the currency in which their debt is issued.  As a result, financial markets can force these countries’ sovereigns into default."

http://www.econ.kuleuven.be/ew/academic/intecon/Degrauwe/PDG-papers/Discussion_papers/Governance-fragile-eurozone_s.pdf