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August 15, 2013

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What supply-siders forget is the role of the market in creating jobs. And the importance of disposable income in creating a market.

YOu get more disposable income into the market by increasing the take home pay of lots and lots of poor, working poor or middle class people than by cutting the income taxes of a few people who already have more money than they can spend.

For example, for a while the Republican party was actively trying to demonize federal employees in order to justify defunding those agencies which employee people such as the Post Office. However in many parts of American, ironically often rural red parts, the federal and state employees are the people with disposable income which they dispose of locally, thus supporting local business and jobs. Reduce either the number of employees or their salaries and the amount of disposable income for the local economy also gets reduced, which results in a downward spiral for the local economy.

Take, for example, the rural somewhat red county where I live. The highest paid people around here work for the government in one way or another: teachers, PO staff, first responders, National Forest and National Park staff. The other jobs are either part time or minimum wage, with the exception of the unionized plywood factory.

Many, many people around here live hand to mouth, budgeted to the last cent, in debt to the local easy loan business for things like car repair bills. There's a barter economy for all sorts of goods and services due to the lack of cash.

So who keeps the restaurants, the contractors, small businesses open? Those people with government funded jobs and the unionized jobs.

Over the last decade or so there has been a steady diminishment in the tax base of this state. Some of it goes clear back to the Reagan years. Some of the diminishment is the result of Republican-backed initiatives such as the repeal of the inheritance tax. Each reduction in state revenues caused a loss of jobs. We have lost teachers,nurses deputies, one of our Animal Control officers...

Meanwhile one after another small businesses have closed due to the diminishing market caused by the lack of disposable income.

The best thing that could happen to us in terms of job creation would be a restoration of the tax base of the state whether thorough state revenues or federal dollars. An increase in the minimum wage would help somewhat. An increase in welfare benefits would help. Unionizing Walmart employees would help. Cutting the tax rate of the veneer of wealthy retirees with water view properties would not since they already spend as much money on the local economy as they wish to spend. Besides they are a minority.

Obamacare is already helping a little. My husband's insurance went down forty dollars a month. That's not huge, but it's a little increase in flexibility for us. Multiply that by all the other people who now have a little flexibility and it could translate into a local restaurant staying open.

http://www.washingtonpost.com/opinions/harold-meyerson-for-retailers-low-wages-arent-working-out/2013/08/20/5fbb66ee-09c9-11e3-8974-f97ab3b3c677_story.html

That's a link to an editorial about how retailers in the past have understood that the way to create jobs and to sell lots of stuff was to support increases in income for the average person, not tax cuts for the rich.

We should no more praise the employer for having a job to fill than we should praise the employee for filling it.

We might even call a worker a "capital creator," since the hammer is worthless unless someone swings it.

But a robot could swing the hammer while the job creator cannot be replaced by such a machine (despite e.g. Romney putting much effort into undermining that belief).

Yes.

John Henry unemployed.

Still, someone has to design and build and operate the robot.

And the robot and hammer are both worthless if no one wants steel driven.

the job creator cannot be replaced by such a machine

On the one hand, the advances in eg market trading algorithms, business metrics, etc suggest that autmating the 'last mile' of the business process (the guy behind the desk hitting the "yes" button) should be doable soon enough.
On the other hand, the guy making that decision is the guy behind the desk (or someone like him), and there is no class of people immune to the belief that *they* are the only hardworking and important people, without whom everything would fall apart.

[Just as wave after wave of outsourcing breaks before reaching the boardroom, as if the educated masses of India etc are obviously fine for replacing coders but mysteriously unsuitable for pushing down the wages of the C-level folks. "I'm sorry Frank, we can't renew your contract at $20M a year. You see, Vikram here is willing to spew buzzwords at the board and sexually harass the staff here at BlandCorp for just $2M. We want you back Frank, but it's just not the same corner office it was 20 years ago. We'll give you $5M, and lose the second company car. Oh, and your personal use jet time is cut in half, fuel is expensive these days."]

Rob's ideal tax reform:

1) Carbon tax. This is something I view as a unfortunate necessity, as it runs directly counter to my other goals (being regressive by nature). In order to blunt the impact, I would:

2) Get rid of FICA. Entirely. SS and Medicare can be funded by other revenue. I know that this is a significant hurdle, but this is an ideal reform package, so whatevs.

3) Get rid of the federal gas tax, as it would be superceded by the carbon tax.

4) Rip a ton of deductions out of the income tax code and reduce those not removed. With big ones that effect lots of people (e.g., mortgage interest deduction and employer-provided health insurance), phase in the reduction. I would probably leave in a smallish deduction for mortgage interest. One way to do it would be to cap it at a present-day value that's fairly high and not index it to inflation, so that over time it gets eaten away.

5) Change the estate tax into an inheritance tax, with an exemption amount of $250k. Above that, have marginal rates starting at 20% and ramping all the way up to 90%. Just off the top of my head, I'd probably go 20% from 250k to 500k, 30% from 500 to a million, 40% from 1 to 2 million, 50% from 2 to 5 million, 60% from 5-10 million, 70% from 10 to 20 million, 80% from 20 to 50 million, and 90% above that.

6) Have the CBO analyze steps 1-5, and then adjust income tax rates (if necessary) to produce a smooth curve of progressivity from the bottom to the top. Also have a look at if the EITC needs tweaking to adjust for the changes made. The totality of the reform would aim to raise some more revenue. I'd look to bring in something like 19% of GDP. Based on this http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=205 , we're close to 16% now.

There would also be small bore but, IMO, important things like getting rid of the "carried interest" BS. I'm not knowledgeable enough about the tax code to even know all of the loopholes available. I'd have to get some folks who are point them out.

[/end pipedream - or, depending on your point of view, feverdream]

I should note that other measures of current federal revenues have us at closer to 19% now. Funny how you can get a 3% point swing (out of less than 20% total) just by getting your numbers from a liberal-leaning site versus a conservative leaning one, eh? So what else is new.

Bah. I can't believe I left out capital gains. I'm losin' it, folks.

Capital gains should be adjusted for inflation and taxed as income.

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