Bill Gale of TPC has a Great book out!

The book is called Fiscal Therapy: Curing America's Debt Addiction and Investing the Future. The Tax Policy Center has an event you should go to on Wednesday, April 10th. Info is here. Bill summarizes it here, including my initial review:

I like this book. He hits the right notes on taxation (both value added and progressive) and economic rent. I have a bit of disagreement on what is important in recent economic history and in the models he uses to say why the debt is dangerous, but I disagree mostly with those economists, not Bill. Still, these are more a distinction than a difference. Well done! I will add more comments as I get closer to the end.

Buy the eBook here.

My further comments are in reference to the posts on this site and the five book set that is also on Amazon Collected Comments to the U.S. Congress. My apologies to those who wish a summary. While I sometimes do those, many book reviews (including mine) provide a counter-point discussion where the reviewer shares his or her own thoughts on the book content.

Chapter 1, Government at a glance gives an overview of the government and its funding that sets the stage for the rest of the book. No arguments yet.

In Chapter 2, How We Got Here, Why It Matters, Gale takes us from Hamilton to Trump. Allow me to comment on the last 56 years 40 years.

The main consequence of the successive Reagan cuts, aside from goosing secondary markets, especially stocks, which are entirely savings and do nothing to increase growth unless matched by bond sales, is that they changed the calculus for the rich regarding decades of labor peace and killed all inflation due to worker demands for higher wages. As a result, inflation became manageable and wages after inflation stagnated or were reduced for the working class. All productivity gains went to professionals, shareholders and especially the C-Suite.

Before the Kennedy-Johnson cuts and the Reagan cuts, any cuts in labor costs were simply transferred to new taxes, so cuts did not occur. All that changed with tax cuts and until high rates are brought back or C-Suite salaries are controlled by open competitive bidding for those jobs with every member of the lower level of management in that industry deemed qualified to bid, workers will continue to lose. Give them more pay and they will make there own human capital investments. The center will not hold otherwise. The anti-tax coalition which depended on MAGA is about to collapse with Trump, which will also eviscerate the assumption that the 2017 tax cuts will be made permanent. They won't even survive 2021.

The Bush cuts did raise high income taxes while decreasing them for the upper middle in the "hump" rate of 33%. The change was mostly optics, although it did help increase revenue and improve progressivity at the high end. Still, in my analysis, as income increased the effective tax rate from the income tax increased the effective rate of  social security taxes (including the employer contribution) decreased, leaving an effective rate of 30.9% after about $50,000 gross income. Progressivity happened at the low end and then became proportional. Nice trick.

Clinton increased progressivity at the high end, taking money from the savings sector and giving it to the consumption side, which resulted in a 3% stable growth rate and put us on a virtuous cycle which took money from the savings sector while decreasing the need for government bonds.

Sadly, because Clinton traded SCHIP for lower capital gains rates it became easier to build an internet startup than actually working, leading to the tech boom and bust. Bush. The Second Cut taxes on all, but especially the rich.  He  had Greenspan offset the expected decline in GDP by giving everyone a credit card. This was fueled by a perverse deduction in the 1986 for second mortgages that made every home an ATM. This led to the Great Recession, which was actually a Depression due to the loss of value in homes. This made it impossible to sell so many could not upgrade, even with adequate income to afford a bigger home.

2010 was a mistake. Higher taxes on the rich would have decreased asset price reinflation while increasing GDP by definition (government purchases + consumption by government employees, contractors and beneficiariesand second order consumption in the private sector, with third order investment in real capital investment (not asset inflation)).

The entire fiscal cliff and budget debate, including Rivlin-Domenici and Simpson-Niles was about the paper tiger named Grover Norquist and his hold on the GOP. The goal was enough baseline discipline to raise $3 Trillion to let Obama keep his promise to make the Bush cuts permanent for the bottom 98% of households while letting the cuts on the top 2% expire. That this happened in 2013 gave cover to Norquist and the GOP to accept Obama's terms. Since then, no one has cared about the baseline.

Every excess spending bill is necessary to keep the economy alive. Overall, it will be a good year, no thanks to Trump, who had no say in negotiating the Balanced Budget Act of 2018. He simply signed where told.

The decrease in savings and asset inflation stopped the boom bust cycle that feeds the dreams of Austrian Economists to discover the new worthy rich, losers be damned. As a result, the economy grew and will continue to grow because spending increases and bond purchases offset the gains to the savings sector due to the TCJA. Reversing the tax cuts will increase GDP, by definition, especially if spending is not cut.

There is no reasonable compromise position here. The Austrians are simply wrong. There is enough incentive for the next Mark Besos to build a better mouse trap without the need for boom bust. If anything, giving consumers more money by giving high end savers less in tax advantages helps innovation more. Investors are even better off because they get real returns rather than paper gains.

Chapter 3 is about The Challenge we face. While entitlements are expanding, I don't agree that they are the challenge. Social Security is only out of balance by conservative estimates (the kind that killed pensions and forced everyone to by 401(k)s and IRAs). Realistic assumptions have the funds in balance forever (see the analysis by EPI). We both agree that the biggest issue is interest expenses feeding on themselves If something is not done.

There is no such thing as per capita spending. Retirees benefit by collecting Social Security and getting Medicare. Their collection of Medicaid is not so much a benefit as a lifeline. Both of these are a gain in opportunity benefits for the children who would otherwise care for them. Such benefits are a function of family size, with smaller families and orphaned middle ages gaining more benefit.  Without these programs their costs would be unbearable, especially if they are not in the top 20% of income.

The other factor, aside from the economic rent charged to employees by the C-Suite as enabled by low marginal tax rates) is lower population. When taxes were higher, fathers would sometimes get a wage bump with a new child. Now he is fired and replaced by two Millenials who like coding.

Defense spending is uneven as well. Soldiers come from all economic classes, although enlisted start lower (for some it is their only out from poverty). As in all capitalist enterprise, the C-Suite gets a huge subsidy. Compensation is capped at $1 Million on the cost side, but profits can be used to enhance, which is a backhanded subsidy to the asset inflation sector. There are exceptions to every rule.

In Chapter 4, Termites and Wolves, Gale discusses the possible economic impacts offered by most economists. I beg to differ on the state of economic modeling of fiscal policy.

Debt cannot restrict growth unless someone tries to mess with interest rates to restrict inflation or we get back on a boom-bust cycle because a prices are too low. We can grow ourselves out of it by taxing away asset speculation and funding more spending, which increases GDP by definition. Any experts not connecting these dots are simply wrong.

Borrowing that offsets speculation is a good thing. Higher taxes which allow less spending, stop asset speculation (which is NOT capital investment) and decrease borrowing from overseas is even better, provided foreign speculators are taxed enough to prevent asset inflation. Capital growth results from expected consumption, not speculation or tax policy. Any corporate investment manager who does otherwise is quickly unemployable.

A national savings model that equates speculation gains with national income is also wrong. IMF models justify preventing GDP growth in the name of funding foreign capital sources. These go beyond wrong to a financial war crime.

Greece's problem was imposed austerity to benefit hedge fund investors. All EU debt should be dealt with on a Hamiltonian model and funded with a continental income tax. Until this occurs, US debt is unimpeachable. After it occurs (and it must), we will have a problem unless we annex our creditors and retire paper. This also may be inevitable or they could annex us It is six of one and half dozen of the other if all voting representation is on the same basis. As it is, because the President controls allied military affairs (why Trump must go), Europe is our colony.

Some states become third world economies if they are shy about raising property tax rates when base values drop or by refusing to make income taxes more progressive. These are self inflicted wounds.

In the $1 example, a dollar of government spending raises GDP. Tax cut dollars for the rich increase speculation and do nothing for GDP.

Gale does a good job in discussing economic rent in Chapter 5, Solving the Debt Problem Fairly.

This brings up the question of who owes the debt. It is implicitly owed by the ability to pay taxes. People who cannot pay, do not owe. Just as there is no such thing as per capita spending (especially on Interest, which is owned by both the wealthy and the almost wealthy with good investments, regardless of nationality) there is no per capita debt. The relationship of taxation yo debt is 1 to 13. If you pay $1, you owe $13. An easy payout. Or you pay $10 thousand you owe $130 thousand. Not easy, but probably less than the location value of your house if that value is market price less depreciated house cost. Maybe Henry George was right all along.

The gist is that people with low income on average have children with low income. There is a great deal of lifetime mobility in the middle, as Brad Schiller repeatedly reminds us. It is at the top where having rich parents often means being a rich taxpayer later on.

Driving this point home is the essential element in the discussion of generational equity. While default or hyperinflation would hurt everyone, the poor will stay poor, the middle will be insecure but the rich could lose everything, at least in terms of liquid assets. Since they are at the most risk and have the most benefit from inequality, it is on them to pay more, now and later. Making anyone under the 80th percentile pay anything more over and above current spending or cutting their benefits and jobs at all would only slow GDP. Making the top 20% pay more or get less, especially the top .1%, is actually good for GDP and for their progeny.

The discussion in Chapter 6, The Politics of Deficits, the Deficits if Politics starts with the change in distribution by party between Republican and Democrats reminds me of a discussion I had when I was David Koehler's research assistant in doctoral school at American. His model of ideological ratings in the Senate 20 years ago showed overlap and made calculating the "yolk" or the generalized median set to find a majority. My thought that the appropriate process should be (or would be) to assume party discipline and limit the yolk to attitudes in the majority. Sadly, events proved me right.

Chapter 7 is about Healthcare Reform. Key factors in health outcomes are a history of systemic racism that just does not exist in other G-7 nations or in the social Democratic countries with generous health and education programs. This also leads to obesity as SNAP makes buying soda rather than milk essential.

In comments to Senate Finance arlier this year on drug prices, I proposed having the government retain the rights to orphan and high cost drugs and contract out testing and development and manufacturing programs, eliminating much of the risk to PhARMA and their ability to charge high drug prices.

We do need to change the incentives for health care spending before we become a chronically ill nation of patients. The GOP solution that even they won't touch makes the best microeconomic sense. Give everyone catastrophic care (you can even do it by single-payer) with employers providing either comprehensive to worthy employees, health savings accounts to most of us and nothing to the working poor, although they may collect an insurance payout when they die from lack of care. I wish that were a joke. A medical line of credit paid for by employees would give us a better cage, but because healthcare is not a normal good, do nothing for high costs, especially in the last year of life.

The neo-liberal answer is Obama care, which was the GOP plan until it had Obama's name on it. There is no policy reason for them to behave so. It is all racism. The only reason the Dems went with it was to embarrass the GOP by making them reject their own plan. GOP corrections were quietly included, although they still voted no.

A public option, which would have required even higher FICA surtaxes in the wealthy or a payroll tax (or VAT) to fund would have been better, especially if mandates were repealed (as they were under the TCJA), as well as universal coverage. This would have led to single payer, especially if all of Medicaid were part of the public option, if not Medicare too. Eventually, and probably quickly, the pool of uninsureables increases with insurance company profits. Eventually, single payer would result as only healthy people would be insured in the private market.

Hillarycare was simply the public option with HMOs for everyone. Medicare for All is simply another step. My Medicaid is an HMO. Even with single payer, third party payment would live on in contracted out claims processing.

The answer is single-payer funded by a subtraction VAT which would include a carve out for employers who provide superior care or equal care with their own doctors and specialist/hospital arrangements. This would make the responsible pay or and payee interests identical and give them the actual incentive to reduce cost and the ability to do so.

Health care cost is a misnomer. Providers are constantly cutting cost to increase profit. The real problem is health care price. This will only be lowered by company provided direct care, more hospitals (especially the almost extinct public ones), or by regulating monopoly pricing of health insurance and hospitals as public utilities.

Chapter 8 is about Saving Social Security. My reform proposal on th tax side, in brief is on the employer side of FICA, take over all DI and SI for non-retirees and all HI taxes. Credit OASI employer contributions equallyand VAT fund to tap profit as well as payroll and eliminate caps. Lower employee cap to decrease benefits to the rich and put in a floor. Raise VAT enough to compensate. Use S-VAT if insured accounts holding employer voting stock are included. Use a GST if not. I have written to much about how to use Social Security Personal Accounts to bring about cooperative Socialism to repeat here. Like many, Bill disagrees with the premise but has not yet considered the promise.

Chapter 9 is about investing in people.

My key to doing that is using a subtraction VAT (S-VAT) to fund a larger per child tax credit, as well as healthcare and remedial education.

Since the market won't do what is needed, the government must. Give each child $1,000 a month as an offset to an S-VAT and demographics improve and the abortion issue goes away, putting another stake in the chest of the GOP (which has no heart to puncture). Sadly, the TPC model would need a major upgrade to estimate this. If you have to change your model, you have to put me on a panel to explain why. Volume 2 of my Collected Comments contains multiple submissions on Social Security and Income Security. Cooperative employers will fund university education and R&D. A little S-VAT can go a long way.

Chapter 10 is about Investing for Growth and Security.

When the bridge to nowhere was cancelled, the road to nowhere had already been built. It turns out that both were part of an overall plan, which is essential in frozen Alaska, to link the town to its airport on an island. This would end the need to take the ferry. It is cheaper to clear a bridge than break the ice. Once the snow stops, no more removal is necessary. Not so with ice breaking. The ignorant battle against the bridge was political theater. The earmark was a way to bypass departmental policy and do projects where national and local government, including the DOT, are on the same page. Doh!

In the future, roads should have a good with cars connecting to it for power and control (so much for using DUI for intervention). Local cooperative employers will pay for the projects in lieu of taxes, including power generation and distribution to homes. The roofs will be grass covered to absorb the sun and rain and stop the snow (retractable walls. Solar panela are a trend. Car makers may or may not be part of the project through interlocking ownership. Whether these are funded through use or as a cooperative resource is up to the worker owners. Any 30 year infrastructure plan should take into account the next 30 year's of social progress (which will be partially funded by redirecting S-VAT revenue to ownership).

Worldwide ownership will of it a crimp on the DoD Budget (unless you are prefunding civil war). Instead, research and procurement will be converted to space and ocean exploration, colonization and designing and building the self-supporting of the future, and not just in the US.

Trains should be part of this. Not funding trains and low gas taxes (much of which can be funded with a GND Carbon VAT).

The next 100 year's will be as different as 100 years ago. Dream that big, not in increments.

Instead of an infrastructure bank, the Fed will provide credit, insurance and management consulting services to employee owned cooperatives, although the trade may be in standard labor dollars instead of currency. Woe to the billionaires and those they fund. This assumes we let the Fed survive. Given their ownership by the banks, that may not be a valid assumption.

Without profit taxes there will be no federal tax breaks. You cannot exempt VAT for one person's labor and profit and not others.


In the interim, defense spending will be split between domestic regionally based VAT funding and overseas funding by income surtaxes, again, with a transition to space and habitat development. This will be quickly privatized through use by employee owners. VA costs may or may not be split.

Chapter 11 is Taxing People. I don't believe the Reagan cuts were enacted as advertised. Starve the beast was never as much the goal as starve the poor so that they will serve the rich and to allow the rich mire monopoly money (until their toxic junk is sold to the middle classes before it collapses. It seems like we need to go back to a class tax.

If you look at total debt and the fact that it is 13 times income tax collections, then the wealthy 1% are in hock to the rest of us to the tune of 7 Trillion dollars (yes, with a T). It is even more if only the top 25% must pay the surtax. Of course, a fair share of that will be paid by the A-VAT (until employees own everything) and at which point there will be no billionaire CEOs. Before then, the rich will need to pay back or redistribute the debt globally (although I am sure most of the Tera-rich have a U.S. Tax ID number). The 75% to 99% strata owe $9T, with the lower 75% owing $2.5T. See the jpg.

As you see, Obama left too few people paying adequate income tax. He should have raised taxes on the top ten, not the top two percent. We can fix that.

Tax expenditures are a feature, not a flaw. Without them, rates would be lower but social costs will be higher for some. It needs to be managed. The 20% rates are too low. 26 is a lovely number. 30 better still. This should also be the A-VAT rate. It should be high enough so that owners would want to sell to qualified ESOPs to avoid the tax.

Average growth does not exist. Democratic administrations generally have a flat 3% rate, Republicans go up and down with more volatility and a lower average growth rate.. We can raise the average by never again electing a Republican MAGA may make that happen.

VAT is used for family subsidies. The lower US taxes reflect lack of rate of Tariff effects implicit with VAT. Lower marginal rates give us rent seeking (which controls inflation)  and subsidizes asset inflation, not GDP. Only growth in real productive capital is part of GDP.

For the record. I beleve that Reagan's chief economist was not correct. (Hope it wasn't you). I could use stronger language having to do with equine anatomy.

The predictor of growth is not taxes. The only financial measure relating fiscal policy and GDP is Deficit/surplus net of net interest as a % of GDP lagged one year to account for multiplier effects. Too much in tax cuts fuels speculation. Since any real assets need no outside finances, the cuts went to mortgage backed securities and NYMEX. Regulation in 2007 crashed NYMEX and MBS could not cover the loss because they were simply BS.

Tax expenditures holp the economy. At best, cutting taxes on the rich boosts the premium market and subsidizes asset inflation.

TR86 was a cut in marginal rates which increased rent seeking. It made things worse but it did give us a permanent baseline.

Fiscal policy, especially tax policy, determines how income income is organized, especially when you include contracting, tax expenditures and multiplier effects. The question is, do like the status quo? If not, by how much?

Chapter 12 is Taxing Business. It seems that it contains some form of intellectual property export tax. Exports cannot be taxed. Period.

If wages are only taxed through VAT the exemption make that labor tax free. Sales by charities should always pay vat, but the svat should only tax wages of non-profits and charities (except sale). Financial firms would be taxed the same way but also be subject to the asset VAT. Medical purchases would be VAT taxed, both GST and SVAT.

VAT could also be collected by states and remitted to federal government.

Chapter 13 is about Carbon Taxes. Carbon taxes should be explicit so they do not cascade. That should include energy used to make and transport products. Calling them a VAT makes them receipt visible. They should be high enough to both fund research in fusion and incentivize it's use. If VAT would be otherwise used to fund discretionary environmental spending, then a C-VAT should be offset with a lower GST.

The way to get a C-VAT passed is go threaten direct industrial intervention, which should still be forced when possible.

In the end, higher taxes may be an incentive to work more to preserve current consumption. It is why need cooperative socialism to shift to private social services to take that incentive away. That is not as radical as it seems.