The Fair Tax

A few senior members of my extended family have recently stated their support for this idea on Facebook. Since I'm always looking for a fight, here goes. Please feel free to shred my ideas or correct my misperceptions of the Fair Tax.

First, the good news. "Fair Tax" is a great name. Hard to argue with the word "fair", but really hard to define the concept of fairness especially in the context of the vast generalisations needed in terms of federal tax policy. Wiping away the current system is a very attractive idea because the current system was not designed, but evolved. People of all political stripes can find many things about the current tax code to hate, I'm no exception.

I'm basing my rebuttal on my ideally fair (but totally unworkable) federal tax system, and a brief review of the fairtax.org website. My ideally (but unworkable) fair federal tax system would be an annual tax bill, collected by the IRS, as a percentage of average personal wealth over the tax year. Taxes are fair when the are maximally progressive; from each according to means, to each according to needs. This framework of fairness puts my plan right on the same individual philosophical ground as the Fair Tax. Of course, measuring average average wealth over a year is impossible but a nice theoretical model. More generally, I think taxes should be more federal and less local, and more progressive based on wealth rather than income. It would essentially be a property taxed based on total holdings including real estate. Every tax payer would file a quarterly balance sheet and would be taxed an amount based on a graduated scale. Again, unworkable but a nice dream.

My understanding is that the Fair Tax is essentially a national retail sales tax (as most states now have), administered by the states and paid to the federal government. This is progressive at the bottom of the wealth scale with a 'prebate' (cool word) to poor people that is intended to keep them from paying federal taxes. It is regressive at the high end of the wealth scale because rich people consume a smaller percentage of their wealth than everyone else, so they pay a smaller percentage of their wealth than those in the middle. This means that the bulk of the burden rests with the middle class, just where it is now. I would prefer to see the burden pushed up the wealth scale.

Philosophically this is federalist in the current usage of that word, meaning driven by the states. I'm opposed to that, as I prefer the federalist philosophy pushed by Alexander Hamilton which wanted a very strong central government both politically and financially.

Geithner's balls and brains, part 2

I really feel for this guy. He looked and sounded so very scared in his appearances this week. The text of his testimony and interviews sound tentative and afraid. That's with good reason. There is a massive multi-trillion dollar monkey on his back that is called 'toxic assets' in the current vernacular. Everyone from the President of the United States, through the leaders of both parties in both houses of Congress, to every economist with an opinion (which is all of them) is willing to let Timothy Geithner be the lone soul responsible for this nearly impossible problem. The burden is heavier than any in the world right now, and I greatly admire the balls it took for him to accept this challenge.

I don't blame him for looking tentative. The political reality is that the US is not willing or able to consider bank nationalization yet. The toxic assets are still little understood, little discussed in the general public, and are a far way from the 'transparency' the President talks about incessantly. I don't think he has a chance of succeeding, but am watching with very interested eyes and brain cells.

Geithner is trying to simultaneously reassure Congressional leaders, the street, the President, foreign investors and himself that these assets have value, that private buyers will want them, that taxpayers will get off without spending much more, and that FDIC examiners will confirm the health of the banks' balance sheets. I am sure that one or more of these items will not meet expectations. I'm not Limbaughian enough to wish him failure, but I'm not entirely optimistic. Godspeed to you, Secretary Geithner. We need this to work in some way.

Bow just about tied

...on the 'stimulus' bill. Bits and pieces of information are leaking out. It looks like Obama gave a little bit on his 'signature' taxbreak to all workers. I didn't like the idea of it from the beginning, but understand that he was a big vote producer and his is obliged to follow through. It seems like some of the stupid tax breaks were cut back or eliminated. The ones allowing giving consumers a kickback for buying a car or a house seems nearly as foolish as the corporate tax refund provision. They kept the refund provision in for smaller businesses, that's good. They slashed the aid to states by a fair amount, which kinda sucks. I would have liked to have seen more cash for them and for education spending.

I still don't know what the hell Republicans are talking about with their standard line bitching about 'Washington spending'. Most of the cash spent is going into tax breaks that they love and to the states. You know the states, the ones that aren't in Washington. My guess is that they are simply posturing for the next round of complaints they will make regardless of the good or evil that is done by this bill. The bitching will be exactly the same regardless of the situation. "Big gubment", "spending as far as the eye can see", "typical Washington insider deals"...blah blah blah blah puke ralph.

In the end, I think this will do some good to the economy. The downward spiral caused by Republicans will be slowed considerably.

Geithner's big brain and balls

I'm seriously crushing on this guy. Barack Obama's task is simple in comparison to his. Tim Geithner made a long-promised brief speech this morning where he was asked to lay out a comprehensive plan to reform the US financial markets. That's a big, big gulp. This is a task that has more complicated constituencies and shifting sands than the big idea platitudes that President Obama deals in.

Tim Geithner has a vision of saving the guts of our private banking system, while pumping massive amounts of government cash into the machinery. His plan for removing 'toxic assets' from the books of the country's banks is breathtaking in its courage and optimism. He must cajole Congress and private financiers into believing in a very complicated, techincal idea that is absent of the types of philosophical ideals that leaders always rely upon to gain applause, win votes and sell product.

The 'bad bank' idea and the consumer lending pool are not exactly sexy, but getting these things up and running are the big big bet that we all need to pay off. There's no other horse in our race.

I might blow Obama

As I write this, the President is conducting a press conference to discuss the status of the stimulus package or 'reinvestment and recovery act' or whatever we are calling this huge spending bill. I am terribly impressed with this man. He understands what is going on in the economy. He has been listening and he's able to explain things simply and clearly. We could not have a better guy in charge at this point. Even bigger, he is a Democrat.

Democrats are the party of pragmatism now. Throw free market fundamentalist philosphic priciples out the window, roll up your sleeves, think, and take government action that will help the citizens of the country. This is fresh and I love it.

It will work. Not quickly, because the hole dug by the fundamentalists is deep. But it will work. I expect the downward spiral to bottom out by the end of the summer.

Bipartisan this

I've been watching the speeches from the Senate floor this evening. The deal has been cut for 2 or 3 Republicans to vote for the stimulus package. The Republican leaders who spoke in opposition to the bill are violently opposed. They believe the sky is falling. I am gratified that President Obama's words of bipartisan compromise have not come to fruition. Republicans are wrong about economics. They should be relegated to whining and complaining when matters are serious. Massive spending is needed because we are in a nasty downward spiral. This is not a normal cyclical slowdown or recession that will right itself.

This spending in this bill is small in relation to what is needed. But Congress will have a chance to increase it via the normal budgeting process in the late spring. I hope the Democrats realize that the Republicans as a whole are not going to cooperate in anything that is put forth. Bipartisanship is not how the US government works. It never was and with any luck, it never will be.

Stimulus debate continues with more stupid ideas

Part 2 from my previous entry. A very smart friend suggest that the government should just pay employers outright to hire people - $20,000 for each new hire. This is foolish, because employers are likely to react to this by hiring people to do little or nothing. For the government spending to get the economy going, it needs to be spent on something productive.

The same intelligent friend also said that all the stimulus spending would go 'straight to the Chinese' because we buy all our stuff from them. He was drunk, so I will cut some slack but still...this is just stupid.

Senate Republicans (supported by all Democrats) passed an amendment to the bill yesterday to 'fix housing first'. This would provide a $15,000 tax credit to anyone who purchases a home. It is estimated to cost $20 Billion. While this would certainly move some houses in the near term, it has little foresight. Homeowners whose jobs are in peril are not good risks. Too many homebuyers with too many incentives to buy is largely what caused the problems. This amendment came from the same Republican group who thought the House bill was too expensive, so they decided that adding $20 Billion more to it was just the right prescription. Afterall, tax credits are good spending is bad...or some such stupidity.

What's needed is just what the President proposed just after the election. Build up the safety net by extending and increasing Unemployment Insurance benefits. Prop up state budgets with free cash so they don't have to slash to the bone. Spend on infrastructure as soon as possible. I hope he sticks to his guns and the Congress goes along with it.

'the end of capitalism?'

Last week I had two intelligent people engage me on the current economic/political stew. I didn't answer either one of them fully, because to do sound would surely make me seem pompous. Since this blog is the perfect outlet for pomposity, here goes...

'Some people say this is the end of capitalism'. Yeah, I've heard some people say this as well. This is the same idea from the right wing that says that Obama is a socialist/communist. I'm a liberal leaning toward socialist, and not entirely comfortable with the newly fashionable label of progressive. This is an accusation that is tossed out as if one-word name-calling is really worth the Scott's tissue it is printed on. You cannot boil down complex historical events, sociological and economic philosophy, and government policy into one-word accusations. Well, actually you can but it is an oversimplification. In the not-too-distant past when Democrats resisted Republican efforts to pass legislation they were accused of being 'obstructionist', 'partisan' and other such simplistic words. Again, this is an oversimplification. The late Spiro Agnew coined the cute phrase 'nattering nabobs of negativism' to throw at those who opposed Nixon, and it largely worked.

Now we have the Congressional Democrats and President Obama trying to put some policies in place to repair the damage done by the 'free market' philosophy of the Republican Party. This philosophy has led to nearly unfettered speculation in the financial markets over the last 15 years plus. Yes, Clinton was partly at fault as was Carter. They were both 'free market' guys who strongly believed in deregulation of financial markets. This deregulation led to all kinds of loose loans that blew up in our collective face in 2008. The GW Bush Administration had plenty of warning about this, but as it was the most hardcore right wing 'free market' fundamentalist group in the White House since Reagan they could or would not do anything to regulate the markets.

When things blew up on them, they were forced by the reality of the situation to ask Congress for the $750 Billion TARP "bailout" in the fall. This was against their ideology, but they held their nose because reality trumped ideology. Congress approved the cash and the Bushies stuck to part of the ideological guns by giving the 1st half of the cash to financially strapped corporations with no strings attached. Collapse was averted, but the money is mostly unaccounted for. The Bushies stuck to their ideological roots in that they think oversight of the institutions who receive the taxpayer cash would be too 'big gubment' or just 'free market' enough for their blood.

Now the Obama Administration is suggesting that the 2nd half of the cash should have some strings attached to it when the corporations receive taxpayer money. This idea is more socialist than the Bush actions because it means that the 'big gubment' would have a say in what the corporations do with the money.

On the Stimulus Bill (currently being debated), the Democratic ideas are also more socialist and less capitalist than the Republican ideas. The Dems prefer to spend taxpayer money on improving schools, roads, transportation, etc. while Repubs prefer to eliminate all taxes that they can get away with. Socialism implies that the society work together to solve common problems, while capitalism implies that society is useless and that only individual hard work and greed can solve anything. I'm exaggerating, but not much.

Remembering that I'm a leftie, the Democratic ideas are far more practical in this case. What the Stimulus Bill should do is provide a floor or saftey net so people don't fall into deeper personal financial problems, and pump some cash into the economy to get people spending again. The credit and capital (Wall Street) problems should be addressed by the TARP money via the Federal Reserve and the Treasury.

The reason that tax cuts alone are not practical is because the way the Repubs want this to happen is that companies would get tax breaks to hire people and buy equipment, and individuals who have income from their work or riches would pay less in taxes. The business tax breaks would get companies to hire and buy, but they would likely do so in a way that would not be terribly productive. Kickbacks for hiring people (if they are too large) would lead to jobs being created where people do little work or 'busy work'. Kickbacks for purchases would lead companies to buy stuff they really don't need. Tax cuts to individuals who are making a decent living already would generate a little consumer spending, but much of it would go into savings - that's not very helpful for getting things moving.

The Dem options are better not because of capitalism vs socialism ideology, but because they are more practical. Adding to the saftey net for people out of work and otherwise hurting at the bottom of the income scale does have a feel good element, but this cash is more likely to get spent than the Republican tax cuts. It would also help prevent further problems like foreclosures and evictions which ripple through the economy in a very nasty way.

The spending of infrastructure is practical because it creates jobs that make the entire economy work better. Schools, roads, more efficient energy production just makes obvious sense. The tricky part here is getting the projects going quickly, and unfortunately this will lead to some waste. You know, haste being what it is.

There are also some big differences between Dems and Repubs on how they want to help the states. The Dems want to simply give money to them, while Repubs want to loan states the money. That's not so much a capitalism vs socialism thing, and my fingers are cramping up. So I'll stop here.

Limbaughconomics

In the interest of making a snarky attempt at bi-partisan balance and fairness, I offer a link to Rush Limbaugh's prescription for the 'stimulus' bill http://online.wsj.com/article/SB123318906638926749.html and a compliment. Rush Limbaugh has a very deep speaking voice.

But seriously, folks. Ew...I just used Limbaugh-type language. I feel dirty. I didn't mean to call anyone a folk. That's just too...yuck. What I find fascinating about Rushie is that his ideas and rap (especially this one) is so full of stupid, unworkable policy ideas that I think he is not being serious. He has always seemed like a comedian to me. A comedian who's words are believed and repeated by the majority of radio talk show hosts, and repeated again as serious by countless Americans who listen to talk radio for some daily entertainment.

Best economic news yet

On the heels of Tim Geithner's confirmation as Treasury Secretary, and Obama's attempts to work out a stimulus deal with two visits to Capitol Hill thus far; comes the news that the Federal Reserve will renegotiate mortgages in its possession from the Bear Stearns and AIG rescues. This is a great precedent, although it is outside of the understanding of the average Republican voter and radio talk show listener, it means that they Fed will renegotiate troubled individual mortgages to mitigate (or 'prevent' for the average Limbaugh listener) foreclosure.

I expect this is just another step in the right direction; a step that can be taken with the Bush assholes out of the way. Even better, the Fed intends to make this the beginning of a program to slow the foreclosure landside observed by the Bush Administration with little or no action. This is from the end of an article from Reuters this evening:

The Fed has said it will purchase up to $500 billion of mortgage-backed securities by the end of June to make home loans more affordable to boost demand for houses.

Mortgage-backed securities pool many different mortgages, which makes them extremely tricky to separate in a loan modification designed to prevent foreclosure.

The Fed said it would consider reducing the interest rate paid on mortgages at risk of default, extending the term of the loan, and accepting "a deferral or reduction of the outstanding principal balance of the loan," according to the Fed document.

There's a political context to this photo, but I'm not sure what it is

Big elephant shits on little elephant

Republican Congressional leaders on ending the Bush recession

This morning, House Minority Leader John Boehner said the following stupid thing:
"At the end of the day, the government can't solve this problem. The American people have to solve it. And the way they can solve it is if we allow them to keep more of the money that they earn."

The good news is that he is the MINORITY Leader. The bad news is that this foolishness continues to cross the lips of a person who appears to be educated, intelligent and has some political power. As his own logic points out, government must be involved in solving this problem. Who (or what) but government is going to enact these tax cuts that will solve all our problems? Not only is it illogical, but the economics of the theory are all wrong. Then there's the stupidity of the fallacy that government is against people. So much foolishness in just a few choice words.

In other economic news, incoming Treasury Secretary Geithner (who has a fucking clue) said:
"We are going to need sweeping changes, in regulatory policy, the oversight structure and in our tools for crisis management. There may be a number of ways to achieve this, but steps to be taken in the short-term include bringing standardized products within centralized clearing mechanisms and setting an effective statutory and regulatory framework for regulating all derivatives."
--and--
"I support the goal of having a registration regime for hedge funds because we need greater information and better disclosure in the marketplace. I believe that we should also establish an effective regulatory framework for derivatives dealers."

The good news is that he at least has some understanding of the regulatory shortcomings of the outgoing Bushies. The slightly bad news is that this testimony came in the midst of answering questions about his personal tax screw-up. The man understands the big picture, which is why the country needs him. He was also one of the few government officals who saw this mess coming and spoke out about in far in advance of the destruction only to be ignored by Bush appointees who were wearing rose-colored glasses.

Pro-Death, Pro-Choice Obama

"On the 36th anniversary of Roe v. Wade, we are reminded that this decision not only protects women’s health and reproductive freedom, but stands for a broader principle: that government should not intrude on our most private family matters," said the president. "I remain committed to protecting a woman’s right to choose."

Sweet. I remain committed to using bad language and both sides of spun words to express my views. On this I want to be very clear. Babies are conceived, are grown in, and are born out of the bodies of individual mothers. The laws should respect this natural fact and give them the individual right to choose an abortion.

to sum up the day

pragmatism not idealism

My favorite part of the inaugural speech

"What the cynics fail to understand is that the ground has shifted beneath them - that the stale political arguments that have consumed us for so long no longer apply. The question we ask today is not whether our government is too big or too small, but whether it works - whether it helps families find jobs at a decent wage, care they can afford, a retirement that is dignified. Where the answer is yes, we intend to move forward. Where the answer is no, programs will end. And those of us who manage the public's dollars will be held to account - to spend wisely, reform bad habits, and do our business in the light of day - because only then can we restore the vital trust between a people and their government.

Nor is the question before us whether the market is a force for good or ill. Its power to generate wealth and expand freedom is unmatched, but this crisis has reminded us that without a watchful eye, the market can spin out of control - and that a nation cannot prosper long when it favours only the prosperous. The success of our economy has always depended not just on the size of our Gross Domestic Product, but on the reach of our prosperity; on our ability to extend opportunity to every willing heart - not out of charity, but because it is the surest route to our common good."

This and that

GREAT article here by the great James Galbraith on what a good economic policy would look like:
http://www.motherjones.com/news/feature/2009/01/stimulus-is-for-suckers.html

I watched W's farewell speech last night. I could stomach him in this setting, a short scripted speech. Still...I felt some cramps in my stomach. The guy really believed (and still believes) that his childhood Sunday school lessons of good vs evil are applicable to international diplomacy and war. Goodbye, asshole.

Words killed by partisan rhetoric

My choices of words that have been worn out, and that I wish to go away from political discussion: markets, elite and freedom.

I'm sure I could add to this, this will do for now. These words have been used as weaponry for so long that their meaning is gone.

TARP rock and roll

This really is getting exciting.
As Barney Frank issues his draft legislation, the Bush Administration is preparing their formal request for the balance of the $700Billion. If Congress votes their request down, Bush (or Obama) can veto their turndown and the cash will flow into the Treasury. Very dramatic stuff, with HUGE stakes.

We have the clashing of right, left, inside, outside all with high ideals and goals. The health of the US financial system (and consequently the global system), the future political careers of Barney Frank, Tim Geithner, President Obama, and others is also at stake. Its almost like the clashing of musical instruments than could produce anything from total destruction to sublime beauty.

Rock on.

I am enjoying this too much

Now THIS is what American political discourse should be about. I am not joking. I love this. The economic debates are mostly substantive, very important, and mostly rational. All the real talk I hear from Washington is about philosophical and practical differences of opinion. Sure, there's some marginally necessary noise about who's to blame for the mess (Barney Frank, George Bush, Bill Clinton, Alan Greenspan, etc.) and some stupidity about what good and bad buzzwords can be hurled (socialism, facism, eitism, etc.). But personally, the current action is thrilling my heart and mind.

Next week the House will start committee debate on what oversight will occur with the 2nd installment of the TARP funds. Incoming Treasury Secretary Geithner will face the Senate confirmation people by the end of the week. Geithner will likely release his thoughts on how the TARP funds should be monitored.

This really is almost too much fun.

Before the new TV season starts

I watched a bunch of fun stuff yesterday. The best of it was a 1-on-1 interview on CNBC with Pres Obama mostly discussing the economy. The man is speaking plainly and giving it up very straight. That's his best feature at this point. He is playing the moderate executive very well. He is probably a bit too conservative for my partisan blood, but I appreciate the fact that he's an executive not a legislator. And most importantly for your average 'independent' voter, he was embarrassed about the paparazzi shots of his naked chest from Hawaii.

President Obama did address the issue of most interest to me, which is probably the key to my pleasure with the interview. He said that he understood the need for foreclosure prevention to be part of the coming big bill, and has heard some good thoughts from Chris Dodd and Barney Frank on putting the next $350Billion in TARP funds to work on that.

I spent a few minutes watching Sean Hannity trying whine his way past the conservative economists provided by his network for our entertainment. The economists were talking about the tax breaks for poor and middle class people in Obama's plan and while they could not come up with any objections to these ideas, Hannity threw a few keywords out to scoff at the notions. The keywords were redistribution, freedom, big gubment...you get the idea.

I also saw a replay of Ann Coulter's interview with Harry Smith from a few days ago. She's a trip. Trying to be funny and then turning the humor on a dime into nasty, nasty anger is quite a personna. I understand some people like that in a real way. I find her to be compelling like a car wreck.

Obama's speech this morning should be very high level and general. Trying to whip up some excitement for the coming big bill. I don't think excitement is necessary, his hand seems to be very strong. But, what the hell do I know?