It's a provacative idea and worth debating. The main goal of any new "tax scheme" should be the elimination and simplification of the overall scheme. Basically, 80% of Accountants and Tax Lawyers should be doing new lines of work after a Tax Overhaul.
Any new structure should be "reality based." There's a common refrain from those on the socio-left: "RAISE Taxes on the Rich. If we just did that, then everything will be ok." The problem with this simplistic concept is that really Rich people have tax accountants that will devise ways to "avoid" paying taxes. This is one of the reasons for "Hauser' Law." William K. Hauser was an economists who astutely noted that, no matter what marginal tax rates were, the government has only been able to collect about 19.5% of GDP. So, whether we taxed our super rich at 80% or 30%, the US Government has never been able to collect more than 19.5% on average. Any new tax scheme needs to reconcile that concept/idea. The U.S. has been the most powerful economic engine the world has ever seen and we've never collected more than 20% of GDP in taxes--take that Sweden!
The goal should be simplicity and "fairness." I loathe using the word "fairness" because it's such a subjective and silly term in this context, but it is lame that some of these "Investment Partnerships" (i.e. Steve Schwartzman, Buffett, etc...) get taxed at 15% rates while straightforward small businesses ("normal everyday rich guys") get nailed for 25-30%.
Any new tax scheme must also wake up to the reality that U.S. business have TRILLIONS of dollars of overseas profits that WILL NOT come back to the U.S. until we make the corporate tax rate competitive with other nations.
16 comments:
Emmanuel highlighted an article this weekend provacatively titled: "How Goldman Sachs created the Food Crisis."
http://www.foreignpolicy.com/articles/2011/04/27/how_goldman_sachs_created_the_food_crisis
It's commonly held belief that GS is responsible for all bad things in the world...and hey...maybe they are, but this editorial piece is simply wrong on a few major counts.
"Then, in 1999, the Commodities Futures Trading Commission deregulated futures markets. All of a sudden, bankers could take as large a position in grains as they liked..."
That's actually not correct. The CFTC "exempted" certain players who ran "index" funds from the speculative limits. The CFTC, in there wisdom, decided to treat the banks running these indexes as hedgers, not speculators. It had nothing to do with "deregulation futures markets."
Also, the banks themselves were not, in reality, the ones buying the baskets of commodities--it was the passive investors like pension funds an mutual funds that were bidding up the prices, not GS or MS or AIG, who all ran commodity indexes. The banks merely acted as the "conduit" by which others could buy Commodity indexes.
This Commodity Index "exemption" is under review and will likely be changed this year.
The author then goes on to make two points which are in contradiction:
"On the other side is the speculator. The speculator neither produces nor consumes corn or soy or wheat, and wouldn't have a place to put the 20 tons of cereal he might buy at any given moment if ever it were delivered. "
So, the author correctly points out here that speculative longs who get delivered on would have nothing to do with the product and would be continually forced to roll their length at a loss.
But, then the author goes on to point out:
"But Goldman's index perverted the symmetry of this system. The structure of the GSCI paid no heed to the centuries-old buy-sell/sell-buy patterns. This newfangled derivative product was "long only," which meant the product was constructed to buy commodities, and only buy. At the bottom of this "long-only" strategy lay an intent to transform an investment in commodities (previously the purview of specialists) into something that looked a great deal like an investment in a stock -- the kind of asset class wherein anyone could park their money and let it accrue for decades (along the lines of General Electric or Apple). Once the commodity market had been made to look more like the stock market, bankers could expect new influxes of ready cash. But the long-only strategy possessed a flaw, at least for those of us who eat. The GSCI did not include a mechanism to sell or "short" a commodity."
What doesn't occur to this author is that "shorts" are the people who sell the futures products to the GSCI. There's a short for every long in the futures market. So, his implication that there was some sort "flaw" in the index is idiotic. GS merely crafted a product to meet the demands of their clients who wanted to buy commodities.
Also, as he alluded to earlier, speculators have no place to put this product. The GSCI buys contracts in products that CAN and WILL be delivered to them if the prices are too high. So, if the GSCI were "causing a food crisis," it would mean they (GSCI) are some how hoarding the spot food somewhere. Has that really been going on? Of course not. Because food eventually rots. One can take delivery of all the food they want, but if there's no means to actually consume it or use it, the stuff will rot and the speculator who takes delivery will lose all their money.
So, there's obviously other forces at work that have cause food prices to rally...
I'd start with the GOVERNMENT mandate of putting Food into our fuel tanks via the Ethanol legislation as one possible factor...
I am still a genius. You fools let Ryan Mallet fall to me in the Third Round. You let me get Tom Brady's replacement in the THIRD ROUND.
Fools.
>> "RAISE Taxes on the Rich. If we just did that, then everything will be ok."
Well, when you oversimplify, it makes it easy to scoff.
>> TRILLIONS of dollars of overseas profits that WILL NOT come back to the U.S. until we make the corporate tax rate competitive with other nations.
Race to the bottom? No, that's not the only way to handle this.
>> the US Government has never been able to collect more than 19.5% on average.
Oversimplification.
Rainfall in Australia the past ten years has been average. 9 years of drought followed by 1 year of floods.
...
Look at the range: from 15% to 20% of GDP. To raise from 15% to 20% implies a THIRTY THREE percent increase in taxes collected. That's a pretty large increase.
The main policy recommendations from the right are always: cut taxes and cut spending. More for the rich, less for everyone else. It couldn't be more blatantly self serving for the rich.
But, I agree with you on commodity speculation, Andy.
wunsa@7.53
The gyrations between 15 and 20% had mostly to do with the ups and downs of the economy in general. Don't you think it's interesting that it's NEVER been above 20% regardless of the marginal tax rates on the rich?
"Rainfall in Australia the past ten years has been average. 9 years of drought followed by 1 year of floods."
It would be hard to characterize that graph as 9 years of drought followed by 1 year of floods...there were a few decades (1950 - 1980) of a pretty tight range....
I think we need to normalize the tax rates amongst these partnerships and the other individuals...there's no reason why they should be going at 15% and the rest of us at 25-30%...it's B.S.
So, agree, need a few more tax dollars from those entities and we should be cutting spending...
I wouldn't mind seeing us withdraw our role as World Police. It hasn't helped us at all.
Heading out for the evening. Have friends from Euro-land in town...we're having a party for them....House Music all Night long.
>> there's no reason why they should be going at 15% and the rest of us at 25-30%...it's B.S.
>> So, agree, need a few more tax dollars from those entities and we should be cutting spending...
>> I wouldn't mind seeing us withdraw our role as World Police. It hasn't helped us at all.
I very much agree with that. Higher nominal taxes, lower spending, balanced budget "come hell or high water". In the absence of a balanced budget, we pay taxes implicitly thru printing -- inflation tax. So, despite "higher nominal tax rates", maybe we won't collect more in real terms. But, at least then we'll be discussing "honest" numbers.
happy birthday, cv
Why do my comments with your nasty grams and trolling for traffic keep being deleted Andy? I thought this was the blog where free speech reigned? Let me guess, someone else is deleting them. Well that's no fair, why should we be the only one's? ;-)
That editorial on GS was actually not correct on a few important points...but whatever.
I debunked it here:
http://traders-anonymous.blogspot.com/2011/04/weekend-open-thread-taxes.html?showComment=1304189065420#c5129990883588682305
By Andy T on April 30, 2011 Linkfest on 4/30/11
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"That editorial on GS was actually not correct on a few important points...but whatever. "
Thor, I want to apologize to you. In hindsight that was a really "nasty" and harsh thing to write on your blog. I can see now that it may have offended some people.
Please accept my apology.
Classic Onion:
http://www.theonion.com/video/today-now-interviews-the-5yearold-screenwriter-of,20188/
What the food price whiners conveniently ignore is that there is a restricted class of money being printed with abandon. It's called Supplemental Nutrition Assistance Program (formerly known as Food Stamps), and this money can only be used to buy food.
@Andy -- I see what you did there ;-)
- Whammer
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