Warm up the Helicopter of Happiness

Here is a letter from a reader:

Hi David,

 Long-time reader of yours.  You put out some of the best blog content on the web and I am grateful for that.

I’ve got a question I’d hope you consider answering in the blog.  I’m almost embarrassed to ask it, for fear of appearing facile, but here goes:

Our economy is struggling with a lack of aggregate demand, low monetary velocity, and a whiff of deflation.  QE does not seem to be transmitting its monetary effects to the real economy, just helping to inflate asset prices instead.  So why wouldn’t we consider sending direct stimulus to households, similar to what we did in 2008-09, only on a much bigger scale?  Say there are 120MM households.  Send each one a $5k check, and if I’ve got the zeroes right, that’s a “mere” $600B we’re borrowing to disburse – about 60% of what the Fed is doing annually with QE.  Most of the money would recycle and multiply quickly to the economy (net of what gets allocated to debt paydown, and what gets banked by the well-off).  And due to some current one-times in the Federal budget, we’ve actually got a better balance sheet in the moment to do something with added borrowing/spending. 

Crazy thought, but these are uncommon times.  Curious what you think. 

Dear friend, I think about this in two ways: ethics and metaphysics.  The metaphysics are easy — yeah, let the Fed remit all of its seigniorage to the people rather than to the Treasury.  Far better than letting the government spend it.

But the ethics are touchy.  How do we define ethical taxation systems?  My view is that people should be taxed according to their increase in net worth, and at a flat rate, but with no ability to defer income from taxation.  Most wealthy people don’t care about tax rates because they can find ways to defer/reduce taxable income.  This is a major reason why you should distrust the Democrats, because their desire to raise tax rates would do little.  This is also a reason to distrust the GOP, because there is no decent reason to decrease tax rates.

We need to tighten up the definition of income in the US, and no longer allow citizens and businesses to defer income.  If we taxed all economic activity as it occurred we would have balanced budgets.

The rich aren’t paying enough in the US, not because of tax rates, but because they can hide their income.  That is the way that policy should proceed, to make the wealthy pay according to their increase in net worth.

I’ll write about this more later, but the main idea is to tax people proportionate to their increase in wealth.  That is the Bible’s solution for how people should give.

 

 

5 Comments

  • bbarberayr says:

    David,

    The problem with taxing based on increase in wealth is that people who spend all of their increase in wealth in a year will pay less tax than those who save. Plus, the wealthy will find a way to “spend” into overseas assets, etc.

    I think a better approach is to tax all spending. Have every person put their pay cheques, asset sales, interest income, etc. into a bank account tax free. When the money is pulled out for spending, have the bank take a flat tax (say 10%) off. If the money is instead reinvested, it can be done tax free. This approach enables the average person to grow wealth tax-free (which the wealthy already can do to some degree), and taxes consumption which is more appropriate. You can also roll all sales tax into this approach and simplify the tax system.

  • Greg,

    There have been many people that have asked me to ban you from this site, and I have resisted the thought, until now.

    Matthew 22:15-22

    New King James Version (NKJV)

    15 Then the Pharisees went and plotted how they might entangle Him in His talk. 16 And they sent to Him their disciples with the Herodians, saying, “Teacher, we know that You are true, and teach the way of God in truth; nor do You care about anyone, for You do not regard the person of men. 17 Tell us, therefore, what do You think? Is it lawful to pay taxes to Caesar, or not?”

    18 But Jesus perceived their wickedness, and said, “Why do you test Me, you hypocrites? 19 Show Me the tax money.”

    So they brought Him a denarius.

    20 And He said to them, “Whose image and inscription is this?”

    21 They said to Him, “Caesar’s.”

    And He said to them, “Render therefore to Caesar the things that are Caesar’s, and to God the things that are God’s.” 22 When they had heard these words, they marveled, and left Him and went their way.

    You use the government’s money, its roads, its services — you must pay its taxes. It is that simple.

    With tithing you give 10% or more of your increase to the Church. With taxes, you must pay what the government demands. My point on taxes is the government allows too much flexibility to the wealthy to decrease taxable income. Often, increase goes entirely untaxed, while poorer wage earners pay in full.

    I have only banned one person so far, and that was for challenging my ethics. Now apologize, or you are banned.

  • Jennifer says:

    David, you wrote: “I’ll write about this more later, but the main idea is to tax people proportionate to their increase in wealth. That is the Bible’s solution for how people should give.”

    The passage you cite from Matthew 22 does not say how much the rich should pay in relation to the poor. It also doesn’t say that taxes should be in proportion to one’s income.

    • Correct as far as you go, but tithing is meant to be equitable. Rich and poor were meant to pay in proportion to their increase; that comes from the Law of Moses. If God taxes fairly to support his church, it is a pattern for what governments should do. In First Samuel, Samuel appeals to the people not to have a king because he will take a tithe of their goods. Aside from the temple tax, which was a head tax, all of the income raising measures in the Bible were income-driven. Governments should imitate God, who was fair, and tax in proportion to increase.