Policies economists love but politicians hate

by David


Well worth reading.  It’s mostly the same old usual bunch of issues that are politically unpalatable.  (My comments in parens)

1. Eliminate (or at least restructure and restrict) the mortgage interest rate deduction.  (It’s a terrible and entirely unnecessary distortion of the mortgage and real estate market.  And the primary beneficiaries are folks with relatively higher incomes and/or ownership of more expensive houses.)

2. Eliminate the employer deduction for healthcare and insurance.  (This is a biggee — the deduction, and the absurd ties between employment and healthcare — are just terrible artifacts which distort the entire health care sector of our economy – 1/6 of our economy is built around third-party payers which separate the beneficiary from the cost, tie care to employment, and because of reimbursement structures, are mostly fee-for-service — all of which promotes overuse, higher costs, complexity)

3. Eliminate the corporate income tax.  (Corporations don’t pay taxes.  Corporate taxes are paid out of the pockets of (a) customers, (b) employees, and (c) shareholders.  While I’m not sure I agree with the article that retained corporate earnings should be fully tax-deferred, at a minimum, eliminating corporate taxes on dividends paid to equity holders (and having the holders pay those taxes at their full marginal rate, not the goofy 15% we are using now on top of corporate taxes) at least makes the payment of corporate taxes on dividends part of our progressive tax structure.  I’ve also considered replacing all C-corps with a variation of the S-corp where earnings – whether retained or paid out in dividends to the owners – are all taxed but at the individual owner’s level, not the corporate level.  Any retained earnings would increase the owners’ basis, though, and that could get messy to track)

4. Eliminate all income and payroll taxes.  (The economists suggest a consumption tax instead, which arguably makes some sense in an economic efficiency way, but doing that while also making the tax in any way progressive, or even flat, with respect to income — because the high-income folks actually spend a lower proportion of their income — is very difficult.  Perhaps, instead of worrying about making the consumption tax progressive, make it a flat sales or VAT tax, eliminate all income and payroll taxes, but supplement it with a flat wealth tax similar to Florida’s intangibles tax.  This last bit has some messy consequences with respect to hard-to-value property such as a private company as compared to easy-to-value things like publicly traded stock.  But it’s worth digging into and it solves a lot of the problems of our existing tax structure where people with huge wealth can simply borrow against it and never realize capital gains nor pay taxes on it.)

5. Tax carbon emissions.  (Which means, yes, a higher tax on gas as well as any other fossil fuel.  That’s a good thing – there are high-cost externalities to these things which the users need to pay more for.)

6. Legalize marijuana. (Not sure how economists came up with this, but it makes pretty obvious sense to anyone who knows anything about marijuana.  Criminalizing such a widespread – and relatively, though not entirely, harmless product is an absurdly expensive notion with lots of deep and ugly consequences.  Prices are high, non-violent people go to jail or are threatened with it, and massive profits go to unregulated, untaxed criminals who reinvest in ways which hurt society way more than legal marijuana would.)

The economists who made up the most vocally anti-republican economists such as Brad DeLong and Paul Krugman are awfully quiet when these kinds of proposals come around.

And the closest thing to (1) and (2) that’s been discussed seriously – the Simpson-Bowles work – was entirely ignored by Obama as well as shot down by both Republicans and Democrats – with VP-candidate Ryan helping kill it off.

Unfortunately, since no mainstream politician is willing to talk about serious reform, all we are left with are third-party candidates.  Gary Johnson, the Libertarian candidate (and former governor of New Mexico should at least be included in the debates.  He clearly supports several of these ideas, and as important and serious as they are, letting the two mainstream candidates ignore them is a real shame.