Obama’s higher taxes will continue so tax reform is needed now
The Obama economy was stuck in the 2 percent growth range for most of his presidency, and many economists say it will likely remain in that range — even though Mr. Trump has promised that his policies will boost growth to 3 percent.
That’s not much to write home about. Shortly after the 1981-82 recession, the Reagan economy was soaring by 5.6 percent and 7.7 percent respectively in the third and fourth quarters of 1983, as a result of his across-the-board tax cuts.
By 1984, GDP was growing by 7.3 percent and Mr. Reagan won re-election in a landslide, carrying 49 states.
Throughout the 2016 presidential election, the Gallup Poll asked voters to name their biggest concerns about our country. The economy was consistently at the top of their list.
Speaking in 2010, Dr. Robert Mundell, the Nobel Laureate and iconoclastic dean of international monetary economics, made an intriguing observation.
The global economy was like a solar system, he said. And for many decades, due to the overwhelming size of American GDP, the US dollar had been like the sun, the behemoth at the center whose gravity dominated and defined the system.
The dollar’s centrality was a fact, despite the supposed monetary independence nations attained in the early 1970s, when the Bretton Woods system of pegged exchange rates broke apart and currencies were allowed to float relative to one another.
☕ Steve Forbes makes some great points about why we tolerate the “atrocity” of the tax code.
But try to get an American politician to make it a front-burner cause! Most are too scared to attempt it. They’ll mumble about the need for a tax code that is “simpler and fairer,” but that’s it. They fear getting in the lobbyists’ crosshairs. They tremble at being accused of benefitting the rich, while shafting the poor and gutting health care and the tax breaks of home ownership and charitable giving.
– – – – –
Ultimately, this is a moral issue. Just think back over 20 years and add up the, literally, tens of billions of hours, the trillions of dollars and the immense brainpower that have been wasted on this utterly unnecessary activity. Then think of all the new products and services, the new medical devices and cures for diseases that could have been created with these resources that went down the drain of the current and ever more complex and corrupt tax code.
☕ Do not miss this chance to hear from George Gilder.
Amity Shlaes and Chris Edwards have an interesting op-ed in the Wall Street Journal today where they look to our northern neighbors in Canada for a tax reform solution. Before you scoff at Canada, let’s not forget our friend Robert Mundell is Canadian:
Canada’s Tax-Free Savings Accounts are much more flexible than Roth IRAs. What are we waiting for?
There are several reasons the U.S. is primed for its own TFSA. The first is legislative: Creating such an account would not be difficult for lawmakers, certainly not compared with revamping the whole tax system. Congress can simply expand eligibility and lift limits on the Roth IRA format.
We believe this new tax vehicle—call it the Universal Savings Account—would be so attractive that Americans would select it over education savings accounts or traditional programs, especially if its annual contribution limit is $7,000 or $8,000, which is higher than the current $5,500 for Roth IRAs. There would be no need to cut off access to or abolish the Roth IRA or other programs. Merely let citizens choose a new one.
Another virtue of a Universal Savings Account is simplicity. Savers would spend more time evaluating investments and less time mastering the twists and turns of tax law.
A Universal Savings Account would also give citizens the incentive to save. Without withdrawal penalties hanging over them, people would be less likely to hesitate before putting money into these accounts. Some people might use their accounts to fund an expensive vacation. But it’s much more likely they would use the money for serious projects, to build up a retirement fund, or even to invest in a new enterprise.
Some critics might charge that a Universal Savings Account can’t be “pro-family” if it also benefits unmarried millionaires. We disagree. Tax policy is not a tug of war between families and singles: All can win. The autonomy these accounts offer to everyone will make families become—and think like—millionaires.
Other critics will warn about revenues lost decades hence when Americans withdraw tax-free. But shortfalls in the future may well be made up by the growth that would ultimately flow into federal coffers. The growth that comes from more savings and investment will raise living standards. And Americans, single or in families, middle class, lower-income or affluent, would become more self-sufficient.
Let’s follow the good example of our Canadian neighbors. And let’s judge the presidential candidates by how seriously they take true savings projects such as this one.
The euro has ‘passed its youth with flying colours,’ is a world currency par excellence and has great future as an international reserve asset
FP COMMENT:Paul Krugman and others are now claiming that your original paper, “The Theory of Optimum Currency Areas,” required labour mobility and fiscal union. Europe didn’t have either; therefore the euro was a mistake.
MUNDELL: My argument for Optimal Currency Areas said nothing about fiscal union. Very few countries in the world have a fiscal union. It would be almost impossible for a large country to have a complete fiscal union. Canada and the United States do not. In the United States, the central government spends maybe 22% of GDP while total government spending is about 37%. Every country’s fiscal structure is different, depending on the way in which spending and taxes are divided among the federal government, the state or provincial government and the municipalities.
A fiscal union is not a prerequisite for a monetary union. The argument that monetary unions require fiscal unions is a recent idea based on new functions of government to give assistance to specific economic groups hit by asymmetric shocks. This kind of specific relief to hard-hit segments would be better carried out at the federal government level, as in the U.S. or Canada, rather than the local level. But it does not require fiscal union in any comprehensive sense.
Historically, monetary unions have been established in ancient empires and nation states without regard to fiscal union. Even after the U.S. consolidated state debts into a national debt in 1792, states were sovereign with respect to debts and deficits. When several defaulted in the 1840s they were not bailed out and nobody imagined that the problem had anything to do with the U.S. monetary union.
This is not to say that Europe might not be better off with a redistribution of functions from the nation-state to the “federal” level, including defense and social security unification. But if these shifts of responsibility are made along with corresponding shifts in the powers of taxation, they should be made on grounds of efficiency and economic justice, not on grounds that they are necessary for monetary union.