Submitted by Lucas Jackson
Thought Experiment: Why Do We Bother Paying Personal Taxes?
"Stupidity combined with arrogance and a huge ego will get you a long way.”
- Chris Lowe
I will admit right up front, I am not a fan of the views of Paul Krugman. If Paul Krugman was to be given his way - and by and large he is being given his way - my children and grandchildren will be burdened in the future with paying back untold amounts of public debt just so his life and the lives of countless other Boomers can remain comfortable and embarrassment free today.
This is the essence of his grand plan for a US recovery – MOAR and MOAR debt.
Wow. Genius. Why I didn’t I think of that? Just keep borrowing and printing, borrowing and printing. Got it. Now that I understand it, do I get a PhD?
Who’s going to pay the money back? How will it effect future generations? How will it effect the markets? What will this do to civil society?
Who cares. Or as another defender of the status quo, Hillary Clinton, might say, “What difference, at this point, does it make?”
Krugman has a reputation as a high priest of Keynesian economics and his adherence to these views, regardless of how broken they are, is way more important than the future of this country. But don’t challenge his credentials. He teaches at one of the Ivy League universities which automatically puts him in a rare air caste. Plus he writes for the NYTimes so he must be wicked clever. Oh yea, he also has a Nobel Prize which surely means he is more intelligent, wise and deserving than the rest of us, right?
Ok, perhaps the Nobel Prize bit is unfair praise after the dubious award was given to Barack Obama despite the hundreds or even thousands of innocent civilians he has killed globally and the EU for… well I’m not actually sure why the EU got it, but that’s the point. Since the Nobel Prize has become a joke, I suppose it’s fitting then that Krugman has one. But I digress…
MOAR debt, that’s the answer. Got it.
Turn That Frown Upside Down
But in the spirit of healthy academic debate, I like to consider the other side of the argument. So I got to thinking about things this weekend and said, “Self, what if ol’ Krugman is right?” To which my self replied, “What! Heresy! Unpossible!”
But seriously, what if he is right? What if there is no long term harm to running up ridiculously high public debts and monetizing them via the central bank? Of course, history at almost every point in time contradicts this ludicrous position, but what if this time IS different?
So I got to thinking, maybe this increase in debt and no cost monetization via the central bank thing will work. But if it does, let’s use this moment to really rid ourselves of the most pesky of income adjustments – personal income taxes.
The US government will take in about $2.5 trillion in taxes this year. Seems like a lot of money but when you look at what the Fed and US govt can do when they really wants to, $2.5 trillion is child’s play. The Fed alone has doled out trillions in USD to TBTF banks alone. Add in TARP and other bailout programs, the backstops on FNMA/FHLMC (still not counted on the govt’s balance sheet), the interest savings associated with ZIRP (to the borrowers, not savers), the FDIC insurance subsidy which accrues to the banks, the mortgage interest subsidy and financing provided to the real estate industry, the growing mountain of federally insured student loans fueling the bubble in education, etc. The list goes on and on but the point remains the same, when the govt wants to spend big, it certainly can.
Since Mr. Krugman tells us all this spending and debt issuance/guarantees are not only good and necessary but in the long run, painless, why are we bothering with personal income taxes?
The US government will collect approximately $2.0bn this year in Personal Income and Payroll taxes. But why? Why are we even bothering with this when today’s leading economists and politicians are telling us that debts/deficits don’t matter and running up astronomical debts is a long-term painless process? It’s practically patriotic. So why shouldn’t we just add our tax burden to the list of items the Fed should be monetizing?
Seriously. Why not relieve the burden on every tax paying citizen in the United States (about 53% of us according to Mitt Romney)? You want an economic recovery? Reduce my taxes to zero and see how fast I go out and start spending some of that extra income.
Since I reside in the wonderfully unbalanced city of Manhattan, my all-in tax rate including federal, state and city taxes combined with sales taxes, fees, the implicit property tax I pay in my rent, etc, is way north of 60%. If the Princeton duo of Bernanke/Krugman would only work with Congress and the President to eliminate taxes and allow them to unleash their Keynesian magic, I will become a consumer again. Big time. My animal spirits will return. Big time. My holdings of physical gold will increase. Big time. Oh wait, that’s another topic – ignore that last one…
Cui Bono
If Krugman is right, the debate right now shouldn’t be on the huge level of US debt or deficits, it should be on which group in society benefits the most from the issuance and monetization of this debt.
Currently, the undisputed champions in this fight for government/Fed largess are the TBTF banks. Hands down.
Coming in a distant second place are the large, global corporations able to game our deliciously labyrinthine tax system (looking at you GE) and fund at generationally low levels, credit risk be damned (looking at you HY market).
Coming in dead last are the savers, workers and regular taxpayers of this once great nation.
This is what has to change. Since the debate isn’t really about whether or not Krugman is right - we’re running up the debts and monetizing them apace anyway - we have to shift the thinking to whose benefit are we directing the pillage.
If we want to continue to allow the TBTF banks and large, global corporations to run roughshod over the American consumer, then by all means, continue the status quo.
But if there is serious discussion to be held about how we improve the plight of the average American, cut our personal taxes to zero and let the magic of Paul Krugman’s Keynesianism cum never-ending-debt growth cum Fed monetization without consequences save the day.