The collapse of the FTAA negotiations and the protests at the Summit of the Americas has opened the question of the future of Latin America. The continuing export of Bolivarianism and cheap oil from Venezuela, the election of Morales in Bolivia, the emergence of Obrador in Mexico, and the re-emergence of Ortega in Nicaragua all add to this uncertainty. Forces are pulling Latin America in different directions: "complimentarianism" (aka socialist democracy) vs. capitalism/free trade; Bolvarianism and solidarity vs. bi-lateral negotiations. In all aspects, the key is MERCOSUR.
MERCOSUR is by far the largest and dominant trade agreement in the region, and is largely designed to meet the same ends as the EEC/EU: increasing the freedom of movement of goods, people, and money. It is more like precursors to the EU as MERCOSUR does not constitute a common internal market and has nowhere near the powers of Brussels. What it does do, however, is create a forum and create greater interdependence and cooperation. More on this point later.
The aforementioned tensions can be simplified by thinking of them as Chavez vs. US. Each has a model for the future of Latin America: Chavez sees a Bolivarian Socialist Union and the US sees a continuation of its regional hegemony. Neither is the best the region can do, and that is why MERCOSUR, led by Brazil and Argentina, must present a strong third option modeled after the EU.
Chavez dreams of a socialist union of Latin American countries, with himself as a modern day Simon Bolivar freeing Latin America from the economic colonialism of the US hegemony. While Bolivar may ostensibly be the hero he follows, his program more closely resembles that of Qadaffi. Both are military men who ran coups, and both try to create solidarity among Cold War pawns who have not seen the benefits of globalization. Qadaffi first tried to create an Arab union/Islamist union and when that failed, he tried the same in Africa. None of his attempts to create a transnational political union succeeded. Read his Green Book, especially on democracy and economics, for more examples of the similarities between the two leaders and their visions.
The US sees Latin America's role as subordinate to US interests and seeks policies that will support and enable its regional hegemony. This is not a viable (economically or politically) scenario for Latin Americans and feeds the popular support for Chavez, Morales, and socialism. Chavez, for example, could create all the current policies and programs that he has without his strong anti-US rhetoric, but that rhetoric creates more support for him because the people have not seen the benefits of globalization and view the US unfavorably. Qaddafi thought that by standing up to "Western Imperialism" he would become a world leader and people would follow; that did not happen and it will not happen for Chavez either.
The third option is to emulate the EU in greater cooperation and creation of a common market and currency. Interestingly, this free market federalism is similar to what Simon Bolivar tried to establish (with himself as dictator). Just as the ECSC was the building block of the EU, MERCOSUR can be the building block of a Latin Union. The region needs enhanced cooperation and free trade, but also can benefit from the solidarity that such a union would provide towards external markets.
Now that Venezuela has joined MERCOSUR, this third option is viable. Chavez, Kirchner, and Lula have the tools to integrate and grow Latin America--now they have to move on it.
Thursday, December 29, 2005
Monday, December 19, 2005
"Activist" Executive?
In his speech last night, President Bush said that he was doing everything within his power to fight terrorism. I believe that he also said that the NSA taps he ordered were within his power under Art. II of the Constitution, presumably the commander in chief powers.
Two things struck me: does he have the power and is he an "activist" executive?
The first thing that jumped in my mind was a case I reviewed while studying for exams last night, Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952), where it was held that the President did not have the authority to order the Sec. of Commerce to take over and operate steel mills. The majority opinion gave a comparative analysis of the competencies of the legislature and the executive and found that there was nothing inthe Constitution that gave tea President that power. Specifically, the order to take over the steel mills could not be supported by the President's role as Commander in Chief. The framework of the Constitution could not support it either because it limits limits the executive's legislative powers to recommendations and vetos. The Court reasoned that takings were legislative functions.
Justice Jackson, in concurring judgment, gave an opinion Justice Scalia could be proud of. In it, he attacks, among other things, the appeal to "inherent, "implied," "incidental," "plenary, "war," or "emergency" powers. He continued:
If Congress had passed an act granting the power to take steel mills, then it would have been within the executive purview. In the NSA wiretaps case, Pres. Bush seems to try to gain validity through the fact that he advises members of Congress of what is going on and has 45-day reviews. Unfortunately, that is not enough. The executive does not gain powers simply because the legislature has failed to act; there must be an affirmative empowerment--an act of Congress.
Pres. Bush may have recourse in his War Powers, but this relies on the US being in a constant state of "emergency" as long as there are terrorists who want to harm us. How long is that? How immediate is the threat?
The other "activist" prong that I found interesting is similar to both the majority and Justice Jackson's opinions in Youngstown Steel. First, the most common critique of the Judiciary is that it "legislates from the bench" too often, and that law-making is reserved to Congress. This same critique applies to a strong executive who may "legislate from the oval office." The Court is entrusted with protecting the Constitution and the citizens' rights under it, and a strong Court will expand its power as far as possible in that arena rather than use restraint. The executive is entrusted with the military and protecting citizens' lives. A strong executive will expand his power as far as possible in that arena rather than use restraint. Should there be a strong movement against "activist executives" in conjunction with the attacks on the judiciary?
The second way that Pres. Bush (and most executives in general) is like a so-called "activist court" is in not strictly interpreting the words of texts. The Court found a penumbra of rights implied by and necessary to the Fourteenth Amend. Similarly, Pres. Bush wants to find a penumbra of powers under the Commander in Chief or War Powers. Should he pay more attention to the four-corners of the Constitution as he wants Supreme Court Justices to?
Two things struck me: does he have the power and is he an "activist" executive?
The first thing that jumped in my mind was a case I reviewed while studying for exams last night, Youngstown Sheet & Tube Co. v. Sawyer, 343 U.S. 579 (1952), where it was held that the President did not have the authority to order the Sec. of Commerce to take over and operate steel mills. The majority opinion gave a comparative analysis of the competencies of the legislature and the executive and found that there was nothing inthe Constitution that gave tea President that power. Specifically, the order to take over the steel mills could not be supported by the President's role as Commander in Chief. The framework of the Constitution could not support it either because it limits limits the executive's legislative powers to recommendations and vetos. The Court reasoned that takings were legislative functions.
Justice Jackson, in concurring judgment, gave an opinion Justice Scalia could be proud of. In it, he attacks, among other things, the appeal to "inherent, "implied," "incidental," "plenary, "war," or "emergency" powers. He continued:
The vagueness and generality of the clauses that set forth presidential powers
afford a plausible basis for pressures within and without an administration for
presidential action beyond that supported by those whose responsibility it is to
defend his actions in court. The claim of inherent and unrestricted presidential
powers has long been a persuasive dialectical weapon in political controversy.
While it is not surprising that counsel should grasp support from such
unadjudicated claims of power, a judge cannot accept self-serving press
statements of the attorney for one of the interested parties as authority in
answering a constitutional question, even if the advocate was himself.
If Congress had passed an act granting the power to take steel mills, then it would have been within the executive purview. In the NSA wiretaps case, Pres. Bush seems to try to gain validity through the fact that he advises members of Congress of what is going on and has 45-day reviews. Unfortunately, that is not enough. The executive does not gain powers simply because the legislature has failed to act; there must be an affirmative empowerment--an act of Congress.
Pres. Bush may have recourse in his War Powers, but this relies on the US being in a constant state of "emergency" as long as there are terrorists who want to harm us. How long is that? How immediate is the threat?
The other "activist" prong that I found interesting is similar to both the majority and Justice Jackson's opinions in Youngstown Steel. First, the most common critique of the Judiciary is that it "legislates from the bench" too often, and that law-making is reserved to Congress. This same critique applies to a strong executive who may "legislate from the oval office." The Court is entrusted with protecting the Constitution and the citizens' rights under it, and a strong Court will expand its power as far as possible in that arena rather than use restraint. The executive is entrusted with the military and protecting citizens' lives. A strong executive will expand his power as far as possible in that arena rather than use restraint. Should there be a strong movement against "activist executives" in conjunction with the attacks on the judiciary?
The second way that Pres. Bush (and most executives in general) is like a so-called "activist court" is in not strictly interpreting the words of texts. The Court found a penumbra of rights implied by and necessary to the Fourteenth Amend. Similarly, Pres. Bush wants to find a penumbra of powers under the Commander in Chief or War Powers. Should he pay more attention to the four-corners of the Constitution as he wants Supreme Court Justices to?
Sunday, December 18, 2005
Contemporary Employment and Public Health Care
An article in the Sunday NY Times magazine, New World Economy, caught my attention this morning. It contrasted GM with Walmart as kind of a barometer of the changes in employment patterns in the US. Where GM promised lifelong employment and good benefits, Walmart offers...cheap goods. In other words, there is no longer (if there ever was) sense of paternal responsibility by large businesses and employees are left responsible for themselves.
The article argued, rightly I think (see past posts), that the subsidy given to employers in the form of tax benefits related to providing health insurance for employees could be used more efficiently if it was collected as a tax and applied to a public scheme. This makes sense not only for low-wage workers but also white collar workers who change positions quite regularly. While the article talks of a "total reimagination of the basic contract between government, businesses and workers,"the benefits would not be limited to the low end of the wage scale.
Policies that transfer subsidies on healthcare into directly providing insurance policies, see my previous post, could free up benefits for an increasingly mobile professional class. More professionals either are or are treated like consultants/contractors than in the past, yet subsidies support a business model based on lifelong employment with benefits and a pension--a model that is near extinct. How many people do you know that have a pension vs. a 401(k) vs. social security reliance?
The "basic contract" between workers and employers has changed, and so should the methods we use to ensure social welfare. Streamlining the tax code by reducing overall rates, but getting rid of deductions, would result in a more efficient redistribution of wealth and a reduction in the problems associated with concentrated wealth. Similarly, these business subsidies should be cancelled and replaced with a tax that supports a broad social insurance program covering health, life, disability, and personal retirement accounts.
The article argued, rightly I think (see past posts), that the subsidy given to employers in the form of tax benefits related to providing health insurance for employees could be used more efficiently if it was collected as a tax and applied to a public scheme. This makes sense not only for low-wage workers but also white collar workers who change positions quite regularly. While the article talks of a "total reimagination of the basic contract between government, businesses and workers,"the benefits would not be limited to the low end of the wage scale.
Policies that transfer subsidies on healthcare into directly providing insurance policies, see my previous post, could free up benefits for an increasingly mobile professional class. More professionals either are or are treated like consultants/contractors than in the past, yet subsidies support a business model based on lifelong employment with benefits and a pension--a model that is near extinct. How many people do you know that have a pension vs. a 401(k) vs. social security reliance?
The "basic contract" between workers and employers has changed, and so should the methods we use to ensure social welfare. Streamlining the tax code by reducing overall rates, but getting rid of deductions, would result in a more efficient redistribution of wealth and a reduction in the problems associated with concentrated wealth. Similarly, these business subsidies should be cancelled and replaced with a tax that supports a broad social insurance program covering health, life, disability, and personal retirement accounts.
Monday, December 12, 2005
Revisiting Taxes on Real Estate
I read a story on MSN today that warned of the dangers of flipping real estate too soon. The dangers were paying more in taxes because the property could be treated as !> short term capital gains. This could mean a rate change from 15-35%--no small potatoes. But before everyone starts crying for the person trying to cash in on the real estate boom let's look at three things: their position, their complaint, and the overall effects on housing availability.
The position of the real estate investor, or even the new home owner who sees a chance to turn a profit and move on, is that of an investor. Whatever tax incentives the government gives to persons to own homes would not apply to former, and once the latter behaves as an investor (and gets the subsequent gain), they should no longer qualify for the incentives peculiar to real estate anymore than a person who invests in Microsoft stock or Commodities.
The complaint of flippers would be that they are being taxed at a higher rate. So what? Granted, 35% on short term capital gain is very high, but we have categories of short term and long term gain for reasons, and when behavior falls into one category it should be treated as such. I am not an expert on the negative effects of short term investments vis a vis long term, but I assume there are either negative externalities to short term, or positive externalities to long term investment such that the difference in incentives is justified. If the capital gain is short term, it should be treated as such.
The MSN article points out that last year nearly a quarter of all homes were bought by investors and another 13% were bought as second homes. That is 38% of all homes not being purchased as a primary residence. There is a severe problem with affordable housing and I think that this 38% is part of the problem. The solution is to remove the incentives to persons buying homes as investments, often largely for the tax incentives that real estate enjoys over other forms of investment. This includes taxing the gains at a higher rate and getting rid of mortgage interest deductions on second homes. By decreasing the incentives for this 38% of home buyers, the demand will fall. Classical thinking holds that there should be an accompanying fall in price.
This decrease in housing costs would be good right now, although decreasing tax incentives will likely not be enough in areas such as California where population pressures are sufficient to push prices up without the aid of subsidized investors. However, in other areas it may provide some relief for those looking to buy a home to live in.
The position of the real estate investor, or even the new home owner who sees a chance to turn a profit and move on, is that of an investor. Whatever tax incentives the government gives to persons to own homes would not apply to former, and once the latter behaves as an investor (and gets the subsequent gain), they should no longer qualify for the incentives peculiar to real estate anymore than a person who invests in Microsoft stock or Commodities.
The complaint of flippers would be that they are being taxed at a higher rate. So what? Granted, 35% on short term capital gain is very high, but we have categories of short term and long term gain for reasons, and when behavior falls into one category it should be treated as such. I am not an expert on the negative effects of short term investments vis a vis long term, but I assume there are either negative externalities to short term, or positive externalities to long term investment such that the difference in incentives is justified. If the capital gain is short term, it should be treated as such.
The MSN article points out that last year nearly a quarter of all homes were bought by investors and another 13% were bought as second homes. That is 38% of all homes not being purchased as a primary residence. There is a severe problem with affordable housing and I think that this 38% is part of the problem. The solution is to remove the incentives to persons buying homes as investments, often largely for the tax incentives that real estate enjoys over other forms of investment. This includes taxing the gains at a higher rate and getting rid of mortgage interest deductions on second homes. By decreasing the incentives for this 38% of home buyers, the demand will fall. Classical thinking holds that there should be an accompanying fall in price.
This decrease in housing costs would be good right now, although decreasing tax incentives will likely not be enough in areas such as California where population pressures are sufficient to push prices up without the aid of subsidized investors. However, in other areas it may provide some relief for those looking to buy a home to live in.
Saturday, September 17, 2005
Sorry for the absence!
Apologies for the lack of new content. I have been a bit busy lately, but I will get more posts up on a semi-regular basis for you, my devoted readers.
Thanks for continuing to link!
-Mike
Thanks for continuing to link!
-Mike
Monday, July 11, 2005
A Third Way for Universal Healthcare
Apparently, more states are looking at implementing a single payer healthcare system. While universal healthcare for all citizens is something the government (and its citizens) can and should do, a single payer plan is not the way to do it. While some industries like national defense and (for the most part) highways and roads are best operated solely by the government and other industries (retail stores, coffee shops, etc.) are best operated solely by private parties, there are other industries where a partnership between government and private industry will be best. Healthcare is one of these industries where people would best be served by just such a partnership.
The status quo of a wholly private (already subsidized and supplemented by Medicare and Medicaid) system leaves too many persons without access to the care they need. There are fears that a nationalized system would do even worse, with everyone who gets a sniffle clogging up hospitals; not to mention the inefficiency and bureaucratic cold shoulder.
The answer is to pool funds (yes, through taxes) and then have the government negotiate and manage health care policies that would be provided by private insurers, e.g. Blue Cross/Blue Shield. Everyone would a personal health insurance policy that they paid for through taxes (yes, sometimes subsidized by others), provided by insurers just like they are today. The front end delivery of healthcare would be the same as it is today, but it would be available to everyone.
Now for the tough part...paying for it.
I think that this program would fit in well in a broader social security (and tax policy in general) reform that would create these third way social welfare accounts for persons to replicate and replace the current Social Security structure. Use the current method of collecting taxes (possibly remove the $90K ceiling) and create a real social welfare program that acts as insurance of a base level quality of life and streamline it all into one agency managed by the GSA (who, by the way, manages pension funds for far less than any private firm, efficiency anyone?). Whole Life Insurance (with survivor's benefits), Disability Insurance, Unemployment Insurance, Health Insurance, and a Pension.
Money (and risk) would be pooled and then redistributed (what a naughty word, but isn't redistribution at the heart of insurance anyway?), but each person would have her own private and personal account that was hers and that she had exclusive claim to. Congress couldn't borrow or spend it. Private industry would still be the provider, in fact, I could hardly think of a better financial boon for State Farm, Blue Cross, etc.
Another affect of it that eases the tax burden is that it frees up private industry from having to provided those services. Everyone already has their own insurance, so there is no reason for employers to provide it. Of course this would mean that they couldn't hide pay from taxes in benefits as well, but there are always trade-offs.
If private employers what to offer additional pensions, great. The reality is the government is already bailing out numerous private pensioners who would otherwise suffer from poor management by the private firms. Do the objections about state incompetence and inefficiency really hold up in the face of the emerging pension crisis? Besides that, people who want to can save more on their own, the government pension would hopefully mirror current social security payments, but it is in no way meant to ensure a life of luxury.
Ideally coupled with real tax reform that would have additional benefits to industry as in my earlier post, this third way of dealing with social welfare would be a far sight better than either what we have today, or what France and Canada use. Stay tuned for follow-up posts.
The status quo of a wholly private (already subsidized and supplemented by Medicare and Medicaid) system leaves too many persons without access to the care they need. There are fears that a nationalized system would do even worse, with everyone who gets a sniffle clogging up hospitals; not to mention the inefficiency and bureaucratic cold shoulder.
The answer is to pool funds (yes, through taxes) and then have the government negotiate and manage health care policies that would be provided by private insurers, e.g. Blue Cross/Blue Shield. Everyone would a personal health insurance policy that they paid for through taxes (yes, sometimes subsidized by others), provided by insurers just like they are today. The front end delivery of healthcare would be the same as it is today, but it would be available to everyone.
Now for the tough part...paying for it.
I think that this program would fit in well in a broader social security (and tax policy in general) reform that would create these third way social welfare accounts for persons to replicate and replace the current Social Security structure. Use the current method of collecting taxes (possibly remove the $90K ceiling) and create a real social welfare program that acts as insurance of a base level quality of life and streamline it all into one agency managed by the GSA (who, by the way, manages pension funds for far less than any private firm, efficiency anyone?). Whole Life Insurance (with survivor's benefits), Disability Insurance, Unemployment Insurance, Health Insurance, and a Pension.
Money (and risk) would be pooled and then redistributed (what a naughty word, but isn't redistribution at the heart of insurance anyway?), but each person would have her own private and personal account that was hers and that she had exclusive claim to. Congress couldn't borrow or spend it. Private industry would still be the provider, in fact, I could hardly think of a better financial boon for State Farm, Blue Cross, etc.
Another affect of it that eases the tax burden is that it frees up private industry from having to provided those services. Everyone already has their own insurance, so there is no reason for employers to provide it. Of course this would mean that they couldn't hide pay from taxes in benefits as well, but there are always trade-offs.
If private employers what to offer additional pensions, great. The reality is the government is already bailing out numerous private pensioners who would otherwise suffer from poor management by the private firms. Do the objections about state incompetence and inefficiency really hold up in the face of the emerging pension crisis? Besides that, people who want to can save more on their own, the government pension would hopefully mirror current social security payments, but it is in no way meant to ensure a life of luxury.
Ideally coupled with real tax reform that would have additional benefits to industry as in my earlier post, this third way of dealing with social welfare would be a far sight better than either what we have today, or what France and Canada use. Stay tuned for follow-up posts.
Friday, July 08, 2005
Economic approach to punishment
I read a story the other day but cannot currently find it. It was an interview with the man who dispersed the 9/11 fund. He talked about how he determined a value for each life and how that determined the awards he gave out. This got me thinking about other applications for a quantification of human life and it came to me --an economic theory of punishment.
There is a long list of literature on the subject of the cash value of human lives. This figures are used in personal injury and wrongful death suits, to list a few applications.
There are various computational methods used to determine these values. One that I am aware of is using real estate figures. For example, a researcher can find housing that is similar except for the amount of pollution in the area. By looking to environmental figures as to the loss of life expectancy due to exposure to the pollution and tying that to the difference in the market value of the homes, she can come up with a value that the market places on life. This is a simplified version of just one method. Many others focus on lost income, etc.
Once a value has been placed on a life, a limb, or an emotional hurt it has been brought out of the fog of qualitative analysis and into the realm of quantitative. Instead of "insufferable pain" there is $200K of damage. I think that this quantification could be used to great affect in determining the proper punishment for a crime.
This would have the biggest affect on crimes that primarily cause economic loss, e.g. theft and assorted white collar crimes. If we are to put any credence at all into the values that economists and others attach to life, limb, and emotions then the value of those damages should be reflected in the punishment. In the converse situation, the value of damages from primarily economic crimes should reflect the punishment.
The two most obvious places this would have an effect would be "victimless" crimes, e.g. drug use (although assertive prosecutors would find societal costs) and white collar crimes, e.g. Enron where the monetary damage was high, but the punishment low. A "victimless" crime that causes no economic loss can demand no punishment, while an Enron that causes massive economic loss demands the harshest of penalties.
For comparison, assume an average life is valued at two-million dollars (If I remember correctly, this is not an unreasonable value). Under an economic theory of punishment (I know, sort of a misuse of the adjective "economic") someone who causes two-million dollars in damages is as morally culpable as a murderer, and should be punished as such. Not very Utilitarian, but that's not the point.
There are, of course, problems with this approach, both ideologically and practically.
The immediate ideological objection is that if everything is quantified, then a person should be able to buy her way out of her punishment in a similar manner to how the rich avoided the draft in the U.S. Civil War. One way to confront this issue is to use a sliding scale similar to that used to value lives and limbs by basing the damages on lost income. I believe Sweden applies jsut such a sliding scale in traffic fines. (google "Nokia and Sweden and "Traffic fines"") and see what you get!)
The practical problem is that accurate valuation would not be possible. The answer to that objection is that these valuations are used now, and that there are enough aggregate figures that reasonably standardized values should be derivable.
With the constant battle for objectivity and equality in sentencing laws, tying punishment to a quantifiable damage (as found by the trier of fact in a court of law) is one possible solution.
There is a long list of literature on the subject of the cash value of human lives. This figures are used in personal injury and wrongful death suits, to list a few applications.
There are various computational methods used to determine these values. One that I am aware of is using real estate figures. For example, a researcher can find housing that is similar except for the amount of pollution in the area. By looking to environmental figures as to the loss of life expectancy due to exposure to the pollution and tying that to the difference in the market value of the homes, she can come up with a value that the market places on life. This is a simplified version of just one method. Many others focus on lost income, etc.
Once a value has been placed on a life, a limb, or an emotional hurt it has been brought out of the fog of qualitative analysis and into the realm of quantitative. Instead of "insufferable pain" there is $200K of damage. I think that this quantification could be used to great affect in determining the proper punishment for a crime.
This would have the biggest affect on crimes that primarily cause economic loss, e.g. theft and assorted white collar crimes. If we are to put any credence at all into the values that economists and others attach to life, limb, and emotions then the value of those damages should be reflected in the punishment. In the converse situation, the value of damages from primarily economic crimes should reflect the punishment.
The two most obvious places this would have an effect would be "victimless" crimes, e.g. drug use (although assertive prosecutors would find societal costs) and white collar crimes, e.g. Enron where the monetary damage was high, but the punishment low. A "victimless" crime that causes no economic loss can demand no punishment, while an Enron that causes massive economic loss demands the harshest of penalties.
For comparison, assume an average life is valued at two-million dollars (If I remember correctly, this is not an unreasonable value). Under an economic theory of punishment (I know, sort of a misuse of the adjective "economic") someone who causes two-million dollars in damages is as morally culpable as a murderer, and should be punished as such. Not very Utilitarian, but that's not the point.
There are, of course, problems with this approach, both ideologically and practically.
The immediate ideological objection is that if everything is quantified, then a person should be able to buy her way out of her punishment in a similar manner to how the rich avoided the draft in the U.S. Civil War. One way to confront this issue is to use a sliding scale similar to that used to value lives and limbs by basing the damages on lost income. I believe Sweden applies jsut such a sliding scale in traffic fines. (google "Nokia and Sweden and "Traffic fines"") and see what you get!)
The practical problem is that accurate valuation would not be possible. The answer to that objection is that these valuations are used now, and that there are enough aggregate figures that reasonably standardized values should be derivable.
With the constant battle for objectivity and equality in sentencing laws, tying punishment to a quantifiable damage (as found by the trier of fact in a court of law) is one possible solution.
Monday, June 06, 2005
In yesterday's daily commentary, http://www.cato.org/pub_display.php?pub_id=3793, the Cato Institute's Alan Reynolds wrote about Hong Kong's progressive flat tax and other associated tax reform policies. To summarize the HK policy:
1) There is a "flat" tax applied at rates ranging from 2-20% on income
2) Businesses pay 17.5 % on profits, but no payroll tax
3) Generally speaking, deductions are limited to charitable donations not to excedd 25% of income, mortgagte interest up to 13,000 USD, continuing education, IRA, and caring for elderly relatives.
4) Taxes on salaries and profits equaled 7% of GDP in HK last year, compared to 8.6% in the US.
I think it is excellent to include a flat tax as part of an aggressive tax reform policy. HK is not the only place it is favoured. Numerous Eastern European countries also employ a flat tax as The Economist reported three weeks ago.
One interesting point about a flat tax is that it would likely (unverified opinion here) generate more income by eliminating most, if not all, deductions. Current tax law essentially comes down to arguing whether an item is deductible or not, and these deductions are often abused. Realtors buy Cadillac Escalades and deduct 100% of the cost as a "expense" under a "heavy truck" exemption. This exemption was created for contractors, farmers, and other persons who need heavy equipment to haul things, but it is (ab)used by every small business owner.
One place tax reform could be used to address a current problem is by eliminating mortgage deductions for homes that are not the primary residence of the owner and reforming the capital gains tax on profits from real estate sales.
Everyone and their sister knows that there is a housing bubble and that "affordable" housing is a joke. This effect is not caused by market forces responding appropriately to a demand for residences, but rather artificial forces that have made real estate a good investment.
The well known tax incentives for investing in real estate are one of the causes and persons who use housing as investment need to have it treated as such. Morgage interests deductions should be for persons who buy a home to live in. If it is being bought for business or investment, it should be treated as a business or investment.
If the tax benefits for buying up real estate are removed, housing will become less desirable as an investment and the price should fall inline with the demand for people who want to live in the housing, not hide their money from Uncle Sam in it. Beyond that, it would have a related effect of freeing up billions for investment in business and industry.
Housing costs could be brought into check while still using market forces, business would get a booster shot of investment, and one more tax shelter would be done away with. If this was paired with a flat tax and a broader elimination of deductions and tax dodges so much the better.
1) There is a "flat" tax applied at rates ranging from 2-20% on income
2) Businesses pay 17.5 % on profits, but no payroll tax
3) Generally speaking, deductions are limited to charitable donations not to excedd 25% of income, mortgagte interest up to 13,000 USD, continuing education, IRA, and caring for elderly relatives.
4) Taxes on salaries and profits equaled 7% of GDP in HK last year, compared to 8.6% in the US.
I think it is excellent to include a flat tax as part of an aggressive tax reform policy. HK is not the only place it is favoured. Numerous Eastern European countries also employ a flat tax as The Economist reported three weeks ago.
One interesting point about a flat tax is that it would likely (unverified opinion here) generate more income by eliminating most, if not all, deductions. Current tax law essentially comes down to arguing whether an item is deductible or not, and these deductions are often abused. Realtors buy Cadillac Escalades and deduct 100% of the cost as a "expense" under a "heavy truck" exemption. This exemption was created for contractors, farmers, and other persons who need heavy equipment to haul things, but it is (ab)used by every small business owner.
One place tax reform could be used to address a current problem is by eliminating mortgage deductions for homes that are not the primary residence of the owner and reforming the capital gains tax on profits from real estate sales.
Everyone and their sister knows that there is a housing bubble and that "affordable" housing is a joke. This effect is not caused by market forces responding appropriately to a demand for residences, but rather artificial forces that have made real estate a good investment.
The well known tax incentives for investing in real estate are one of the causes and persons who use housing as investment need to have it treated as such. Morgage interests deductions should be for persons who buy a home to live in. If it is being bought for business or investment, it should be treated as a business or investment.
If the tax benefits for buying up real estate are removed, housing will become less desirable as an investment and the price should fall inline with the demand for people who want to live in the housing, not hide their money from Uncle Sam in it. Beyond that, it would have a related effect of freeing up billions for investment in business and industry.
Housing costs could be brought into check while still using market forces, business would get a booster shot of investment, and one more tax shelter would be done away with. If this was paired with a flat tax and a broader elimination of deductions and tax dodges so much the better.
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