LOUSY MORALITY LEADS TO LOUSY ECONOMICS.

A FEW ALARMING BUT ENLIGHTENING COMPARISONS.

Professor Krugman mentioned the housing bubble, the health care disaster, and the commodities bubble as drags on the US economy that cannot just be entirely attributed to the Bush misadministration (New York Times 7/7/08).

A fourth factor Mr. Krugman did not mention is the lack of investments in infrastructure. It preceded the rest. A dearth of investments in infrastructure is directly related to the bubble economy. Basically, the USA decided to make bubbles rather than serious stuff. A child in a bathtub, playing with iridescent films.

Probably the most important law of physics, underlying all our laws, is the law of conservation of energy. It applies directly to the economy: if all you make is X, you can’t make Y. If all you make is bubbles, you can’t be serious. But not only is the USA not a serious country anymore, it has been losing all moral compass, and its economy on the way.

A micro economic case in point is what is happening in the San Francisco Bay Area, a prime location for the Internet Bubble, the Real Estate Bubble, and the Bubble of Admiration for Venture Capitalist Billionaires. In 1989, there was a strong, but distant quake, part of San Francisco caught fire (Marina district), some freeways collapsed, the eastern span of the Bay Bridge broke (but the shaking stopped seconds before the final collapse). Well, we are now eighteen years later, and the San Francisco Bay Bridge, crucial to the Bay Area economy, has not been replaced yet. It’s built in China, it will take another five years or so, to assemble it. Meanwhile housing codes were not reviewed upwards. In case of a strong local quake, dozens of thousands of local houses, with known architectural weaknesses, will collapse (engineers know this, and it’s regularly published in local newspapers). But never mind: it’s more important to send money and go do stuff in Iraq.

Meanwhile a quake centered on Kobe in Japan killed 6,400. The Japanese toughened up their already tough construction standards. In 2008 a huge quake hit north of Tokyo, creating giant landslides in the countryside, but the large city it struck had only half a dozen people killed, and mostly got through unscathed.

So what’s failing in the USA? Morality. There is such a collapse in morality, that people cannot distinguish truly obscene behavior, let alone do anything about it. The Bay Area is exemplary that way.

While the San Francisco Bay Area is scheduled for a huge quake very soon, it does very little to get ready. Nevertheless a local billionaire, one the richest men in the world (Oracle’s Ellison), thought he paid too much tax for his palatial house, a reproduction of a Japanese imperial palace. So Mr. Ellison talked to star mesmerized natives, and got a three million dollar yearly rebate in his tax, half of it coming from the bankrupt local school district (California is next to last in spending per student in schools, among all US states; it used to be tops). Let’s hope no school collapses in the next quake, for lack of financing reinforcements.

No inquiry about corruption was opened, to throw a light on how that arbitrary rebate was decided. Last week “Don’t-Be-Evil” Google decided that child care for two children would cost more than $57,000, a year (more than the average US family income). Last week, Sergey Brin from Google, a thirty something with a private jumbo jet to roam around private islands, worldwide, was explaining why only the rich need child care: it’s a question of fairness, of everyone carrying his burden, of “supply and demand”. Sergey allegedly said that “he had no sympathy for the parents, and that he was tired of ‘Googlers’ who felt entitled to perks…” When asked how do define “evil” in Google’s slogan, the company president Eric Schmidt told Wired magazine: “Evil is what Sergey says is evil.”

For Sergey, evil is childcare for less than $57,000 for two. In a country such as France, evil is no child care for children. In France, child care comes free, for all, a consequence of global taxes, and it’s provided by true state certified and trained professionals. In Google’s view of the universe, only multi millionaires should be able to afford child care. And that sort of belief and practice pretty much generalizes throughout US society: only US multi millionaires have full access to the rights Europeans take for granted, for the common person.

Economic neofascists believe that only the rich create wealth, so the wealthier the hyper rich get, the more money trickles down. Reagan and his advisers believed in this, but that theory reached its apex in recent years, by setting up a tax loophole (on capital gains) that allowed the hyper rich that so desired, to be taxed only 15% (on their income, that was made into capital gains through tricks). Thus US investment started to look more like Arab oil sheik investment of old: all for the hyper rich, little for the people, and no care for the country. Meanwhile the upper middle class got taxed at practical rates around 50% (of the total tax bill).

The US plutocracy is expert at setting up tax loopholes for themselves, and it is not done yet.

Obama’s tax plan on income, capital gains and dividends strikes the upper middle class at rates higher than any European country (and such rates have been found experimentally to be unsustainable there). Obama and his crafty plutocratic advisers, who know their true masters well, intend to create a huge tax loophole for the hyper rich: after giving a token tax rebate on seniors, they want to NOT tax Venture Capital (so Venture Capitalist such as Mr. Brin will be able to afford even bigger jumbo jets). California, with its broken bridges, broken roads, broken schools, etc., is the central headquarters to World Venture Capital. It’s full of people with a morality similar to Mr. Ellison and Mr. Brin: people who never have enough glittery stuff for themselves.

As the hyper rich advanced themselves and their servants, not only did they divert all too much of the economic activity towards their grandiose little selves, but, through their control of the media and opinion makers, they directed the country towards waste, in a subtly Machiavellian tactic of making the whole country so wasteful that it would hide their own sumptuous waste.

In the end, too little capital was directed towards infrastructure, physical or mental, from bridges, to transportation, to energy, to schools and social spending. The USA became old, and started to break down.

Instead of an arrogant hyper rich, hyper powerful overclass, and waste everywhere, what is needed is to mimic the European countries: big taxes on the TRULY rich and taxes on energy and consumption. But that would require moral courage, and knowing that Europe exists, what is going on there, and what was tried there, and found not to work. As Obama surrounds himself with Clintonistas (example: Rubin, the greatest financial bubble architect next to Greenspan) or Bushmen (example: Richardson, a fanatical Iraq attacker), this learning process seems unlikely.

Without copying France, or Germany, the USA could just mimic Great Britain. The United Kingdom, like most European countries, has copied the French tax inventions: it has huge taxes on energy, a large VAT (Value Added Tax) consumption tax, and it provides efficient health care and social care as government programs; its more aggressive capitalism and much leaner administration has left France and Germany behind in the last decade.

But, of course, Obama is now surrounded by members of the hyper rich billionaire class (Warren Buffet, his main fund raiser in Chicago, a forty something billionaire heiress, Penny Pritzker, the Crown family, and countless billionaires who are “bundlers”, in charge of raking in dozen of millions of dollars among the hyper rich for the Obama “grass-root” fundraising…). The plutocracy knows how to take care of those it advises (cf. the Clinton or Bush fortunes).

So now the US economy is seizing up, quite a bit as what happened in the ancient Roman republic. When the richest Romans became too rich, they made most of the Roman population into simple spectators in their own empire, getting impoverished in all ways, while the Roman GDP was still going up, and up, and up. To keep the People happy, bread was distributed. When the People grumbled, money was thrown at them (see the recent US distribution of money on all modest tax payers). Nevertheless, after three centuries of this bread and circus circus, the Roman army rebelled (in the third century, the appropriately nicknamed century of “barrack emperors”. Not Barack, barracks).

Although trains are the most efficient way to transport people and goods, the lack of investments in these has been astronomical. It would take much more than a trillion dollars to bring a significant part of the US infrastructure in railroads to European levels. But railroads get very little subsidies (whereas corporate jetting around is getting handsome subsidies). The general US economy is made more inefficient that way (the main line from California to New York, carrying all the lettuce and arugula from California, can be observed, going across the Sierra Nevada, on its nineteenth century single track, at ten miles an hour, taking half a day where a quick European train would take half an hour).

But, Americans are eternal optimists. On an upbeat note, the US GDP has been going up forever at an enormous rate, stuffing itself to make Mr. Brin and Ellison, and all their colleagues, the richest men in the world, by far, sometimes overnight. A true glorious miracle, and Americans love true glorious miracles. But they got helped by the little guy. That glory of the great free market, that amazing US GDP, has been boosted by driving ever more inefficient SUVs stuck in traffic jams, living in thermally leaky houses, and plenty of very small little jobs all over!

***

Patrice Ayme.

Tyranosopher.

***

Technical Addenda:

1) In the early Clinton administration, there was a debate between Mr. Reich and Mr. Rubin. Reich wanted to push infrastructure spending, Rubin wanted to push the financial bubble “economy”. Rubin won. Now Rubin, one of the main architect of the credit/subprime crisis, his clout mostly intact thanks to his position at the head of the Citigroup board (largest and very disastrous bank), is back as an advisor to candidate Obama (so is Reich).

2) We focused on Brin and Ellison, by pedagogy, and because those venture capitalists head huge international corporations, but they are typical in their morality, and since such people are the guiding lights of the American spirit, they are immensely influential on imposing their morality, namely that of totally unchained plutocracy.

3) Some people would say that taxing the truly HYPER rich around 50% may lead to capital flight. Well, where would they run? To France? Switzerland? Certainly not. Existing laws against tax evasion would just have to be applied . One could argue that big time tax evasion has so far been made possible by the (implicit complicity of the) USA. The big European countries are against it, and have the economical means to enforce it in their sphere of influence (namely the entire planet, except those few places where US influence is greater).

4) The Loma Prieta 1989 earthquake that struck the SF Bay Area was 95 kilometers away from the Marina district, and only around 7 Richter. The Japanese quakes mentioned here struck cities directly, and were around 7.5 Richter. Much stronger local quakes, around 8 Richter, are predicted for the inner Bay Area (on either of two giant faults), within thirty years.

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11 Responses to “LOUSY MORALITY LEADS TO LOUSY ECONOMICS.”

  1. Thomas J. Costagliola Says:

    Dear Patrice,

    I came across your comments in the NYT in response to Paul Krugman’s articles. I found your website when I googled your name. On your website I read your articles on economics and taxes.

    With that said, it is clear that you are well read and think broadly. Also, you see the world from a different perspective than from where I sit, which I think is excellent – you know the story about the blind men each describing the elephant.

    I would like to know more about you. Perhaps you could put a short auto biography on your website. I gather you live in southeastern France, but that you read the NYT and obviously have an English website.

    I am 57 years old a retired real estate developer, former taxi cab driver, Wall Street bookkeeper, artist, carpenter, construction company president, business consultant. I was born rich – a roof over my head, food on the table and people who loved me – to a lower middle class uneducated family, my grandfather was illiterate, my father a high school drop out. I graduated from Harvard College.

    I like to write, but I am not a published writer. Below is piece of writing that I have been working on for several months. I have only shared it with a few close friends so far, just in the last few days, and have not gotten any comments back on it yet. I would appreciate your comments if you would care to make any.

    Best wishes

    Thomas

    Proposal for a new Federal Tax System – Thinking outside the box

    Purpose
    Towards a Net Worth Tax

    The purpose of this paper is to convince you that we need to eliminate our current complex, manipulative and unfair Federal Tax system and replace it with a simple Net Worth Tax. The current Federal Tax system is based on taxing the economic activity of working, dying, selling assets, consuming certain goods and services under a dizzying array of rules and rates. This paper will argue for a change from the current complex system of taxing economic activity to a Net Worth Tax whereby the Federal government taxes everyone at a single tax rate with the tax based on their net worth.

    “The expense of government to the individuals of a great nation is like the expense of management to the joint tenants of a great estate, who are all obliged to contribute in proportion to their respective interests in the estate. In the observation or neglect of this maxim consists what is called the equality or inequality of taxation”
    An Inquiry Into the Nature and Causes of the Wealth of Nations Adam Smith (1776)

    On Adam Smith’s great estate each tenant contributes in proportion to their respective interest in the estate. If a farmer controls half the estate he pays half the tax. If a tenant controls a tenth of the estate he pays a tenth of the tax. The tax is based on each tenant’s interest in the estate. The tax is not based on the tenant’s productivity. If the tenant with the half interest and the tenant with the tenth interest each produce the same quantity of output, the tenant with the half interest is obliged to pay a higher percentage of his output than the tenant with the tenth interest. The tax is based on the starting interest not on the amount produced. Adam Smith’s concept of taxation penalizes the inept and lazy and in effect rewards the competent and industrious. The premise of this paper is that Adam Smith’s great estate, our nation, is ultimately our citizenry’s collective net worth and that we should tax each citizen’s net worth at the end of each year rather than what they did with that net worth during the year.

    The current tax system is unfair. Our current tax system places the national debt on our children. The current tax system consists of unfair progressive taxes on those who work and are very successful and consists of unfair regressive and punishing taxes for the poor and middle class. Our income tax system, the Social Security part of it, is a pyramid scheme that depends on more and more people earning more and more money. It falls apart as the population of our country ages or our birth rate or immigration rate decreases. It falls apart in hard times. People, especially our young people, do not believe that Social Security will treat them as generously as it did their grandparents. In general, people have lost faith in the fairness and sustainability of our tax system.

    A nation’s goal is to increase and protect the private and common wealth of its citizens.
    A nation must protect and respect its poor and helpless as well as its rich and powerful in order to be healthy and strong.
    A nation and its people need good physical, mental and financial health.
    A nation must protect its citizens from their own and foreign excesses.
    In order for a nation to be successful it must have fair taxation. The only tax that can ever be fair is one that taxes everyone equally at the same rate.

    We need a paradigm shift to fix our Federal Tax System. We need a tax system for the global economy of the 21st century not one mired with 20th century income taxes, 18th century tariffs and excise taxes, and feudal pole taxes. We need to shift the National Debt from our children to those who have already benefited from living in this country. We need to shift the National Debt from our children to their parents and grandparents. We need to shift the tax system from burdening the new entrants of our economic system, our children, to the people who won in the past. We need a system that encourages spending and saving but discourages hoarding and excessive saving. We need to shift the tax burden from the muscle of work to the fat of hoarding and excessive savings.

    The exact proposal: Eliminate all Federal individual, social security and corporate income, payroll, estate and excises taxes and replace them with a single rate tax based on each citizen and resident alien’s wealth with an exemption for the first $100,000 of wealth. In order to match approximately the 2008 annual federal tax receipts, citizens and resident aliens would pay an annual tax of 3.5% of their financial net worth with assets and liabilities marked to market, or to match the current annual federal outlays, pay 4.5%.

    Change the Federal tax system from income and excise taxes to a single rate wealth tax – a Net Worth Tax.

    Resources
    The Status Quo is Unfair.

    I live within sight of Derby Wharf, a National Parks historic site in Salem, Massachusetts. In the late 18th century and the early 19th century much of the USA’s federal taxes were collected at the Custom’s Building at the foot of Derby Wharf. Goods coming into the USA from abroad were taxed as they were unloaded from ships owned by the Derby Family and others. Derby Wharf was built by the Derby family. Elias Haskett Derby (1739 – 1799) was said to be the country’s first millionaire, a truly wealthy person. Derby owned the first New England ship, the Grand Turk, to trade with China. Its first cargo from Canton China arrived in Salem harbor on May 22 1787. What is interesting about the tax system at that time was who actually paid the taxes. To our modern way of thinking, the tax system then was regressive; items that were regularly imported and consumed were taxed. In today’s world with a similar tax we would tax all the goods coming from China that enter this country and that the poor typically buy at Wal-Mart. Yet when you think about it, who really paid the tax? The short answer is that the wealthy paid the tax. In order to import the goods, the wealthy not only had to buy the goods abroad, pay for the risky voyages to get the goods to Derby Warf, but they also had to pay the tax man in order to get the goods off the boat. If the demand was there for the goods, the wealthy gladly paid the tax because the wealthy knew they were just passing it on to the consumer. So, who paid the tax ultimately, the wealthy who imported the goods or the general public who bought the imported goods?

    The answer to the riddle of who paid the tax ultimately contains the seed for creating a fair tax system that splits the difference between tax liberals and tax conservatives. What do tax liberals and tax conservatives agree on about taxes? They both want a fair tax system. To tax liberals taxing and raising the cost of the very items that the poor must consume is inhumane, unfair and regressive. To tax conservatives progressively taxing the wealthy so that the more they make, the more the government takes, is unfair. To tax conservatives with old time religion progressive taxation is immoral. The battle about what is fair regarding taxes is epic; the American Revolution at its core was about unfair taxes.

    So, what is a fair tax? Clearly a fair tax is one that taxes everyone equally. So is the answer to take the national debt and the annual budget and divide it up equally among all citizens? This would be an equal tax, a kind of pole tax. The idea that we tax every man, woman and child that is a citizen of our country equally to pay off our national debt and that each of us owes $31,594.88, as of August 24, 2008, is infuriating to most of us who think about it. Why should we saddle our children with our past debts and current expenses? Why should we saddle our children with the debts of their parents and perhaps their grandparents? How and why should we expect our children to pay the national debt?

    So if a fair tax is an equal tax, how do we tax everyone equally and have it be fair? The answer is to tax everyone at an equal rate rather than at an equal amount. When many people think of a single tax rate system they think of a sales tax, perhaps the so called Fair Tax. The Fair Tax is a consumption tax and at first glance it generally keeps our children and the elderly poor from having to pay taxes whether progressive or regressive. Our children and the elderly poor are not usually working or spending much money. Furthermore as a society, we believe that we should nurture and protect our children and protect and care for the elderly, not force them to work so that they can pay their “fair” share of the national debt. Whether at peace or at war, we believe in educating our children at the common expense though local property taxes. Whether at peace or at war, we believe in caring for and protecting our elderly with Social Security so that they do not die from privation or predation. So it is a given that we should not tax children and the elderly poor. Thus, it would appear that we should apply a standardized tax rate to everybody else to have a fair tax system. Yet there are also the able bodied who are also poor, homeless, and bankrupt by medical bills or catastrophe; our society generally believes that we should not tax this group either. Any equal tax rate on the consumption of the members of this group will either, add to their burden and further keep them in the position they are in, or add to the burden of charitable people when they are trying to help them out. With a consumption tax the wealthy pay a small portion of their available resources to survive while the poor and middle class pay a large portion. Clearly we will never view an equal tax rate on consumption as universally fair.

    We will never accept that a tax system is fair if we think it is regressive or progressive. We will always try to change progressive and regressive taxes if we have the power to do so.

    So, is a fair tax an equal tax rate on the income of all people? Perhaps, but our society has determined that there are many exceptions, with each moneyed group vehemently citing their special interest as worthy of special consideration; we have deductions for mortgage interest, business interest, state income tax, depreciation, amortization, etc, etc. Both the rich and the poor and everyone in between cling to these deductions from their income believing that they are not really benefiting from their top line income. The system of taxing income is one big battle about the fairness of deductions from income. Those in power inevitably believe that they have a mandate to alter the system by raising or lowering, depreciation rates, amortization rates, capital gains rates, the rates on earned income and passive income. The problem with taxing income comes down to too many rates on different aspects of income with each special interest group arguing for a change in its rate in the interest of fairness.

    Tax Stagnant Wealth not Economic Activity

    So how do we avoid perpetually arguing about deductions from income to get to net income and arguing for different tax rates for different economic classes? Simply, we do not tax work or the process of accumulating wealth. We do not take away a large percentage of the money people earn while trying to climb up the economic ladder. Nor do we tax the one time gain of someone who sold their home or someone who gets lucky for a year or two such as an entrepreneur, or the flash in the pan pro athlete or lottery winner. We do not tax wealth with a confiscatory tax at death. Instead we tax accumulated wealth. We tax all holders of wealth equally, regularly, and at a low rate.

    In accounting terms, we do not tax the top line of the income statement with a sales tax and we do not tax the bottom line of the income statement with an income tax. Instead, we tax the citizenry’s and resident alien’s net worth according to their balance sheet and we tax everyone equally. We tax the bottom line of the balance sheet with all assets and liabilities marked to market.

    The USA through the passage of the 16th Amendment to the Constitution recognized the problem that just taxing property regardless of debt or taxing consumption was not adequate to run the government and pay for war, specifically, the First World War. Taxing income is a 20th century idea; taxing consumption is an 18th century idea. Taxing property in America is a 17th century idea with ancient Roman roots. Taxing every citizen, the same amount, the poll tax, is a feudal idea also with Roman Republic roots; in the Roman Republic era only the wealthy were citizens and had voting privileges and to vote you paid the same tax as your fellow citizens. Taxing every citizen proportionally to their wealth was a Pax Romana tax system put and kept in place by dominant emperors after the Roman Republic era.

    The reality of the current system

    Our current tax system is a game and it is unfair. Our nation’s problem is that we constantly try to make our current tax system fair but all we do is add rules to the game which prolongs the game.

    Our current tax system is a game like the modern team-sports of football and basketball.
    Team sports, such as football and basketball, evolve by using many rule changes. The governing bodies of these sports implement rule changes in the name of fairness. The sports evolved like our tax system so that they have many fans. If you want to end a game give one side or the other all the advantages. If you want to preserve the game make rule changes in the name of fairness. If the rules become unfair for any reason, one side wins and the other side, either, quits, cheats, proposes a new rule change or revolts. All games have rules; the rules define the game and all rules evolve in the name of fairness; the end state for all games with evolving rules is a game of chance. Games that evolve pick up fans as they are played. When they stop evolving they end up not with fans but only with fanatics who sow the seeds of the demise of the entire game. Our current tax system is game dominated by fanatical special interests.

    Our tax system has become a game with the wealthy for the past many years, starting with the Reagan Administration having had more advantages than average players. If you want to discourage something tax it. If you want to fundamentally change a game, change the most basic element of the game. For ball games, radically change the character of the ball and you radically change the game. For the game of life, alter DNA. To change our current tax system, completely stop taxing income and start only taxing net worth.

    Guidelines
    Change

    If we want to end the current tax system game, we need to get rid of all the current rules and start over with a new set of rules. We need to get rid of the underlying premise of the game. We need to end only taxing economic activity and start only taxing net worth.

    Changing from the complex current federal tax system to a simple one is a radical change.

    How can we change our current Federal Taxation system?

    1. Recognize the reality of the current system, which we have done.
    2. Recognize the season when we can change the system.
    3. Present the argument for change.
    4. Recognize the moment when change will be possible

    The season when change is possible

    Crisis equals opportunity.

    The current debt crisis, where our nation is caught between soaring inflation for food and commodities and serious deflation of large physical and financial assets, is an opportunity for radical change to our nation’s fiscal and monetary policies. This is the season for change.

    The argument for change

    Ronald Regan galvanized the Republican Party with his story of the Welfare Queen. Here is a story about the Welfare Queen’s counterparty, the Business Tyrant. In the late 1980’s a wealthy man and his family moved to Massachusetts and rented a grand house from me for $7,000 per month. This fellow was a very nice guy, a guy a lot like Mitt Romney; he was tall, handsome, genuinely courteous and generous too; he gave large sums every year to his church. However, he was a Business Tyrant. His job description was simple. He worked for wealthy families employing their capital, buying and selling privately held businesses; he would buy American based manufacturing businesses, shut their American based factories and move the jobs to lower wage countries. The process took a few years for each business that he moved; each time he would lower costs for the owners, make the business more profitable and make their wealth grow. Every three to five years he would buy another business and repeat the process. He did this with an auto parts business, a textile business and a specialty paint manufacturer. Because he was a Business Tyrant, he decided which jobs lived on in this country and which jobs were sacrificed; it was a matter of survival as he saw it; a survival of wealth not a survival of jobs. If he thought that a competitor could create the same job, he would move the job out of this country to a lower wage country to ensure the business’s survival. For a business to survive it has to stay profitable; for a business to become more valuable it has to become more profitable. If killing jobs in one country and moving them to another made a business more profitable then this is what free market capitalism in a global economy requires.

    The Business Tyrant paid no regressive taxes, just capital gains taxes and progressive income taxes; when he bought or sold a business, there was no sales tax on the sale of the business; the capital gains taxes are not based on the price of the business just the tiny portion that is the gain for the owner of the business. There were no payroll taxes on the sale of the business or sales taxes on the income he earned or on the income of the wealthy families that backed him. The Business Tyrant was a classic Republican believing that lower income taxes, and less regulated business, Free Market Capitalism, was the best path to prosperity.

    However for the skilled worker and middle manager whose jobs moved outside this country, there was not prosperity there was upheaval. These workers and managers more often than not took lower paying jobs, the kind that a Business Tyrant cannot move. These are jobs in fast food, retail sales and local service industries. With all of this the Federal Government netted less tax. The workers paid less payroll and income taxes because they earned less.

    In the 1950’s and 1960’s, a man holding a skilled manufacturing job could support a family, now both husband and wife have to work for a family to survive. The standard of living for the vast middle class of the last thirty years is only marginally better than the standard of living of the middle class of the prior thirty years. Yet the collective wealth of our country’s citizen’s has vastly increased.

    We tax income and working in this country. We do not tax accumulated wealth which is the underlying wealth of Business Tyrants and wealthy families.

    We should not tax income, we should tax wealth. Income is fleeting; income disappears during recessions. Income is what most people use to survive. Wealth is what people who are not poor have after they pay all their bills and pay off all their debts. The truly wealthy can decide when and whether to sell and in so doing alter their income as it suits them. When income taxes are high and during recessions, the truly wealthy sit on their wealth and pay no taxes exacerbating recessions. They do not buy, they do not sell. There is no law, nor should there be, saying they must buy or sell and generate income. The non-wealthy, on the other hand, do not have the luxury of deciding whether to buy, sell or hold. All that the non-wealthy have is their time which they must sell in order to survive. When the average person sells his or her time, it is called working. For those with no wealth, having a job and their health is often their only security. The vast majority of people in our country could not survive very long without spending most of their time working.

    The wealthy make their income from managing their wealth. For those whose work is managing wealth their only tax is progressive income taxes. In a progressive tax system, the more a person earns the higher the tax rate. “The more they make, the more the government takes.” For those who work for an economic entity other than themselves, their principal taxes are income and regressive payroll taxes. The wealthy are exempt from payroll taxes above a fixed amount. All workers pay a higher percentage of their income for payroll taxes than their bosses who make over $200,000 per year in base salary.

    The Republican answer to our country’s problems and to the average citizen’s feeling of a lack of prosperity is to lower taxes and government spending, institute a consumption tax, the so called “Fair Tax” and advocate a tight money policy that preserves the value of the dollar. The last thing the wealthy want is inflation. Inflation devalues the debt that society owes them. The national debt is owed to Business Tyrants and wealthy families, not the Welfare Queens.

    It is time to take the burden of the National Debt and shift it from our children and shift it from the working person who has to spend what she earns to survive. It is time to change our tax system from one based on income and working for a living to one based on wealth. It is time to peg our tax system not to the amount of money the working person earns and the little he or she gets to save each year. It is time to peg our tax system to the great wealth that the people, Business Tyrants and Wealthy Families, of our country have accumulated over time. We need to replace all taxes pegged to income, including social security taxes, unemployment taxes, and corporate income taxes and replace them all with one equal tax based on net worth.

    The wealthy move their businesses offshore to avoid corporate income taxes. We need corporations here in the United States for the jobs. The best way to keep corporations in the United States is to eliminate corporate income taxes completely. This would give the United States a huge competitive edge in the world in attracting business investment.

    An annual 3.5% net worth tax, a tax on the net worth of all US citizens and resident aliens would generate as much revenue as all the current individual and corporate income taxes and all the social security, unemployment taxes and gasoline taxes combined. An annual 3.5% net worth tax would produce as much Federal taxes as the current tax system is supposed to produce in 2008. An annual 4.5% net worth tax, exempting the first $100,000 of wealth per person, would balance the budget; it would pay for all the projected 2008 Federal spending and stop running up the national debt. An annual 4.5% net worth tax, exempting the first $100,000 of wealth per person, would encourage the poor to save and help young families starting out. An annual 4.5% net worth tax, exempting the first $100,000 of wealth per person, would help small startup businesses. An annual 4.5% wealth tax would shift the National Debt from our children to those of us who have enjoyed all the benefits of living in this country and to those of us who can most afford to pay. An equal rate wealth tax would discourage, hoarding and speculation and stupid allocation of resources.

    A shift from income taxes to a net worth based tax would lower the cost of producing goods and services in this country and make the people in this country, who must work for a living, more competitive in the global economy. A shift from an income tax to an equal net worth tax would encourage investment in income producing assets and away from land and commodity based speculation. Use it or loose it.

    As the welfare mother turned into the Welfare Queen, the Business King in the global economy, the sovereign of each business, has become the Business Tyrant. Welfare Queens and Business Tyrants rob the middle class. A shift from income to an equal net worth tax would fairly tax Business Tyrants and the Wealthy. An equal net worth tax is the only tax that can ever be a fair tax.

    If a nation wants to reduce something tax it. If our nation wants to reduce consumption, our nation should increase consumption taxes and watch our modern economy collapse. Consumption is the largest and hence the most important part of our current economy. If our nation wants to reduce income which would create a recession, our nation should increase income taxes. If our nation wants to:
    1. reduce hoarding and excessive saving,
    2. reduce the likelihood of housing and internet bubbles of the future,
    3. reduce the speculative excesses of derivative and commodity markets,
    4. avoid future collapses of the debt market, and
    5. keep inflation under control,
    we need to put in place a flat net worth tax which will give the hoarders and the fat cats an incentive to sell into rising markets which will increase supply .

    We need to tax the fat not the working muscle.

    Why must we make a clean break with the current system?

    Our current tax system is hopelessly complex. It is too big for any one person to fully understand. It is longer than the Christian Bible.

    How can we make a clean break from the current federal tax system?

    The Political Reality of Changing our Federal Tax System

    The political reality of our country is that radical changes to our tax laws are only possible when:
    1. a crisis is upon us,
    2. a newly elected president comes to power, and
    3. his political party gains control of both houses of Congress with newly elected radical members.
    Also, radical change is possible only when a newly elected president has a mandate for the change. The president during his candidacy must espouse the change. Now is the time to begin the debate to change our tax laws.

    Accountability

    If we buy into the idea that the current tax system needs to change, and if we agree that our government should replace the current federal tax system with a single rate net worth tax, what can we do to make it happen? How do we hold our government accountable?
    How do we hold ourselves accountable to make change happen? What can we, as individuals, do to put in place a single rate net worth tax and at the same time eliminate all other federal taxes? How will we know that we are making any progress toward such a momentous change? What are the milestones that will mark progress?

    To effect change the first thing we must do is resolve to take action over that which we have control. Relatively speaking it is easiest to control ourselves. The simplest thing that we can do is share this paper with our family, friends and associates. The next thing we can do is send a copy of this paper to our local newspapers and our elected officials. By doing these simple things we hold ourselves accountable and we have done as much as we can.

    If all who have read this paper share it, we should see the idea enter the public dialog and when it does we shall have reached our first milestone.
    The next thing that we as individuals can do is support the change. We can support it in discussions. We can support it by responding favorably to surveys. If our politicians find that this idea has merit, we can support it by voting for those who advocate this change. Politicians advocating the Net Worth Tax will mark our second milestone.

    The third milestone will be when some respected economists take up this cause. This should lead to elected officials or presidential candidates talking seriously about this proposal.

    The fourth milestone will be when a blue ribbon bipartisan commission is appointed to review the proposal and report back to the president or congress.

    The fifth milestone will be when the bipartisan commission reports back favorably on the idea and the commission proposes legislation that the congress can vote for without change.

    The sixth milestone will be when the congress passes the new Federal Tax System and the president signs it into law.

    The seventh milestone will be when we pay our first tax based on our net worth.

    The last milestone will be when the legislation survives the inevitable Supreme Court challenge or a constitutional amendment is passed to enable the Net Worth Tax.

    Consequences

    The biggest problem with this new tax system is that it is new and different. The old system is a devil we know, or think we know and understand. The old system’s various complex pieces each have their own constituency.

    What is the biggest change that would result from this net worth tax proposal? The biggest change is that we would tax excess wealth rather than wealth or money that is consumed. We would not saddle our children with bills run up by their parents and grandparents for past wars and waste. The person who starts with nothing and saves would not have the tax system working against them since one could accumulate up to $100,000 of net worth without having to pay taxes. Because this net worth tax would not tax people when they had less than $100,000 net worth, people would not owe taxes if they had a catastrophic loss. They would not owe taxes if they were starting a business based on personal service as many young people do. For the wealthy, rents, interest and dividends on their investments should more than cover their tax bills. Also, the wealthy will have an incentive to dispose of non productive assets and these assets would likely end up in someone else’s hands who would make them productive. There is a high likelihood that the unproductive assets would end up in the hands of a charity or in the public domain. As unproductive assets went up in value due to inflation, the Net Worth Tax would provide a counter-inflationary incentive to sell unproductive assets rather than hold them for speculation. As assets drop in value due to deflation or market dislocations, the tax burden for those holding the assets would go down. An investment that went really bad would not leave a formerly wealthy person with a tax bill as sometimes happens under the current income tax code.

    The amount exempt from tax would encourage savings by the poor, capital formation for the young and for entrepreneurs, and would deal with rounding errors for the truly rich. This net worth tax would discourage investment in unproductive assets and encourage the wealthy to make charitable contributions, even possibly charitable contributions to the federal government. The Derby family was very generous to the public with donations of the wharf, now a federal property, the Salem Town Hall and square, and art and artifacts which are today held by the Peabody Essex Museum.

    A simple argument for change: We are losing our competitiveness in the world because of our tax policies.

    We need to reform our tax system if for no other reason than the People’s Republic of China’s socialist market economy is trouncing our corporations and our workers in the global market place. Their system has come up with a formula that works. They coddle infant industries through regulation of foreign competition within their country. They subsidize home grown businesses through swift eminent domain, to establish their competitiveness in world markets. Deng Xiaoping changed the communist system to the current socialist market system. With smoke stack industries that predate Deng’s change, the Chinese government subsidizes multiple state owned corporations to compete against each other and to compete against their own locally grown private corporations. Once their businesses are viable in global markets they phase out outright subsidies. Once businesses are established in the world marketplace, they sell them if they are state owned or shut them down if they are non competitive. The state is the ultimate venture capitalist.

    The entire People’s Republic of China’s tax code is 1820 words. See PERSONAL INCOME TAX LAW OF THE PEOPLE’S REPUBLIC OF CHINA

    How this affects the US is that their government confiscates the dollars that come into their economy and prints their own currency which is then backed by reserves of dollars. The Chinese are great savers. This effectively limits dollars coming back to our country. We are locked in an embrace with China and the rest of the developing world that will eventually bring about our ruination. We must change our tax system to compete with and have an advantage over the Chinese economy and the economies of the developing world.

    Changing the tax system: Concerns and Benefits

    Concerns about the Net Worth Tax System
    1. Taxing Net Worth is unfair to savers and rewards consumption.
    2. Taxing Net Worth will discourage the accumulation of wealth and encourage consumption.
    3. Constantly taxing Net Worth will dissipate all of our citizenry’s wealth.
    4. We will break the compact of the 1930’s that established social security and we will have no formula for distributing social security benefits.
    5. Individual retirement savings will be taxed while corporations will pay no taxes.
    6. The poor will receive the benefit of living in this country without contributing to its sustenance.
    7. Only the wealthy will pay taxes.
    8. The government will slowly steal family fortunes.
    9. State and Local Government bonds will loose their tax advantage.
    10. Congress will impose this tax on top of the existing income and excise taxes.
    11. The wealthy will flee our country with their money. Our nation will see capital flight.
    12. The wealthy will hide their wealth.
    13. Providing net worth statements to the government is an invasion of privacy.

    Benefits of the Net Worth Tax System
    1. We eliminate all progressive and regressive taxes without complicated formulas.
    2. Those of us who are good at making money will be able to hold onto more of it.
    3. If we are in the 35% income tax bracket, it will be 10 to 16 years before we pay the equivalent taxes and in the mean time we will have the opportunity to make a return on the money that was not paid in taxes.
    4. We unburden our children of the National Debt because we shift our National Debt from our children to their parents and grandparents who ran up the bill.
    5. A single rate net worth tax encourages working. People who are busy working naturally accumulate wealth.
    6. We do not tax working; we tax hoarding and excessive savings.
    7. The policy would encourage household formation.
    8. The policy would encourage saving for a rainy day while it would discourage hording.
    9. The policy would end the practice of “working under the table” and “working off the books.”
    10. The policy will free start up and small businesses from crippling payroll taxes.
    11. The policy will help rather than hinder businesses that are not wildly profitable but employ people.
    12. The policy will eliminate the income and payroll taxes that are a huge part of the cost of every American made product and make American products more competitive around the world.
    13. The policy will encourage capital and business formation.
    14. Our citizens and corporations would become more competitive in the global economy.
    15. Tax-timing, that is deferring or advancing income to avoid higher taxes, will no longer drive economic activity.
    16. The policy is counter inflationary for non productive assets.
    17. The policy would reward charitable giving and place incentive to put into the public domain the rarest and hence most valuable items;
    18. The policy would tax cornering the market for physical and intellectual property.
    19. The policy would encourage education. Paying for education with accumulated wealth would decrease taxes.
    20. The policy would demand financial literacy of our citizens.
    21. A single rate net worth tax is simple to understand.

    Miscellaneous and Notes:

    What is the collective net worth of the USA’s citizenry? Interestingly there is no exact tally of this and all estimates are based on a sampling of 4,000 average households and statistical estimates by the IRS of the richest families. Our census instead of tracking race should track who owns what.
    My math is based on household net worth from The Federal Reserve Board’s Survey of Consumer Finances for 2004 http://www.federalreserve.gov/pubs/bulletin/2006/financesurvey.pdf and from the 2008 OMB’s projection of Federal outlays http://www.whitehouse.gov/omb/budget/fy2008/summarytables.html.

    At what rate should we set a net worth tax? I would set the rate to pay current national expenses, such as the cost and maintenance of roads, defense, social stability and federal government, and to pay off the national debt in 30 years.

    At what rate would we have to set the tax to meet the White House’s Office of Management and Budget’s 2008 projected Federal Outlays? Approximately 4.5% without deficit spending and 3.5% with the current projected deficit.

    How do we implement a fair tax?
    1. We figure out the net worth of our citizens.
    2. We agree to do away with all federal taxes based on income.
    3. We eliminate federal individual and corporate income taxes, federal unemployment taxes and social security taxes.
    4. Once a year we require all US citizens and resident aliens of all ages and all economic entities that hold US based assets to make a statement of their net worth along with an income and expense statement, with expenses of all kinds being 100% deductible from income.
    5. We require a CPA to certify the statement of individuals with a net worth over $1,000,000.
    6. Families and groups of people could file joint returns and pay taxes from joint assets.
    7. We require that all corporations and trusts doing business in the US file net worth statements certified by a CPA. The statement would certify who owns the net worth of non publicly traded businesses and trusts. If a non filing entity ultimately owns corporate or trust assets then, the corporation or trust would pay the tax. We would not allow anonymous or foreign corporate debt to reduce corporate net worth.
    8. All property in the USA either foreign or American owned would be subject to the tax.
    9. The net worth of all overseas assets owned by Americans would be subject to the tax.
    10. All illiquid assets would be marked to public assessment, marked to market or marked to purchase price, whichever is more recent or more easily determined.
    11. We tax all people’s net worth above $100,000, at the same rate payable monthly.
    12. We require anyone with $40,000 or more of financial assets or $60,000 or more of non financial assets to file a net worth statement.

    To transition to this new tax system the Congress should require that individuals submit a balance sheet along with their income tax returns for two years before we change the taxation method. We would use the first year’s collective balance sheet to plan and estimate the exact tax rate to put the system in place and balance the budget.

    At any time but not less than once every 12 months, we would require people to submit an income statement and a balance sheet and have their tax adjusted. For anyone with wealth, creating an income statement and balance sheet once a year, is prudent whether the government requires it or not.

    Every economic entity except the poor would have to file a net worth statement. We would define anyone with less than $100,000 of net worth as poor.

    How do we deal with people trying to game the new tax system or skip paying the net worth tax? People have always been ingenious in ways to legally and illegally avoid paying taxes. To deal with people moving money overseas to avoid taxation, we should require that all transfers be associated with a tax id or social security number. Transferring entities, such as Western Union, would withhold and pay the government 20% of transfers by resident and non resident aliens, or others who could potentially skip paying net worth taxes in future years.

    Businesses would withhold and pay government the Net Worth Tax on all payments above $25,000 per year for services by individuals.

    Regarding capital flight, current law says that US citizens are subject to US taxation for 10 years if they have over $500,000 and renounce their US citizenship. http://travel.state.gov/law/citizenship/citizenship_778.html

    Do we need to change the constitution to implement a Net Worth tax? It is not clear to me whether we would need to change the 16th Amendment to the constitution to change from an income tax to a net worth tax.

    The $31,594.88 share of the national debt is from http://www.brillig.com/debt_clock/ and is based on their estimates as of August 24, 2008 of $9,623,824,827,242.64 debt and a United States population of 304,600,772.

    In addition to this paper I have created an Excel Workbook addressing or showing
    1. Net Worth Tax yields by wealth group,
    2. Federal budget and outlay statistics,
    3. Population and Household statistics,
    4. Comparative Effects on Ordinary Income and on Capital Gains Income under the two tax systems,
    5. Wealth dissipation,
    6. The 2008 taxes brackets, taxes and rates paid by an individual who makes $25,000, $100,000, $200,000, $500,000, $1,000, 000 or $10,000,000 annually,
    7. Various home owner taxes under the two systems.

    For the blue ribbon commission, I suggest that we place all the former living presidents of the United States, the two Bushes, Clinton and Carter and the two living chairmen of the Federal Reserve, Greenspan and Volker in a room and don’t let them out until they have unanimously agreed upon a tax system that each believes is truly fair. Personally I believe what would emerge would be a tax system that is simple and that an average person could understand and that it would be the Net Worth Tax system that balances the interests of the rich, the middle class and the poor alike.

    To change the federal tax system, we need political leadership. Leadership emerges when we place our leaders under pressure. We need our political leadership to take up our cause. We need our leadership to gain a consensus for a replacement of our current federal tax system with a single rate net worth tax.

  2. Thomas J. Costagliola Says:

    “In case of a strong local quake, dozens of thousands of local houses, with known architectural weaknesses, will collapse (engineers know this, and it’s regularly published in local newspapers). But never mind: it’s more important to send money and go do stuff in Iraq.” California has stringent building codes to deal with earthquakes. All new construction and significant renovations of the last forty years as well as all public buildings meet these codes. As a builder, I can tell you that this can add 25% to 50% to structural costs for new construction and can account for 25% to the entire renovation cost. Massachusetts which has never had a major earthquake has almost identical codes. Home owners of these “local houses” rarely undertake renovations and can usually not afford renovations to make their houses earthquake proof. So long as the house pre-earthquake is structurally sound, the government will not condemn the house and make the home owner move out or undertake the renovations. There is no reason for the government to pay for the renovation of old homes for the benefit of owners.

    You speak fondly of the VAT. I don’t like the VAT because it is regressive. As an American I really dislike the EU’s VAT. The VAT is a regressive tax that the EU has figured out can be used to undercut American made products in competition around the world. American made products have all of our income and regressive social security taxes built into their cost. American manufacturers get no break on these taxes if they export their products unlike their EU counterparts. In my opinion the USA needs to completely replace its federal tax system but not with a VAT but with a flat Net Worth tax. I do not believe that our government should use tax policy to manage the economy and cater to special interests which inevitably benefit a few rather than the many. The Roman Empire and all other empires in history ran best when their taxation systems kept the tax burden evenly distributed in a way that did not concentrate wealth in an oligarchy. Regressive taxation concentrates wealth and pushed to its limit leads to revolution.

  3. patriceayme Says:

    The first point about the California quake codes is that they are known to be insufficient. The second is that there are not enough engineers to find out what is wrong, building per building, house per house. By the way, most American houses would be unlawful according to French fire codes. American housing maybe cheap and plenty, but its true cost is displaced into the occurence of many fires, a wealthy insurance industry, and an obsession with fire departments.

    As far as the French inventing, and other Europeans implementing the Added Value Tax to annoy Americans, it is plain not the case. Europeans do not take their major internal decisions with the USA in mind. They tend to view the USA mainly as an annoying irrelevance for really big ideas. But granted, (ex-) superpowers tend to be a bit paranoiac. Putin probably thinks that Georgians created their language just to annoy him personally.

    The VAT is the main government income earner. It targets tax cheats, and can be assessed at a much higher rate than a sale tax. It has been very efficient in countries such as Italy (even the Mafia has to pay the VAT, otherwise it would impoverish itself!). The fact that the VAT is “regressive” is not generally accepted. All sorts of higher rates on luxury products, rebates, tax credits and subsidies can turn the VAT into a very progressive tax.

    As far as a flat net worth tax, France, once again, has a wealth tax (the notorious ISF). France also introduced last week a new tax (1%) on capital to finance a new social work program. As was discovered under Lenin and Stalin, though, too much tax on wealth pushes the entire economy into what is called in economic textbooks the “Tragedy of the Commons”. At that point, with a lot of the population disinterested by work, all what Stalin found to keep the economy growing fast was to spur interest and economic activity with the execution teams of NKVD, mass deportations, regional hatred, hero worship, and the Archipelago of the Gulag.

    It is true that the Roman republic collapsed because taxation of the rich was too low too long. But this is happening in the USA much more than in Europe. Actually, one could reproach Obama’s tax proposals to not be progressive enough. An Englishman with a French name, a famous economist in Cambridge, Arthur Pigou, long ago suggested to use taxes to modify behavior, taxing the bad, subsidizing the good. All the EU works that way, and ever more so. The American democrats should take heed.

    Patrice Ayme.

  4. Thomas J. Costagliola Says:

    Patrice, what great fun this is.

    Your reply most clearly identifies you as a Frenchman proud of all things French when compared to all things American.

    Regarding French versus American Building Codes, Chartres Cathedral, Notre Dam Cathedral, The Louvre, the buildings surrounding the Place de la Concorde to name a few well known French buildings and most if not all residences housing two or more families in France would not meet the California or Massachusetts state building codes though they might meet some other state codes. French made automobiles are a rarity in the US because of Federal efforts to deal with the “Tregedy of the Commons.” Unmodified French made automobiles meet, to my limited understanding, neither US safety nor pollution standards.

    Regarding USA building codes, the insurance industry and our obsession with Fire Departments, a reading of the history and evolution of each of these subjects shows a healthy symbiotic relationship for the benefit of the average person. In my opinion while Fire Departments, the insurance industry and building codes in the USA can be improved there is nothing fundamentally wrong with any of them.

    Regarding the VAT, the notorious ISF, and Mr. Pigou notion of using tax policy to modify behavior, I have to say the following:

    The VAT encourages vertical integration of businesses, big business over small, and outsourcing of jobs by multinational corporations to name just a few problems. The VAT is regressive if it is built into products that are staples.

    Regarding wealth taxes (the notorious ISF?) as they have been enacted in EU countries, I quote Wikipedia, “…in no place where this kind of tax is in place does it contribute to more than 0.3% of the total tax intake. It is therefore seen by some people as a statement of philosophy more than a considerable revenue base for the government.”
    And
    “Apart from France, within Europe, Spain, Greece, Norway, Switzerland and Liechtenstein impose a wealth tax, although often with lower rates and higher thresholds of imposition than in France (which France recently implemented some measures to reduce the burden of wealth tax). European countries that have abandoned any tax of this type in the past five years (since 2003) are Austria, Denmark, the Netherlands, Germany (1997) and Sweden (2007). On January 2006, wealth tax was abolished in Finland, Iceland and Luxembourg. In other countries, like Belgium or Great Britain, no tax of this type has ever existed, although the Window Tax of 1696 was based on a similar concept.”

    I agree with Arthur Pigou that tax policy modifies behavior. However, I do not believe that government should use it that way. In the USA, using tax policy to modify behavior has led to the rise of the special interests lobbies. It has distorted economic activity more often than not to detriment rather than the benefit of the average person. If nothing else, it has made the USA tax code longer than the Bible and made it so that no single person no matter how smart can read it, understand it and keep up with it.

    Taxes in the USA have become a game of chance in that you cannot understand exactly in advance what your taxes will be from year to year. Without the use of a computer program that is constantly updated a few times every year when Congress changes the tax code you cannot calculate your taxes at all if you run a business. I have consulted with businesses that have been bankrupted by changes to the tax code. The owners of one business while they were excellent at running the business to a point did not understand that the foundation of the business was built upon a section of the tax code that if changed would bankrupt them. When the section of the tax code was changed in the name of fairness and trying to close a tax loophole for the wealthy, these not so wealthy people who employed many other people were bankrupted. This change to the tax code was in 1986 and was said to make the tax code more progressive.

    I am against all progressive and regressive rate Federal taxes. I am against Federal sales taxes and Tarrifs as well. I want to see the Federal government supported strictly by a flat rate net worth tax that exempts the first $100,000 of net worth from taxation. Such a tax by its very nature would be neutral regarding economic activity. Federal spending then would be our only collective way to influence human behavior. Tax loopholes which are created to benefit specific unnamed individuals and corporations would disappear. This is the only way the USA can compete with China’s venture capitalist oriented government.

    Regarding tax cheats, the more people feel taxes are unfair the more they feel a right to cheat. Poor and middle class trades-people and others who have access to cash income can underreport income. The wealthy in the USA pay taxes in fact on a totally voluntary basis. The government in the USA relies totally on wealthy people’s honesty to report accurately their expenses. While virtually all gross income is reported to the government, the government has not the means to track expenses which determines net income and income taxes. Ultimately, I think that a flat rate net worth tax would work the way a speed limit works on a heavily policed highway, If everyone pays the same tax rate, it is hard to argue that a tax is unfair and there will be peer pressure to conform.

    Thomas J Costagliola

  5. patriceayme Says:

    Dear Thomas:

    With all due respect, you seem to have your world upside down. You take Notre Dame cathedral, with its science fiction flying buttresses made for, and able to withstand hurricane force winds, a great many times over in the last eight hundred years as an example of poor architecture.

    Identifying me with a French person, adulating all things French, is certainly hasty, because then I can be identified with many other things. American, African, etc… Proud of all things French is even less accurate, because I profess mighty spite and dislike of Louis XIV, Napoleon (OK, sexist Corsican bandit), Louis IX (“Saint” Louis), and the misreading of Salic Law by sexist lawyers in Paris during the 14th century, and so on, and so forth… Patriotism is not blind acceptance, but careful improvement.

    As far as French cars being lousy, polluting, etc…Well, not so. I agree with you that your understanding is very limited. French cars are the most advanced on the planet (as good as the best German cars in most ways, but more efficient; I personally drive the best German sport car, and excellent Peugeots).

    Peugeot has the best fleet mileage, in the world. The Peugeot 407, a very large family car (especially in its station wagon version) has nine airbags, pre-tensioners, and its mileage is amazing. The Peugeot 308 can make 75 miles per gallon, although it sits five. BMWs are good cars, in no small reason because many of their equipments were invented by Peugeot first (BMW and Peugoet cooperate, and are also developping engines together). Renault and its property, Nissan, intend to equip all of Israel and Denmark, and soon the rest of the planet, with electric cars (using new proprietary battery technology). Renault and Peugeot in recent years have won both the World Rally championship and the F 1 World championship. Besides Diesel was French and the so was the first car ever (back in the 18 C). A French electric car held the world speed record for a while around 1900. French trains have held the world’s speed records for generations, and the first plane was French (most aviation vocabulary is French because most of early aviation was developed in France). Even the A bomb started in France.

    In the fullness of history, France is actually THE high tech country, second to none. Higher technology is central to the philosophy of the Franks. Fighting a coalition of Hitler, the USSR and the USA made France stumble, but now she has found the right frequency in Europe. Europe, sorry to say for the American spirit, is becoming like a big France. Today’s Germans would be the best allies of France against Hitler if he came around again.

    As far as the VAT favorizing big businesses, the plague of France, sort of, is small family businesses. Once again, the VAT is used in fully progressive way in Europe.

    You seem to be afflicted by basic anti-French propaganda, that denigrates whatever France does. Besides cheese and wine, France is viewed as a total zero (I don’t drink alcohol, as most French people). A few days ago a correspondant and friend of mine, a professional of consulting on health care and the like, assured me grandly that US health care is second to none, and, in particular not inferior to French health care. She expects twins. Guess what? The latest statistics show that infant mortality and baby mortality with a five years horizon is two-third in France of what it is in the USA.

    As long as Americans will let their emotions dominate their perception, even concerning their closest parent and allies (France gave birth to the Britain and the USA, not the other way around!), well, the United States will not be doing as well as it could.

    Patrice.

  6. Thomas J. Costagliola Says:

    Dear Patrice,

    Thank you for your response.

    My world is not upside down. I just live in a different part of the world than you do. I value other people’s perspectives and work to understand them to defuse conflict and to improve my own lot.

    In 1972 I made a pilgrimage to Paris to see the Parisian buildings that I cited. This was hardly because I thought they were examples of poor architecture. My undergraduate degree is in Art and Architectural history. I graduated with honors. My life’s work has revolved around construction, buildings codes and Architecture. I am regularly hired for my judgment in these areas.

    Your earlier comment, “By the way, most American houses would be unlawful according to French fire codes.” implies a superior inferior relationship. It promotes conflict.

    It is irrelevant whether French buildings meet American Building codes or vice versa. Each nation and region will have its laws and codes evolve with consideration for its history and geography. We are all foreigners everywhere but when we are at home. We foreigners must accurately understand the locals before we promote changes.

    Your words:

    “Peugeot has the best fleet mileage, ….. Even the A bomb started in France.”

    And

    “In the fullness of history, France is actually THE high tech country .…. Today’s Germans would be the best allies of France against Hitler if he came around again.”

    To me smack of elitism. Are my feelings anti-French? If I disseminate them am I creating anti-French propaganda?

    Generally, I think you are quick to judge America and Americans and to promote French ways without fully understanding the American situation.

    Elsewhere on your site in your piece “How Obama Could Lose”, you say, “One MILLION DOLLAR in interest and dividends, and/or TWO million dollar in income should define “RICH”.

    In order to have $1,000,000 in interest or dividends you need $20,000,000 of liquid assets. That would be if you can get 5% interest or a 5% dividend. Average wealth in 2004, for the wealthiest 1% in the USA was $15 million; this included all asset classes including their residences. $2,000,000 of income per year from capital gains also calls for $20,000,000 of stocks with an average return of 10% per year. $2,000,000 of income per year from managing your own or other people’s wealth is the salary only of the richest of the rich. I believe that there are S&P 500 company presidents who make less than that per year.

    For Americans in general “rich” starts a lot lower down the scale.

    The middle 20% of Americans in 2004 held only $82,000 of wealth. While approximately 50% of American households hold stock the average value of the holdings of the middle 20% of that 50% was $7,500. That is 70% of all American households in 2004 held less than $7,500 in stock. If you have $7500 of stock and it is not in a 401k for which capital gains tax is irrelevant anyway, the portion of it in an average year that is likely a capital gain is $750. The difference between a 15% and 50% capital gains rate for a $750 gain is $262.50 Most Americans wisely or not have held most of their wealth in the equity in their homes. The first $250,000 per person, $500,000 per couple, of capital gains on a primary residence is tax free. Capital gains tax rates on stocks generally speaking are irrelevant to 80% of all Americans.

    No matter where you are on the economic ladder, there is always somebody richer and somebody poorer. The bottom 20% of households in the US had average wealth of -$11,400. 17% had wealth holdings of zero to negative. To the people who have less than zero wealth, 83% of the USA looks wealthy.

    These people who are in the bottom 5th still pay taxes. And, credit card debt is not tax deductible.

    Patrice, you say, “One MILLION DOLLAR in interest and dividends, and/or TWO million dollar in income should define “RICH”. I would say Obama defining rich as $250,000 a year of income has it closer to right than you do.

    I would define rich as anyone who has over $100,000 of net worth. I would have only the people who have over $100,000 of net worth pay taxes and then I would tax everyone exactly the same rate on that net worth. If you think that everyone should pay taxes not just the wealthy, I could accept that so long as the only tax everyone pays is at the same tax rate and on their net worth.

    As far as the VAT is concerned, I accept that it works very well in the EU but it has no constituency in the USA. Both the right and the left have rejected it. The Fair Tax, a straight regressive sales tax, was conceived in response to the VAT. The Fair Tax people want to repeal the income tax and replace it with the Fair Tax. The Fair Tax has a constituency but the constituency is small. It is going nowhere.

    Your concern with inflation diminishing the real return of investments marks you as wealth holder rather than academic.

    Patrice, from everything you write, you are “over the top.” I believe that you are a proud and wealthy Frenchman. Vive la France!

    Your devoted correspondent,

    Thomas

    PS: How Americans see the world: I was depressed last night so I called Lifeline. I got a call center in Pakistan… I told them that I was suicidal. They got all excited and asked if I could drive a truck.

  7. patriceayme Says:

    Dear Thomas:

    Some of us are fortunate to be able to afford living in various places in the world. Few are as multinational as me. To be told where I live and what I am always makes me smile. Since I write pretty stiff (but correct) things about bin Laden and his lover boys, I am happy to be hard to locate in many ways.

    The reproach you make me, to denote an inferior versus superior attitude, thus promoting conflict, leaves me doubly unfazed. First, as it turns out I have studied mathematics and logics at a very high level, and I know that what we call “well ordered sets” are crucial to make sense of the world. Thus, so much for superior versus inferior. Second, I fail to see what’s so intrinsically bad about conflicts. There are worse things. Even the Qur’an knows this, and proclaims it loud and clear.

    Soon the USA will chose a new president. If Obama fails it will be first of all because he will be perceived as first of all a conflict avoidance guy. People, rightly, want somebody who can lead them to war. I found myself yesterday in the middle of French troops training in the mountains in full battle gear, some firing like crazy with their giant guns just meters away, and it was an inspiring sight: of this freedom is made.

    As far as “Peugeot has the world’s best fleet mileage” being an elitist statement, that’s funny. It’s a fact that Peugeot emission are at 141 grams of CO2 per kilometer, the lowest in the world. It’s a measurement, and it turns out to be the lowest. It’s not open to interpretation like “Harvard is the best university in the world” (besides that’s false, because it’s Berkeley, contrarily to what the Chinese claim). That present day Germans would ally themselves with France against Hitler is pretty much a fact too. More on the A bomb soon. The fact a woman got it started is another fun fact. Fact don’t get to be elitist. They are. Or they are not. That’s it.

    Your wealth tax is not something that can be done. It was tried very hard in Europe and most of all by France (where a whole tradition of hating wealth exists, and is having a healthy debate with French wealth). But even the Spanish socialists just dumped the wealth tax. It invites capital flight, and when done in practice production instruments (like the ownership of Peugeot, or Michelin, or castles, and paintings, etc) have to be excluded. This, as Zapatero pointed out, means that the wealth tax falls on the poorest of the rich, the upper middle class (who then gets demotivated and goes on strike, hurting the entire socioeconomy real bad).

    Now as far as your discussion of cap gains, etc., I agree that I may have been a bit carried over about the one million dollars in dividend and interest to define “rich”. Your point is well taken here. I may have to think about my numbers more carefully. (In any case the present tax is a flat 15% on dividend and interest, and that seems appropriate to me.) But my underlying point was that the USA needs to save now, and to free itself from capital distribution from non democratic countries (China, the House of Saud, etc…). About VAT having a constituency or not, that’s a political popularity context, a celebrity thing. I am interested by truth, not by Paris Hilton (an excellent economist, though, I reckon). If it was invented in France, like the meter, and adopted by over 50 of the most advanced countries, it has got to be good. But, true, like the meter, it does not have to be adopted by the USA. Actually thinking does not have to adopted by the USA either. It has got to be obsolete. Maybe American thinking could be relocated to Pakistan, indeed. Just like savings were relocated to China. And, after all, Hitler’s Third Reich worked very well without much big thinking for a grand total of 12 years, six of whose it spent at war with France.

    Against stupidity, reason itself contends in vain.

    Frankly yours,
    Patrice

  8. Christoph Says:

    Since logic is your mantra, consider that most tax schemes all fail at the essential logical question: what is tax to be used for. They’re all “pay first decide later” schemes. No economical logic.

    There aren’t many balanced govnm’t budgets in the world. Let alone study the U.S., Germany and France: France displaying the worst discipline here. European fiscal “discipline” agreements seem out of reach for the “modern” French politician, and that’s also why Europe will never generate much new national feelings. Alas, de Gaulle who may be at the origin of all modernity in Industrial France… is long gone now. Delors also.

    In a free society – if this means anything to you – political parties will first state the role they want the government to accomplish, then representatives will be empowered (in the frame of the constitution of individual rights) accordingly.
    Unfortunately our system allows many promises and few realizations, such is human nature. It makes commitment and cannot hold them. France is no exception here. Sarkozy, Merkel, Bush, Obama, and Mac Cain being professionals, their commitments show very little credibility in fact. What kind of lousy contract does the voter -in France too- at every election?

    Let’s speak about liberty. On today’s market, the ability for a government to save an industry jewel of 60.000 workers (considering special governmental ties, like inflationary power) and to use the taxmoney to pay for it, is not in relation with the ability of the people voting for a government representative with the hope to prevent that this precisely would happen. It’s clearly bigger. Democracy has failed.

    Ask then the foreign governments (Germany for instance) where social security is already being paid for by every individual (30% of income, nothing like the US), if subsidiaries of their Banks are worth “being especially saved” in the name of … some foreign war. Now ask also the people paying for special budgetary extensions (before election), and measure the pulse of democracy by comparing their answers with those of their “representatives” later. Democracy is dead.

    We, in Germany, have stopped a few years ago to tell the world we are the best nation in so many things. We tried to switch the thinking scheme. This old scheme had dreadful consequences for the German population amongst others before, perhaps you reckon. For some thus, nationalism is passé. You wouldn’t understand. Different history. Vae victis. We’re not bad in many aspects though, and we’ll be there if there’s a fair competition, but Germans are more reluctant than the French to pretend they’re in control of everything…. Your blog will not be very appealing to a German thus, because its nationalist self-satisfaction lacks some… intellectual delicacy. I’m not talking about calling Rudolf Diesel a Frenchman, which is a bit like calling Edison a Soviet. It just lacks culture.

  9. patriceayme Says:

    Wow! Lots of assertions here that I do not think reflect the way I look at things. Calling me a French nationalist is funny: I am a World nationalist. Anyway, most Germans are French nationalist nowadays: the Reich turned not a “Republik”.

    Now to accuse France of deficits is being unawares of the way the Euro and the ECB work. Deficits are forbidden beyond some (low) point (Sarkozy complains of the rigor of the ECB, but at the same time passed a law making deficits unlawful for anything but investments in education: watch what they do, not what they say). Trichet (originally a Frenchman, and he demonstrates this by living in the Fort of the Franks -Frankfurt!) is perhaps the most rigorous central banker ever seen (with due respect to Volker!).

    Nationalism of systems of thought is not passe’. Living in an Islamist country for a few years (as I did) would convince you of that.

    One of my themes is that the German Franks buried the system of thought of antiquity, by clamping down on Christianity, striking down sexism and outlawing slavery. That’s how Western civilization was born. The queens of the Franks such as (the originally Wisigothic) Brunehild and (the originally English) Bathilde played a crucial role. Call them all Germans if you want. The fact is, they were. The greatest contribution to civilization was made by Germania at that time. Maybe next time you should complain I am a German nationalist?

    Modern German nationalism was an unfortunate evolution caused in great part by Napoleon (although Hitler whined about it, there is another face to the coin, as Napoleon united Germany, in one big country cut into departments, and marched a mostly German-Polish army into Russia, which (unfortunately?) came to no good, mostly due to a particularly cold winter).

    Nowadays, national nationalisms in Europe are not viable, but a sort of European nationalism about big European ideas maybe exactly what the doctor should order for the world at large.

    Anyway, it’s best to be accused on specific statements and facts, not on interpretations of what statements and facts imply. That Diesel was French was tongue in cheek, by the way (he was, but mostly lived in Germany, just like the first gentleman who developed steam power was French, but he did his work in England, in an English lab).

    You do not seem aware of the strong American right wing tradition to say France is only about wine and cheese. That allows them to argue that the USA should do all the opposite (in spite of, and precisely because of, the fact France and the USA were parallel republics right from the start). The outlawing of slavery by the Franks forced Franco-Germania into high tech, and this goes to this day (by the way I drive an excellent car made mostly in Munchen, the rest of it being made…in France!). Anyway, thanks for your contribution…

  10. Christoph Says:

    OK. My mistake. If you invoke the tongue in cheek argument (to an indefinite extent)… I guess I should have noticed before (at least I should now concede one thing : Germans are not as well trained into humor as Frenchmen or Englishmen are).

    So I see now it is more historicism and not French nationalism that seems to be the better interpretation key to your writings. Indeed, in this last piece of response you do express some interesting historical views in my opinion, thank you.

    Although, you did mention the actuality of nationalism in Islam: but do you really believe it is bound to prevail ?

    The main ideological difference between Napoleon and Hitler is perhaps that the development of the Reich was based on a lie more than the empire of Bonaparte. Hitler had only Pan-Germanism to sell abroad, whereas Napoleon had at least the humanist ideas of the French Revolution.

    And, yes American right wing conservatism is condescending… but that’s a poor historical criteria. So is the French attitude in both wings. Most cultures are not well reflected by their politicians.

    Have a nice day Patrice
    Christoph

  11. Patrice Ayme Says:

    Dear Christoph:
    Humor is a dangerous weapon; although it provides with comic relief, and allows to say things we would not be able to say otherwise, the danger is that it be taken at face value (this happened to poor Nietzsche a lot, with serious consequences: he was often depicted as a proto Nazi, especially by the Nazis, although no thinker saw the Nazis come from further, and detested and condemned them more!). There are a fine lines there, often crossed. The message should be seen in the wholeness, not the details (like Quantum Mechanics).

    Indeed, I am obsessed by historicism, and I look down on nationalism, especially its French version (a case of conduct unbecoming an officer of civilization!) By I am not afraid, and actually thrilled by taking unconventional positions (if I believe they are correct).

    For example, I despise Napoleon, the way he stole the Revolution (I sort of agree with the observations Hitler opens “Mein Kampf” with, condemning Napoleonic outrages in Germany, the sort of abuses Napoleon also conducted in France: arbitrary executions; but of course Hitler gave them a nationalist twist, whereas I condemn the violation of due process). The problem of Napoleon, as a system of thought, is that he was not condemned enough, so he actually was allowed to inspire the Nazis! Anyway, he should be removed from the Invalides. Although I do agree with you that Napoleon carried the (positive) message of the Revolution, like the wolf carries the sheep skin… The fact remains he was more Corsican bandit than George Washington (although Washington himself was very far from morally pristine).

    As far as Islam is concerned, I talked about it a lot, very critically, especially on my (much older) Tyranosopher site. The Fuererprinzip is a sura in the Qur’an, I love to point out (Hitler had some knowledge of Islam). But right now I am busy with the U.S. financial crisis, and the pathetic attempts of U.S. plutocracy to extricate itself as Lord of the Universe. What is nioce is that it is showing its true face, to the point that even the American People is starting to recognize it….

    Have a nice day Christoph…
    Patrice

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