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Joe Biden unveiled his tax plan yesterday and predictably it was dumb with lots of unintended consequences.  The thing that gets me about Biden is he is the dimmest president in my life.  I mean truly dim.

Combined with the tax increases and spending increases, the Bernie Bros also announced that they want a financial transaction tax to be put on trading.  This has been proposed in various forms since at least 1980.  It too is one of the dimmest ways to tax.  Totally stupid and I have written about it several times before so I won’t waste your time.

Instead, young Jason Rowley a tech writer in Chicago asked me what I would do instead.  It’s a very fair and good question.  It’s pretty easy to stamp your feet and scream and yell about whatever policy you disagree with but what would you do instead?  More importantly, why and what are the implications of the policy?  That’s what is truly important.  How the tax, the price support, the policy, filter down and influences people’s behavior.

It’s not enough to say “it’s unreasonable”.  Better to show the math and not give single anecdotes.

First off, when you look at government policy you have to make a couple of assumptions.  Here are two that I always make that have been verified by Nobel Prize-winning economists both dead and living.

  • The multiplier effect of government spending on GDP is zero or very close to zero.
  • Governments never “invest”.  They only “spend”.  A dollar spent by the government can come from taxes so the private sector doesn’t have it, be created by printing money which deflates the value of all existing currency in circulation which is an unseen tax on citizens, or it issues debt and receives cash which is a tax on the future earnings of citizens.

There is always a cost.  Nothing is “free”.  There are no windfalls.  Some public goods are worth it but most are better off in the private sector.

The problem with Keynesians is they don’t believe the above two assertions.  They are wrong.  Economists that are freshwater will sugar coat how they say that so that no one really understands.  But, I prefer basic language.  The Keynesians are full of shit and the track record proves it.

The more you pay to the government in tax, the less free you are as a citizen.

Milton Friedman asserted a couple of things on taxes and he was 100% correct.

  • Corporations do not pay taxes.  They aggregate them and pass along the costs to customers.
  • Capital gains taxes should be 0%.  The investment dollars were likely already taxed once or twice before.  A 0% tax also recognizes the risk-taking it takes to make investments that propel humanity and our standard of living forward.

When you bear all that in mind, Biden’s plan looks even more atrocious than it appears.  Now, I am not going to hold up the Republicans as some bastion of fiscally conservative budget hawks.  They aren’t.  They are free spenders too.  Neither party can claim the mantle of great financial steward and haven’t for some time.  They both suck.  The one edge Republicans have is they suck less only because they are in favor of lower tax rates which gives more room for the private economy.  But, truly it’s marginal.

Nassim Taleeb correctly stated that all these tax increases will be avoided by the wealthy anyway.  Taleeb is famous for his book The Black Swan and isn’t a huge fan of either political party.  The wealthy already know the loopholes and can hire accountants and lawyers to structure things to avoid them.  The next tier of wealthy will bear the brunt and there won’t be nearly enough revenue created to make a hill of beans worth of difference.  Again, a dimwitted plan, and there is no sugar-coating it.

I go back to a post Economist John Cochrane wrote years and years ago which should be required reading and put into public policy.  Here is a podcast where he talks about it.

The best thing for American citizens is competition.  No matter what industry you look at, it’s dominated by a few very large firms.  Insurance, banking, oil, health care, pharma, Big Tech, and on and on.  Competition brings fresh ideas and brings value to us by driving down prices while increasing the amount of value we get.  Increased “utility”.

A critique of Trumpism would be that some of his economic policies were anti-competitive.  Tariffs for example.  Many things Trump did usher in some competition.  In my opinion, he didn’t go far enough and worked on the edges.  But, there are very few politicians that advocate for true unbridled free-market competition anymore.  In markets where the government steps in, competition wanes since no one can compete with the government.

With every stroke of his pen, and every syllable out of his mouth, Biden has encouraged less competition which is bad for Americans.  Yesterday’s latest tax policy proposal is just another example.

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