Hedgehog Party

Mortgage Deduction

Middle class taxpayers are highly motivated to hang on to their mortgage deduction.  It is one of the few ways that they can band together to wrest money back from our complex tax code. The article suggests that this is a losing battle.  http://news.bostonherald.com/business/general/view.bg?articleid=1076348&srvc=home&position=recent  The real mortgage deduction beneficiaries are the wealthy rats.

Middle class taxpayers are far better off to favor the Hedge Tax.  Since the tax code is skewed to favor the well connected, the Hedge Tax will lower Middle Class taxes.  An additional benefit: A single tax rate enables voters to measure the quality of their representation.  Read "The Rats are in the Cheese" to get the complete story.

Tax Return Transparency

Today's Washington Post has an editorial criticizing Clinton and McCain for not immediately releasing their tax returns for public scrutiny. 

Who knows what a review of these returns might show?  A more interesting question is:  why is the tone of this editorial so suspicious and cynical? The reason, I think, is that most people perceive powerful and well-connected people as having something to hide in their tax returns. And guess what – they’re almost certainly right.

Yes, it would be nice if politicians would always disclose their tax returns. But what about others who might have something to hide?  We’ll never know - privacy laws and expectations won’t allow it.

So, wouldn’t it be better to reform our tax code to minimize or even prevent manipulation by the powerful and well-connected in the first place?  The Hedge tax proposal accomplishes this.  If you haven’t already, take a read through this short paper and you'll see how: 

Download four_goals_of_tax_policy_revisited.pdf

Better yet, buy the book!  The Rats are in the Cheese is available here through Amazon.

Let's Pretend

When we were children, pretense was great fun.  It also had a serious side.  It was good training for real life.  A few weeks ago, we pointed out that the revision in bank borrowing regulations allowed banks to use substandard collateral when borrowing from the Fed.  This Financial Times article reports that "Pretend Collateral" has been a big hit.  $50 billion in borrowing...probably backed up by the banks worst credits.

http://www.ft.com/cms/s/66db756a-de5d-11dc-9de3-0000779fd2ac,Authorised=false.html?_i_location=http%3A%2F%2Fwww.ft.com%2Fcms%2Fs%2F0%2F66db756a-de5d-11dc-9de3-0000779fd2ac.html&_i_referer=

Ultimately, this is just another form of hidden taxation.  In this case, inflation will cover the tracks and every citizen will pay...no matter what.

Rats Everywhere

After you read "The Rats are in the Cheese" (link to buy the book in left column), you look around for well connected rats that are stealing cheese.  For the past several months, it has been a parade of rats in banking and finance.  It is no surprise that we would find well connected rats in business, banking, and government.  Those stories appear in the news every day.  They have learned from Willie Sutton...that's where the cheese is.

However, closer inspection reveals that the rats have permeated all levels of society.  Cheese stealing occurs in labor unions, charities, welfare systems, enviromental movements you name it.  The miscreants are everywhere.  It turns out that it isn't just lenders and brokers; it is borrowers.  It isn't just welfare power brokers; it is welfare receipients.  The litany goes on.  You would conclude that the number of rats expand to fill every cheese stealing opportunity.  Maybe it is because everybody is a potential rat.

The idea in the"The Rats are in the Cheese" is to permanently make it much more difficult to steal cheese using the tax code.  The proposed changes are meant to be a barrier to the rat in all of us.  Not every problem can be solved at once, but fixing the tax code would be a great start and a great example for other needed changes in governance.

Taxation with Representation

This bitter diatribe represents the continuing schism over taxation and spending.  http://taxationwithrepresentation.wordpress.com/2008/02/18/the-genesis-of-tax-and-spend-democracy/

So long as taxation is not directly connected to spending this partisan division will grow, and spending will be largely uncontrolled.  More people will choose sides and adopt hardened positions.  Not a good receipe for democracy as strains on budgets increase.

The Hedge Tax offers a way to diffuse this potential crisis...a balanced budget amendment and rational taxes.

Kiddie Tax Ensnares Taxpayers

Before 529 plans for college savings were created, parents saved for college by putting taxable funds into kids accounts.  About $850 was exempted from taxes and low rates were paid on additional amounts.  Congress felt that this process was abused, so the earnings from these accounts are taxed at the highest marginal rate...35%.   That is the simple explanation.  When you read this Associated Press article http://www.chron.com/disp/story.mpl/business/5546765.html you realize why we need tax accountants.

The Hedge Tax...love it...support it.

Tax Contortions

This blog post is a discussion and comment on the proposed Patriot Corporation of America Act Supported by Dick Durbin, Sherrod Brown and Barack Obama.  It contains a "usual" set of tax incentives to promote good corporate behavior regarding globalization.  A new idea is a bureauracy to administer tax breaks included in the bill.  http://www.thenation.com/blogs/notion?pid=219923

It is hard to imagine a scheme more fraught with the potential for corruption and distortion of economic incentives.  The Hedge Tax is a good tool to keep legislators from wasting their time and taxpayer money on these ideas.  We need good ideas to mitigate the ill effects of globalization, but this isn't one of them.

Betting on Income Tax Rates

The TaxProf Blog describes a new betting site that wagers on future income tax rates.  This would be a great idea if we had a single tax with a a single rate.  Citizens would develop a keen sense of what our legislators would do next, and the consequences of spending programs.

http://taxprof.typepad.com/taxprof_blog/2008/02/betting-on-tax.html

Unfortunately, our complex tax code makes it almost impossible to know the true tax rate.  Settlements of these bets would almost surely involve litigation.

Greg Mankiw's Four Goals of Tax Policy - Revisited

Harvard Economics Professor Greg Mankiw articulated four goals that policy analysts typically consider "when designing a tax system and evaluating tax proposals," which you can find on his blog here. 

I think these goals require substantial restatement, especially if we're ever going to get the tax reform we need.  I've attempted this in a short paper, which I invite you to read if you have a few minutes:   

Download 4_goals_of_tax_policy_revisited.pdf

Comments, anyone?

Year of the Rat

Today February 6, is the beginning of the Chinese New Year.  What could be more appropriate than the "Year of the Rat."  In honor of this occasion, we are revising our t shirt caricature (left column).  It will be available shortly.