Archive for March 1st, 2012

I shared my thoughts about tax reform with the Senate Budget Committee earlier today.

Not surprisingly, I testified that the ideal tax system should have the lowest-possible rate, no double taxation of income that is saved and invested, and no corrupt and inefficient loopholes. In other words, a flat tax.

You can peruse my entire testimony on the Cato website.

In addition to talking about the flat tax, I also focused on the importance of economic growth – something that will be less likely if the tax burden is increased. Here’s a table from the Congressional Budget Office’s recent Economic and Budget Outlook, showing how even tiny differences in economic growth have a big impact on tax revenue.

Another point I made is that the government will collect more revenue, even if tax rates stay the same. This is because of something called “real bracket creep,” which occurs under a “progressive” tax system even if economic growth is mediocre.

Here’s a chart from the CBO long-run forecast, showing how the burden of taxation will climb in coming decades.

And here’s a chart showing how income tax receipts will reach record levels – even if the 2001/2003 tax cuts are made permanent.

One last point. I was impressed by Senators Ron Johnson of Wisconsin and Kelly Ayotte of New Hampshire. I hadn’t seen either of them in action.

Sen. Johnson’s comments and questions showed that he was fully aware of the DC scam of fake spending cuts. And Sen. Ayotte was completely aware of the self-destructive impact of America’s worldwide corporate tax regime.

Let’s hope they stay hard core and don’t “grow in office.”

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I’ve linked before to Professor George Selgin’s masterful video on the Federal Reserve’s horrible track record, and I’ve done my own video on the origin of central banking.

These types of posts often generate questions about what reforms we should support, and a lot of people ask about the gold standard. I’m not a monetary economist, so I’m not in a position to give competent answers. Fortunately, Prof. Selgin has decided to provide a very useful analysis of the issue.

Writing for a British paper, he explains that a genuine gold standard worked very well before World War I, but it probably wouldn’t work today because governments are so untrustworthy.

Of all the reasons usually given for condemning the gold standard, perhaps the most common is the claim that it was to blame for the Great Depression. What responsible politician, gold’s critics ask rhetorically, wants to relive the 1930s? But the criticism misses its mark. Fans of the gold standard are no more anxious to repeat the 1930s than their critics are. Their nostalgia is instead for the interval of exceptional international monetary stability that prevailed from the mid-1870s until World War I. That was the era of the classical gold standard – a standard policed by the citizens of participating countries, all of whom were able to convert their nations’ paper money into gold. This classical gold standard can have played no part in the Great Depression for the simple reason that it vanished during World War I, when most participating central banks suspended gold payments. (The US, which entered the war late, settled for a temporary embargo on gold exports.) Having cut their gold anchors, the belligerent nations’ central banks proceeded to run away, so that by the war’s end money stocks and price levels had risen substantially, if not dramatically, throughout the old gold standard zone. …the gold standard that failed so catastrophically in the 1930s wasn’t the gold standard that some Republicans admire: it was the cut-rate gold standard that Great Britain managed to cobble together in the 20s – a gold standard designed not to follow the rules of the classical gold standard but to allow Great Britain to break the old rules and get away with it. …the collapse of the gold-exchange standard forever undermined the public’s confidence in governments’ monetary promises; and absent such confidence there can be no question of a credible, government-sponsored gold standard, classical or otherwise. Sometimes with monetary systems, as with life, you can’t go home again.

I’m also glad that he explains that the gold standard was not responsible for the Great Depression. If you want to know more about that issue, including the damaging impact of statist policies by Hoover and FDR, this video is an excellent introduction.

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