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Morici lays out the causes of America's economic stagnation
Howard Richman, 7/25/2013

In a pithy paragraph from his July 16 commentary (Easy money is the opiate of the American economy), U. of Maryland economist Peter Morici nailed the causes of the great depression which, unaddressed, are causing America's current economic stagnation. The causes are:

1. Trade Deficits. "[A] growing trade deficit with China that saps demand for U.S. goods and destroys jobs;"

2. Wasting Money on Unprofitable Energy. "[D]ysfunctional federal policies that invest in bogus alternative energy schemes and limit drilling for oil offshore;"

3. Growing Business Regulation. "[B]urdensome business regulations that raise the cost of new projects;"

4. Bank Regulation that Hurts the Smaller Banks who lend to Small Businesses. "[B]ank reforms that enrich the Wall Street Banks, while starving America's biggest jobs creators—small businesses—of credit."

Morici's main point in the article is that the monetary growth "solution" being tried by the Fed cannot go on forever. He predicts eventual disaster:...

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The Growth of State-Dominated Capitalism in the USA
Raymond Richman, 7/21/2013

The Federal Government over the past eight decades has grown from 2.1 percent of Gross Domestic Product (GDP) to 10.7 percent while State-Local governments did not grow at all. As the following table shows, federal expenditures during the 1930s more than tripled, from 2.1 percent of GDP to 7.1 percent of GDP while State-Local programs declined from 8.9 percent to 7.8 percent.

Federal and State-Local Expenditures 1930-2012
(billions of dollars)

Year

GDP

Federal

Federal

Percent

State-Local

State-Local

Percent

   

Expendi-

Programs

of GDP

Expendi-

Programs

of GDP

   

Tures

   

tures

   

1930

91.2

1.8

1.9

2.1

8.2

8.1

8.9

1940

101.4

6.5

7.2

7.1

8.6

7.9

7.8

1950

293.7

26

27.9

9.5

20.7

18.8

6.4

1960

526.4

64.1

68.1

12.9

47.5

43.5

8.3

1970

1038.3

113.4

132.7

12.7

120.3

101

9.7

1980

2788.1

243.7

316

11.3

322.4

250.1

9.0

1990

5800.5

507.5

618.5

10.7

674.2

563.2

9.7

2000

9951.5

576.1

823.4

8.3

1154.9

907.6

9.1

2010

14498.9

1223.1

1754.2

12.1

1834.4

1303.3

9.0

2012

15684.8

1214.3

1682.3

10.7

1848.5

1380.5

8.8

Source: BEA. "Federal Programs" = "Federal Expenditures" + grants-in-aid to the States.
"State Programs" = "State Expenditures" - grants-in-aid to the States.

The new economic system in the U.S., introduced by the “New Deal” in the 1930s, can be described as state-dominated capitalism and is to be distinguished from the system of economically passive government and free private enterprise that existed before 1890. Our thesis is that state-dominated capitalism in the USA can be said to have grown significantly under the administration of Franklin Roosevelt with the policies of the “New Deal” and through the President’s successful attempt to force the Supreme Court to legitimize the expansion of the powers of the central government....

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Rise in Initial Unemployment Claims Shows Lack of Economic Recovery
Raymond Richman, 7/18/2013

The US Bureau of Labor Statistics seems to be playing games with its so-called seasonally adjusted data on unemployment. In the week ending July 13, the advance figure for seasonally adjusted initial claims was 334,000, adecrease of 24,000 from the previous week's revised figure of 358,000. The unadjusted rate, the actual number of claims filed, was 408,710, an increase of 25,350 from the preceding week’s claims of 383,360. Instead of the improvement indicated by the seasonally adjusted data, there was a worsening indicated by the actual data. CNBC as usual only reported the seasonally adjusted figure, which no doubt gave the stock markets a lift.

 

       Seasonally Adjusted and Non-Seasonally Adjusted Initial Claims for

                    Unemployment Insurance Summer 2012 and 2013

 
     

Seasonally

   

Seasonally

Week

Unadjusted

Adjusted

 

Week

Unadjusted

Adjusted

6/22/2013

336,615

 

348,000

 

6/23/2A012

370521

388000

6/29/2013

335,051

 

344,000

 

6/30/2012

369826

376000

7/6/2013

383,360

 

358,000

 

7/7/2012

442192

352000

7/13/2013

408,710

 

334,000

 

7/14/2012

455260

388000

A comparison of the seasonally adjusted columns with the unadjusted columns for the two years reveals little if any correlation. As an economist, I find little value in seasonally adjusting weekly data. One can caution the user of actual data that any significant changes or unusual circumstances such as strikes, seasonal layoffs, etc. affected the data. Those circumstances can change weekly but it is hard to visualize seasonal changes that affect weekly numbers significantly. The seasonal variations in the two periods show no seasonal pattern. The Bureau would be better advised to simply report the actual weekly data adding only unusual circumstances that probably affected the actual numbers. ...

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Rise in Initial Unemployment Claims Portends Another Recession
Raymond Richman, 7/18/2013
...

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The Egyptian Trade Deficits
Howard Richman, 7/15/2013

On July 4, writing on his blog, the modern day Spengler (David P. Goldman) had an excellent posting (Dismiss the Egyptian People and Elect a New One). He understood that Egyptian trade deficits were contributing to the huge demonstrations that led to the Egyptian coup. He wrote:

Starvation is the unstated subject of this week’s military coup. For the past several months, the bottom half of Egypt’s population has had little to eat besides government-subsidized bread, and now the bread supply is threatened by a shortage of imported wheat. Despite $8 billion of aid from Qatar and smidgens from Libya, Turkey, and others, Egypt is struggling to meet a financing gap of perhaps $20 billion a year, made worse by the collapse of its major cash earner — the tourist industry. Malnutrition is epidemic in the form of extreme protein deficiency in a country where 40% of the adult population is already “stunted” by poor diet, according to the World Food Program. It is not that hard to get 14 million people into the streets if there is nothing to eat at home.

He went on to point out that Egypt needs loans badly and will likely get them from the Saudis and the United Arab Emirates, whose leaders refused to bail out the Muslim Brotherhood for a good reason. As Spengler puts it:...

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The Missing White Working Class Vote
Jesse Richman, 7/11/2013

One of the signal events of the 2012 presidential election, as Sean Trende has noted in a series of insightful analyses on Real Clear Politics was the disappearance of a significant block of white voters from the electorate.  Sean notes that the participation drop-off was most pronounced among working class whites in blue collar counties, and particularly finds a significant association between change in turnout and the vote share for Ross Perot in 1992.

"Mainly, they fit the profile of “Reagan Democrats” or, more recently, a Ross Perot supporter. For these no-shows, Mitt Romney was not a natural fit.

Winning these voters, he argues, will require that the parties alter their trade policies...

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Initial Claims for Unemployment Insurance Are a Wake Up Call
Raymond Richman, 7/11/2013

Economy Goes from Bad to Worse. As readers of this blog know, we have frequently asserted that the unadjusted number of unemployment insurance claims during the previous week reported by the BLS every Thursday is an important indicator of where the economy is going. Used in connection with other economic data which may corroborate the trend or contradict it, it is a valuable tool of economic analysis. The data reported for the week ending July 6 is a good example.

In the week ending July 6, the advance figure for seasonally adjusted initial claims was 360,000, an increase of 16,000 from the previous week's revised figure of 344,000. Much more reliable is the unadjusted or actual figures. The advance number of actual initial claims under state programs, unadjusted, totaled 384,829 in the week ending July 6, an increase of 49,778 from the previous week.

A very few times during the past six months, the number of claims actually filed amounted to 300,000 or less. In the week ending June 1, it fell to 293,792. Since then it has been rising steadily, indicating a worsening economy. Real GDP grew 1.8 percent during the first quarter of 2013, the net growth of employment grew by 195,000 in June,  less than the number entering the labor force. ...

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A Proposal for a New Federal Tax Code Abolishing the Corporate Income Tax
Raymond Richman, 7/3/2013

Recently, in this space 5/23/13, we pointed out the urgent need for tax reform and proposed limiting the IRS to an income tax on wages and salaries. We proposed abolition of the corporate income tax and replacing it with a tax on the market value of corporations. Since then we have reconsidered our proposal and we want to share with you our thoughts about what tax reform is needed and the present status of the reform we are proposing.       

The history of the modern income tax is often traced to Pitt’s British income tax of 1798 which fell short of achieving its targeted revenue, the shortage being made up by voluntary contributions. But the succeeding Income and Property Tax Act of 1803 was a success. It was simply a reenactment of Britain’s Income and Property Taxes that date back to William of Orange at the end of the 17th century and even earlier to the taxes under the Tudors. What they all had in common was that they had different treatments of income from different sources. We’re suggesting something similar, taxing income from wages, salaries, and bonuses more or less as they are currently taxed but taxing corporations by a tax on the market value of shares of the corporation. They would be two schedules of a single tax. Briefly, what we are proposing is to abolish the corporate income tax and taxes on dividends and capital gains and replace them with a tax based on the market value of the corporation’s outstanding shares and in another schedule we would tax wages and salaries, interest income, and the income of unincorporated businesses, including partnerships not listed on the stock exchanges and proprietorships. The taxation of real estate would be in a third schedule and the revenue reserved to the states in which such real estate is located.

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    Wikipedia:

  • [An] extensive argument for balanced trade, and a program to achieve balanced trade is presented in Trading Away Our Future, by Raymond Richman, Howard Richman and Jesse Richman. “A minimum standard for ensuring that trade does benefit all is that trade should be relatively in balance.” [Balanced Trade entry]

    Journal of Economic Literature:

  • [Trading Away Our Future] Examines the costs and benefits of U.S. trade and tax policies. Discusses why trade deficits matter; root of the trade deficit; the “ostrich” and “eagles” attitudes; how to balance trade; taxation of capital gains; the real estate tax; the corporate income tax; solving the low savings problem; how to protect one’s assets; and a program for a strong America....

    Atlantic Economic Journal:

  • In Trading Away Our Future   Richman ... advocates the immediate adoption of a set of public policy proposal designed to reduce the trade deficit and increase domestic savings.... the set of public policy proposals is a wake-up call... [February 17, 2009 review by T.H. Cate]