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 Richmans' Trade and Taxes Blog



George Washington’s Farewell Address Had More to Say Than Avoid Entangling Alliances
Raymond Richman, 12/27/2016

 In Washington’s Farewell Address 1796, the most frequently quoted passage is his admonition that the USA should avoid entangling alliances. On entangling alliances, he wrote,  “It is our true policy to steer clear of permanent alliances with any portion of the foreign world…Taking care always to keep ourselves by suitable establishments on a respectable defensive posture, we may safely trust to temporary alliances for extraordinary emergencies.”  He wrote: “Observe good faith and justice towards all nations; cultivate peace and harmony with all.  ..In the execution of such a plan, nothing is more essential than that permanent, inveterate antipathies against particular nations, and passionate attachments for others, should be excluded.” What would he think of NATO and our bringing countries bordering Russia into a military alliance directed against Russia? Any NATO country could conceivably force us into a war with Russia.

Another area of concern to Pres. Washington was foreign trade. Regarding trade with nations, he wrote, “The great rule of conduct for us in regard to foreign nations is in extending our commercial relations, to have with them as little political connection as possible… constantly keeping in view that it is folly in one nation to look for disinterested favors from another; that it must pay with a portion of its independence for whatever it may accept under that character; that, by such acceptance, it may place itself in the condition of having given equivalents for nominal favors, and yet of being reproached with ingratitude for not giving more. ...

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The Corporate IncomeTax Is the Worst Tax Ever Invented
Raymond Richman, 12/24/2016

The corporate income tax is the worst tax ever invented. Economists who have studied and written about its incidence, that is who actually pays the tax, agree that it varies from industry to industry. Monopolists pass the tax on to consumers so that although they appear to be paying the tax they do not bear the burden of the tax. It even varies among monopolists depending upon how much competition they have from competing products. It even varies among firms in highly competitive industries like supermarkets. Some have some monopoly power depending on their location and the number of supermarkets in their vicinity. The corporate income tax violates every principle of taxation. Not only does much of it fall on consumers, but the tax penalizes workers who depend on pensions and IRAs, etc. for their retirement. The income from the wages invested in their retirement schemes is taxed at the maximum rate of corporate tax, currently 35% so their pensions and retirement income is much less than it would be if the tax were 15 or 20% as would be if it is were taxed under the personal income tax. The rich shareholders pay no personal income tax on their corporate income except dividends, and they escape the highest rates by buying back shares rather than pay dividends, a practice that is increasing.

So why don’t we tax corporation as partnerships are taxed. Partners pay personal income taxes on their shares of the partnership’s income. The reason given historically is that corporations have the privilege of limited liability for their shareholders. If the corporation fails, shareholders have no additional liability to what they have already invested in the corporation. But even this argument no longer holds. In most States, perhaps all, partnerships and proprietor ships may elect to be treated as limited liability companies. Increasingly one see the letters LL.C. indicating that only the assets of the company are liable for its debts.

So what is the excuse for a separate corporate income tax with all its inequities and bad economic practices that the corporate income tax encourages. No excuse at all  As for the abuses, we’ve written about them in articles on this blog in the past.

An essential companion reform is changing the rules for depreciation under the corporate and the personal income tax as well. ...

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Four Ways to Balance the Budget and Boost the Economy by Taxing Foreigners - we're published in American Thinker this morning
Howard Richman, 12/22/2016

In the American Thinker this morning, we suggest four tax changes that Congress could enact to balance the budget and boost the economy at the same time by taxing foreigners:

  1. Close the foreign savings tax loophole.
  2. Tax foreign dollar reserves.
  3. Integrate the corporate and personal income taxes.
  4. Impose trade balancing tariffs.

Our ballpark estimate is that these four proposals would bring the government $465 billion in tax revenue the first year. To read our commentary, go to:

http://www.americanthinker.com/articles/2016/12/four_ways_to_balance_the_budget_and_boost_the_economy_by_taxing_foreigners

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Trump Is Right That the Trade Deficits Have Crippled the U.S. Economy
Raymond Richman, 12/20/2016

In its issue of December 19, Barron’s magazine published an article entitled “Tackling Trump’s Trade Plan” written by a member of its staff, Gene Epstein, who holds an M.A. in Economics from the New School. Judging from his article, Epstein appears to know little about the theory of international trade.  He begins by writing how awful the Smoot-Hawley Tariff Act of 1930 was. He writes that “U.S foreign trade plunged by 40%, which helped drag the economy into the Great Depression.” That is nonsense. Net Exports, which is the net effect of foreign trade on Gross Domestic Product, was 0.3 billion in 1930, 0 billion in 1931 and 1932 and did not become negative until Pres. Roosevelt’s New Deal policies made it -0.2 and -0.3 in 1935 and 1936. The Snoot-Hawley tariff, contrary to widespread belief by economists and journalists, not only had no effect on the Great Depression which began three years before the tariffs became effective. It has been used falsely to attack anyone who is for balanced trade and opposes free trade. Of course, trade does not need to be balanced with every nation but over time needs to balanced against the rest of the world. A look at the Bureau of Economic Analysis’ Gross Domestic Product accounts shows that the U.S. has been suffering chronic trade deficits for decades, which has converted the U.S. from the world’s leading creditor to the world’s leading debtor since about 1985, halved the economic growth rate,  and caused the loss of millions of good-paying U.S. manufacturing jobs. Our principal trading partners pursued a trade surplus policy to promote their economic growth at our expense.

When trade is balanced, all trading partners gain from trade, obtaining goods they value more by trading for goods they value less. When trade is unbalanced the trade surplus country trades some of its goods for an IOU of the other. Japan used those IOU’s to buy productive assets already in existence in the U.S., the Rockefeller Center. China and others have been buying U.S. businesses. Buying U.S. real estate and existing businesses does not create demand for U.S. labor. The U.S. by running chronic trade deficits with the rest of the world is not exchanging  goods it values less for goods it values more. It is increasing employment abroad while decreasing employment at home. ...

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COMMENTS ON THE NEWS OF THE DAY
Raymond Richman, 12/15/2016

Two items dominate the news today. The first and occupying the most time on television and space in the printed media are the “leaks” from the CIA that it believes Russian hacked the DNC and provided WikiLeaks with the emails that embarrassed Hillary Clinton’s campaign and caused so many voters to support Trump. Presumably the Russians got the FBI to call attention to Hillary’s posting classified information on her internet servers which also influenced many voters. And no doubt the Russians were responsible for the turnout of more than 60 million voters who voted for Trump. My own view as a person who served as Executive Officer of a B-17 Bomb Squadron which conducted nearly 200 missions over Germany during World War II, is that Russian intelligence if it did not try to help defeat an American administration that got its Baltic neighbors to join in a military pact aimed at Russia and which helped overthrow a government in the Ukraine, Russia’s neighbor. a nation to whom Russia had granted territory housing Russia’s major naval base on its Southwestern, would be derelict in its duty to defend Russia’s interests. Russia has no reason to believe that Trump will change U.S. policy other than the fact that Trump has indicated a willingness to treat Russia civilly as Presidents G.W. Bush and Barack Obama did not.

The CIA has a history of intrusions in domestic politics and in the internal affairs of other independent nations to affect elections and overthrow governments. One could argue that is its duty to promote the interests of the U.S. abroad whatever the means. The CIA brought down a Republican President once before by leaking information that forced Richard Nixon to resign the presidency. ...

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COMMENTS ON THE NEWS OF THE DAY
Raymond Richman, 12/14/2016

Democrats and Never-Trump Republicans want an investigation into Russian hacking of the Democratic National Committee’s emails, believing, probably falsely, that the Russians were responsible for the leaks that may have influenced the election in favor of Trump. But the leaks especially Wiki-leaks only revealed e-mails that were never denied. They contained news that the American people were entitled to know. Trump’s victory was a populist, i.e., popular, event similar to Brexit  in the U.K. and the recent elections in Italy. If the leaks were the result of Russian hacks, Russia should be thanked by the U.S. Congress on behalf of the American people for revealing the corruption within the Democratic Party, extending up to its chairwoman. Let’s hope we have more hacks that reveal corruption in Washington and anywhere else. If our intelligence is not hacking Russian emails, it should. U.S. intervention around the world is clear to see. We and NATO, our creation and principal supporter,  supplied weapons to rebels in Yugoslavia, Libya, Syria, and others, organized the overthrow of the legally elected pro-Russian government of the Ukraine, recruited into NATO countries neighboring Russia. Imagine what they would be saying if Russia were join Cuba, Mexico, and Venezuela into a military pact. Revealing the results of hacking may be a sin only when it does not reveal public corruption.

 

Democrats and the Never-Trump Republicans and most of the media are saying how awful it is that Trump is appointing qualified skeptics civilians and former generals to cabinet posts. In their view, he should be appointing politicians, who as a group organized the decline of America from its former greatness, promoted the fallacious ideas that global-warming is man-made, that carbon dioxide in the atmosphere causes global warming, and the idea that raising the minimum wage is good economics, etc. That these are fallacious ideas has been pointed out on this blog repeatedly.   ...

 

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Policies President-Elect Trump Needs to Reconsider
Raymond Richman, 12/13/2016

There are several policies that President-Elect Donald Trump appears to have failed to think through. The following are some of those that we believe he has given insufficient thought to. These need to be brought to his and his advisors' attention.

First, the U.S. trade deficits need to be reduced, not by deals with each country or threats to American manufacturers re-locating their factories abroad but by the simple expedient of single-country-trade-balancing tariffs. China and all other countries want to grow their economies. It is not up to the U.S. or the World Trade Organization to mandate the policies they should pursue. Free trade is nonsense except where there is a common currency, no impediments to the flow of capital and labor, and no barriers to trade. Governments, even international agencies have no right to force independent nations into a single mold. Countries may adopt mercantilist policies such as tariffs and artificial barriers to imports, subsidies to exports, and currency manipulation but the remedy is not to go to great expense of time and money to prove and litigate such practices and mandate their elimination as the WTO was created to do or to negotiate their elimination as the president-elect wants to do. Every country has the right which is authorized by all multi-lateral international trade agreements to impose a trade-deficit-balancing- tariff. The tariff should be on all goods coming from the trade-surplus country not merely on imports of U.S. companies that have re-located factories there. The mechanism is simple as described in our book Balanced Trade (Lexington Books, 2014). Trade deficit countries have little to fear from such trade-balancing; trade- surplus countries are at an extreme disadvantage and their threats of a trade war hardly worth considering. An argument frequently made is that consumers will suffer which is hardly worth considering given that American workers suffer unemployment from the trade deficits as we have shown time and time again in our publications.

Second, President-elect Trump has proposed lowering the rates of the corporate income tax to make U.S. corporations more competitive. Unfortunately, the ownership of the shares of corporations is highly concentrated so cutting the corporate income tax will worsen the distribution of income and wealth. There is a simple solution. Eliminate the corporate income tax entirely and tax corporate earnings as personal income. Even with a cut in personal income tax rates, proposed by Mr. Trump, total revenues will be unaffected. ...

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Trump's First Priority Should Be to Balance Trade
Raymond Richman, 12/10/2016

The real drag on the American economy since the 1970s has been the foreign trade deficits and the multilateral trade agreements which caused the loss of millions of American manufacturing jobs, the movement of thousands of American companies overseas, and converted the U.S. from the world’s leading creditor to the world’s leading debtor. Balancing U.S. trade with the rest of the world is the only economic policy capable of restoring the U.S. economy and making the U.S. really great again. All the other Trump initiatives will do some good but cannot arrest the decline of the American economy and the stagnation and reduction in the American standard of living.  These facts are concealed by the booming stock market which is based on unrealistic expectations. Without balancing trade, the decline in American power and economic well-being will end in a political Armageddon. ...

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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]