Taxation, Recession & Recovery

Excellent summary of comments from the March 8th, 2011 hearing on Principles of Efficient Tax Reform before the Senate Finance Committee.  The statement comes from a powerful group within academia, and generally offers prudent, insightful and seemingly sound advice.  In fact some of it looks very familiar given recent proposals from Washington.  These are the people you want informing decisions.

However the more I read and hear, the more I am convinced that our democratic process may in fact be fueling our economic fire.  Partisan politics will be the only thing that gets in the way of meaningful reforms in time to help get our economy back on track in time to have an opportunity to “grow” our way out of all of this.

These notes are a must read for anyone interested in knowing where US Tax Policy may be headed under Obama.  Among the proposals I favor and have written about in the past is a larger estate tax with a higher minimum for enforcement and a VAT tax on carbon in some form.  These notes argue strongly against VAT taxes in general, but with some understanding that such a tax on carbon would dually encourage domestic energy security as well as help impact the US effect on Climate Change.  I would go further to uncover more VAT taxes on other externalities that currently exacerbate misallocation of capital and resources.  Cigarette smoking is already under assault by layers of taxes and yet these high levels of taxation have not impinged tobacco company profitability due primarily to the inelastic demand of cigarettes .  I think we could find similar programs that could directly fund areas in dire need of support.  i.e. carbon related taxation should subsidize grid parity (which is now on the horizon) for a host of alternative energy sources.  Nicotine, alcohol, junk food, and even drugs provide inelastic demand that would serve as great platforms for VAT taxes to support local sustainable food development and healthcare costs directly impacted by the negative health affects of consumption of those items.

Additionally, we ought to consider taxing post consumer waste to better account for the end of life and cost of land of retiring natural resources that will never be reclaimed (in anyone’s lifetime).  A better understanding of the cost of buying, owning and disposing of consumer goods would enhance R&D into cradle to cradle manufacturing processes and indirectly incentivize both corporations and consumers to make better capital allocation decisions in a more sustainable manner.

My extrapolation from an open dialogue in taxation is that taxes ought to be used to dis incent the unsustainable economy, and used to accelerate the sustainable economy.  Rethinking taxation on debt would likely have to be a large part of that kind of thinking.

Hearing on Principles of Efficient Tax Reform, March 8, 2011

 

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