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An Alternative Vision, Part II: The Basics
Posted by: Bryan Pick on Saturday, December 27, 2008

This is the second in a series: the introduction is here.

First, let us take partial stock of the party’s political situation:
 
  • The GOP is on the wrong end of a number of long-term trends.
    • The party has lately lost ground with racial minorities. The proportion of the electorate that is white is shrinking.
    • The urban population relative to the rural population has been growing for a long time now, but the GOP is based in rural America—and keep in mind that rural areas across the country are net recipients of tax money from cities.
    • Agriculture, to which Republicans are tied as a result of their rural base, isn’t about to explode and become a much bigger sector of the US economy. (Nor is heavy industry, to which the Democrats are now increasingly wedded.)
    • Higher education is necessary for the newest, most dynamic, fastest-growing sectors of the US economy. The proportion of Americans with higher education is increasing, and they make better money than those without it. That’s a great base for Democrats to have, moving forward.
  • Leaders of the conservative movement, which owes its beginnings and so much of its success to intellectuals, have become increasingly anti-intellectual.
  • The youth vote, fickle though it may be, has shifted toward the Democrats... and Ron Paul.
  • Silicon Valley, along with some Manhattan billionaires, has contributed in no small way to the new Progressive movement, bankrolling its institutions and giving the Democrats a decided technological edge.

Now, keep that in the back of your mind, so we can take a long look at our country’s economic situation:
  • It’s clear that the American people have overinvested in real estate, but they have (for the moment) no attractive alternatives in which to place their money.
  • A large proportion of banks’ balance sheets lies in real estate, so when those homes drop in value and are abandoned, they lose the capital they need to lend.
  • Real estate is a relatively consumptive, rather than productive, investment.
  • Americans have long had unsustainably low levels of savings relative to consumption. American individuals and families have built up great quantities of consumer debt – not that we consider consumer borrowing to be a bad thing, but many feel insecure with the level of debt they’ve accumulated. Our consumption-led growth has exhausted itself.
  • Unemployment is rising — not to catastrophic levels, but to the extent that it’s obvious we’re in a sharp recession. If you don’t count the end of the aerospace strike in Washington, 42 states lost jobs from October to November.
  • Since Americans’ health insurance is largely attached to their employers, more Americans are losing their health care at a time when many are already insecure about their care (and interestingly, even more worried about the care that others are getting).
  • Chasing job opportunities in the 21st century increasingly requires greater mobility. To respond to a rapidly changing economy, when the top jobs of today didn’t exist a short time ago, Americans are moving an awful lot. Settling down in one place and having one career for decades is an unrealistic expectation for the vast majority of us.
  • We already have a massively unsustainable federal deficit going into 2009, and most states are running big deficits too. More government spending will mean even bigger deficits, which means more borrowing and higher taxes down the road.
What conclusions can we draw from this? It looks to me like we’ve over-invested in a consumptive asset, and we’re hemorrhaging productive factors like relatively liquid capital and labor. I hasten to point out that government is inefficient and slow to employ these factors for a stimulus.

The way to get us back on track to prosperity, it seems to me, is to put the horse back in front of the cart: start rewarding labor and investment more, and cut back on consumption. In other words, let’s get America back to work. This involves rejecting an awful lot of the GOP legacy of 2001-2008 that got us into this electoral predicament in the first place. And in the meantime, we can start to build a new, broader coalition.

What policies, at all levels of government, will accomplish the above?
  • Permanently* cutting and/or refusing to raise payroll taxes and marginal income tax rates.
  • Permanently* cutting and/or refusing to raise taxes on business (including corporation) income and dividends/capital gains.
  • Introducing new consumption- and property-based taxes, eliminating targeted tax breaks on consumptive activities, and increasing existing consumption-based taxes.
  • As a possible exception to the above bullet point: Equalizing the tax incentives between employer-provided and individual health insurance, to make it more portable.
* My understanding is that permanent changes in taxation and spending are far more effective at changing behavior than tax holidays or short-term jolts in spending.

The specific mechanisms for these broad policies are the subject of Part III.
 
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Leaders of the conservative movement, which owes its beginnings and so much of its success to intellectuals, have become increasingly anti-intellectual.
The reason for that is that conservatives have basically abandoned the educational arena to the socialists that infest universities.

That is the prime area where there has to be pushback.

As for "losing ground with minorities", there’s nothing to be done. It’s sound politics vs identity politics, and we know what minorities choose every time. Especially latinos. The GOP should refuse to pander.

 
Written By: shark
URL: http://
don’t think increasing property-taxes is a good idea, Bryan. I think that’s relative to the state and area in which you live.

Part of the economic problem in Miami is that our property taxes are ridiculously high, so that a person is paying somewhere to the tune of 10-15k dollars a year in taxes on a 400k dollar house.
 
Written By: Joel C.
URL: http://
shark -
The reason for that is that conservatives have basically abandoned the educational arena to the socialists that infest universities.

That is the prime area where there has to be pushback.
I agree, wholeheartedly. I don’t know exactly how to accomplish that through policy (although I imagine getting our kids out of public schools will have a long-term positive effect in this direction), but there have to be opportunities at the non-profit level to expand conservative and libertarian representation in the academy.

The same goes for journalism, although there we may have more profitable opportunities.
As for "losing ground with minorities", there’s nothing to be done. It’s sound politics vs identity politics, and we know what minorities choose every time. Especially latinos. The GOP should refuse to pander.
I think we should keep an eye out for where we can help minorities with sound policies we like anyway, and let their success speak to the general principle. I think public schools and the drug war are prime examples of minorities getting an unusual brunt of the shaft of bad policy; why not start with their communities, where certain pro-liberty policies can do the most good?
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Joel -
don’t think increasing property-taxes is a good idea, Bryan. I think that’s relative to the state and area in which you live.
What I was proposing was increasing property taxes relative to other taxes, like income taxes. So, to really simplify things, if this year your state collects $1000 in income taxes and $1000 in property taxes from the average person, maybe next year you change the rates so that they collect $500 in income taxes and $1500 in property taxes.

Now, you’re probably right that the circumstances in different places will require different treatment, but I think it’s generally a good rule. Property taxes are some of the least destructive taxes there are because part of that tax is on something we don’t produce much of: land. That makes property taxes less distortionary than taxes on production.
 
Written By: Bryan Pick
URL: http://www.QandO.net
What I was proposing was increasing property taxes relative to other taxes, like income taxes. So, to really simplify things, if this year your state collects $1000 in income taxes and $1000 in property taxes from the average person, maybe next year you change the rates so that they collect $500 in income taxes and $1500 in property taxes.

Now, you’re probably right that the circumstances in different places will require different treatment, but I think it’s generally a good rule. Property taxes are some of the least destructive taxes there are because part of that tax is on something we don’t produce much of: land. That makes property taxes less distortionary than taxes on production.
yet land is supposed to be a grounding, stable investment, much like Gold and very much unlike stocks or high risk securities. That, and you’re forgetting how land is taxed.

In Florida, for example, Land taxes are taxed three times: by the state, by the county and then by whatever suburb city you live in (example, city of Hialeah or city of Coral Gables in Miami-Dade County).

These taxes are structured in such a way that they go up 1. virtually every year and 2. every time the value of your property increases. HOWEVER, if the property of your value decreases, it remains at it’s previous level and increases by that year’s millage.

In a city like Miami, property taxes alone have seen many people take out a mortgage on a house they originally COULD afford but then see their tax rates increase with such speeds they loose the house because they cannot afford the taxes on it (and, as we all know, Uncle Sam or Uncle [Enter State’s Name Here] is much faster at evicting than the Bank is).

I understand the principle but I think you’re likely to see South Florida’s problem go national with that kind of increase, and we’re a state w/o income taxes.

What’s being proposed and is still being argued is either to increase our Homestead Exemption from 25k to 50k or simply get rid of property taxes and increase our state sale’s tax by another 2-3%.

BTW, that might be an area you might want to look into. A Federal Sales Tax in lieu of an income tax.
 
Written By: Joel C.
URL: http://

 
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