Far East Cynic

Distracted

Haven’t been able to post so much in the last couple of days. I’ve been tied up in the Alternate Universe-where its not so fun:

But hopefully, I will be able to bridge the gap-starting tomorrow!

I have been thinking about what life in the alternate universe is like-for example in the alternate United States where people actually thought about fixing the country’s problems. Take for example what it could do if it really wanted to fix the debt problem-instead of just giving lip service to it:

1. Substantial cuts in spending. Ensure that the commission is as much about shrinking government as raising revenue. My personal favorite would be to raise the age of eligibility for Social Security and Medicare. Do it gradually but substantially. Then index it to life expectancy, as it should have been from the beginning.

2. Increased use of Pigovian taxes. Candidate Obama pledged 100 percent auctions under any cap-and-trade bill, but President Obama caved on this issue. He should renew his pledge as part of the fiscal fix. A simpler carbon tax is even better.

3. Use of consumption taxes rather than income taxes. A VAT is, as I have said, the best of a bunch of bad alternatives. Conservatives hate the VAT, more for political than economic reasons. They should be willing to swallow a VAT as long as they get enough other things from the deal.

4. Cuts in the top personal income and corporate tax rates. Make sure the VAT is big enough to fund reductions in the most distortionary taxes around. Put the top individual and corporate tax rate at, say, 25 percent.

5. Permanent elimination of the estate tax. It is gone right now, but most people I know are not quite ready to die. Conservatives hate the estate tax even more than they hate the idea of the VAT. If the elimination of the estate tax was coupled with the addition of the VAT, the entire deal might be more palatable to them.

Leaving both Iraq and Afghanistan would be a good way to get head start on item 1.

But then we live in the other universe-where no one realizes it is possible.