The Economics of Equity – The Sequel

In The Economics of Equity, the first step in reducing inequity was for the government to stop exacerbating it. This means, among other things, eliminating interest rate repression by the central bank and reducing federal deficits.

The free market allocates resources most fairly and efficiently. It’s based on the simple premise that if you produce something, it belongs to you. If you build a doghouse, you own it, not your neighbor. The profit motive is better than any government regulation at putting ingenuity to work devising ways to create the best outcome at the least cost in resources. That’s how you would build your doghouse, right? Private charity and family take care of those unable to produce enough to take care of themselves. This arrangement is the optimum in terms of general prosperity and equity.

Yet the possibility of externalities arises … that costs might be shifted from decision makers onto third parties. And most Americans expect government to provide a safety net. With that in mind, we might ask what forms it might take to get the job done most economically … that is, to provide the most human satisfaction at the least cost in resources. Complaining about problems without suggesting solutions is the rhetorical equivalent of showing up for dinner empty handed. So here are my proposals:

Universal Basic Income

Now before my conservative and libertarian friends assume I’ve taken leave of my senses, hear me out. The UBI would not add to, but replace, a qrazy quilt of intrusive programs that both overlap and leave gaps. No more welfare, minimum wage, etc. One such proposal is the FairTax, which already has bipartisan support in Congress. It would abolish the personal income tax in favor of a national sales tax. Since most states already have a mechanism in place for collecting sales tax, it would eliminate far more bureaucracy than it would add. For progressivity, the FairTax also includes a rebate feature, in essence a UBI. The unconditional nature of a UBI means it’s unobtrusive and minimizes paperwork. It could even be structured to replace Social Security by providing a stepped up benefit at retirement age.

Progressive Corporate Income Tax

Despite some poorly considered legal precedent, corporations are not people. They’re creatures of the state. Yet while a progressive tax rate structure has long been considered to be just fine for people, corporations get a flat tax, at a lower rate than paid by many actual people. And given the outsized influence that giant corporations have in Washington, they get an outsized share of the benefit of government policy. So let them pay more. Many of the arguments for a lower corporate tax rate are valid, but mostly for smaller companies. So let them be taxed less, and the biggest be taxed more.

But make interest and dividends paid deductible. Combined, these measures will encourage the circulation of capital rather than its being bottled up within a few giant corporations. This will also reduce the need for messy and costly piecemeal antitrust actions. Make corporate share buybacks illegal again, or at least put in place strict controls that prevent corporate insiders from disproportionately benefitting through stock option compensation arrangements. Give shareholders a binding vote on limits to executive compensation. They’re paying the tab … and nowhere else do the people being paid get to unilaterally determine how much.

Tariffs and Duties

Taxes on goods moving across the national border were originally a foundational part of financing the operations of the federal government. No part of the world is more legitimately the business of a national government than its own border. And free trade zealotry has been demonstrably bad for the economy. We’re not talking about protectionism, which is about tilting the playing field in favor of domestic business. When you tax domestic industry heavily as the US does, but eliminate tax on foreign produced goods, that’s tilting the playing field. The combination of the income tax and import tariffs once roughly balanced the burden, but removing tariffs while leaving the income tax in place unbalanced it. No wonder trade deficits exploded. But any cross border taxes should be structured as a routine means of raising revenue, not a punitive whip to hector other countries and foment international discord. Ideally a single global rate as opposed to on specific products or trading partners, except in exceptional circumstances. They could be applied to both imports and exports at a much reduced level if the income tax is abolished.

Medical Insurance

There are too many programs. Eliminate Medicaid. Permanently eliminate the Obamacare income floor and ceiling instead, opening it to everyone. Eliminate Medicare in favor of Obamacare for all. Or eliminate Obamacare in favor of Medicare for all. Regardless, eliminate all employer mandates. They’ve just turned a lot of decent full time jobs into part time jobs.

Carbon Tax

We have a huge mess of programs, penalties and subsidies all aimed at the single objective of reducing discharge of carbon into the atmosphere, with more likely on the way. A single broad tax on emissions would do the job better at far less cost in bureaucratic and political friction. Instead of hobbling the market with rigid, piecemeal micromanagement, eliminate all other regulations including CAFE standards, EV subsidies, etcetera. When it costs money to put carbon into the air, you’ll get less carbon in the air. Let the guiding principle be internalizing externalities and harnessing entrepreneurial ingenuity to optimize the means.


Repeal the seventeenth amendment.

I’m sure I haven’t thought of everything. The Comments are open…