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Author: HermanPotter Three stars, 500 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 212342  
Subject: U.S. economy and markets Date: 10/4/2012 6:28 PM
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http://www.cnbc.com/id/49278861


If the ideas set forth in the article can be separated from the author,
(noted buffoon), do you think some of them have merit?

(I vote for the NG build out especially.)
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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 194715 of 212342
Subject: Re: U.S. economy and markets Date: 10/7/2012 9:47 AM
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I love the term "noted buffoon". Something for me to aspire to.

Some of the things he suggests would indeed drive the market higher.
But one should first ask, with broad US equities around 40% overvalued
compared to their long run average, why on earth would you want to do that?

Skipping dividend tax is not obviously an improvement to the economy.
Simpler and more consistent would be be eliminating corporate tax and
taxing dividends as ordinary income since the income of companies is
really just the income of the shareholders anyway, but I'm not in charge.

There is certainly very cheap natural gas in the US, and for many years
to come plentiful natural gas, but there isn't plentiful cheap natural gas.
Once people get used to this idea the bonanza will seem rather more muted.
The all-in cost to bring incremental supply on line for a while is
$7-8, so natural gas $2.50 to $3.50 (or $4 or $5 or $6) can't last.
Plus, the gas itself won't last forever. We're just in a small
countertrend blip in a very long run trend away from cheap energy.
There isn't any shortage of energy and never will be, just less and less cheap stuff.

One might argue that some of the policy things might remove some
fear from the market which is having unpleasant effects.
It's a bigger problem that firms aren't building factories than it is
that their stock prices are too low. The fiscal cliff is scaring
a lot of businessmen, so that is certainly the sort of nonsense that could be fixed.
My own suggestion: get people to agree that the deficit must be cut
to some percentage of GDP (2%? 3%? 0%) either through spending cuts
or tax rises or some combination. If you don't ask them to pick one
of those methods it might be possible to get that agreement.
Then, institute a national sales tax set each year at a level that would
in the prior few years brought the deficit down to that level.
Everybody hates the idea of such a tax despite its obvious necessity,
so those who wish to could see the goal as eliminating it by eliminating any need for it.
The politicos can then argue and grandstand and filibuster all they
want about whether to let the sales tax stand or cut spending or
increase other taxes or some combo, but during the decade that they do
so the global economy would not collapse from a US bond&currency panic.
Businesses would know that even though there are no adults at the
Capitol there is at least a babysitter for the time being and they
would no longer be afraid to build factories and buy tools and hire workers.
One side effect is that sales tax encourages saving relative to
consumption which would reduce the weighted average cost of capital
of US firms which would increase their value (not just their prices).

Jim

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Author: DrtThrwingMonkey Big gold star, 5000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 194716 of 212342
Subject: Re: U.S. economy and markets Date: 10/7/2012 10:14 AM
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Wow, beautiful summary of the useful things Congress could do. If they just did a few of these (maybe they will, with a change of Administration), I would be happy.

Regards, DTM

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Author: AdvocatusDiaboli Big funky green star, 20000 posts Top Recommended Fools Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 194718 of 212342
Subject: Re: U.S. economy and markets Date: 10/7/2012 12:56 PM
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One side effect is that sales tax encourages saving relative to
consumption which would reduce the weighted average cost of capital
of US firms which would increase their value (not just their prices).



It would also be extremely regressive and dampen demand in the middle of a recession/depression so it may be a really disastrous idea.

Perhaps it would be better to increase the income tax accordingly.

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Author: mungofitch Big gold star, 5000 posts Top Favorite Fools Top Recommended Fools Feste Award Winner! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 194722 of 212342
Subject: Re: U.S. economy and markets Date: 10/7/2012 9:28 PM
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It would also be extremely regressive...

I don't buy the word "regressive" in tax discussions, too agenda-loaded ; )
Taking here the notion that consumption is a good first proxy for wealth,
regressive and progressive taxation schemes are more neutrally described
as taxation proportional to wealth versus geometrically varying as wealth.
"Proportional to wealth" sure sounds a lot less loaded than "regressive".
(nice analogy to the history of the word "bolshevik", meaning majority,
the name chosen for itself by the minority party of the time)

In any case, it's no biggie, since there are lots of things in the income
tax system which make tax a nonlinear function of income, and those parameters
could be tweaked to keep the non-linearity of taxation if that's what one wants.
The advantage of sales tax (usually combined with a credit for low
income households—a linear function need not pass through the origin)
is that it is a tax which is extremely efficient. It doesn't discourage investment,
employment, or savings, and doesn't cost that much to collect in an advanced economy.
It collects the most money for a low cost and minimal economic distortions,
depending only on the power of the lobby groups who try to get exemptions.
Economic distortions explode rapidly, so it's generally best to have
a hard line with no exemptions beyond unprepared food.

and dampen demand in the middle of a recession/depression so it may be a really disastrous idea...
I agree that's a big concern; the UK is a prime example of attempting
to lose weight by decapitation. But there's nothing to say when it has to kick in.
Also, as mentioned it's an extraordinarily efficient way to raise tax,
dampening economic activity as any tightening does, but in the most gentle way.
Indeed, the argument raised against it most often is that it works
so well that governments can raise it too easily without breaking things.
At some point I imagine the US government will have to stop spending
$100 billion more a month than it's taking in; might as well start planning at least.
The introduction in Canada was unpopular to say the least, but it fixed the finances rapidly.
People still hate it, but it's now mixed with a reasonably well earned
smugness for having dodged the bulk of the recent unpleasantness which
was in part due to good regulation, but largely on strong finances.

Jim

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