Reply #49: You are correct in many respects [View All]

the system as currently construed creates economic distortions. First, it massively favors passive capital gains over profits from labor and creative efforts. This has created an economy where the GDP is increasingly composed of financial transactions as opposed to labor and production. The mistaken intent was to reward folks who took risks, built successful businesses, and eventually sold them. However it is been generally faster, more profitable, and generally far less risky to speculate in financial instruments (until recently). By reducing the tax margin on such transactions, the threshold for profitability and the increased extent of profitability make this line of work vastly favored. A brick and mortar proposition that employs people has to be potentially profitable very quickly and in an extreme manner to compete.

It took addled minds stuck in a 19th century frame of reference to fail to predict this outcome. Back then, unless you owned a seat on the exchange, it was more or less impossible to engage in this sort of financial speculation in a remotely proficient way, now anyone can to this anywhere using their smartphone or desktop machine. Pre Great Depression, the path to real wealth most frequently involved building a business empire that employed 10's of thousands of people. The concept in supply-side-ism was that given the cash, people would again behave as they did 100+ years ago. This has been a totally out of context notion that has predictably produced the only result one would expect in current context. The deformed tax policy that allows Warren Buffet to pay a lower rate than his secretary arose from this poorly considered idea. A flat tax does not cure this problem, though it might help a bit.

What we actually need is a tax code that makes financial speculation less potentially profitable than building a real business. One must consider that building a business is slow and generally only becomes truly profitable over the course of years, so the tax rate for business profits must be markedly lower than that applied to passive capital gains, not just equal or flat. This will begin to cure the economic distortion created by 30 years of bad policy.

As far as taxes being necessary to fund services, this is only true at some level, it is entirely true at the state and local level and only partially true at the federal level. There is a point at the federal level where if the tax burden was consistently low and spending consistently high, aggregate purchasing power in the fiat currency would at some point grow to exceed the supply of goods and services available resulting in inflation. We are in fact currently spending more than twice as much money as we collect in revenue at the federal level, and if sustained this will eventually become a problem. However revenue is not as big a problem as most conclude in the current debate. Most of the problem results from an unfortunately skewed wealth distribution curve, which is the product of intentional and very poorly considered tax policy that was adopted with absurd, nostalgic, and romantic notions in mind.

It is not so much corruption, as it is bad economic and social philosophy that has taken us to this place. It is a most carefully deduced philosophy that originates in a false apriori concept. Attempts to substitute a lack of philosophy for mistaken philosophy might give the appearance of improvement, but it isn't, the dysfunctional pattern has already been set in place and must be actively removed.