Economic War

Not all wars are examples of diplomacy failing. The economic war that Trump has set up is a personal affair, that he didn’t negotiated with anyone; although at Davos he commented that a weak dollar would help U.S. trade. And it will; it will make U.S. goods less expensive than similar goods from other countries. That should help U.S. manufacturers to some degree. But a weak dollar will make the U.S. less desirable as a place to invest, because it will lower the values of capital assets, especially financial assets.

Investors will quickly notice that the greater financing requirements of the U.S. government will result in bonds losing value and interest rates climbing. People who are highly leveraged, as Trump is, gain when there is inflation, because they can pay back debt with cheaper dollars. The U.S. government has been playing that game for more than a century.

But some lose badly in inflation, and people who work for money are the biggest losers, as we have seen since the 1970's as wage earners have fallen behind others. Generally, wages don't increase as much as inflation, and that is especially true in times of very high inflation, as happened in the late 1970's and early 1980's. If pay is increasing at 5% per annum, and inflation is 18% per annum, wage earners can watch their pays shrink from week to week when they buy food and other goods.

It wasn't long ago when the pay of one industrial worker would support a family, pay for a house, and a car, and allow the family to take vacations and have a merry time. It would take a lot of deflation to restore that situation, but it would be helpful to most of the people in the U.S.A.

It will take time to correct the situation, but switching to a fair income tax that would require everyone to pay an equal percent of their income over a fixed basic exemption (probably $25 or 30,000) and less business expenses. Income from all sources would be treated the same, and everyone would pay at the same rate, but people with higher incomes would pay dramatically more than people with lower incomes. The table below shows a few representative examples.

Gross               exempt      S&L tax     bus. Exp.         net taxable       rate      income tax

$25,000           $25,000           0          $0                    $0                    0.15     0

$50,000           $25,000           0          $0                    $25,000           0.15     $3,750

$100,000         $25,000           0          $0                    $75,000           0.15     $11,250

$1,000,000      $25,000           0          $100,000         $875,000         0.15     $131,250

$10,000,000    $25,000           0          $100,000         $9,875,000      0.15     $1,481,250

These are just some general examples to give an idea of the relative impact on different people in different positions. State and Local taxes (S&L tax) would also have to be deducted, but I did not include them here, because I didn't want to make guesses on those.

What the actual rate would have to be to pay for the government is a question, because the figures available are not as complete as would be best. Persons making large salaries would pay a much higher percent of their gross income in tax, than would people who made under 100,000, because of the relatively high exemption amount. But this system is fundamentally fairer than a tax system that charges a variety of rates and treats money differently depending on its origin.

For most people it would be better, if the dollar were worth more and had a stable value. A relatively painless way to correct for the excesses of the Federal government would by balancing the budget and reduce or eliminate new borrowing. Those two actions would result in the dollar becoming relatively stronger, more valuable. The next step would be to make off-shoring less desirable, and having tariffs of about fifteen percent on everything might do that, but it might not be high enough to bring all of the manufacturing back, but we can be sure that importers would scream at the pain.

These are just a few of the improvements that could be made to the way that U.S. government operates, but I think they show that it would be possible to treat people fairly and equally in economic treatment.