21 Comments

That was really interesting and informative, and written in a style that encourages reading to the very last word.

Thank you, I shall keep an eye out for your work in the future.

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Glad that you enjoyed it.

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Nov 14Liked by Michael Magoon

I think you meant April 2026 twice in the article when you referred to the end of the first 15 months.

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Oops, yes. Good catch. It has been corrected.

Thanks

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Green energy and converting to renewable energies seem like a win to me in that it serves to both have a majority beneficial impact (I'm not blind that fossil fuels and other extractive methods are utilized to create and develop renewables) on the environment and create jobs. I don't disagree with the idea that fossil fuel deregulation and investments will juice the economy, but why, in your mind, is it important to roll back the "Green" subsidies? Thanks!

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Because fossil fuels have immense advantages that cannot be duplicated by solar and win in a cost-effective way. That is exactly why Green energy needs subsidies to force a transition that would otherwise not happen.

Green subsidies and mandates encourage spending on projects that would otherwise not be cost-effective. To pay for these projects, utilities then raise the price of electricity that undermines people’s material standard of living and make industry less competitive.

They are not even a very effective method to protect the environment as they are very land intensive. Nor do they create jobs. Subsidies do not create jobs, they just shift job from more productive technologies to less productive technologies.

I have written a number of article on the problems of Green energy and why there are much better alternatives. Here are a few:

https://frompovertytoprogress.substack.com/p/a-simple-and-cost-effective-plan

https://frompovertytoprogress.substack.com/p/there-is-a-better-alternative-to

https://frompovertytoprogress.substack.com/p/now-greens-want-to-spend-6-8-trillion

https://frompovertytoprogress.substack.com/p/why-solar-cannot-displace-fossil

https://frompovertytoprogress.substack.com/p/16-reasons-why-greens-should-love

https://frompovertytoprogress.substack.com/p/how-greens-increased-carbon-emissions

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The current model has the federal government redistribute wealth from the richest states and give it to the poorer states.

But in a scenario in which that doesn't happen, do you foresee the US getting into a bad position with its currency very much like what the EU has with the Euro? Italy and Greece and the poorer eastern european countries would all be better off having a devalued currency to make their exports competitive. But they can't because the northern countries don't want a devalued euro, and there is very little wealth redistribution compared to US federal spending. Thus, many poorer EU countries are locked into perpetual stagnation for many economic sectors.

Wouldn't the US end up in this boat with the fiat dollar if it wasn't continuously redistributing wealth?

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Nov 16·edited Nov 16Author

I am not sure which federal program that you are referring to that “redistribute wealth from the richest states and give it to the poorer states.” The vast majority of federal government programs go directly to the individual, not the states.

Federal government policy is not about redistribution between states. It is about redistribution between citizens. Many upper-income citizens live in poor states, while many lower-income people live in richer states.

The EU, on the other hand, is deliberately doing exactly that (distributing between nations), and this is causing the problems that you mention. The poorest American state is actually wealthier than the vast majority of European nations, and in general those states have the fastest growing economies. It is the wealthiest American states that are having the biggest problem with economic growth. This is nothing like the problem in Europe.

The US has had a common currency for 250 years, and for the first 140 years, the federal government had very little role in domestic affairs. I do not see how transferring programs to states would cause the currency problems you mention.

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Federal balance of payments by state: https://rockinst.org/issue-areas/fiscal-analysis/balance-of-payments-portal/

The U.S. has a centralized fiscal system with significant federal transfers. States receive federal funding for unemployment benefits, infrastructure, education, and more.

In economic downturns, struggling states are often supported by automatic stabilizers like Social Security or Medicaid, which are federally funded.

In the EU, fiscal integration is limited (but we did see an increase during covid and after with EU-wide stimulus. But this is very new and may not continue. )The EU budget is much smaller (around 1% of GDP) and lacks significant mechanisms for redistributing resources to struggling economies.

Countries like Greece or Italy have to rely on their national budgets to respond to crises, constrained by eurozone rules limiting deficits and debt levels. If they weren't part of the EU they would devalue their currency to make their exports more competitive, but they can't, and nor do they receive US style transfers to bolster their wealth.

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Nov 16·edited Nov 16Author

If I understand what this report is stating, this is the net transfers by the federal government to individuals within each state minus the taxes that those same state residents pay directly to the federal government. This is not money going from the federal government to the state government, although there is some of that, but it is far less than this data implies.

For example, Social Security benefits do not go to the state governments. They go directly to the individuals. Federal taxes are not paid by the state government. They are paid for by individual citizens.

Actual federal transfers to the state are much smaller. Direct federal transfer to states started in the 1960s, so the USA did fine without them for almost 200 years. Most of that money is for Medicaid and CHIP.

Currently, it is about $1.1 trillion or about 4% of GDP. This is sizable, but I don't see how ending it would cause currency problems. The poorer Red states are generally in a far better fiscal situation than the wealthier Blue states. And they have faster-growing economies.

The EU and Euro is about greater centralization. I propose the opposite.

The data at the linked article is actually a good reason for progressive states to favor my plan as they will not lose so much money to conservative states.

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Those kind of charts are misleading. Much of the money the government takes in gets siphoned along the way and ends up around DC, and sometimes in other deep blue cities.

For example, seven of the ten richest counties are in the greater DC area.

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That is certainly true for DC. Not sure about other metro cities as they have few federal employees.

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Nov 15·edited Nov 15

Very thoughtful article. I'll be going through your other posts soon; there's a lot here!

The explanation of the President's powers and election dynamics, in particular, is very poignant. I didn't realize how little time Trump has to get things done.

On corporate taxes though, wouldn't higher tax rates disincentivize taking revenue as profit, thereby incentivizing the spending of that revenue on further investment? Like what Amazon did under Jeff Bezos; they delayed taking profits for years, instead reinvesting everything to grow the business, and now we all enjoy great online shopping and delivery. Wouldn't higher corporate tax rates incentivize all companies to follow a similar path of maximizing long-term growth?

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Glad that you like the article. I have almost 400 other ones on many different topics! Each articles has links to other articles on the same topic, so it is the best way to explore my articles.

Enjoy!

As for corporate taxes, I do not believe that higher tax rates incentivize investment. There are plenty of other ways for corporations to avoid paying corporate taxes like staying overseas.

If the goal is to lure American companies to voluntarily manufacture in the USA, I think that a combination of cheap energy, lower regulations and lower corporate income taxes is the most cost-effective means to do so. I believe that raising corporate taxes will have the opposite effect.

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"Cut corporate income tax rates to 12%". The problem with this, is that small businesses (e.g. sole proprietorships) will declare labor income as return to capital, thereby unfairly getting a discount on their income taxes.

The best solution, I believe, is to maintain immediate expensing of all corporate investments excluding land, and set the tax rate on personal investment returns equal to the combination of the top marginal rate on labor (currently 37%) minus the corporate rate (currently 21%).

By the way, I proposed a better way to tax individual investment returns, namely only tax people when they consume out of returns. See here: https://www.gideonmagnus.com/_files/ugd/4c2841_2324a2b471364dc3ae2f35d95021d895.pdf

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I am open to different means of reforming corporate taxes. My main argument is that reforming corporate taxes is likely far more cost-effective than tariffs.

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The destination based cash flow tax proposes by Congress at the start of his first administration could work as well, and would be very efficient, much more so than anything one could create out of the existing corporate tax system. It would also address pass through entities that some other commenter have mentioned.

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>The problem with this, is that small businesses (e.g. sole proprietorships) will declare labor income as return to capital, thereby unfairly getting a discount on their income taxes.

No. Corporate tax rates are already way lower than personal income taxes. But you can't do what you're describing because sole proprietorships and LLCs are not taxed directly, all of the net income flows through to your personal taxes and is taxed at your personal tax rate.

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Right, and I propose changing this, sorry that I wasn't clear on this. I propose that all corporations are taxed in the same way. So an investor in a small company and large company are taxed in the same way, namely twice: 1) corporate taxes, 2) personal taxes on investment returns. The combined rate of these two taxes should then equal the top income tax rate. To be precise: (1-tax_{corp})*(1-tax_{invest}) = (1-tax_{labor}).

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Very sensible and well-informed piece. Here's hoping the right people read it.

While I do support a shift in legal immigration policy to favor the higher-skilled (and lower toleration for accepting family members from abroad), I believe some actions and policies directed to the identification and removal of illegal aliens MUST be undertaken. Certainly the ubiquitous use of E-Verify by employers should be the law of the land. As well, there should be immigration status checks attending all police and governmental interactions with the nation's residents. Those identified as non-citizens without permission to be here should be targeted for immediate deportation (or as soon as is practicable). Deportees should be allowed to take their property and assets with them to their home countries where the skills and wealth they accumulated in the USA can be used to the benefit of their own citizens.

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Thanks for the comment. Yes, I generally agree with that, but I think that in the first 15 months, the key goal should be implementing legislation. It may be another generation before a chance like this happens again.

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