What is wrong with Bert Ely’s proposed reforms? The list makes a lot of sense to me.
…The mess in the financial system today is the result of previous government rules that pushed markets in the wrong directions. To prevent another crisis we need to change the rules, aligning the incentives of financial players with optimum market outcomes. Here are some key changes:
- Scrap the antiquated leverage-ratio requirement for bank capital.
- Encourage banks to use “covered bonds” to fund – and hold onto – the fixed-rate mortgages they originate.
- Eliminate the double taxation of corporate dividends.
- Modify fair-value accounting rules.
- Hold bond-rating agencies more accountable for their ratings.
Read the essay to see if you agree with Bert’s arguments for each of the above.
UPDATE: I see that Greg Mankiw likes (at least) “covered bonds” and “eliminate the double taxation of dividends”.
The 15% rate on dividends is a partial implementation of a double taxation relief plan designed by R. Glenn Hubbard, currently dean of the Columbia U business school, former chair of President Bush’s CEA (2001-2003), when he was an economist at Treasury during the administration of Bush père. It was adopted as part of the second tax cut bill of the current administration.
Ideally the rate would be cut and the plan extended. But, it will probably be repealed by a Democrat administration, but perhaps McCain might save it.
On an optimistic note, I speculate that the flat tax nations will continue to post stunning growth results. It may take a century, but eventually Joe Sixpack is going to realize that taxing capital hurts his family and his children. Taxing only consumption is an unreachable ideal, but…