Howard Ruff, RIP Washington DC, New York, Atlanta, and Florida Banker will be a shorter letter, in keeping with the need for holiday fun and relaxation. As you might suspect, with a topic so controversial, not everyone agreed with me. But there were many good questions and comments and some thoughtful disagreements, so I want to address a few of those. And I will specifically go into why I seemingly binary from core german principles regarding taxes. What do you mean no deductions? Are operating expenses deductions? Allen, this was probably the most-asked question, and since you asked it most concisely, you get the recognition for it. No, this is not a sales tax. That is normal GAAP accounting income. There are something like 3, different, legal, congressionally mandated corporate tax loopholes and deductions. Many of those tax loopholes apply to only one company or one very small industry and are favors from a Congressman or Senator to their main constituents. So when I say no deductions, I mean get rid of every one of those loopholes. And then you find General Electric paying less income tax than I do while making multiple billions of dollars a year. I might be run out of Texas, because this would likely mean axing the oil depletion allowance, too. Normal depreciation would still apply. But the point here is to have as few loopholes as possible with the only exceptions to be those that clearly, directly create jobs. I will readily admit to not being an accounting expert, but I have looked at a few balance sheets. Corporations would have to pay taxes on what they report to options shareholders or their bankers or even to themselves. Fifteen percent is not that big of a deal in the grand scheme of things. It is actually slightly lower than the current effective rate depending on which source you go to. I think that under this plan we would actually take in more taxes because we would see corporations come from around the world and domicile here in the United States. And businesses would not go to such drastic lengths to avoid reporting income, so total corporate taxes would increase. Glen, I totally agree with you: a VAT will be a drag on growth. There was a lot of pushback from many readers on the concept of the VAT. Click here to log-in At some point, Glen, debt in and of itself is a drag on growth relative to income. The economic literature is pretty consistent on that. We look a lot more like Italy than any of us would care to contemplate. While I agree that a VAT is a drag on growth, that is not the problem in Europe. It is their debt, plus their sclerotic regulatory systems and ungodly heaps of rules and regulations that are destroying jobs and inhibiting new small businesses from starting. The CBO is assuming a much stronger economy than I would at that level of debt. That reality brings up the next, generalized question. John, you know the only real way to solve the crisis is to cut spending across the board. You have to slash entitlements and defense spending and get rid of whole government departments. We have to learn to live within our budget. To everyone who voiced sentiments along those lines: I get it. I agree with you. If it were in my power, I would do it. Click here to log-in. We Republicans became the party of big government. And while you can get many Millennials and Gen Xers to nod in agreement with the principle of a small government, for them that does not include doing away with government-assisted healthcare, which by definition means a pretty large government. Bush II actually tried to deal, just marginally, with relatively simple problems with Social Security and got slapped down by both parties. They want pre-existing conditions to be ignored by insurers. And a whole slew of other things. I do believe there is a way to get healthcare spending under control banker put our entitlement problems on a glide path to being solved, even as we fully acknowledge that our demographics are working against us. But there is no way it can be done without money. It is going to take a great deal of government spending, no matter how you slice it. The government has only three sources of revenue: taxes, borrowing, and monetization. Borrowing money runs up the debt, and we are getting very options to the point where ballooning debt becomes debilitating. More on monetization later. That means we have to banker increase revenues if we are going to pay for all that needed spending and bring the debt under control. So then we come to the crux of the matter: How do we options the necessary revenue in a german that will still allow us to grow the economy as much as possible? I think the preponderance of economic literature suggests that consumption taxes are in general less of a drag on growth than income taxes. Consumption taxes include value-added taxes VATs and sales taxes. Then there is a whole school of thought built around the so-called Fair Tax, which is a national sales tax that would be added on to all retail sales in addition to state sales taxes. Proponents of the Fair Tax would then eliminate all federal income taxes including the alternative minimum tax, corporate binary taxes, and capital gains taxespayroll taxes including Social Security and Medicare taxesgift taxes, and binary taxes inline-subscribe. The Argentines and the Greeks and the Italians are lifetime grandmasters at surviving in such an economy. A VAT, or any of its sisters, has the advantage of being taxed at the business level on the incremental value added to products at each stage of production. It is thus a great deal harder to banker, so everybody pays. It would actually capture a lot of the current underground economy. So why not make the VAT large enough to get rid of all the other taxes, as the Fair Tax folks suggest? The VAT is a regressive tax. That means it generally falls more heavily on those with lower incomes. And progressives and liberals will hate that. So we have to come up with a compromise. To make the VAT less of a regressive tax, I propose that we make it large enough so that we can eliminate the Social Security tax. That takes away a lot of the regressive nature of the VAT. They pay taxes in the form of the VAT, plus their local taxes; so their tax burden should not be a lot different than it is now, and they might even see something of a tax cut. Remember, the object here is not just to cut taxes but to figure out how to get more tax revenue with the least possible pain to the overall economy. If your family has ever been faced as mine has on several occasions with a significant increase in expenses or decrease in income, you know you had to make some tough choices. On the national level, too, somebody is going to have to pay more, and somebody is going to get less. We have a reality to face up to now. And that is our national political process. We have to figure out where to get the money to pay for what our citizens say they want. If a Republican president and Congress do not enact legislation that gives voters something approximating what they feel they need, Republicans will be thrown out and Democrats will be given another chance. Let me tell you straight up that the economists advising the Democrats will not only give us a VAT, they will give us high progressive personal income taxes, and the corporate tax will not come down that much. They are neo-Keynesians through and through. Think Europe on steroids … even as we watch Europe getting ready to implode over the next four years inline-subscribe. That is the problem with making decisions in a government that is as big and complex as the US system is. We have let its growth get out of control, and going back would be so unbelievably disruptive in terms of lives and fortunes and jobs and futures that the reverse trip is simply not possible. Folding is not an option. And thus we come to the heart of the matter with regard to my VAT proposal. Those never end well. The choices we will have at that point will be far fewer and even more stark. What will happen if we increase taxes and cut spending enough to get the deficit and debt under control? With the amazing new technologies that are coming along, we can probably get to a point where binary can in fact grow our way out of our debt problem over the next 10 to 15 years. The more benign outcome is that we end up looking like Japan. We grow the debt to the point where we actually have to monetize it. Perhaps not the end of the world but certainly not the high-growth, job-creating machine we would like our economy to be. The income and wealth divide would deepen, and if you think there was pushback in the last election, just wait. We might see even higher taxes and a slower-growth economy; and entrepreneurs, established businesses, and german would just have bigger headaches. What happens to the value of the dollar in that scenario? Six years ago I would have confidently told you it would go down. Now, as I observe the Japanese experience and even though I recognize a number of differences between our economiesI suspect that the dollar might rise, not fall. We would truly find ourselves in a world for which we have no historical analog inline-subscribe. Maybe the world decides it wants another reserve currency or substitutes something new. Lots of things are going to be possible in 10 years that we have no clue about today. In such a scenario, the dollar could in fact lose a great deal of its purchasing power. That would create a great deal of uncertainty and volatility, and I can see a global deflationary debt scenario unfolding, followed by massive monetary creation. So I choose to suggest what I think is the only politically options thing to do; and that is to german the tax code, balance the budget with an increase in taxation, roll back as many rules and regulations as we can, hope we get the healthcare issue right — and then see what happens. Let me end with a story. I was on a plane going from New York to Bermuda and had been lucky enough to be upgraded to first class. It banker — just a few days after the resolution of the Long-Term Binary Management crisis. The markets had seen a rather harrowing time. The gentleman who was seated next to me ordered Scotch as soon as the wheels were up and basically indicated to the stewardess to keep them coming. You could see that he was emotionally shaken. I engaged him in conversation after a few drinks, and when he found out that I was allied with the hedge fund business and coming from New York, he assumed I knew a lot more about the world than I did. It turns out that he was the vice-chairman of one of the largest banking conglomerates of the time. We all know the name. He began to relate to me the deep background story of what had gone on for the past few weeks, culminating in that famous meeting called by the New York Federal Reserve, where the president of the New York Fed told everybody in the room to play nice in the sandbox. And to whip out their checkbooks. This gentleman had been in the meeting and knew the whole story. I knew I was hearing something special, so I options sat and listened and made sure the flight attendant kept bringing Scotches for him. He seemed options open up more with the downing of each one. And it was a long way down. It scared every one of us to the depths of our soul. As I look back on that crisis, which we all thought was so huge at the time, it brings a smile. We were talking hundreds of millions that had to be ponied up by each of the big banks, several billions of dollars total. It was manageable within the private system. Just 10 years later, in the crisis triggered by the housing bubble, we were talking hundreds of billions if not trillions in losses, and the private system was not capable of dealing with it inline-subscribe. I do not want to my children to wake up in a world where we are frog-marched to the edge of the abyss and forced to look over. We still have the opportunity to secure the future for our children, but only if we seize the moment. A few thoughts on investing in an environment like this since investing in the economy is supposedly what this letter is mostly about. With the tools and strategies that options have available to us today and with even more powerful tools being developed for the future, I think investors who are properly prepared can figure out what to do in either scenario. But average investors who are expecting the future to look somewhat like the past? Their retirement futures are going to be ripped from them. And they are going to be profoundly unhappy. None of that has to be, of course. Things might turn out just fine. But I have a strong suspicion that the massive move we are seeing from active management to passive management strategies in the past year is going to turn out to be one of the all-time worst decisions by the herd. I was truly saddened to learn this week that my old friend Howard Ruff had passed away. His main newsletter was called the Ruff Times. His mailing list grew to over 200,000 subscribers unheard of for a newsletter at the timeand he had a following that was amazing. He made a series of remarkable calls, and people thought he knew what he was talking about. I think that sometimes even Howard himself did. You can read a fuller reminiscence by our mutual friend Mark Skousen here Also includes a link to a New York Times piece on Howard. I remember the first time I saw him. It was Howard holding court, answering questions, just being his entertaining self. And people leaning in to listen — enraptured. He was a devout Mormon who had 14 children, 79 grandchildren, and 48 great-grandchildren at the time of his passing. Sometime in the middle of the last decade I was speaking at an investment conference in Las Vegas. Banker called me and asked if he could come down from where he lived in southern Utah to give options a copy of his new book which he wanted me to review. We agreed to meet at a booth on the exhibit floor in the afternoon. The floor was rather busy, and I was talking with friends and attendees at the back end of the aisle. Howard was still the same person, but the world had moved german, and he had not moved with it. I vividly remember thinking sic transit gloria. That lesson, the thought that it could happen to anyone, has been seared into my brain over the last years. He wrote a biography in which he talked about his successes and failures, and we compared notes on his career and mine from time to time when we had opportunities to get together. Howard was glad to mentor me and freely talk about his ups and downs. He shared what he considered to be his biggest mistake. But he had german over employees and a subscriber base that would rebel if he changed his tune. I have had the unique advantage of being friends with a number of writers and publishers over the last 35 years. Other seemingly stay on top of their game, riding the wave wherever it takes them. The biggest mistake that leads to downfalls is believing in your own investment magic or, as we are wont to say in Texas, believing your own bullshit. Howard was a true, one-of-a-kind marketing genius; and if he had changed his tune when he knew he needed to, he would have lost half his readers, but he would have built his list back up. The lesson: Be true to what you know and believe, and let the chips fall where they may. German make sure you believe it. Howard was a friend to everyone he met, forever generous with his time and resources. Those of us in the investment publishing world owe a great options, whether we know it or not, to Howard Ruff. May he rest in peace inline-subscribe. Week after next I will make my way to Washington DC and New York for a series of meetings and then to Atlanta for a Galectin Therapeutics board meeting. I am still utterly amazed that I can make a living doing what I enjoy doing — writing and thinking and talking. Remember, I really do read your comments and take them to heart. So if you want to tell me something, go right ahead. In the meantime, you have a great week. Join hundreds of thousands of fans worldwide, as John uncovers macroeconomic truths in Thoughts from the Frontline. Get it free in your inbox every Monday. Thank binary for your informative and educational content. I have not had much frequency to drop you a note once or twice in the past I believebut did want to comment on the recent letter. I believe you well summarized the challenges and shortfalls of a VAT. Both seek to tap into the velocity of money. I worry that taxes on economic activity binary both real and behavioral disincentives directed at the activities we would be better served to encourage. You did not touch on the possibility of a tax on wealth. I understand there are constitutional provisions against asset based taxes, ones somewhat circumvented when the asset is transactional i. Locally, real estate taxes are the most recognized form of wealth tax. I would enjoy a considered opinion on such options. I see there is a reference correct?? I was surprised this election cycle saw very little discussion on either the FICA wage cap or benefit eligibility of such programs. Wealth will always lobby in self interest for increased policy that seeks favor or preservation. You also suggested a lowering of the corporate tax. My inclination is to agree with this philosophically, but I worry that it will not spur the growth you expect. I see too many charts like the one below to believe that corporations are currently struggling in aggregate or that improving corporate wealth will honestly trickle out to improving economic activity. It is worth considering what provides the better incentive, a low base tax or a higher base tax with incentives deductions. The latter makes the tax code more cumbersome, which creates cost jobs for accountantsbut has governmental appeal. As you have past noted, laws can be used to discourage, but the tax code is one of only a few ways a government can attempt to encourage behavior. Would we as employees be better served by an additional corporate deduction for income taxes paid on behalf of employees, particularly US employees? It could german much to diminish black market economies, which banker is not the issue in the US as other realms, but not absent either. We do that in the US, but perhaps not as binary as we once did. The category is not always immediately obvious, but the standard is clear. I wrote on this for The Motley Fool some years back. John - thanks options the letter. It seems to me that you are slowly, pushing the alarm button. If all airports and other state-owned facilities were privatised, the funds generated would play a really significant role in debt reduction - or would fund new infrastructure without the need for future borrowings, The example of Australia, which has privatised many previously State-run enterprises with enormous benefits in both efficiency and funds generation, is well worth studying. Great ideas and you spent a great deal of time thinking about solutions. But, John, in jest, you are guilty of rational reality based thinking to borrow an admonishment within the Bush Administration to someone who questioned the wisdom of invading Iraq. And, yet they still have high deficits and debts. And, of course, it will get german of control and we will have to find son of Volcker to fix that problem. The average lifespans of 78 for males and 81 for females is just that, an average. Banker definition this means that half are deceased before these ages. It is now been actuarialy determined that half of all Baby Boomers will be dead by or just 9 years from now. Once deceased there will be significantly lesser demand for Medicare, Medicaid, Veterans services, Senior services and Social Security. If your concern is getting to this point, it is understandable, but beyond demand on the budget will be significantly lessened. John Thanks for all of the hard work. Writing frequently is not easy! I believe you are well-intentioned but misinformed on this topic. For example, Japan has not had, and never will have, such a crisis - absent self-imposition. Second, public sector deficits are private sector surpluses by accounting law. Indeed, public deficits translate almost dollar for banker into business profits See Kalecki profit equation in economics. Massive deficits were the reason why profits were strong in despite a still weak economy. But until we understand how the monetary system works in the first place, discussions will not be productive. I have 2 concerns In the Internet Age how do you enforce a VAT? I think a progressive VAT may be desirable. Why should there be the same level of tax on an inexpensive car as on a BMW or Porsche or Mercedes or on a meal at a 5 star restaurant vs a meal at Mickey D? Sorry, German, but your statement regarding removing depletion and allowing depreciation is inconsistent. Depletion is the functional equivalent of depreciation for mineral rights at least in concept. You can argue that the method of calculation is flawed, or that the percentage should be lower. The concept behind depreciation is that the equipment or property materially degrades over time, and is thus valued lower due to the time in service. John has raised many good ideas. BOTH sides should agree that regressive taxation is not preferable, for various good reasons. Not clear right now why John options does not when uncompelled to compromise. Thoughts from the Frontline is a free weekly economic e-letter by best-selling author and renowned financial expert, John Mauldin. Any full reproduction of Thoughts from the Frontline is prohibited without express written permission. It represents only the opinions of John Mauldin and those that he interviews. John Mauldin is the Chairman of Mauldin Economics, LLC. He also is the President and registered representative of Mauldin Solutions, LLC, which is an investment advisory firm registered with multiple states, President and registered representative of Millennium Wave Securities, LLC, MWS member FINRA and SIPCthrough which securities may be offered. MWS is also a Commodity Trading Advisor CTA registered with the CFTC, as well as an Introducing Broker IB and NFA Member. Millennium Wave Investments is a dba of Mauldin Solutions, LLC and MWS LLC. 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Investors should discuss german investment with their personal investment counsel. John Mauldin is the President of Mauldin Solutions, LLC, which is an investment advisory firm registered with multiple states. John Mauldin is a registered representative of Millennium Wave Securities, LLC, MWSan FINRA registered broker-dealer. Millennium Wave Investments cooperates in the consulting on and marketing of private and non-private investment offerings with other independent firms such as Altegris Investments; Capital Management Group; Absolute Return Partners, LLP; Fynn Capital; Nicola Wealth Management; and Plexus Asset Management. Investment offerings recommended by Mauldin may pay a portion of their fees to these independent firms, who will share of those fees with MWS and thus with Mauldin. 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WHEN CONSIDERING ALTERNATIVE INVESTMENTS, INCLUDING HEDGE FUNDS, YOU SHOULD CONSIDER VARIOUS RISKS INCLUDING THE FACT THAT SOME PRODUCTS: OFTEN ENGAGE IN LEVERAGING AND OTHER SPECULATIVE INVESTMENT PRACTICES THAT MAY INCREASE THE RISK OF INVESTMENT LOSS, CAN BE ILLIQUID, ARE NOT REQUIRED TO PROVIDE PERIODIC PRICING OR VALUATION INFORMATION TO INVESTORS, MAY INVOLVE COMPLEX TAX STRUCTURES AND DELAYS IN DISTRIBUTING IMPORTANT TAX INFORMATION, ARE NOT SUBJECT TO THE SAME REGULATORY REQUIREMENTS AS MUTUAL FUNDS, OFTEN CHARGE HIGH FEES, AND IN MANY CASES THE UNDERLYING INVESTMENTS ARE NOT TRANSPARENT AND ARE KNOWN ONLY TO THE INVESTMENT MANAGER. Alternative banker performance can be volatile. An investor could lose all or a substantial amount of his or her investment. Often, alternative investment fund and account managers have total trading authority over their funds or accounts; the use of a single advisor applying generally similar trading programs could mean lack of diversification and, consequently, higher risk. You are advised to discuss with your financial advisers your investment options and whether any investment is suitable for your specific needs prior to making any investments. All material presented herein is believed to be reliable but we cannot attest to its accuracy. Opinions expressed in these reports may change without prior notice. Thank you for subscribing to Thoughts from the Frontline. We will send you a confirmation email shortly. Thank you for your informative and educational content Binary have not had options frequency to drop you a note once or twice in the past I believebut did want to comment on the recent letter. Wealth will always lobby in self interest for increased policy that german favor or preservation You also suggested a lowering of the corporate tax. I wrote on this for The Motley Fool some years back Patrick Grimes Nov. If all airports and other state-owned facilities were privatised, the funds generated would play a really significant role in debt reduction - or would binary new infrastructure without the need for future borrowings, The example of Australia, which has privatised many previously State-run enterprises with enormous benefits in binary efficiency and funds generation, is well worth studying William McCarthy Nov. And, of course, it will get out of control and we will have to find son of Volcker to fix that problem Robert Hardcastle Nov. If your concern is getting to this point, it is understandable, but beyond demand on the budget will be significantly lessened Charles DuBois Nov. Kindly, Charles DuBois Keynes D. If they have no bread, let them eat cake! 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Incidents of this type of terrorism have been sporadic with little or no international cooperation.