There are some things Trump can't do

Trump does not control the judges. Most are professional.

He cannot get impose Schedule F without changing law - and he won't be able to.

Trump needs to be given better staff - one that offers him neat plans and empowers him to make decisions, rather than treat him like a child. He lives by values, not competence, which is not only a valid way to think - it is what the people voted for.

Transition Tax Team Comment 2

Submission to the Transition Team and to Secretary-Designate Bessent

WM Republican Tax Teams Comment on Main Street, Working Families, American Workforce, Community Development, New Economy, Rural America, Supply Chains, and U.S. Innovation, October 11, 2024

Letting the 2017 Tax Law Die and Saving Main Street

Can the nation endure current levels of inequality? Not unless we are willing to kill Main Street for the benefit of Wall Street. 

The 2017 personal income tax changes should not be made permanent or extended, as has been proposed. This will reward savings and speculation, rather than providing an incentive to invest in plants and equipment. The latter responds to greater levels of consumption by households funded by both the public and private sectors, including Social Security recipients.

The Tax and Job Cuts Act (not a typo) was a classic piece of Austrian Economics, where booms are encouraged and busts happen with no bailouts. Strong companies and best workers keep jobs and the devil takes the hindmost. It is economic Darwinism at its most obvious, but there is a safety valve. When tax cuts pass, Congress loses all fiscal discipline, the Budget Control Act baseline discipline is (as it should be) suspended and deficits grow. Bond purchasers pick up the slack caused by the TCJA, which they will as long as we run trade deficits, unless the President’s economic naiveté ruins that for us.

Modern economics has become infected with the idea that higher tax rates and lower public spending hurt the economy. By definition, this is not the case. The exact opposite is true. To refresh our memories of what is in the U.S. Code and most basic economics textbooks, Gross Domestic Product equals equal government purchases, consumption from government employee, contractor, transfer recipient and second order private sector spending, which leads to private sector investment, and exports net of imports (which creates a source of funds for debt finance). In other words, economic growth comes from doing good by Main Street.

Anything that is not part of GDP is considered “savings” or in reality, is asset inflation. If you want to end poverty, give poor people and retirees more money and the economy will grow. Increase government expenditure (even bombers) and the economy will grow, including for the now notorious upper middle class.

Lower tax rates also made money available to chase the same supply of investment instruments, which bid up their price, and caused the invention of a whole range of new products which would be built up and sold by the emerging financial class, who would profit-take and watch what they created go bust and start yet another modern recession, especially the Great Recession just experienced. Only higher tax rates or increased deficit spending control such asset inflation (and the consumption cycles associated with them – which Marx thought was the driver of the boom bust cycle – Marx had a failure of imagination).

The Pandemic and the recovery from it generated a planned recession and a period of inflation as the economy reacted to excess stimulus to higher income taxpayers. Giving money to most households did not cause inflation. Letting the “middle class” of households who are paid over $100,000 per year have any additional cash resulted in the current bout of inflation. Money chases the median dollar, not the median household, and the median dollar is earned at the $160,000 level. The stock market is doing well. Rank and  file workers are not.

This was seen when, as pandemic benefits were given, the great resignation took place.

The 2017 cuts rewarded hard working investment managers and the denizens of Wall Street. Mortgage Backed Securities markets, this time investing in commercial and family rental units (which is how Steve Mnuchin and Wilbur Ross made their bones - and why they championed pandemic stimulus so as not to go personally bankrupt) were incentivized by the 2017 law. They received the wealth, not those who were stuck in homes where maintenance was shifted to renters - which means that the homes Mnuchin got for pennies on the dollar are deteriorating, not creating actual wealth.

The solution to the problem of the TCJA expiration is to let them, although this would stop some of the beneficial changes from being retained - like shifting tax benefits from exemptions for children to a child tax credit (although this credit needs to be refundable). The opportunity this expiration creates should be the willingness to compromise. 

Simply extending current law is a lost opportunity - especially for those of us who used to be Republicans and who believe most households should not have to file tax returns. Employers already transfer personal income tax payments to the IRS and the accompanying data - for wealthier families, the child tax credit becomes part of pay and is thus distributed with payroll. All workers and students who are parents should have the same benefit with full refundability.

Working Families, the American Workforce, Community Development, the New Economy and Rural America

There are two things that working families need right now: higher wages for work and a separate compensation stream for families with children. What they don’t need is to pay taxes or work at jobs that are so physically demanding or socially useless that work is torture.

Menial labor does not command a high enough pay rate in the current economy - mostly due to the fact that these jobs are taken by migrants - many undocumented - that have no other options. We have again become  a slave society. Society needs to eat food that is not too expensive that requires less touch labor from rural America. 

Science is coming to the rescue with vat grown meat and the kind of hydroponics that have made the Netherlands the new California. These new technologies will take food production from backbreaking work that requires manual dexterity for food harvesting and processing, leading to repetitive stress injuries, to knowledge intensive work to grow food in factories. These will replace morally and ecologically repugnant factory farms where animals are warehoused and loaded with antibiotics - leading to resistance in the consumer population.

Climate change is killing rural America. For the last two years, temperatures of over 110 degrees in the southwest and Midwest, with either too much or too little rain. In the summer, hot winds come from the ocean after being heated there due to the greenhouse effect. These winds drop moisture in the mountains and are reheated as they pass over the Atlantic, dropping their heat in the Barents Sea. This body of water controls the heat transferred to the Arctic Ocean and the air over it. The Arctic zone is the air conditioner for the northern temperate climate. It is broken.

Coal is not the problem in most of the world - it is on its way out and can be replaced by small modular nuclear reactors. The factor that has arisen in modern times, which is when the Barents Sea began warming, is the use of gasoline powered vehicles. These can be replaced by electric vehicles - although battery technology is too expensive for most of the American workforce to afford - and too environmentally damaging to produce at required levels. 

The other problem with the automotive revolution is storage during the day with road congestion in the morning and evening. Tethered electric vehicles on controlled roadways coordinated through a central computer system are the best way to stop warming and congestion in a system that the working class can afford. 

Building out the system will require investment, which can be pre-funded by building up revenue and paying back any borrowing with a Carbon Added Tax (C-AT). A Carbon tax with receipt visibility, which allows comparison shopping based on carbon content, even if it means a more expensive item with lower carbon is purchased. C-AT would also replace fuel taxes. It will fund transportation costs, including mass transit, and research into alternative fuels. This tax would not be border adjustable unless it is in other nations, however in this case the imposition of this tax at the border will be noted, with the U.S. tax applied to the overseas base.

Building a knowledge based food manufacturing and road building system requires an educated workforce, much of which is now marginally literate in English, being underserved by the American education system (which needs teachers) or having arrived from other cases, often without documentation. The Supreme Court ruling in Plyers v. Doe mandates elementary and secondary education for all children, regardless of immigration status.  The same right must be recognized for adult learners.

Even with better jobs, the housing needs of  families with children are beyond the ability of many households to pay for. The free market gives a bonus to workers without children. This is an example of market failure. It requires some degree of redistribution to all families - or rather - to their employers. This burden has been borne by the government through the earned income tax credit, child tax credit and childcare credit, with the last two being inadequate.

Workers should receive these benefits from their employers - who benefit from having workers at their beck and call. Instead of using the IRS as paymaster for families with children, income transfers to these households - as well as work based child care, should be financed and meted out through a tax and tax benefit program for employers. The same benefits should be delivered to government workers and beneficiaries (both the unemployed, the disabled and the retired). 

Health insurance or direct care by in-house doctors, with specialist care and hospitalization covered by contracts in private HMOs. Having healthcare is a family benefit which mainly benefits employees and their employers. Therefore, it should be funded by a tax on employers, which would be partially offset by coverage for employees in the most economical manner (including secondary market insurance coverage). 

Some amount of revenue from employment based taxes should be retained by the government to fund a public option to cover both the poor, the unemployed and those with pre-existing conditions whose care is too expensive to be provided by the private market.

Community development comes from having well compensated employment, both with adequate wages, including a higher minimum wage, child tax credit and long term unemployment insurance (which preserves the availability of the workforce and replaces disability payments.  While employers should certainly coordinate in providing housing close to work sites, aka Smart Growth, these efforts should not be used to displace disadvantaged populations from their existing homes. 

Community development should go hand in hand with human capital development, aka paid education for adult members of these households (compensated at the minimum wage - thus meeting the opportunity costs of these students).

How should all of this be paid for? A net business receipts tax/subtraction- which would replace special taxes to fund employment insurance and the obligation for most (if not all) families to pay or file taxes while being a conduit for providing an adequate child tax credit (between $500 and $1000 per child per month), adequate childcare, healthcare for employee’s families - rather than having government do it through directly paid child tax credits or some form of single payer or national healthcare program. 

Subtraction Value-Added Tax (S-VAT). Corporate income taxes and collection of business and farm income taxes will be replaced by this tax, which is an employer paid Net Business Receipts Tax. S-VAT is a vehicle for tax benefits, including

• Health insurance or direct care, including veterans' health care for non-battlefield injuries and long term care. 
• Employer paid educational costs in lieu of taxes are provided as either employee-directed contributions to the public or private unionized school of their choice or direct tuition payments for employee children or for workers (including ESL and remedial skills). Wages will be paid to students to meet opportunity costs.  
• Most importantly, a refundable child tax credit at median income levels (with inflation adjustments)  distributed with pay. 

Subsistence level benefits force the poor into servile labor. Wages and benefits must be high enough to provide justice and human dignity. This allows the ending of state administered subsidy programs and discourages abortions, and as such enactment must be scored as a must pass in voting rankings by pro-life organizations (and feminist organizations as well). To assure child subsidies are distributed, S-VAT will not be border adjustable.

Will rising wages and benefits lead to higher inflation? It is a valid question. Households making under the 90th percentile have been losing ground for almost half a century, while incomes above that amount have increased on a regular basis.

The source of inequality, aside from abandoning the 91% top marginal tax rate, is granting raises at an equal percentage rather than by an equal amount. When the 91% rate was repealed, incomes were fairly equal, so it was not an issue. 

The federal government plays an outsized role in how salaries are determined through percentage based cost of living adjustments to government workers, beneficiaries, government contractors. The government can change this with the stroke of a pen.  The private sector will follow suit with a higher minimum wage, adequate child tax credits (as described below) and paying individuals in training from ESL to community college the minimum wage to purse their studies.

From here on in, adjust for cost of living on a per dollar an hour rather than on a percentage basis (or dollars per month or week for federal beneficiaries). Calculate the dollar amount based on inflation at the median income level. No one gets more dollars an hour raise, no one gets less dollars per hour in increases. Increase the minimum wage as above and consider decreasing high end salaries paid to government employees and contractors. Even without decreases, simply equalizing raises will soon reduce inequality. Why is this necessary?

Prices chaise the median dollar. The median dollar of income is actually at the 90th percentile, rather than the 77th percentile (which is about where the median is). This strategy will reduce inflation in both the long and short terms as prices adjust to decreases in higher salaried income. Let me repeat this - prices chase income dollars, not income earners. 

Taxing High Wages, Dividends and Interest

Personal income taxes would be paid on all income distributed as wages, interest or dividends over $105,000. These payments could also be made through employers as a surtax rather than as a personal income tax. Personal or subtraction value added surtaxes will be collected  with a beginning rate of 6.5%, with a top rate of 52% at the $840,000 distribution level. If subtraction VAT surtaxes top out at 26% at the $420,000 level, then personal income taxes kick in at the $525,000 level at 6.5%, topping out at 26% for income above $945,000.

High income individuals will be tempted to use corporations to avoid these taxes, but that corporation would then pay all invoice and subtraction VAT payments (which would distribute tax benefits). 

There is one wrinkle to using employer payment and prepayment bonds to pay high income tax obligations, the taxation of capital gains. No investor wants their employer to have visibility in this area. Meanwhile, taxing capital gains with self-reporting is too easy to game and too often results in underpayment - which is a reason that a wealthy tax would never be successful. 

Collection of capital gains taxes (and using dividends to avoid paying one - or capital gains to avoid the other) is based on the honor system, so that much of the required income disclosure and tax payment is never made. Long-term asset holding (including doing so to not recognize gains) is taxed at a lesser rate. 

The current regime also allows the taxation of gains to be offset by losses - literally failure or the overuse of available deductions - particularly in real estate. Moving tax events from an end of the year accounting to taxing each transaction will end the ability to hide gains forever - especially if the borrowing of unrealized gains is no longer advantageous due to the transition to consumption taxes.

An asset value added tax is the last step in taking the IRS off of life support and letting it die, provided that states collect and enforce non-compliance of credit invoice and subtraction value added taxes. Surtax payments and prepayments would be collected by the Bureau of the Public Debt, with the Securities and Exchange Commission and the Commodity Futures Trading Commission receiving and enforcing payment of an asset VAT.

Asset Value-Added Tax (A-VAT) is a replacement for capital gains taxes and the estate tax. It will apply to asset sales, exercised options, inherited and gifted assets and the profits from short sales. Tax payments for option exercises, IPOs, inherited, gifted and donated assets will be marked to market, with prior tax payments for that asset eliminated so that the seller gets no benefit from them. In this perspective, it is the owner’s increase in value that is taxed.  

As with any sale of liquid or real assets, sales to a qualified broad-based Employee Stock Ownership Plan will be tax free. This change would be counted as a tax cut, giving investors in public stock who make such sales the same tax benefit as those who sell private stock.

The repeal of capital gains taxes in the United States will lead to their repeal worldwide. If Asset Value Added Taxes are adopted, the rate should be negotiated so that investors who are able do not market shop for the lowest rate. The recent OECD compact on minimum rates is an example of how tax cooperation on capital can work for other types of asset taxation.

This tax will end Tax Gap issues owed by high income individuals. The base 20% capital gains tax has been in place for decades. The current 23.8% rate includes the ACA-SM surtax), while the Biden proposal accepted by Senator Sinema is 28.8%. Our proposed Subtraction VAT would eliminate the 3.8% surtax. This would leave a 25% rate in place. 

Settling on a bipartisan compromise between 23.8% and 28.8%, rather than going back and forth and adding such gimmicks as a payroll tax to fund healthcare reform. A 26% rate is a reasonable compromise.

With tax subsidies for families shifted to an employer-based subtraction VAT, and creation of an asset VAT, taxes on salaries could be filed by employers without most employees having to file an individual return. It is time to TAX TRANSACTIONS, NOT PEOPLE! Nothing is more conservative than that notion.

The Results for Main Street, U.S. Innovation and Supply Chains

Allowing heirs to transfer inherited shares to employees will diminish the effect of Wall Street and strengthen Main Street. These firms will flatten wage structures while rewarding real innovation, invention and results. Indeed, their example will change the economy because it will attract the most creative people. This will give a giant boost to U.S. Innovation. Employee-owned firms will shorten supply chains while extending the benefits of such ownership to their foreign subsidiaries and suppliers so that workers up and down the line are rewarded with the same standard of living. Employee-owned firms are uniquely placed to spur new economy innovations, such as the transformation of the food supply and transportation infrastructure that we need to survive.

Some or all of surtax and asset VAT revenue will fund net interest on the debt (which will no longer be rolled over into new borrowing), redemption of the Social Security Trust Fund, strategic, sea and non-continental U.S. military deployments, veterans’ health benefits as the result of battlefield injuries, including mental health and addiction and eventual debt reduction, particularly that portion of the debt held by high yield mutual funds.  

Using higher taxes to reduce the debt makes much more sense than borrowing the same money that would have been paid in taxes in order to fund speculation. Employers and individuals can be given the option to purchase tax prepayment bonds, which could be marketable as a hedge - but without the fees that Wall Street charges to make such arrangements.

The question must be asked, who really pays higher taxes and better benefits. Most CEOs and business owners look at all benefits and taxes paid as a personal cost. If the tax or tax expenditure was removed, the savings would go to increased profits - not to employees. There are three kinds of profit - normal profits paid to shareholders at a high enough rate to attract needed investment, profits directed toward future costs (this assumes that debt is not used to build out physical investment plans) and excess profit paid to executives - some of which end up as political contributions for those who do their bidding.

The Republican Party must decide who it works for. The CEO/Donor class or the American people? If this exercise is being used as a way to justify retaining lower taxes on investors and executives, then we have our answer. The Presidency of Donald Trump was a test of that question and the likely reaction of the public to this will be loud and clear (which will be addressed in the attachment).

How do these proposals square with conservatism?  They do so absolutely. They will

• Give incentives to people who wish to improve their lives. 
• Reduce the prevalence of abortion by increasing the well being of families and by channeling this funding to workers in their wages, 
• End the role of the IRS as paymaster - indeed they may end the IRS itself with the end of income tax payments by families,
• Allow for the end of benefits paid by governments through direct aid with no strings attached,
• Spur real economic growth on Main Street, rather than enriching Wall Street, and
• Bring our debt under control.

Last I checked, these were the essence of conservatism.

Transition Tax Team Comment 1

Submission to the Transition Team and to Secretary-Designate Bessent

WM Republican Tax Teams Comment on American Manufacturing, Main Street, U.S. Innovation and Global Competitiveness, October 11, 2024

Keeping Up with the World

President Trump is correct that the old neo-liberal agenda of free trade has not helped American manufacturing and the American worker. Starting a tariff war is not the answer, however. We must simply comply with the trade regime that holds in the rest of the world by enacting a credit invoice value added (aka goods and services) tax.

Credit Invoice Value-Added Tax (CI-VAT). Border adjustable taxes will appear on purchase invoices. The rate varies according to what is being financed. If Medicare for All does not contain offsets for employers who fund their own medical personnel or for personal retirement accounts, both of which would otherwise be funded by an S-VAT, then they would be funded by the I-VAT to take advantage of border adjustability. 

CI-VAT forces everyone, from the working poor to the beneficiaries of inherited wealth, to pay taxes and share in the cost of government. As part of enactment, gross wages will be reduced to take into account the shift to the Subtraction VAT described in our second set of proposals and the CI-VAT, however net income will be increased by the same percentage as the CI-VAT. Inherited assets will be taxed under A-VAT when sold. Any inherited cash, or funds borrowed against the value of shares, will face the CI-VAT when sold or the A-VAT if invested.

A Reform Agenda

Currently, firms and individuals who charge sales taxes deduct these tax payments from income. These deductions should be credits instead, as the current regime is simply a subsidy to states who collect sales tax.  This small TAX CUT will remove the resistance to enacting a VAT - and the customer at the end of the supply chain pays the same amount of tax as they would for a retail sales tax. There is no tax on top of tax paid.

Sellers on such platforms as Amazon benefit from tools provided by the platform - which collects the money on their behalf. Comprehensive reform which includes credit invoice value added taxes will feature automation, including modules to deal with remote sales. 

Such reforms are a good deal for small businesses, as exempting such firms from VAT filing deprives them of the rebate of taxes paid to vendors. Again, the current income tax deduction for sole proprietors only provides a deduction of sales tax paid - rather than a credit.

Background on Consumption Taxes

Eventually, the United States needs to join the rest of the developed world and enact consumption taxes on consumer goods and services, net business receipts and an innovative tax on asset sales - which would replace capital gains taxation and would require negotiation of an international rate to prevent rate arbitrage. 

The first two would make it easier to pay taxes in general because the simplicity of the first and the fact that the second would replace the business income tax while becoming a conduit for employee health and family support benefits - and would entirely replace the need for most families to pay personal income taxes (if not all) - which would greatly cut down on paperwork requirements businesses currently face. 

The reality is that business collects the revenue and submits it to the Treasury, along with a mountain of information to subsidize the tax preparation industry - who are consistent donors to both Chambers - especially the revenue committees. 

The proposed Fair Tax’s use of a retail sales tax, rather than use of a value added tax at each purchase (but note - the tax is only paid on the base markup  - not the taxes owed because of the markup) will lead to fraud as retail purchase are credited as wholesale - which under the FT is not taxed. This is a huge potential loss. This schema is proposed by Fair Tax sponsors because they misunderstand how a CI-VAT works. For the Fair Tax to ever pass, rather than being a talking point for fundraising, it must work the same way..

When CI-VAT is paid by a merchant or manufacturer, the CI-VAT that they paid for that good or service supplied is refunded to them. 

Saving American Manufacturing and Global Competitiveness

Consumption taxes could have a big impact on workers, industry and consumers. Enacting an CI-VAT is far superior to a tariff. The more government costs are loaded onto an CI-VAT the better for global competitiveness.

If the employer portion of Old Age and Survivors Insurance, as well as all of disability and hospital insurance are decoupled from income and credited equally and personal retirement accounts are not used,  there is no reason not to load them onto an CI-VAT. This tax is zero rated at export and fully burdens imports.  

Seen another way, to not put as much taxation into CI-VAT as possible is to enact an unconstitutional export tax. Adopting a CI-VAT is superior to its weak sister, the Destination Based Cash Flow Tax that was contemplated for inclusion in the TCJA. It would have run afoul of WTO rules on taxing corporate income. I-VAT, which taxes both labor and profit, does not. 

The second tax applicable to trade is a Subtraction VAT or S-VAT. This tax is designed to benefit the families of workers through direct subsidies, such as an enlarged child tax credit, or indirect subsidies used by employers to provide health insurance or tuition reimbursement, even including direct medical care and elementary school tuition. As such, S-VAT cannot be border adjustable. Doing so would take away needed family benefits. As such, it is really part of compensation.  While we could run all compensation through the public sector.

The S-VAT could have a huge impact on long term trade policy, probably much more than trade treaties, if one of the deductions from the tax is purchase of employer voting stock (in equal dollar amounts for each worker).  Over a fairly short period of time, much of American industry, if not employee-owned outright  (and there are other policies to accelerate this, like ESOP conversion) will give workers enough of a share to greatly impact wages, management hiring and compensation and dealing with overseas subsidiaries and the supply chain – as well as impacting certain legal provisions that limit the fiduciary impact of management decision to improving short-term profitability (at least that is the excuse managers give for not privileging job retention).  

Employee-owners will find it in their own interest to give their overseas subsidiaries and their supply chain’s employees the same deal that they get as far as employee-ownership plus an equivalent standard of living.  The same pay is not necessary, currency markets will adjust once worker standards of living rise.  Attachment Three further discusses employee ownership.

Over time, ownership will change the economies of the nations we trade with, as working in employee-owned companies will become the market preference and force other firms to adopt similar policies (in much the same way that, even without a tax benefit for purchasing stock, employee-owned companies that become more democratic or even more socialistic, will force all other employers to adopt similar measures to compete for the best workers and professionals).

In the long run, trade will no longer be an issue.  Internal company dynamics will replace the need for trade agreements as capitalists lose the ability to pit the interest of one nation’s workers against the others.  This approach is also the most effective way to deal with the advance of robotics.  If the workers own the robots, wages are swapped for profits with the profits going where they will enhance consumption without such devices as a guaranteed income.

Dealing with the National Debt - Less than full faith and credit

Any downgrades we have had - and there have been two - did not come because the Democrats are spending out of control. It is because Republicans refuse to compromise until the last minute, with a significant portion of leadership not wanting to compromise at all. This unwillingness cost Mr. McCarthy his Speakership and likely drove John Boehner out of Congress. 

Downgrades came for the same reason - brinkmanship on the debt limit in an attempt to force temporary tax cuts to be made permanent. The irresponsible strategy and the end goal alarm the bond markets because they indicate that one major party has no commitment to fiscal responsibility - play politics instead in fear of Grover Norquist - who no longer has skin in the game. Donald Trump took all of the radical oxygen away from the Republican fringe.

I am going to assume that leadership, especially among members of the Freedom Caucus, as well as their staffs are truly ignorant of how the national debt actually works. In short, it is the reason capitalism can exist at all. This is why, when the debt was paid off and the national bank was closed by Andrew Jackson, the economy collapsed. 

Historic perspectives

In the 1960s, the debt from World War II was quickly being paid down. By the end of the decade, there was no federal debt to leverage other liquid investments. This eventually led to tax cuts, but President Reagan overshot the mark and then codified it in the 1986 tax reform. Presidents Bush and Clinton found the growing deficits unsustainable and adjusted tax reform at the margins. Doing so reduced the debt while fueling economic growth. 

The Clinton cuts to capital gains taxes put too much money into the hands of speculators, which led to the tech boom and bust. It had nothing to do with technology and everything to do with IPOs. Even then, as budget balance was a real possibility, Alan Greenspan sounded the alarm about abolishing the debt. Many thought that this was to preserve the ability to maintain a fractional reserve currency, but the real motivation was to continue to provide the leverage on which capitalism depends.

Federal Debt Ownership

According to the Treasury Bulletin, the national debt is owned by the Federal Reserve System and its member banks (about a third), long term investment, insurance and retirement funds - both public and private - as well as Savings Bonds (another third). Using figures from the 2019 Federal Reserve Survey of Consumer Finance, I estimate that the top 10% of households own around 54% of these funds, with the bottom 90% owning the remainder (although the bottom three quintiles own essentially nothing - nor do they owe it - as will be described below.

The last third is owned by mutual and bond funds, as well as offshore investors. The top 10% of households own 77% of these funds. If the majority continues to dance on the edge of default, these are the investments that are at risk. The top 1% own the same percentages as of what the top 10% hold. This means that from the second to the tenth percentages own 25% of deposits retirement and mutual funds backed by Treasuries. 

The top 1% hold one quarter of debt assets held through deposits and long-term investment funds and half of what is held by mutual and bond funds. There are better ways to increase interest rates for these borrowers than messing with the Full Faith and Credit of the United States, which is essentially what the Freedom Caucus led assault on the status quo is doing.

Let us add that of the debt held overseas, roughly two thirds are held by foreign governments who, by doing so, facilitate international capitalism - especially the import of consumer goods from Japan and China. Messing with these funds put WalMart shopping at risk, as well as the entire chain. Much of the remainder of foreign bond holdings are in the Caymans, Ireland, Switzerland and Luxembourg. In other words, they are held in tax shelters for very wealthy Republican donors.

These investors know exactly where their debt assets are being held. It seems as if members of the Freedom Caucus do not. Unless there is a plot to destroy capitalism that I have not yet heard about, we suggest that the debt limit be abolished and the 2018 tax cuts allowed to expire on schedule. This will restore the confidence of both rating agencies and investors at home and abroad.

Continuing on the current path, where a major portion of the Republican Party acts against the interests of investors and the nation at large and sustains unsustainable tax cuts could have drastic consequences. The entire economy could collapse again, but this time for real. If the Federal Reserve loses its international leverage because the debt has become worthless, there will be no bailouts for questionable investments in mortgage backed securities - investments that have shifted from owner-occupied housing to single-family rentals. The bill to ban hedge fund ownership of these properties will reduce risk overall, but will not save the nation from the risk of losing its good credit.

Who Owes the Debt?

Debt obligation is a function of income tax paid (FICA tax paid to create assets held in trust by the government, not debt obligation). The current factor is 19 dollars of debt owed for every dollar paid in tax. 

Ownership of Social Security assets is realized when households are in the bottom quintiles who, at that time (because only 20% have income beside Social Security), own almost all FICA trust fund assets. The bottom quintiles hold more than their obligation.

The next three quintiles owe more than they own until we get to the top 0.1%. Because half of their income is earned through asset ownership taxed at preferred rates and their high share of ownership of debt, they break even. They own what they owe. In other words, when interest rates go up due to downgrades, their wealth expands in terms of debt owned compared to debt owed. This should guide how the debt should be reduced responsibly.

If we do not start paying our debts (which enactment of a CI-VAT will help us do) or default on the debt, our economy will be ruined. There is nothing conservative about that.

Small Business Remote Sales Tax Collection

Finance FREG: Providing Small Business Relief from Remote Sales Tax Collection, September 25, 2024

A Reform Agenda

Currently, firms and individuals who charge sales taxes deduct these tax payments from income. These deductions should be credits instead, as the current regime is simply a subsidy to states who collect sales tax.  This small TAX CUT will remove the resistance to enacting a VAT - and the customer at the end of the supply chain pays the same amount of tax as they would for a retail sales tax. There is no tax on top of tax paid.

Sellers on such platforms as Amazon benefit from tools provided by the platform - which collects the money on their behalf. Comprehensive reform which includes credit invoice value added taxes will feature automation, including modules to deal with remote sales. 

Such reforms are a good deal for small businesses, as exempting such firms from VAT filing deprives them of the rebate of taxes paid to vendors. Again, the current income tax deduction for sole proprietors only provides a deduction of sales tax paid - rather than a credit.

Please see the following excerpt from our larger tax reform attachment:

Credit Invoice Value-Added Tax (CI-VAT). Border adjustable taxes will appear on purchase invoices. The rate varies according to what is being financed. If Medicare for All does not contain offsets for employers who fund their own medical personnel or for personal retirement accounts, both of which would otherwise be funded by an S-VAT, then they would be funded by the I-VAT to take advantage of border adjustability. 

CI-VAT forces everyone, from the working poor to the beneficiaries of inherited wealth, to pay taxes and share in the cost of government. As part of enactment, gross wages will be reduced to take into account the shift to S-VAT and CI-VAT, however net income will be increased by the same percentage as the CI-VAT. Inherited assets will be taxed under A-VAT when sold. Any inherited cash, or funds borrowed against the value of shares, will face the CI-VAT when sold or the A-VAT if invested.

Background on Consumption Taxes

Eventually, the United States needs to join the rest of the developed world and enact consumption taxes on consumer goods and services, net business receipts and an innovative tax on asset sales - which would replace capital gains taxation and would require negotiation of an international rate to prevent rate arbitrage. 

The first two would make it easier to pay taxes in general because the simplicity of the first and the fact that the second would replace the business income tax while becoming a conduit for employee health and family support benefits - and would entirely replace the need for most families to pay personal income taxes (if not all) - which would greatly cut down on paperwork requirements businesses currently face. 

The reality is that business collects the revenue and submits it to the Treasury, along with a mountain of information to subsidize the tax preparation industry - who are consistent donors to both Chambers - especially the revenue committees. 

The proposed Fair Tax’s use of a retail sales tax, rather than use of a value added tax at each purchase (but note - the tax is only paid on the base markup  - not the taxes owed because of the markup) will lead to fraud as retail purchase are credited as wholesale - which under the FT is not taxed. This is a huge potential loss. This schema is proposed by Fair Tax sponsors because they misunderstand who VAT works. For the Fair Tax to ever pass, rather than being a talking point for fundraising, it must work like a VAT.

When VAT is paid by a merchant or manufacturer, the VAT that they paid for that good or service supplied is refunded to them. 

Abolish TANF

WM:  Reforming Temporary Assistance for Needy Families (TANF): States’ Misuse of Welfare Funds Leaves Poor Families Behind, September 24, 2024

WM Welfare and Work: Where is all the Welfare Money Going? Reclaiming TANF Non-Assistance Dollars to Lift Americans Out of Poverty, July 12, 2023

TANF should be abolished. It is designed to train poor people with limited literacy and skills to do dirty, lower wage work in hospitality or medical assistance. It is one stage below computer systems training at community college through what was once the H-1B technical skills training program (which I staffed in the Department of Labor, although at the time, we also trained medical assistants).

Almost thirty years into the program, its main success is pruning the welfare rolls because of the penalties it put in place for non-compliance. Such non-compliance is easy to fall into for those who are less than fully literate.

The focus of human services spending, which is best provided through the private, charitable or cooperative economy, is to keep people in training or transition them to disability in however much time it takes to do so.  There should be no weeding out of the non-compliant.

When I graduated from Loras College and began graduate studies at the American University, the Washington Area Consortium of Universities held a conference on poverty. Every speaker in every topic area cited education as the key avenue to upward mobility.

For those who are homeless or families in bad housing, the first goal should be decent housing at public expense, although such situations should be supervised to make sure that program beneficiaries know how to run their own households. Program housing should be available until participants are able to find a job or long term educational placement which either pays enough to attain or offers through a longer term educational setting.

Food Stamps should also be abolished and replaced with a child tax credit that provides income which is adequate to feed, clothe and house an additional child, which can be up to $1000 per month. The current amount, which is set to expire in 2025, is $2000 per year. It will revert to $1000 per year, or less, because it is non-refundable. During the pandemic, it was $3,000 per year, or $3,600 for younger children. The President’s Budget proposes this amount be restored and made permanent. It is not adequate, but it's a start.

The President’s Budget also includes funding the first two years of education at community college. The same level of funding should be provided to students in technical training after grade ten and should be available to students at both public and accredited private schools, including religious schools. In Espinoza v. Montana, prohibitions on funding private schools (Blaine Amendments) were found to be unconstitutional. New (and existing) funding should reflect that fact.

Local public, charitable (including religious) and private social welfare and educational providers should provide both case management and housing, as stated above.

Participants should be paid a stipend of at least the minimum wage (which also needs to be increased to $11 per hour with a 30 hour week. For those unable to work or study, that amount should be paid to fund temporary disability. Again, SNAP would be discontinued. Participants in drug court with unmet literacy needs and the disabled in need of either psychiatric rehabilitation services or occupational therapy would be paid to attend education and rehabilitation activities.

In 2021, the House proposed increasing the minimum wage to $15 per hour as part of reconciliation. Until the Senate Parliamentarian ruled that this was out of order and the votes did not exist to overrule her, the Republican Minority counter-offered a $10 per hour.  An $11 wage makes up for cutting hours from 40 a week to 32. For training program participants, 30 hours per week is more than enough.

A main problem with current training regimes is that potential students have opportunity costs that are not covered by training. TANF is simply too narrowly tailored and directs too many people to low wage work, especially in the dirtiest jobs in the medical field. The woke among us do not have to look hard for the intrinsic sexism and racism in this scheme.

Providing minimum wage pay to attend school will assure that, when the wage is increased, those without skills will not be priced out of the economy - as some fear when opposing raising the wage. One reason to raise the minimum wage is precisely so no one lives only on their child tax credit proceeds.  There are some in both parties who believe that the child tax credit should have a work requirement. I agree if that work includes being paid to go to school.

Paid training must be provided to those whom the education system and the former culture of dependency has failed. The caricature of the welfare cheat was never reality, however those who were and are trapped in poverty usually have educational deficits, as well as a history of family incarceration due to the war on drugs and its disproportionate penalties for Black and Hispanic men.

English as a Second Language should not only be free, but workers should be paid to attend, irrespective of immigration status. Part-time workers should also be eligible for this benefit.

Payments for tuition, stipends and family support would be funded by employer-paid subtraction value added taxes. Ideally, both state and federal subtraction VAT will be enacted. A federal VAT would be levied to assure that a minimum amount of funding is available should states underfund their programs, which some will. 

Our attachment on Consumption Taxes provides information on how this tax would work. These proposals are what the Fair Tax would look like if it was designed to work effectively and provide family benefits without making the Social Security Administration and state government the paymaster for delivering prebates. The proposed (Credit) Invoice VAT replaces the current deduction for sales taxes paid with full crediting of the same amount (and then adding the federal portion).

Tax reform undertaken during this process would end tax filing for most families (and certainly all poor ones). The more generous child tax credit and higher minimum wage (including for training) allows for the abolition of the EITC.

Attachment: Consumption Taxes (Video links included)

Trump, Roe and Dobbs

Finance: Chaos and Control: How Trump Criminalized Women’s Health Care, September 24, 2024

A Moral End to Roe and Dobbs

In the November 2023 edition of Logos, Crumley and Jones took on the question of a moral vindication of Roe v. Wade, doing a good job of covering the waterfront on the moral status of pre-born – the term unborn calls forth images of a zombie apocalypse. I argue that the more important debate is how to weigh the interests of the various actors in the drama that is abortion law and politics. Let us begin by casting the play. Not every actor will make the cut.

The main characters are the child at various stages in the roles of zygote, blastocyst,  post-gastrulation embryo, doomed fetus and viable child; mothers, supported by their doctor and family members; American citizens and residents in general; James Madison and the ratifiers of the Bill of Rights and the authors and ratifiers of the Fourteenth Amendment; State Governments; the Confederacy and its heirs - Team Pro-Life, which include the American Catholic Bishops, their Evangelical enablers and true believers (until the Moral Majority – Evangelicals were not pro-life) and the various organizations who are active in the movement;  Donald Trump and Vladimir Putin; the Supreme Court; the various organizations supporting choice; Congressional Republicans and Congressional Democrats and God.

Since the last shall be first, let us give God the first audition. God sends regrets and has been trying to tell his agents to take Them off the casting list (take that as either trinitarian or woke). God has no personal stake in this play, nor will They punish anyone on the cast. God, to be qualified as a Supreme Being, must not depend on Their creatures for moral validation. They are not codependent. 

For those who are Christian, the Son said that He/They were gentle and humble of heart, Their yoke is easy and Their burden light – and that the Father (YHWH aka Being) is perfect, and we should be perfect in the same way – in Love (aka Shekinah – the Spirit), not conduct. This is for our temporal happiness. God cannot see what God does not have – sinfulness – this is the true interpretation of the axiom that God cannot bear the sight of sin – it is because God has no relation to it, having none of it. God must, therefore, be considered a Humanist, having no personal interest in this particular drama, but loves the entire cast anyway – even Trump.

The relationship between Trump and Putin turns the pro-life movement into a scandal, especially as there are those who excuse the Insurrection because of it. Any moral authority they had – although I will address the bishops separately – is gone. The fact that many of them have grown wealthy and turned the issue to a cash cow earns them the Bum’s Rush. Paging Security! The Choice Movement will also be dealt with later, although their activities in support of the Democrats do not earn them style points. 

We now have the cast. Without reference to Divine Authority, the play must be based on constitutional and legal relationships and a humanistic view of morality. Absolutism left the audition with God.  Humanism is not necessarily relativistic. If it were, it would not exist as a separate entity absent its social construction. 

Humanism has at its basis, personal and social/moral happiness within this life. For instance, we do not countenance murder because doing so leads to our being murdered – as is too often the case when youth take revenge into their own hands and the community allows them to do so. Theft and infidelity are moral or immoral on the same basis, although people may make arrangements on either – although personal experience has taught that such things do not work out. 

This sets up the dialogue on abortion perfectly. How does the Golden Rule, which is ultimately humanistic, relate. Some would say that abortion is the same thing as murder in the above context. No, it is not. 

The related situation is whether one has an opinion on ending one kind of pregnancy allows them to be free of other such interference with their own pregnancy loss. This is where the pro-choice movement get style points back, because being left alone with one’s family and doctor regarding the death of a child must be considered a universal right. We could end there, but that would be premature. Society, the child and the mother (with doctors and family as supporting characters) now enter the stage.

To keep this rated PG-13, we will omit what got the child to the zygote stage. At this point, a zygote has chromosomes from each parent, but is not using the entire set. At this point, it is a collection of stem cells that, with the development of the chorion – which becomes the bag of waters or placenta, becomes a blastocyst. If you remove a few stem cells, or even half in the case of twinning, the child has no loss of integrity – so it is not really a child yet. At gastrulation, this changes. Regardless of whether there is an eternal soul (and I believe there is), the materialistic soul picks up at this point and keeps on chugging until its electro-chemical activity has ceased at death (or is restarted after a near death experience or if the cold-water reflex preserves life before decay starts). 

Does this end the question, regardless of the right of families to be left alone (the violation of which might lead to few police officers being attacked by protective fathers)? No. This is where the American Public, as a Greek Chorus, enters the play, along with James Madison and the other constitutional actors.

At this point of the story, we examine what is meant by the right to life, not as proffered by the self-styled movement, but the one actually found in the Bill of Rights. In the Fifth Amendment, the right to life is limited to its taking by the Government. It has no other meaning. In the Fourteenth Amendment, this right is expanded to being taken by State governments. In both cases, the Child at all stages has an equal right to life. For this reason, pregnant women cannot be executed. 

This logic also applies to the Unborn Victims of Violence Act. If the child is harmed with its mother, it and its heirs have a right to civil and criminal redress. In the Act itself, however, the right to abortion is guaranteed. In other words, there is no need for a so-called Freedom of Choice Act. The Supreme Court erred when it did not consider this question and the Pro-Choice movement erred when it did not cite the Act during the argument over Dobbs, instead relying on stare decisis. They did a bad job of reading the room.

Cue the Supreme Court. The reason that Roe was rightly decided was that viability, which was not well defended as a principle, implies the ability to be born. Prior to that ability, there can be no enforceable right to life against the mother. Further, the Fifth and Fourteenth Amendments do not protect an individual from being murdered. That is a social contract question, not an essential rights question. Thank you to Locke and Hobbes for the Cameo role.

Cue the Confederacy and State Governments and then haul them off the stage. The reason Dobbs was wrongly decided  is that letting this matter reside with the State Governments is the same mistake the Founders made by allowing slavery to exist as a matter of state power, and later segregation in the matter of Plessey v. Ferguson. That Justice Alito cited Plessey to resurrect the same view of state power on the abortion issue would be funny save for the fact that it is so harmful to both women and the rule of law in this country. 

The mistake the pro-choice movement made was not making this point and not justifying the right to abortion in terms of viability, rather than birth, as its border – as under Roe and the Constitution they are the same thing – but only if the point is made. The other mistake that the pro-choice movement and Justice Brenan made was not specifically stating the role of Congress in further defining when the right to be considered as if born begins. That was a bridge too far for the movement, but it was a necessary one to prevent the current status quo. 

The current post-Dobbs regime allows Attorney General Paxton to pursue cheap publicity for threatening a woman who needed a necessary abortion because the child she was carrying could not survive. Because her moral right to life is absolute and because her child could never be born, the child has no moral right against hers. 

This is where I bring back the Catholic Church so that we may all boo them, as they teach differently. They still fear that God will smite them if they follow this very rational point to its conclusion. Boo them twice for thinking that the honor of God must be protected, when it is their own honor that they are seeking. Again, from the start, God has no personal stake it this over what is good for people in this life. Now use their own bishops crooks to remove them from the stage.

Cue the Democrats and Republicans from Congress. Like it or not, the Fourteenth Amendment has given them the power to decide this issue – and in a way that the Supreme Court cannot resist, and that State Governments cannot usurp. We are now left with the mother, the doomed child, Mitch McConnell and Chuck Shumer. Each side wants Congress to enact a law to either affirm Roe or nationalize Dobbs. To end the debate, their wish needs to be granted – and this can only happen if they compromise.

Up to the point when a fetus can be delivered live, abortion must remain unrestricted. After that point, the child has a right to be born – and a right to be allowed to then die. There is no moral responsibility to give extraordinary measures to the dying, no matter what age. Those who wish to do so are pursuing a political position, not a moral one. 

What bothers our Greek Chorus are those methods that are used to terminate a pregnancy once a child can be physically delivered. A lethal injection of sodium pentothal without first tranquilizing the condemned man is considered cruel and unusual. It shocks the conscience, even if administered in utero. The subsequent dismembering of the fetus, especially without the lethal dose, is even more abhorrent. Those who object to these acts are not wrong. 

Induction, therefore, is the only acceptable way to end a pregnancy once it can physically occur. It should be allowed, however, at any time in the pregnancy – especially for the doomed child whose eventual stillbirth is injurious to the mother. No one has a right to not be born. This is the appropriate place to draw the line and the inevitable conclusion for any political compromise. When this occurs, both the pro-life and pro-choice movements can exit the stage, with the curtain descending to leave the mother, the child, the doctor and, if called, clergy for baptism. 

The alternative for the Church is to let the unsavory methods of abortion continue. If it stands in the way of compromise, it is causing such methods to continue under the pretext of honoring God. This makes absolutely no sense. This implies that Catholic hospitals should participate in the movement for fetal hospice, which is exactly what I propose.

On the matter of Down’s Syndrome children, no one has any room to object to their early birth and hospice period, but especially without providing for respite care for parents and a life-long right to full disability benefits at the maximum level, regardless of work history. It is the lack of these that cause families to face the agonizing decision of whether to abort these children or not. 

Speaking for the disabled, the rest of us could use a raise as well. Four-fifths of retirees and all the disabled have only benefit checks to sustain us. The thought that we must be punished for not saving adequately is abhorrent, as is not enacting a child tax credit at median income levels so that all families can comfortably afford having an additional child. If the Catholic Bishops wish to redeem themselves after some of them supported Trump and other Republicans, it is their moral duty to insist on such benefits as a positive (social contract) right.

Oil Price Inflation

House Budget: The Cost of the Biden-Harris Energy Crisis, September 19, 2024

The need to regulate oil futures became obvious in 2008, when it was found that speculation - rather than physical  supply - was driving oil prices. 

The U.S. Energy Information Administration had reported in 2023 that speculation is a major driver of oil prices.  This study, which reflects the 2008 situation and which has not been taken down since, lays this out in great detail at https://www.eia.gov/finance/markets/crudeoil/financial_markets.php  

In June of 2008, CFTC Commissioner Bart Chilton testified on the Increasing Transparency and Accountability in Oil Markets Act, then under consideration. Sadly, when the Act was passed, investment bankers could not cover their positions, so they dumped their mortgage backed securities - which were also worthless. This brought on the Great Recession and the passage of Dodd-Frank to make sure it would not happen again.

In the waning days of the Obama Administration, the Commodity Futures Trading Commission issued a proposed rule to limit speculation in oil market futures contracts, as well as other derivatives contracts, subsequent to the Dodd-Frank Act. Unexpectedly, Donald Trump was elected President.  

As reported by Robert Pozen of the Brookings Institution, on February 3, 2017, Trump issued one of his “executive order” memoranda that, while they had no effect, set off a chain of events that would gut Dodd-Frank reforms, including those which attempted to regulate oil futures speculation. 

In February 2018, Mick Mulvaney was appointed as the acting director of the Consumer Financial Protection Bureau. His mission was to tear down the Bureau and its recent regulations. The Trump tax reforms were just taking effect. The Financial Times reported that month that ‘Fundamentals do not matter to (a) new breed of oil speculator.’  

On July 31, 2018, the CTFC published a “Notice of Proposed Rulemaking to amend Commission regulation 41.25 to update the position limit rules for SFPs to provide regulatory comparability with equity options, foster innovation by providing a framework for position limits on SFPs that are not covered under the existing rules, and provide flexibility to DCMs in setting position limits for such products.”  In other words, they took their foot off the brakes.  A series of final rules were published and withdrawn, including one issued in the waning days of the Trump Administration - January 14, 2021 - on position limits for derivatives. 

When Russia invaded Ukraine, oil prices shot through the roof - mostly because there was too much money in the speculation sector. Because the Trump tax rates are still in force, undue rewards for speculation are still available - and why energy prices are still above what they should be, given the supply of oil available.

To add injury to injury, Blackrock has led other oil investors in pressuring U.S. oil companies to hold back on increasing supplies in order to keep prices high - and to do so in cooperation with OPEC. The Senate Budget Committee is now investigating reports from the FTC that former Pioneer Oil CEO Scott Sheffield attempted to collude with OPEC to increase prices and profits for his company in doing so. Democrats on the House Energy and Commerce Committee are also investigating.

Perhaps the Committee should keep up with what the other chamber and members of the minority are doing to uncover the truth, rather than playing politics in order to cover up what their side of the aisle is doing to keep oil prices, and with them, inflation high for American consumers.

There is little danger that the current effort to blame inflation of Vice President Harris will affect the election. The main questions are whether the release of all evidence against Citizen Trump on September 26th will cause him to end his campaign; if he stays in, how these disclosures will affect the election; if he leaves, who will the National Republican Committee choose to replace him with - i.e., whether the GOP is stuck with Senator Vance - especially if Ambassador/Governor Haley decides not to save the Party at the last moment.

Attachment: Energy Taxes

Lower Health Costs through Inflation Reduction Act

Finance: Lower Health Care Costs for Americans: Understanding the Benefits of the Inflation Reduction Act, September 17, 2024

The President proposed further action to Lower Health Care Costs, making permanent the expanded premium tax credits that the Inflation Reduction Act extended, providing Medicaid-like coverage to individuals in States that have not adopted Medicaid expansion, paired with financial incentives to ensure States maintain their existing expansions.

We supported this proposal but noted that the President is forgetting his promise to create a  Public Option. We disagreed with the president on how to shore up the HI trust fund and expand the Affordable Care Act.  ACA subsidies are too low and are funded by taxing the wrong people (investors). Families in the Silver Plan still have problems meeting copays and paying premiums. The funding is also unfortunate. Rather than expanding Medicaid, replace it for the non-elderly with the  Public Option proposed in 2009.  Please see the attachment in single-payer healthcare in general.

The public option should be extended to individuals who are denied coverage under pre-existing condition rules. Such rules must be revoked as the price of passing the bill. Such a trade-off is necessary for enactment of such a proposal on a bipartisan basis. 

Developing the Public Option needs to be funded in the 2025 budget, or at least for 2026. Particularly, it should explore the impacts on coverage and cost of automatically enrolling individuals who are denied coverage under pre-existing condition rules. 

The way to fully fund healthcare is through an employer-paid subtraction value added tax, which is an employer paid Net Business Receipts Tax.

Instead of increasing corporate tax rates, we suggest eliminating Corporate Profits taxes and taxation of business income on Form 1040 with a Subtraction VAT (with limited offsets for employee and and possibly retiree healthcare) and a credit invoice tax on both labor and profit. The combined rates of these taxes will burden both profits and labor costs, raising much more money.

S-VAT is a vehicle for tax benefits, including

Health insurance or direct care, including veterans' health care for non-battlefield injuries and long term care. 

Most importantly, a refundable child tax credit at median income levels (with inflation adjustments)  distributed with pay. 

Subsistence level salaries and benefits force the poor into servile labor. These must be high enough to provide justice and human dignity. This allows the ending of state administered subsidy programs and discourages abortions, and as such enactment must be scored as a must pass in voting rankings by pro-life organizations (and feminist organizations as well). To assure child subsidies are distributed, S-VAT will not be border adjustable.

The President’s Budget cites PhARMA profits as a rationale for increasing business income tax rates.  He proposes raising Tax Rates for Large Corporations. PhARMA’s excuse for high prices is for developing orphan drugs. We have a proposal to solve that problem.

PhARMA justifies its profits because it is burdened with high development costs for new and orphan drugs. We renew our call for a more “corporate approach” for government research and testing of new drugs.

Part of ARPA-H is the funding for research on orphan drugs and the lingering problem of their cost once research leads to product development. In comments to Senate Finance on March 16th of this year, we repeated our proposal in this area for NIH to retain ownership in any such drug and contract out its further development and manufacture. Keeping ownership in public hands ends the need for drug companies to charge extreme prices or increase prices for its existing formulary to fund development. 

PhARMA would still make reasonable profit, but the government would eat the risk and sometimes reap the rewards. NIH/FDA might even break even in the long term, especially if large volume drugs which were developed with government grants must pay back a share of basic research costs and the attached profits, as well as regulatory cost.

Attachment: Single Payer

Tax Reform 2025 and Tax Avoidance

Finance: The 2025 Tax Policy Debate and Tax Avoidance Strategies, September 12, 2024

There are a number of tax avoidance schemes currently in play, as well as poor taxes and one potential scheme that would evolve should the Fair Tax be taken seriously, as well as a way to cut administrative costs if enacted. 

The most notorious tax avoidance is when the wealthy borrow money against their unrealized assets to live a lavish lifestyle and/or to develop new business lines. That money is borrowed avoids selling assets - which would trigger income tax events. Unrealized capital gains, when inherited below the level where inheritance taxes accrue, are a huge transfer of wealth (and for some, power over employees). Using life insurance and trust arrangements to avoid taxes are in the same ballpark.

Collection of capital gains taxes (and using dividends to avoid paying one - or capital gains to avoid the other) are based on the honor system, so that much of the required income disclosure and tax payment is never made. Long-term asset holding (including doing so to not recognize gains) is taxed at a lesser rate. 

The current regime also allows the taxation of gains to be offset by losses - literally failure or the overuse of available deductions - particularly in real estate. Moving tax events from an end of the year accounting to taxing each transaction will end the ability to hide gains forever - especially if the borrowing of unrealized gains is no longer advantageous due to the transition to consumption taxes.

The deductibility of wages of employees, which forces employees to pay taxes and to pay experts to prepare these taxes, is a huge tax break for business.  The reality is that business collects the revenue and submits it to the Treasury, along with a mountain of information to subsidize the tax preparation industry - who are consistent donors to both Chambers - especially the revenue committees. 

Payments to preparers to help families file the Earned Income Tax Credit is a poor tax. Higher minimum wages, paired with a higher child tax credit, provides more to those who need income subsidies while not making them wait for their money. Having such a refund paid in one lump sum makes it look like a windfall, while putting families in the position of needing such a windfall because they cannot make ends meet.

Deducting wages also leads to the taxation of wages and profit at different rates, which spreads inequality and interferes with the economy. The offloading of labor costs is the chief reason that corporate (and non-corporate) tax breaks are so ubiquitous. 

If labor and capital were taxed together through value added taxation, the justification for special tax breaks on profit goes away. This also eliminates any benefit from moving company locations off-shore, even when headquarters staff remain in the United States. There would also be no need for an international agreement on corporate income tax rates - because such taxes would no longer exist if our proposed reforms are enacted.

The proposed Fair Tax’s use of a retail sales tax, rather than use of a value added tax at each purchase (but note - the tax is only paid on the base markup  - not the taxes owed because of the markup) will lead to fraud as retail purchase are credited as wholesale - which under the FT is not taxed. This is a huge potential loss. This schema is proposed by Fair Tax sponsors because they misunderstand who VAT works. For the Fair Tax to ever pass, than being a talking point for fundraising, it must work like a VAT.

When VAT is paid by a merchant or manufacturer, the VAT that they paid for that good or service supplied is refunded to them. Currently, firms and individuals who charge sales taxes deduct these tax payments from income. These deductions should be credits instead, as the current regime is simply a subsidy to states who collect sales tax.  This small TAX CUT will remove the resistance to enacting a VAT - and the customer at the end of the supply chain pays the same amount of tax as they would for a retail sales tax. There is no tax on top of tax paid.

The proposed prebate to either Fair Tax or VAT provides for tax payment refunds only. This forces current subsidies for working class families to move from the tax system (which is the biggest source of such support) to a reconstituted social welfare system with the attendant bureaucracy. 

Some Fair Tax supporters like the idea of simply ending these subsidies - while also refusing to raise wages for the working class.  Not raising the minimum wage - and refusing to index it - suppresses wage growth for working families making under $110,000 per year - which is 80% of the population. Such premeditated inequality is abhorrent in any civilized society and those who support the Fair Tax to do so, especially if they also support banning abortion, are acting shamefully.

During the American Rescue Plan Act, the IRS distributed the enhanced refundable child tax credit. Instead, this should be distributed with wages, and Vice President Harris’ proposed credit size should be enacted for all children - not just during the first year. To pay this credit without an income tax system, as well as to distribute health insurance subsidies, a subtraction value added tax is necessary - although taxes collected at the base rate should be revenue neutral - in other words, the tax rate should fund the subsidies provided to wage earners on average. Some firms would be given a refund, while some would pay if their employees have fewer children than other firms. The refund would be limited to an offset against the collected credit invoice goods and services tax that we have proposed.  The higher child credit rate can also be used to justify deeper cuts in social welfare plan benefits and administrative costs.

Cutting taxes while borrowing money from those who would be taxed is another huge tax avoidance problem. What is even worse is that, for the highest income taxpayer/bondholders, the bonds that are bought for their high yield mutual fund account are used for speculative investments, some of which are actual junk masquerading as AAA+ bonds. 

Should the economy begin to falter when the Dow and housing prices hit their ceilings, increasing tax rates on the wealthy, as well as on asset sales, will increase consumption and speed recovery. Indeed, if we were to increase these tax rates as soon as possible next year, the high asset values will come down without crashing.

Attachment: Consumption Taxes (Video links included)

Attachment: Asset Value Added Taxes Video

Attachment - Consumption Taxes

Subtraction Value-Added Tax (S-VAT). Corporate income taxes and collection of business and farm income taxes will be replaced by this tax, which is an employer paid Net Business Receipts Tax. S-VAT is a vehicle for tax benefits, including

• Health insurance or direct care, including veterans' health care for non-battlefield injuries and long term care. 
• Employer paid educational costs in lieu of taxes are provided as either employee-directed contributions to the public or private unionized school of their choice or direct tuition payments for employee children or for workers (including ESL and remedial skills). Wages will be paid to students to meet opportunity costs.  
• Most importantly, a refundable child tax credit at median income levels (with inflation adjustments)  distributed with pay. 

Subsistence level benefits force the poor into servile labor. Wages and benefits must be high enough to provide justice and human dignity. This allows the ending of state administered subsidy programs and discourages abortions, and as such enactment must be scored as a must pass in voting rankings by pro-life organizations (and feminist organizations as well). To assure child subsidies are distributed, S-VAT will not be border adjustable.

Higher tiers of the subtraction VAT would collect taxes on salaries with a 6.5% rate on income over $85,000, with increments of that amount to a top rate of 26% starting at $340,000 in salaried income. Salary surtaxes, with an option to purchase tax prepayment bonds, would start at $425,000 at 6.5% to a top rate of 26% starting at $680,000. Employers could also be given the option to buy tax prepayment bonds - which could be marketable.

Taxation of dividends will be included in surtaxes to the Subtraction VAT for payments over $85,000 in taxes plus dividends in a given year, however individual filing for wage. dividend and interest income under $425,000 will not be required. Again, the capital gains tax will be abolished.

Video Three: Subtraction value added taxes (net business receipts)

Credit Invoice Value-Added Tax (CI-VAT). Border adjustable taxes will appear on purchase invoices. The rate varies according to what is being financed. If Medicare for All does not contain offsets for employers who fund their own medical personnel or for personal retirement accounts, both of which would otherwise be funded by an S-VAT, then they would be funded by the I-VAT to take advantage of border adjustability. 

CI-VAT forces everyone, from the working poor to the beneficiaries of inherited wealth, to pay taxes and share in the cost of government. As part of enactment, gross wages will be reduced to take into account the shift to S-VAT and CI-VAT, however net income will be increased by the same percentage as the CI-VAT. Inherited assets will be taxed under A-VAT when sold. Any inherited cash, or funds borrowed against the value of shares, will face the CI-VAT when sold or the A-VAT if invested.

Carbon Added Tax (C-AT). A Carbon tax with receipt visibility, which allows comparison shopping based on carbon content, even if it means a more expensive item with lower carbon is purchased. C-AT would also replace fuel taxes. It will fund transportation costs, including mass transit, and research into alternative fuels. This tax would not be border adjustable unless it is in other nations, however in this case the imposition of this tax at the border will be noted, with the U.S. tax applied to the overseas base. 

Video Four: (Credit) Invoice value added (Goods and Services) taxes and carbon added taxes 

Attachment - Asset Value Added Tax

Asset VAT - The 2025 Tax Policy Debate and Tax Avoidance Strategies

There are two debates in tax policy: how we tax salaries and how we tax assets (returns, gains and inheritances). Shoving too much into the Personal Income Tax mainly benefits the wealthy because it subsidizes losses by allowing investors to not pay tax on higher salaries with malice aforethought.

Asset Value-Added Tax (A-VAT) is a replacement for capital gains taxes and the estate tax. It will apply to asset sales, exercised options, inherited and gifted assets and the profits from short sales. Tax payments for option exercises, IPOs, inherited, gifted and donated assets will be marked to market, with prior tax payments for that asset eliminated so that the seller gets no benefit from them. In this perspective, it is the owner’s increase in value that is taxed.

As with any sale of liquid or real assets, sales to a qualified broad-based Employee Stock Ownership Plan will be tax free. This change would be counted as a tax cut, giving investors in public stock who make such sales the same tax benefit as those who sell private stock.

The repeal of capital gains taxes in the United States will lead to their repeal worldwide. If Asset Value Added Taxes are adopted, the rate should be negotiated so that investors who are able do not market shop for the lowest rate. The recent OECD compact on minimum rates is an example of how tax cooperation on capital can work for other types of asset taxation.

This tax will end Tax Gap issues owed by high income individuals. The base 20% capital gains tax has been in place for decades. The current 23.8% rate includes the ACA-SM surtax), while the Biden proposal accepted by Senator Sinema is 28.8%. Our proposed Subtraction VAT would eliminate the 3.8% surtax. This would leave a 25% rate in place.

Settling on a bipartisan 22.5% rate (give or take 0.5%) should be bipartisan and carried over from the capital gains tax to the asset VAT.A single rate also stops gaming forms of ownership. Lower rates are not as regressive as they seem. Only the wealthy have capital gains in any significant amount. The de facto rate for everyone else is zero.

With tax subsidies for families shifted to an employer-based subtraction VAT, and creation of an asset VAT, taxes on salaries could be filed by employers without most employees having to file an individual return. It is time to TAX TRANSACTIONS, NOT PEOPLE!

The tax rate on capital gains is seen as unfair because it is lower than the rate for labor. This is technically true, however it is only the richest taxpayers who face a marginal rate problem. For most households, the marginal rate for wages is less than that for capital gains. Higher income workers are, as the saying goes, crying all the way to the bank.

In late 2017, tax rates for corporations and pass-through income were reduced, generally, to capital gains and capital income levels. This is only fair and may or may not be just. The field of battle has narrowed between the parties. The current marginal and capital rates are seeking a center point. It is almost as if the recent tax law was based on negotiations, even as arguments flared publicly. Of course, that would never happen in Washington. Never, ever.

Compromise on rates makes compromise on form possible. If the Affordable Care Act non-wage tax provisions are repealed, a rate of 26% is a good stopping point for pass-through, corporate, capital gains and capital income.

A single rate also makes conversion from self-reporting to automatic collection through an asset value added tax levied at point of sale or distribution possible. This would be both just and fair, although absolute fairness is absolute unfairness to tax lawyers because there would be little room to argue about what is due and when.

Ending the machinery of self-reporting also puts an end to the Quixotic campaign to enact a wealth tax. To replace revenue loss due to the ending of the personal income tax (for all but the wealthiest workers and celebrities), enact a Goods and Services Tax. A GST is inescapable. Those escapees who are of most concern are not waiters or those who receive refundable tax subsidies. It is those who use tax loopholes and borrowing against their paper wealth to avoid paying taxes.

For example, if an unnamed billionaire or billionaires borrow against their wealth to go into space, creating such assets would be taxable under a GST or an asset VAT. When the Masters of the Universe on Wall Street borrow against their assets to avoid taxation, having to pay a consumption tax on their spending ends the tax advantage of gaming the system.

This also applies to inheritors. No “Death Tax” is necessary beyond marking the sale of inherited assets to market value (with sales to qualified ESOPs tax free). Those who inherit large cash fortunes will pay the GST when they spend the money or Asset VAT when they invest it. No special estate tax is required and no life insurance policy or retirement account inheritance rules will be of any use in tax avoidance.

Tax avoidance is a myth sold by insurance and investment brokers. In reality, explicit and implicit value added taxes are already in force. Individuals and firms that collect retail sales taxes receive a rebate for taxes paid in their federal income taxes. This is an intergovernmental VAT. Tax withheld by employers for the income and payroll taxes of their labor force is an implicit VAT. A goods and services tax simply makes these taxes visible.

Should the tax reform proposed here pass, there is no need for an IRS to exist, save to do data matching integrity. States and the Customs Service would collect credit invoice taxes, states would collect subtraction VAT, the SEC would collect the asset VAT and the Bureau of the Public Debt would collect income taxes or sell tax-prepayment bonds.

Video: https://youtu.be/azVxkDBN7AA