Thursday, December 14, 2017

Hey, Michael Sean!: Giving tax reform a bad name

Hey, Michael Sean!: Giving tax reform a bad name: https://www.ncronline.org/news/opinion/signs-times/giving-tax-reform-bad-name MGB:_..I got interested in tax policy in graduate school, when I learned about the demands of Catholic Social Teaching for a living wage based on family size, which along with my commitment to corporate socialism, which was really cooperative socialsm, was called Fiscal Communism. I later found out that Milton Friedman had the same idea, called the negative income tax and that President Ford had enacted it as a child tax credit.



In 1998, Ways and Means and Bill Clinton were talking about Social Security reform and I started making comments for the record and sharing them, often the old fashioned way, by mail. I also joined some online conversations on tax reform, replacing income taxes with a business income tax that filed taxes on what was already being withheld and then distributed tax benefits like the child tax credit. This is a good idea for working class households, but I have always believed that wealthier households should continue to pay a separate income tax.



In 2002, President Bush had a Social Security commission which I contributed to, consolidating these commets into an article for Labor and Corporate Governance in January 2003. (the second part on corporate governnace and wage equity was not printed). In 2005, I submitted testimony to the President’s Tax Reform Task Force, whcih included by two-part business income tax and corporate income surtax. These were included in my book, Musings from the Christian Left.



In 2011, Ways and Means and Finance began hearings on tax reform, while the Fiscal Commission also began deliberations on how to cut enough spending to deal with the expiration of the Bush Tax Cuts. For the next few years, I responded to each congressional hearing on tax reform, health care and Social Security, which were frequent until the passage of the American Tax Relief Act of 2013, which essentially gave President Obama exactly what he ran on, preserving tax cuts for the bottom 98% and letting them go back to Clinton levels for the top 2%. Corporate Tax reform was left on the agenda and dislike of Obama left it there.. I put forth a four point program as follows:







  • A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure very American pays something.
  • Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year to fund net interest payments, debt retirement and overseas and strategic military spending and other international spending, with graduated rates between 5% and 25%.  
  • Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.
  • A VAT-like Net Business Receipts Tax (NBRT), which is essentially a subtraction VAT with additional tax expenditures for family support,  health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.






Hearings started again when Kevin Brady became chairman of Ways and Means and continued through the release of introduction of the Tax and Job Cuts Act in the House, although the Senate held additional hearings before mark-up. It is certainly not what I spent the last The Bill contains nothing for the working or middle class and everything for corporations and the executive class. It essentially undoes Obama’s tax poliicies. It will lead to another boom and bust and give every incentive to companies to cut costs and give the savings to CEOs and stockholders. Even if the bill could be made bipartisan, it is rotten at the core and must be killed. My testimony on that can be found at  http://fiscalequity.blogspot.com/2017/11/tax-and-job-cuts-act.html



The standard deduction should be increased, but to four times what is proposed, with consumption taxes replacing that revenue and much higher taxes on the rich, as well as much more generous child tax credit increases to the levels USDA estimates are required to raise a child. That $1000 per child per month should come with pay, but as a carve out from base pay. Gift taxes are irrelevant. If they are still extant, then rates must be higher. Either way, the rich need to start paying down the debt before their children have to pay it back with still higher taxes. It should never be paid back by the working class. It is time to end the bondholder aristocracy started by Hamilton which this bill seeks to continue.

Wednesday, December 13, 2017

House-Senate Conference Committee for the Tax Cuts and Jobs Act, H.R.1

Recommendations for the
United States Congress
Tax Cuts and Jobs Act, H.R.1
Wednesday, December 13, 2017, 2:00 P.M.
By Michael G. Bindner
Center for Fiscal Equity


Chairmen Brady and Hatch and Ranking Members Neal and Wyden, thank you for indulging us as frequent commentators for the record in one last set of suggestions to the Conference Committee on H.R.1.

This is not the tax reform bill we had hoped for. Frankly, the path negotiated during the Obama Administration enacted under the American Tax Relief Act and The Budget Control Act were adequate to give us our current economy, which is improving, albeit too slowly for workers.

We are on record predicting that enactment of the Fiscal and Job Cuts Act (not a typo) will restrict wages and cause other labor cost savings so that executives can cash in on the lower tax rates by earning higher bonuses, so that any economic gains (and growth could come faster) would be from deficit spending.

Countering with budget cuts, particularly to seniors, the disabled and the poor, both worthy and unworthy, will lead to the proceeds of these tax cuts being used for the kinds of assets that lead to boom and bust cycles, most recently the 2008 Great Recession.

We believe that the economy can do better and that some tax cuts are better than others, although entitlement reform is best pursed inside of a tax reform that contains a subtraction value added tax/net business receipts tax (NBRT), where certain entitlements can be shifted to employers in lieu of paying a portion of the tax, with this encouraging both employment and participation in training programs in order to have access to social services.
These deduction and credits could include everything from the last two years of undergraduate and graduate education to a more robust child tax credit to health care reform that encourages hiring medical staff directly (thus matching the incentive to cut cost to the ability to do so) to retirement savings in lieu of Social Security, although the savings should be in the form of employer voting stock rather than unaccountable index funds run from Wall Street. These reforms can be hammered out next year or in the next Congress, but the right tax to hold them is clearly the NBRT.

Aside from the short term economic benefit to workers from not giving CEOs an incentive to cut labor costs, we remind the Committee that in the future we face a crisis, not in entitlements, but in net interest on the debt, both from increased rates and growing principal. This growth will only feasible until either China or the European Union develop tradeable debt instruments backed by income taxation, which is the secret to the ability of the United States to be the world’s bond issuer.

The national debt is possible because of progressive income taxation. The liability for repayment, therefore, is a function of that tax. The Gross Debt (we have to pay back trust funds too) is $19 Trillion. Income Tax revenue is roughly $1.8 Trillion per year. That means that for every dollar you pay in taxes, you owe $10.55 in debt. People who pay nothing owe nothing. People who pay tens of thousands of dollars a year owe hundreds of thousands.

The answer is not making the poor pay more or giving them less benefits, either only slows the economy. Rich people must pay more and do it faster. My child is becoming a social worker, although she was going to be an artist. Don’t look to her to pay off the debt. Your children and grandchildren and those of your donors are the ones on the hook unless their parents step up and pay more. How’s that for incentive?
This proposal contains no analysis of the last minute cost savings measures, such as repealing the interest deduction on student loans or counting tuition waivers as imputed income or the loss of the medical expenses tax. If the Byrd Rule can be avoided by bipartisan action, these provisions should be stricken from the bill. They seemed like a dare to Senator Sanders to run again. Be careful what you wish for.

Let us work toward a plan to attract large enough bipartisan majorities to end concern over the Byrd Rule. Democratic donors will be fired up whether they get a tax cut or not, so refusing to deal just to monopolize the donor class will not work. Now that I have adequately offended and preached to the majority, let me now provide you with assistance in passing this bill.
We offer two scenarios at a high level, both target and range values. Their budgetary impact has not been estimated recently and their target is not a balanced budget at this time, alth0ugh one could be achieved by adding a 13% goods and services tax and a higher income surtax. Until a more robust growth rate is achieved, possibly triggering some wage inflation, balance is not recommended at this time, although it must come soon.

The difference between the two proposals is that consumption taxes will allow the income tax rates to go down and the standard deductions to go up, because most labor is already taxed. The end of the corporate income tax also eliminates the rational for separate dividend and capital gains rates.

If Congress has the will, it can limit the number of industry specific subtraction value added tax breaks. Whether these are retained for a goods and services tax can be determined later. It is harder to demand a tax break on profit to fund labor intensive activities when that tax also covers the labor of those researchers. Additionally, consumption taxes limit the overlap between labor and capital impacts essential to the corporate profits tax.

Finally, lower effective rates will result in the SVAT/NBRT if all of the entitlement reforms discussed above are undertaken. Indeed, the tax could be designed to go to almost zero (provided a goods and services tax were enacted for discretionary civil and military spending, which could be zero if that spending stopped, as could the income tax if the debt were minimized or eliminated.
           
Scenario One: No consumption tax
Standard Deduction:           $20,000 single, $40,000 joint
Income Tax:                          13% to $80,000, 26% to $180,00, 39% single
                                                13% to $110,000, 26% to $240,000, 39% joint
Child Tax Credit:                  $6000 per child ($500 paid monthly by Treasury)
Inflation:                               Chained CPI applies to SD, brackets and CTC
Social Security:                    Unchanged
Pass Through Rate:             26% (range 24% to 28%)
Corporate Income Tax:       26% (range 24% to 28%)
Dividend Rate:                     26% (39% during repatriation)
Capital Gains Rate:              26% (39% during repatriation)
Inheritance Tax:                  Asset liquidations counted as normal income, taxable after
26% rate and above
Estate Tax:                            Repealed immediately

Scenario Two: Consumption tax included
Standard Deduction:           $50,000 single, $100,000 joint
Subtraction VAT:                 31% before deductions and exclusions
Border Adjustment:             VAT Reduced to 13%, 13% VAT added to imports
Social Security:                   
Employee:                 OASI Unchanged, Disability, Health, ACA to SVAT
Employer:                 Moved to Subtraction VAT, Credited equally
Corporate Income Tax:       Repealed
Pass Through Rate: Repealed
Income Tax:                          13% to $130,000, 26% single
                                                13% to $210,000, 26% joint
Dividend Rate:                     Normal Rate
Capital Gains Rate:              Normal Rate
Inheritance Tax:                  Asset liquidations counted as normal income, taxable after
26% bracket
Estate Tax:                            Repealed immediately


Thank you for the opportunity to address the committee.  We are, of course, available for direct testimony or to answer questions by members and staff.

Monday, November 13, 2017

Tax and Job Cuts Act

Comments for the Record
United States Senate
Committee on Finance
Open Executive Session to Consider an
Original Bill Entitled the Tax Cuts and Jobs Act
Monday, November 13, 2017, 3:00 P.M.
By Michael G. Bindner
Center for Fiscal Equity


Chairman Hatch and Ranking Member Wyden, thank you for the opportunity to submit these comments for the record to the Committee on Finance.  Unlike our usual comments, we will save a description of our proposal for the conclusion of our remarks and begin with a critique of the subject legislation.
We will start with the name. It should be the Tax and Job Cuts Act. It has never been proven that tax cuts create long lasting jobs. While they may create jobs resulting from hair brained schemes, because money thrust at rich people results can only be used on so many good investments, most of the new jobs support booms and busts in housing and in the Internet. For every Amazon there were 1000 failed ventures in the late 1990s. Not a good track record.
Most of the so-called job creators receiving the vast majority of the cuts already have positions or investments. Lowering their tax rates are not an incentive to hire. Investors are not in business to give charity. Individuals are hired to meet increased product and service demand from the commercial and government sectors. Wages increase above the rate of inflation when either collective bargaining or a tight labor market allow workers to demand higher prices.
If taxes are high on job creators, the job creators have no reason to resist such demands, because doing so results in any savings going to the government in tax payments from either business owners or the Executive Class. If taxes are cut for job creators, i.e. the Executive Class (stock holders usually receive a normal return regardless of tax or economic conditions, barring malfeasance), then unions are busted, wage increases are limited to inflation, jobs are outsourced to cheaper regions or nations and the cost savings go to the Executive Class, because lower taxes mean they get to keep more money. While some may get lucky in finding news jobs in new industries, the next effect of this tax cuts will be job loss, possibly on a massive scale, hence the correction of the name of the bill to the Tax and Job Cuts Act.
The open secret in this debate is that the Executive Class is also the Donor Class. The reforms for most households give either small cuts or small increases in tax payments. This is a shell game hiding the fact that the only large tax changes in the bill are cuts to the Executive/Donor Class. Gary Cohn even disclosed how excited CEOs were to receive these cuts. It is as if they think they have paid for special consideration from the last campaign season, except there is no ”as if” about it. Not only should these provisions be rejected, but Campaign Finance Reform should be immediately undertaken so such attempts at robbing the Treasury will never happen again.
There is a time to cut income tax rates on the wealthy. This is not that time. When workers receive an adequate share of the productivity gains their firms produce (even if they are labor saving), then we can begin to think about tax rate cuts for the wealthy.
We also face a debt crisis. It is not due to the retirement of the Baby Boomers. That will take care of itself and if it is not adequately funded, it can be by shifting to a subtraction value added tax as specified in our usual proposal. Instead, the Congressional Budget Office has found that continuing to roll interest payments into new debt and the resulting interest rate increases are what will destabilize the economy in the future. Tax cuts and entitlement cuts will not help that. Providing incentives to make higher taxes on the Executive/Donor Class palatable will do so, especially because a substantial amount of this debt is likely held by that class, although no income distribution figures on debt ownership are currently available.
The national debt is possible because of progressive income taxation. The liability for repayment, therefore, is a function of that tax. The Gross Debt (we have to pay back trust funds too) is $19 Trillion. Income Tax revenue is roughly $1.8 Trillion per year. That means that for every dollar you pay in taxes, you owe $10.55 in debt. People who pay nothing owe nothing. People who pay tens of thousands of dollars a year owe hundreds of thousands. The answer is not making the poor pay more or giving them less benefits, either only slows the economy. Rich people must pay more and do it faster. My child is becoming a social worker, although she was going to be an artist. Don’t look to her to pay off the debt. Trump’s children and grandchildren are the ones on the hook unless their parents step up and pay more. How’s that for incentive?
In September 2o11, the Center submitted comments on  Economic Models Available to the Joint Committee on Taxation for Analyzing Tax Reform Proposals. Our findings, which were presented to the JCT and the Congressional Budget Office (as well as the Wharton School and the Tax Policy Center), showed that when taxes are cut, especially on the wealthy, only deficit spending will lead to economic growth as we borrow the money we should have taxed. When taxes on the wealthy are increased, spending is also usually cut and growth still results. The study is available at  
Our current expansion and the expansion under the Clinton Administration show that higher tax rates always spur growth, while tax cuts on capital gains lead to toxic investments – almost always in housing.  Business expansion and job creation will occur with economic growth, not because of investment from the outside but from the recycling of profits and debt driven by customers rather than the price of funds.  We won’t be fooled again by the saccharin song of the supply siders, whose tax cuts have led to debt and economic growth more attributable to the theories of Keynes than Stockman and Gramm.
This bill should not be passed. Luckily, because the revenue losses from the bill extend past the ten-year window in the Byrd Rule, which is part of the Budget Act, there is no simple parliamentary maneuver or rules change that will allow this bill to pass without votes from the Minority. Unless all tax cuts in the bill are made temporary, 60 votes must be found.
Only the Great Recession stopped the 2001 tax cuts from expiring on time and looking back at the increased growth rates since the 2013 tax bill which allowed higher rates on the wealthy, President Obama should have probably vetoed the extension in 2010. No president should ever make that mistake again and this Senate should not pass these tax cuts ever, even with real sweeteners for the middle class, such as the $1000 per child per month tax cut proposed by The Center for Fiscal Equity, although enacting a $15 per hour)minimum wage for jobs and training would make it hard to resist.
Better to scrap the current consensus bill and start from scratch. We have such a plan, which the Committee has seen before and which we would gladly help flesh out with Committee staff and the Department of Treasury, Office of Tax Policy, who should have been the site of the bill’s development in the first place. So, instead of beginning with our comprehensive four-part approach, we will end with it. Elaboration of these points can be found in our prior submissions for the record.
  • A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure very American pays something.
  • Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year to fund net interest payments, debt retirement and overseas and strategic military spending and other international spending, with graduated rates between 5% and 25%.  
  •  Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.
  • A VAT-like Net Business Receipts Tax (NBRT), which is essentially a subtraction VAT with additional tax expenditures for family support,  health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.

Thank you for the opportunity to address the committee.  We are, of course, available for direct testimony or to answer questions by members and staff.

Friday, October 20, 2017

Response to Bill Gale at TPC: Tax Cuts Won't Make America Great Again

http://www.taxpolicycenter.org/taxvox/tax-cuts-wont-make-america-great-again
The myth that tax cuts cause growth is purely due to the donor class wanting tax cuts for themselves, some of which they turn around to fund organizations who are light on real economic education who claim that these cuts cause growth.
My analysis shows very clearly that Reagan's deficits (less net interest) cause growth the next year (it takes time to get to outlays and multiplier effects) and that when the budget was cut, growth was reduced. For the first six years of the term the coefficient of determination was 1.0, perfect association. Looks like proof to me. The independent variable represents the true impact of the injection from or leakage to the bond sector from federal borrowing.
This is why Reagan was different than Bush II, as the prior ran huge deficits and the latter ran the middle eastern wars on the cheap. Indeed, it could be argued that Reagan broke the back on inflation, not Volker, because Reagan gave CEOs an incentive, through lower taxes, to cut wage demand inflation.
Clinton raised taxes to take some of that incentive away and was rewarded with an economy that had less incentive to fight wage gains. Things only went south for him (or rather for Bush) when cutting the capital gains rate spurred the tech boom/bust as everyone wanted to be an Internet Billionaire on the cheap (workers were paid with capital gains rather than salary in many cases - it was all a scam and all due to Gingrich and Clinton).
Bush's tax cuts were like Reagan's and Clinton's on steroids. Because no one was getting higher wages, Greenspan helped everyone mortgage their savings, leading to 2008. The 2010 tax deadline was renewed and growth stayed anemic until 2013 and the ATRA. Proof again that higher taxes on the rich HELP workers, although the donor class does not like them. Corporate cuts will also make it more profitable to cut worker pay and have more money through tax savings than higher tax rates will allow.
There is nothing for non-donors in the Trump Framework. Unless we can get more money to families with higher minimum wages and extreme Child Tax Credits of $1000 per month per child paid with wages, the only thing the Democrats should do is obstruct this tax bill. Of course, that would call for someone who was willing to buck the donor class and loudly call out the Emperor as having no clothes. Publicly accepting this analysis would go a long way in doing that. So would getting others to endorse it.

Wednesday, October 04, 2017

IRS IT Modernization Efforts


Comments for the Record
United States House of Representatives
Subcommittee on Oversight
Hearing on IRS Information Technology Modernization Efforts
Wednesday, October 4, 2017, 9:00 A.M.
By Michael G. Bindner
Center for Fiscal Equity

Chairman Buchanan and Ranking Member Lewis, thank you for the opportunity to submit these comments for the record to the Oversight Subcommittee.  As usual, we will preface our comments with our comprehensive four-part approach, which will provide context for our comments.
  • A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure very American pays something.
  • Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year to fund net interest payments, debt retirement and overseas and strategic military spending and other international spending, with graduated rates between 5% and 25%.  
  •  Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.
  • A VAT-like Net Business Receipts Tax (NBRT), which is essentially a subtraction VAT with additional tax expenditures for family support,  health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.
We will let the Administration witnesses address the current state of IRS IT, the challenges faced as the IRS seeks to modernize its IT infrastructure, and areas where the IRS could further improve its efforts. Our aim in submitting these comments is to illustrate the IT needs in the tax reform we propose.
Both the value added and net business receipts taxes will collect tax identification numbers at the transaction level. For the NBRT only, Social Security Numbers will also be collected for payroll, contractor reimbursement (assuming that sole proprietor consultants are not given employee status, which is recommended), distribution of the child tax credit, with payroll. Income taxes will require SSNs at distribution of dividends and stock sales, either directly or through a fund or holding company (wage information would already be collected for the NBRT). Charitable contribution data would also be sent to IRS if this deduction is retained.
VAT and NBRT information would be collected at the state level and used by State agencies to assure compliance (to check that receipts claimed in lieu of tax were authentic). Aside from consumption tax verification, there is the verification of child tax credit payments to assure that the employer payment equals what was reported and to assure that households were paid the correct amount by all employers, especially when both parents work or one or both have more than one job.
All income and investment information, including distributions from interest or dividends and sales of stock from an estate (100% taxable) or normal investment (capital gain taxable), as well as sales to a qualified Employee Stock Ownership Program (untaxed) will be forwarded to national IRS and aggregated by SSN.
State, regional and national IRS data will have t0 be compatible and likely processed in the same distributed system. As automation proceeds, compatibility with cash registers and corporate accounting systems will eventually evolve, allowing more frequent VAT payment and reconciliation, eliminating the requirement for annual returns except at the household level, and then only for wealthier households that still pay the income surtax.
It is conceivable that all income surtax payers will receive notification when all data should have arrived and what their refund or payment will be once they correct the information or certify it is correct already. Banking information should be on file, so authorization for payment, either at once or installments should be easy.
As NBRT obligations and deductions and credits for non-governmental performance of social services begin to coincide, decreases in the defense budget and law enforcement (which will be converted largely to the mental health system) and privatizing certain functions, like NASA and drug research and approval eliminate the need for a VAT and debt repayment eliminates the need for an income surtax, federal finance may evolve into a simple spreadsheet that can fit on a pad computer small enough to short out in a bathtub. Our plan gets there much quicker than Grover Norquist ever could.
Thank you for the opportunity to address the committee.  We are, of course, available for direct testimony or to answer questions by members and staff.

Tuesday, October 03, 2017

International Tax Reform

Comments for the Record
United States Senate
Committee on Finance
Hearing on International Tax Reform
Tuesday, October 3, 2017, 10:00 A.M.
215 Dirksen Senate Office Building

By Michael G. Bindner
Center for Fiscal Equity
fiscalequitycenter@yahoo.com

Chairman Hatch and Ranking Member Wyden, thank you for the opportunity to submit these comments for the record to the Committee on Finance.  As usual, we will preface our comments with our comprehensive four-part approach, which will provide context for our comments.

·         A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure very American pays something.
·         Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year to fund net interest payments, debt retirement and overseas and strategic military spending and other international spending, with graduated rates between 5% and 25%. 
·         Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.
·         A VAT-like Net Business Receipts Tax (NBRT), which is essentially a subtraction VAT with additional tax expenditures for family support,  health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.


Attacking unions for the past 30 years has taken its toll on the American worker in both immigration and trade.  That has been facilitated by decreasing the top marginal income tax rates so that when savings are made to labor costs, the CEOs and stockholders actually benefit.  When tax rates are high, the government gets the cash so wages are not kept low nor unions busted.  It is a bit late in the day for the Majority to show real concern for the American worker rather than the American capitalist or consumer. The current plan will make things worse.

Reversing the plight of the American worker will involve more than trade, but we doubt that the Majority has the will to break from the last 30 years of tax policy to make worker wages safe again from their bosses. Sorry for being such a scold, but the times require it.

The main international impact in our plan is the first point, the value added tax (VAT).  This is because (exported) products would shed the tax, i.e. the tax would be zero rated, at export.  Whatever VAT congress sets is an export subsidy.  Seen another way, to not put as much taxation into VAT as possible is to enact an unconstitutional export tax.

The second point, the income and inheritance surtax, has no impact on exports.  It is what people pay when they have successfully exported goods and their costs have been otherwise covered by the VAT and the Net Business Receipts Tax/Subtraction VAT.  This VAT will fund U.S. military deployments abroad, so it helps make exports safe but is not involved in trade policy other than in protecting the seas.

The third point is about individual retirement savings.  As long as such savings are funded through a payroll tax and linked to income, rather than funded by a consumption tax and paid as an average, they will add a small amount to the export cost of products.

The fourth bullet point is tricky.  The NBRT/Subtraction VAT could be made either border adjustable, like the VAT, or be included in the price.  This tax is designed to benefit the families of workers, either through government services or services provided by employers in lieu of tax.  As such, it is really part of compensation.  While we could run all compensation through the public sector and make it all border adjustable, that would be a mockery of the concept.  The tax is designed to pay for needed services.  Not including the tax at the border means that services provided to employees, such as a much-needed expanded child tax credit – would be forgone.  To this we respond, absolutely not – Heaven forbid – over our dead bodies.  Just no.

The NBRT will have a huge impact on international tax 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. 

Over time, this 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 other’s.  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.

If Senator Sanders had been nominated and elected, this is the type of trade policy you might be talking about today.  Although the staff at the Center supported the Senator, you can imagine some of us thought him too conservative in his approach to these issues, although we did agree with him on the $15 minimum wage.  Economically, this would have had little impact on trade, as workers at this price point often generate much more in productivity than their wage returns to them.  This is why the economy is slow, even with low wage foreign imports.  Such labor markets are what Welfare Economics call monopsonistic (either full monopsony, oligopsony or monopsonistic competition – which high wage workers mostly face).  Foreign wages are often less than the current minimum wage, however many jobs cannot be moved overseas.

As we stated at the outset, the best protection for American workers and American consumer are higher marginal tax rates for the wealthy.  This will also end the possibility of a future crisis where the U.S. Treasury cannot continue to roll over its debt into new borrowing.  Japan sells its debt to its rich and under-taxes them.  They have a huge Debt to GDP ratio, however they are a small nation.  We cannot expect the same treatment from our world-wide network of creditors, an issue which is also very important for trade.  Currently, we trade the security of our debt for consumer products.  Theoretically, some of these funds should make workers who lose their jobs whole – so far it has not.  This is another way that higher tax rates and collection (and we are nowhere near the top of the semi-fictitious Laffer Curve) hurt the American workforce.  Raising taxes solves both problems, even though it is the last thing I would expect of the Majority.

We make these comments because majorities change – either by deciding to do the right thing or losing to those who will, so we will keep providing comments, at least until invited to testify.

Thank you for the opportunity to address the committee.  We are, of course, available for direct testimony or to answer questions by members and staff.



Monday, September 25, 2017

Graham-Cassidy-Heller-Johnson Proposal

Comments for the Record
United States Senate
Hearing to Consider the Graham-Cassidy-Heller-Johnson Proposal
Monday, September 25, 2017, 10:00 A.M.
By Michael G. Bindner
Center for Fiscal Equity


Chairman Hatch and Ranking Member Wyden, thank you for the opportunity to submit these comments for the record to the Committee on Finance. 
We write in strong opposition to the bill as presented. It combines the worst features of the House-passed bill, the bills recently rejected by the Senate and the kind of state by state deals designed to add objecting Senators to the bill’s supporters that were so roundly criticized when health care reform was initially passed. Because the balance is now so delicate and bipartisanship impossible given recent remarks by certain members and the Speaker of the House, any hint of bicameralism is gone, just like when the Affordable Care Act was passed. The majority has become what it most despised about passing Obamacare.
The news is not all bad, of course. There is a way to end the high unearned-income surtax, roll back pre-existing condition reforms and transform Medicaid so that it is not an onerous future obligation to the States, but without actually killing lower income Americans or at least forcing hospitals to care for them in the most expensive manner and billing them int0 bankruptcy (which you cannot end because it is in the Constitution).
This method was initially proposed by President Obama but rejected in his own party, oddly to pick up conservative Democratic votes in the Senate (which did not ultimately help their reelections). That method is a subsidized Public Option. It could include all with pre-existing conditions or the inability to pay even the most basic insurance (while ending the ability to write garbage policies that will never pay off). All other Medicaid for Seniors, the Disabled and those in long-term care could be federalized in exchange for ending the state and local tax deduction (SALT) as part of tax reform. Indeed, this whole process could be married into tax reform in such a way as to help that reform pass bipartisanly.
We are sure that by now the Committee is well aware of our four-part tax reform proposal. Only one element applies to subsidizing the public option and replacing the high unearned income surtaxes, our proposed Net Business Receipts Tax.
The NBRT  is essentially a subtraction VAT with additional tax expenditures for family support,  health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.
Unlike a VAT, an NBRT would not be visible on receipts and should not be zero rated at the border – nor should it be applied to imports. While both collect from consumers, the unit of analysis for the NBRT should be the business rather than the transaction. As such, its application should be universal – covering both public companies who currently file business income taxes and private companies who currently file their business expenses on individual returns.
Employees would all be covered and participants in government funded remedial education programs would receive coverage and tax credits through the training providers health plan as if they were employees. There will be no more separate Medicaid programs for the poor who are able to learn or work. Those wh0 cannot will be covered by the public option.

Thank you for the opportunity to address the committee.  We are, of course, available for direct testimony or to answer questions by members and staff.

Tuesday, September 19, 2017

Business Tax Reform

Comments for the Record
United States Senate
Business Tax Reform
Tuesday, September 19, 2017, 10:00 A.M.
By Michael G. Bindner
Center for Fiscal Equity



Chairman Hatch and Ranking Member Wyden, thank you for the opportunity to submit these comments for the record to the Committee on Finance.  As usual, we will preface our comments with our comprehensive four-part approach, which will provide context for our comments.
  • A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure very American pays something.
  • Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year to fund net interest payments, debt retirement and overseas and strategic military spending and other international spending, with graduated rates between 5% and 25%.  
  •  Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.
  • A VAT-like Net Business Receipts Tax (NBRT), which is essentially a subtraction VAT with additional tax expenditures for family support,  health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.
Probably the most broken part of our tax code is how businesses are taxed. Corporations pay separate taxes while sole proprietors and ”pass throughs” pay taxes through the personal income taxes of their owners. This has some people being taxed twice, regardless of whether this is appropriate to extract taxes on higher incomes not collected through the business, while others face complexity on their personal forms, as well as a different set of rules. In 2003, President Bush and the Congress tried to fix this but could not, settling instead on a lower rate for dividends and capital gains.
The results of simply cutting rates were not pretty. CEOs and investors had an incentive to keep labor costs in check and pocket all productivity gains, which were huge through automation and outsourcing. Higher tax rates would have put a damper on such behavior. Of course, because not every rich person can be a CEO and because most companies borrowed money rather than issued stock, there were few good investments, which had beneficiaries of the 2001 and 2003 tax cuts seek more exotic vehicles, like oil futures and mortgage backed securities. This (not any action by the GSEs) led to the mortgage boom and the Great Recession (as well as provisions in the 1986 tax reform that let home owners use their houses as ATMs, a provision Trump wants to keep).
The President proposes simply lowering the tax on ”pass through” income, which will increase the number of companies fronting what would have been pay to individuals for salary and rent in order to take advantage of the lower rates. This is tax DEFORM not reform. We tried such cuts in 2003 and the proposed cut will yield the same result, especially if the President succeeds in defanging Dodd-Frank through regulatory reform (again deform).
There is a better way. Value Added Taxes and Net Business Receipts Taxes (Subtraction VAT) will both simplify taxation and treat all businesses in the same way. While some special tax breaks might be preserved in the NBRT, most would not because there would be no way to justify taxing the labor or an activity and not the associated profit or taxing research salaries one way and production wages another. All profit and wage would be taxed at the same rate, which also removes the tax bias against wage income.
The proposed Destination-Based Cash Flow Tax is a compromise between those who hate the idea of a value-added tax and those who seek a better deal for workers in trade. It is not a very good idea because it does not meet World Trade Organization standards, though a VAT would. It would be simpler to adopt a VAT on the international level and it would allow an expansion of family support through an expanded child tax credit. Many in the majority party oppose a VAT for just that reason, yet call themselves pro-life, which is true hypocrisy. Indeed, a VAT with enhanced family support is the best solution anyone has found to grow the economy and increase jobs.
Some oppose VATs because they see it as a money machine, however this depends on whether they are visible or not.  A receipt visible VAT is as susceptible to public pressure to reduce spending as the FairTax is designed to be, however unlike the FairTax, it is harder to game.  Avoiding lawful taxes by gaming the system should not be considered a conservative principle, unless conservatism is in defense of entrenched corporate interests who have the money to game the tax code.
Our VAT rate estimates are designed to fully fund non-entitlement domestic spending not otherwise offset with dedicated revenues.  This makes the burden of funding government very explicit to all taxpayers.  Nothing else will reduce the demand for such spending, save perceived demands from bondholders to do so – a demand that does not seem evident given their continued purchase of U.S. Treasury Notes.
Value Added Taxes can be seen as regressive because wealthier people consume less, however when used in concert with a high-income personal income tax and with some form of tax benefit to families, as we suggest as part of the NBRT, this is not the case.
This is not to say that there will be no deductions. The NBRT will be the vehicle for social spending through the tax code.
The NBRT base is similar to a Value Added Tax (VAT), but not identical. Unlike a VAT, an NBRT would not be visible on receipts and should not be zero rated at the border – nor should it be applied to imports. While both collect from consumers, the unit of analysis for the NBRT should be the business rather than the transaction. As such, its application should be universal – covering both public companies who currently file business income taxes and private companies who currently file their business expenses on individual returns.
In the long term, the explosion of the debt comes from the aging of society and the funding of their health care costs.  Some thought should be given to ways to reverse a demographic imbalance that produces too few children while life expectancy of the elderly increases.
Unassisted labor markets work against population growth.  Given a choice between hiring parents with children and recent college graduates, the smart decision will always be to hire the new graduates, as they will demand less money – especially in the technology area where recent training is often valued over experience.
Separating out pay for families allows society to reverse that trend, with a significant driver to that separation being a more generous tax credit for children.  Such a credit could be “paid for” by ending the Mortgage Interest Deduction (MID) without hurting the housing sector, as housing is the biggest area of cost growth when children are added.  While lobbyists for lenders and realtors would prefer gridlock on reducing the MID, if forced to chose between transferring this deduction to families and using it for deficit reduction (as both Bowles-Simpson and Rivlin-Domenici suggest), we suspect that they would chose the former over the latter if forced to make a choice.  The religious community could also see such a development as a “pro-life” vote, especially among religious liberals.
Enactment of such a credit meets both our nation’s short term needs for consumer liquidity and our long term need for population growth.  Adding this issue to the pro-life agenda, at least in some quarters, makes this proposal a win for everyone.
Our proposals dovetail on our prior comments testimony on Individual Taxes. Tax benefits and filings that were once found in the individual code would be moved to the Business code.  The most obvious provision is that most families will no longer have to file individual income taxes. Most will receive all of their tax benefits through an employer paid net business receipts tax, which is essentially a subtraction VAT. Health benefits through the Affordable Care Act or the health insurance exclusion for corporate income taxes will come through the NBRT, as will a refundable child tax credit paid through wages or education or social insurance benefits, rather than through end of the year tax filing, the EITC, TANF or SNAP.
The NBRT should fund services to families, including education at all levels, mental health care, disability benefits, Temporary Aid to Needy Families, Supplemental Nutrition Assistance, Medicare and Medicaid. If society acts compassionately to prisoners and shifts from punishment to treatment for mentally ill and addicted offenders, funding for these services would be from the NBRT rather than the VAT.
The NBRT could also be used to shift governmental spending from public agencies to private providers without any involvement by the government – especially if the several states adopted an identical tax structure. Either employers as donors or workers as recipients could designate that revenues that would otherwise be collected for public schools would instead fund the public or private school of their choice. Private mental health providers could be preferred on the same basis over public mental health institutions. This is a feature that is impossible with the FairTax or a VAT alone.
To extract cost savings under the NBRT, allow companies to offer services privately to both employees and retirees in exchange for a substantial tax benefit, provided that services are at least as generous as the current programs. Employers who fund catastrophic care would get an even higher benefit, with the proviso that any care so provided be superior to the care available through Medicaid. Making employers responsible for most costs and for all cost savings allows them to use some market power to get lower rates, but not so much that the free market is destroyed.  Increasing Part B and Part D premiums also makes it more likely that an employer-based system will be supported by retirees.
Conceivably, NBRT offsets could exceed revenue. In this case, employers would receive a VAT credit.
Business owners, whether sole proprietors, partners, Schedule C or 1099 employees will file through the NBRT and also collect VAT, both of which will be coordinated with state revenue agencies and forwarded to the government. 1099 employees will not be required to file or get their own insurance unless they have multiple clients. Even then, the clients will pay the tax on their value added and provide insurance and retirement savings as if they were employees. We have inflated the number of ”small businesses” for quite too long.
While some employee sole proprietors might like the freedom of multiple clients, most work for only one and would rather have full benefits and no tax filing. Congress can do this small thing for them in tax reform. Indeed, there is no reason to do tax reform without such changes (especially the child tax credit expansion). The larger firms will navigate and exploit the tax code regardless of reform, so their interests are not so important unless campaign contributions ARE really bribes.
The VAT and NBRT would eliminate the need for any corporate income tax, or as they used to be called, corporate profits taxes. Because consumption taxes burden labor and profit at the same rate, discounted tax rates on dividends and capital gains would no longer be required. Any residual income or inheritance surtax would be a way to maintain progressivity by charging a higher rate or rates for households receiving higher incomes from the same business activities.
Value added taxes act as instant economic growth, as they are spur to domestic industry and its workers, who will have more money to spend.  The Net Business Receipts Tax as we propose it includes a child tax credit to be paid with income of between $500 and $1000 per month.  Such money will undoubtedly be spent by the families who receive it on everything from food to housing to consumer electronics. 
The tax reforms detailed here will make the nation truly competitive internationally while creating economic growth domestically, not by making job creators richer but families better off. The Center’s reform plan will give you job creation. The current blueprint and the President’s proposed tax cuts for the wealthy will not.
In September 2o11, the Center submitted comments on  Economic Models Available to the Joint Committee on Taxation for Analyzing Tax Reform Proposals. Our findings, which were presented to the JCT and the Congressional Budget Office (as well as the Wharton School and the Tax Policy Center), showed that when taxes are cut, especially on the wealthy, only deficit spending will lead to economic growth as we borrow the money we should have taxed. When taxes on the wealthy are increased, spending is also usually cut and growth still results. The study is available at  
Our current expansion and the expansion under the Clinton Administration show that higher tax rates always spur growth, while tax cuts on capital gains lead to toxic investments – almost always in housing.  Business expansion and job creation will occur with economic growth, not because of investment from the outside but from the recycling of profits and debt driven by customers rather than the price of funds.  We won’t be fooled again by the saccharin song of the supply siders, whose tax cuts have led to debt and economic growth more attributable to the theories of Keynes than Stockman and Gramm.

Thank you for the opportunity to address the committee.  We are, of course, available for direct testimony or to answer questions by members and staff.