Wednesday, June 03, 2020

Addressing Economic Impacts of COVID-19

House Budget, Addressing the Economic Impacts of COVID-19: Views from Two Former CBO Directors, June 3, 2020

In general, the current economy is more medical furlough than recession. Increasing and adding benefits for many turns it into paid sick leave funded by government, which is entirely appropriate. The danger is that if benefits are extended for too long a period, people will desire to stay unemployed, leading to a situation where more money is chasing a decreasing supply of goods and labor. If this turns into an upward cycle of more benefits and less economy, not just stagflation, but Hyper-Stagflation is possible.

This crisis shows some of the systemic weakness in the economy. Too many people are paid too little. This creates a second-tier economy of low wages and subpar products. More pay through a higher minimum will mean better products and more people working. If layoffs result from a higher wage, a paid training program (to meet opportunity costs of trainees) from ESL to Associates degrees will add to a push for higher wages. A higher minimum wage could also be used to recalculate benefits for retirees and the disabled. The increased economic activity and higher revenues would pay for themselves.

Low wages do not benefit shareholders, who receive a normal profit. Other workers benefit because their wages rise with the minimum. Only the CEO-Donor class are made worse off. Their wage theft is natural, given their low marginal tax rate in comparison to the time of Eisenhower and Kennedy (whose tax cuts only took effect in 1965), The differential between productivity and wages started about a year after the tax cuts took effect. The effect was multiplied in 1982.

Low family wages are also a problem exposed by the current medical furlough. The EITC and Child Tax Credit were enacted on a bipartisan basis, with Republicans in the lead. Sadly, benefits are inadequate and non-refundable. This could and should be fixed. Permanent tax reform with a Subtraction Value Added Tax levied on employers with a credit for a median income for each child of $1000 a month, with pay and with no income cap will solve this problem permanently and needs no pay-for to offset it.

Attachment One: Disproportionate Impact of COVID-19 on Communities of Color, Ways and Means, May 27, 2020
Attachment Two - Tax Reform, Center for Fiscal Equity, February 21, 2020

Wednesday, May 27, 2020

Disproportionate Impact of COVID-19 on Communities of Color

Ways and Means, May 27, 2020

There are two factors of concern on minority health care: the general health of the population and access to primary care.

The general health of communities of color among the working and beneficiary classes is sub-optimal, often by design. Diets provided by low wages or inadequate benefits lead to health conditions which include obesity, hypertension and diabetes. Urban air is more polluted, so asthma may be a factor, especially in children. Emergency room-based care means less of a long-term relationship than available to patients with primary care physicians. I mention these factors because they are well covered and likely will be mentioned by the scheduled witnesses.

The second factor shows that the work of healthcare reform is not yet complete. Communities of color have had higher reported cases because they still must seek care in hospitals. Those who work in low-end jobs with no sick leave must seek care outside of normal business hours.

They are often called “essential workers” but are not paid a wage that reflects how essential they really are. Because primary care physicians generally have offices outside their neighborhoods and during normal business hours, they have no choice but to go to the emergency room. Higher exposure may be an artifact of the availability of testing at hospitals compared to doctor’s offices available to upper-middle class populations.

Media coverage of emergency rooms makes it less likely that patients who are sick rely on them will seek care until it is almost too late (which may be the case with the all populations). In the beginning of the pandemic, people who were not badly ill were sent home. Many were likely not anxious to go back.

This may be the second round for minority patients. If they brought their children for care at the beginning of their local outbreak, crowded conditions may have led to exposure they would not otherwise have received. Again, they come back very sick.

The question is, how do we fix these problems?

The most obvious solution is mandatory sick leave, especially for essential workers. Higher minimum wages are necessary because this will increase wages for all but the very wealthy. The CEO class, because they are under-taxed, have an incentive to seek economic rent by cutting worker wages. Higher taxes marginally decrease these incentives. A return to the tax rates of the fifties and early sixties would eliminate them, but the political will to go that far is not there. Too many donors on both sides assure that it will not be any time soon.

The benefit of more money, especially for people of color, is economic advancement and a generally better lifestyle. Workers with more money seek more education. Paid education for displaced workers at higher minimum wage level to meet their opportunity costs will enable career advancement. Those essential, lower wage workers, will benefit from having a smaller labor pool, forcing employers to raise wages even higher. Evidence shows that more money is the answer to poverty.

The contention that giving people more money will cause indolence. The truth is that social policies that assume that workers will not spend money well have their origins in the reactionary desire to maintain a pool of low wage workers to do the jobs that others would not due, save for poverty and racism.

The tax reform advanced by the Center (see the attached plan), particularly the high salary surtax and the asset value added tax will decrease incentives to rent seek by keeping wages lower (some would call that stealing – we certainly do). The subtraction VAT will raise more money for human services, such as Medicare for All.

The SVAT will also give employers the incentive to pay families a higher wage via an increased child tax credit at median income levels, to offer superior quality health insurance or direct care in the workplace, as well as both healthy and sick daycare and to provide an additional credit for paid training for employees from ESL and GED to Associates degrees and beyond.

Improving the lives of the working class, particularly for families of color, will lead to a healthier population that is more resistant to disease outbreaks in the future. We only need to abandon the notion that keeping people poor will make them seek a better life through work. This is a sick joke designed to guarantee a supply of low wage labor, particularly by people of color, so that they will be forced to work jobs that no one else wants.

Immigration reform is also part of the equation. Our illegal economy (not the workers, but the working conditions, lack of union representation and low pay) forces undocumented workers to come to work sick or face a call to the Department of Homeland Security. The government is actively engaged in what amounts to human trafficking. Reform will end this.

Attachment  - Tax Reform, Center for Fiscal Equity, February 21, 2020

Sunday, May 10, 2020

Absolute Income - the Government Side

Back in my community theater days, I had a discussion at the strike party with the boyfriend of one of the stage crew. We were discussing the utility of tax cuts, or the lack thereof. I told him that we could never do so with a GDP measure. GDP is based on productive activity in the real economy: government purchases, household consumption, net exports and investment in plant and equipment. He would need a different measure. We left it at that.

As an aside, government's impact comes in more than just buying stuff. It is a major contributor to household consumption through other and including the stuff it buys. It buys or creates natural resources (food, oil, land, and water), supplies, buildings, military assets, health care (military, civil service, old age, disabled, Indian, international, indigent), transportation infrastructure roads, airports, bridges, spaceports, and private capital used to make government purchases.

It also distributes current and future household income via employee salaries, military pay, government pensions, old age, survivors and disability income, interest on government trust funds, contractor pay and benefits, Temporary Assistance to needy Families, Food Stamps, supplemental security income, temporary disability income, refundable income and child credits, pays net interest to bond holders, and distribution of resource payments to tribal nations (land rentals and resource extraction). This amounts to more than half of household income resulting in consumption and savings.

Consumption from these income streams also creates private sector income, leading to consumption and savings (second and third order - which is private sector spending and savings resulting from private sector consumption). All of this leads to investment in land, plant and equipment for household consumption and exports.

Tax collections and double counting are the means by which all if this spending goes round and round. The double and triple counting is what is known as the multiplier effect.

There is one last chunk created through tax expenditures: preferred tax treatment of capital income and investment and cuts in expected salary taxes. This added liquidity is not small. It is what was being discussed at that cast party.

All that prefaces the answer to that question: what do tax cuts do for the economy? The question, which I think we also brought up at the party, is essentially the same: how do to measure the supply side? Let's talk, but you may not like the answer.

Absolute Income - Money and Class

This is part two in a discussion of the roll of tax cuts in the economy.

Conservative economists, the uninformed (that is most of) the popular media and a sad proportion of mainstream and even radical economists (even Marxists) put all investment in the same pot and count savings by the working, middle and upper class in the same pot as well. They also show concern for list economic activity due to tax increases. Economic cycles and crises are seen through the lens of consumption. Marx had no idea how wrong he was. Neither did Keynes. Hayek may have had hints, but if he did, he was not honest about them. This brings us to a small detour to monetary policy.

The Federal Reserve creates liquidity, aka money, based on government bond holdings in member banks and manipulating how much can be leveraged from those holdings. It also trades currency and buys junk bonds to stabilize liquidity. It does not, however, write down loan balances when it does so, which would cancel the money). Government borrowing (federal, state, educational and municipal) provides safe assets to backstop retirement accounts and mutual fund speculation.

All asset valuation is considered equally in official statistics and common usage. If Wall Street assets recover, depressed working class asset destruction goes uncounted, even though depressed prices (especially underwater loans) for such assets should be the operative definition of an economic depression. Hyperinflation is the opposite. It is when money is so devalued that you cannot afford bread, but could write a check for your mortgage. Sadly, most borrowers buy the bread first because they are hungry. Maybe preppers have the right idea. Holding gold, however, is not one of them.

You cannot eat gold. Eating through having gold only works if you are willing to trade it for something. In hyperinflation, where the supply of goods and services declines as the supply of money rises, gold buys less too. Goods and services, asset values and income dynamics must work in harmony.

Money is is not only a medium to exchange goods. It is also a decision tool to exchange power. Power is the ability to demand resources and labor. Capitalism seeks to consolidate this power into the hands of the owners of capital. Socialism seeks to distribute this power to society, using common action to do so. State capitalism and state socialism are the same thing, with modern mixed economiess consisting of private capitalism and social democracy. Cooperatives do combined action with neither governments or capitalists. Their exchanges are essentially labor based on a smaller scale.

The essential fact in any system that uses money is that money buys work from people. Since work is a function of time, as our lives, money essentially buys people.

Another way to look at money and savings  is through class analysis. Savings is the power to make others work without working yourself. When realized, savings purchase essentials and luxuries. Of course, even poor people deserve some level of luxury. In an unbalanced economy, the working class do not even receive the essentials.

Scarcity in essential goods is the incentive used to compel work. Inadequate income is used to compel work on a consistent basis. The argument against guaranteed income is that if work can be compelled, hyperinflation and shortages result. If toilet paper is unavailable, we are in a condition of scarcity. This is why I call SARS-2, the new official name of COVID-19, the Cornholio Virus.

Income tax data can help draw the lines between classes. Economic data show that purchasing power is in consistent decline for the bottom 90% of households. These include the poor who depend on transfers, the lucky poor who spend down assets as well and the working class. The middle class get more purchasing power from work each year and include the next nine percent. They are not wealthy because they must still work. They still experience scarcity and save for future income only. The top one percent do not work. They consider themselves the supply side.

Absolute Income - the Supply Side

This is part three in a discussion of the impact of tax cuts on the economy. It is based on a discussion at a cast party 25 years ago. The demand side is largely explained as a consequence of government action and the Main Street economy. This essay is about the other side.

Income is considered to be the return on assets, including sold labor. As we have seen previously, this includes the return on taxation of assets. The challenge for public policy is providing for adequate income and assets for all households so that no worker can be considered someone else's property. How badly we have failed at this is impossible to see until we look clearly at the elements of the "supply side."

Absolute Income is adjusted gross income plus unrealized income. Wealth taxes are an attempt to go after part two, in its stored form, on an annual basis. They will never pass because, if done correctly, the wealth will be destroyed. For some, that is likely the goal. If it is done ineffectively (by self reporting or creating loopholes) it legitimates assets which have no inherent value.

In the macro-economy, absolute income is gross national product plus stored future income plus speculative income. Current economic discourse and statistics do not, and likely cannot, capture the difference between the last two, although looking at income class helps.

This inability to separate future spending from speculation does not mean we cannot quantify unrealized income. Doing so shows why taxing wealth and unrealized income are close to impossible. Here is a hint: it does not really exist. Once that secret is out, capitalism' s days are numbered.

Unrealized income =
the net unrealized gain on traded equity and securitized assets held for less than a year
+ the unrealized net gain on assets held for more than a year
+ additions to retained earnings for the year that are attributable to shareholders or partners if it were to be distributed
 + increased value in a year of physical assets less their distribution expense.
All if the above include increased asset values and undistributed earnings for assets held offshore.

Asset prices and retained income and asset book values can be valued and are related but are not mutually exclusive. Asset prices may or may not reflect retained earnings and physical or market value of real assets and may, in fact, be junk assets based on fraud.

Bonds have the same features and are valuable based on currently expected future income - including whether tax income attributable from holding these bonds can ever be collected.

All value is market based. These values may or may not relate to the productive power of the underlying physical and human assets. Indeed, mass resignations and innovations may turn today's intellectual property into dust. This is why capitalism is a less than perfect driver of real innovation.

Income inequality and hierarchical control are designed to protect  against sudden devaluations in both private and state capitalism. Individual and cooperative socialist organizations (from communes to partnerships) always threaten intellectual property held by capitalists.

The value of the "supply side" is based on common perception, not in reality. Tax cuts and central bank liquidity are monopoly money until distributed into the real economy.

When such instruments are sold into retirement accounts, essentially turning stored labor of workers into monopoly money while the "supply side" trades it into new speculative instruments or the purchase of luxury goods, then the system collapses.

When mortgage debt is securitized and leveraged into monopoly money for speculation, the economy is heading for collapse. (It always seems to be housing debt).

When tax cuts become the initial capital for such speculation and to create "unrealized income," that is, mostly, then it is not good for society.  Trying to tax the unreal wealth in the speculation sector simply puts lipstick on a pig.

Taxing the return on all realized income at higher rates destroys the incentive and the ability to create the junk. Ironically, taxes based in realized value also make bonds based on such taxes more valuable. Taxing ephemeral wealth reduces the value of the same bonds. The best bond is a tax prepayment bond because everyone knows that in the end, it has no value.

Taxing Absolute Income or Wealth

This is part 4 of a three part trilogy in supply side economics. In part one, I explained all if the ways Government Spending becomes GDP.  In part two, I discussed the creation of money and it's functions in secondary markets and how this impacts the working class. In part three, I laid out a definition of absolute income in the macro-economy: GDP + unrealized income. I explained how the elements of the  latter, that it can be estimated and why it does not really exist.

Of course, anything that can be valued can be taxed. Indeed, it may even be easier to tax than capital gains, which largely rely in self reporting.

Either total wealth and growth in wealth can be taxed in the micro level.

As I wrote yesterday,

Unrealized income =
the net unrealized gain on traded equity and securitized assets held for less than a year
+ the unrealized net gain on assets held for more than a year
+ additions to retained earnings for the year that are attributable to shareholders or partners if it were to be distributed
 + increased value in a year of physical assets less their distribution expense.
All if the above include increased asset values and undistributed earnings for assets held offshore.

All if these amounts can be estimated by the entities owned as of December 31st of each year. Any overlap between stock price and retained earnings can be taken into account. Indeed, reporting this would be beneficial to investors. This is the easy part.

The hard part is generating the liquidity to pay the tax. Actually, this is not hard at all. It merely requires the entity owned to write a check. If course, you could not tax corporate income and the investor's share of it twice.

Likewise, if wealth were to be taxed, it is easier to tax the total value of the entity rather than taxing its owners. It is much less work.

Progressivity may or may not be a concern, largely because stock ownership is largely confined to the upper middle class (although they have the votes to block it) and the wealthy (who have the money to do so). Investor information would be given to the IRS so that firms may get a refund on taxes paid on behalf of the non-wealthy. The IRS must do the reconciliation to preserve investor privacy.

Who really shoulders the burden is a more serious concern. Because of the monopsonist nature of most employment and the monopolist nature of most goods, the wealthy will not pay it.

First, stock prices will go down to reduce burden.

Second, wages will go down.

Third, consumer prices will go up.

Firms have people who run the numbers and a duty to maximize shareholder value. Indeed, internal rents will increase because the labor to make such calculations will be taken from the labor surplus generated from extraction, production, distribution and enabling work.

As I have said before, the rich need to want to pay more so as to reduce the contingent income tax obligations on their children. The best tool to do so is to introduce a tax prepayment bond and an Asset VAT with incentives to sell to qualified ESOPs (including COOPs with one voting and multiple preferred shares, distributed on an equal dollar basis each financial period).

Global Corporate Tax Rates as Supply Side Economics

This is essentially a debate over supply side economics on a global scale. It assumes that the driver behind investment is available cash. This is complete and utter nonsense. If shareholders need to be paid dividends, multi-nationals may send money to do so.
The big shareholders and CEOs have plenty of money to maintain their domestic lifestyles. No one skimps on that additional mansion due to corporate tax rates. If I had a stash of money overseas, I would get it here, regardless of the cost, because I am not rich. Rich people have the luxury of not needing the money.
If companies need to start production in the American market, they may send money home - but sending money to the U.S. does not drive domestic investment. Domestic demand drives domestic investment. Tax policy (Value Added and Import) may have a small impact (but probably not). Any decision that close is not worth making.
Finally, the lower the tax rate, the less likely tax policy will matter. Like major donations, it is a non-issue. This debate is a symptom of how much the donor sector can influence government - not how government can influence society. Cue Captain Obvious.

Sunday, March 29, 2020

Moving forward to a higher minimum wage

1. A minimum wage raises wages for everyone but executives, who because of low marginal tax rates, have an incentive to cut labor costs (and fund campaigns appropriately) in order to earn bonuses from captive boards and shareholders. Shareholders get a normal return, regardless.

2. Minimum wages counteract monopsony labor markets, including oligopsony or monopsonistic competition (and attendant discrimination), so that wage increases do not mean job loss.

3. The cure for job loss is not low wages, it is government paid training (ESL, GED, Elementary to Associates, Apprenticeship/Vocational) or paid training as an offset to an employer paid subtraction VAT (SVAT). Payment should be at minimum wage levels to offset opportunity cost.

4. Advanced education should carry a service commitment, ideally in an ESOP or cooperative, with a government or industry association backstop if employment does not work out and to avoid peonshe. From each according to their ability. 

5. A living wage should be in addition to minimum (and all other) wages. In order to keep workers with family empoyable, the government must pay such benefits at median wage levels as an offset to the SVAT. To each according to their need.

6. ESOP/COOP voting and preferred shares could be an offset to employer-paid FICA or SVAT, with a third of the funds invested in an insurance fund held by industry associations or successor to Federal Reserve. That fraction gives a quarter of employees the means to call for intervention against executive malfeasance or incompetence. CEOs would bid for job in open auction with employers voting among lowest 2 bidders.

7.  An EITC paid as an offset to a subtraction VAT would simply be a minimum wage. A floor on FICA (or minimum wage) is possible if employer FICA is credited on an equal dollar basis. A ceiling keeps entitlements low.

8. A credit invoice (IVAT), receipt visible Carbon VAT (CVAT) and an Asset VAT (AVAT) fund discretionary; overseas and sea deployments; and r&d/direct environmental enforcement and passive enforcement respectively.

9. ESOP/COOP workers would give overseas subsidiary/supply chain worker pay high enough for same standard of living and ownership to end need for militaries.

10. Second/Third tier SVAT or income surtax would eventually stop wage theft and be offset by tax prepayment bonds to pay FICA trust, Net Interest and debt reduction in fairly short term.

11. This is not Sanders' social democracy, which absorbed DSA

12. This is what socialism looks like. It starts with indexed minimum wage and tax reform. No one likes Tax Day.

Thursday, March 19, 2020

TPC: Sanders Proposes A $23 Trillion Tax Increase, Mostly On High-Income Households And Businesses

TPC: Sanders Proposes A $23 Trillion Tax Increase, Mostly On High-Income Households And Businesses
MGB: Increasing taxes on the CEO/Donor/Direct Shareholder class has a pergovian effect on rent seeking. As taxes go up, the incentive to put profits before people goes down, resistance to minimum wage hikes go away and unions thrive. Wages go up, as do consumption and revenue from workers. Working class households save more as the speculation sector shrinks.
Ending high velocity trading is essentially stopping a rigged game based on advance information. Even if SEC funding decreases, it will again have the incentive to stop such abuses. Currently, it benefits from them.
Wealth taxes magnify the problems inherent in capital gains taxation. Scrapping the SEC fee and cap gains tax and replacing them with an asset tax (which would also be a levy on pass through, dividend, interest and rental income) at point of sale or distribution stops evasion.
Retain the exemption for ESOP sales and mark to market at option exercise or at sale after gift or inheritance and the purpose of such taxes - increasing worker ownership and control, is realized. In the end, most high income wealth from dividends and gains will end because they will dump the assets. The tax must also stay in the 21 to 25 percent range because it will not be income specific.
Warren is out and Biden is the effective nominee. The discussion of taxing wealth is good, but it also shows how Sanders is more social democrat than Democratic socialist.
M4A is total social democracy. The reason that it must rely on more from the rich is because the plan is really Medicaid for All. This would be good for the states, because their share of Medicaid eventually goes away.
The problem is that the rich won't sit still for such an expansion. M4A or a public option (which must be heavily or entirely subsidized because market reform will not fully fund it) need to be paid for with a broad based consumption tax. Because employers must be given the option to provide insurance, it must be an employer filed tax. Regardless, the customer is the end payer.
The rich will fund debt reduction because it relieves their heirs if responsibility to pay future taxes. Most of the assets holding debt instruments are help by the people who owe the debt. It is time to unwind thus pile of yarn.
Separating income, consumption, social insurance and asset taxation into separate levies INCREASES taxes on the rich and effectively extracts much if their wealth. Employers pay salaries and returns from capital with after employer tax money.
Assets are purchased with after salary tax money and are taxed at sale and return. When spent, they are taxed again. The effective rate for the wealthy is near 90% under the rates I propose (most families would get $1000 per child per month from employers, free healthcare and pay no salary tax).
If salary taxes can be prepaid with no return bonds, none will be collected and at some point, high salaries will no longer be paid. This plan does what Sanders wanted to do, except that he and his followers want free stuff more than ownership. Call it a revolution wasted.
What I propose is more evolution than revolution. The TCJA actually puts us closer as asset tax rates converge. It is also in everyone's interest to go down this road, even the wealthy and especially their progeny.

Thursday, March 12, 2020

GAO 2020 Report on Fiscal Health

Senate Budget, March 12, 2021

The mere existence and size of the national debt does not harm the economy at all, at least not until the European Union consolidates the debt of its members and supports it with a joint progressive income tax. Then the party is over. The real impact of the debt on the economy comes from other aspects of fiscal policy.  

Spending aggregates are fairly stable over time, which is why it is so hard to cut the budget by following this path. Most of the volatility is in tax policy. When taxes are increased, the budget deficit goes down. When they are cut, the budget deficit increases. Revenues are usually about 18% of GDP. Currently, they are 16.5%. Unless you are funded by rich donors or their foundations, this is a real problem. Apologists for Wall Street justify tax cuts as a boon to the economy. It is not unless you make your money on inflating asset prices. My response to such nonsense can be found in Attachment One, which examines the impact of the Tax Cut and Jobs Act. 

Inflation is an increase in prices chasing the same goods, which also increases the supply of goods of lesser quality, such as Cryptocurrency and private equity financing of mortgage backed securities. These are the next asset crisis. The money has already been sucked out of these ventures, so a crash is imminent. Please see Attachment Two for more on our upcoming recession. 

If any witness ever comes before this committee and claims that the problem is entitlement spending (I can think of a few who do), inquire about who their donors are after swearing them in. 

When Republicans control tax policy, tax cuts result in higher savings and lower wages for the non-CEO class (again, as explained in Attachment One). The only way to keep consumption going is to keep the economy moving is to borrow as much as taxes are cut, plus the cost of net interest rolled over into further debt. After this point, increased spending is necessary for increased growth.  

The reason the economy continues to grow is increased spending. The Budget Control Act of 2011 marks were designed to be so low that action must occur. The result has been underspending and late appropriations. to spur action. It has taken place, although usually late. Fiscal sanity dictates amending the Act permanently to increase these levels and tie them to automatic appropriations should no budget resolution or appropriation bills pass.  

In 2017, the Tax Cut and Jobs Act was passed with no concern for long term balance, which was reinforced by the Balanced Budget Act of 2018.  The TCJA expires, in part, in 2025. BBA 2018 expires at the end of FY 2019. The Bipartisan Budget Act of 2019 extends sanity for two more years. Further reform should either extend the higher marks to 2025 or hasten the expiration of the Ryan-Brady tax cuts.  

As long as the current tax cuts are in force, the money not collected in taxes should be made up with bond sales, else all sorts of mischief occur in the area of asset accumulation and inflation. Such accumulations are not economic growth, they are the manufacture of speculative investment bubbles that always lead back to recessions and depressions. There is no such thing as a business cycle, only rich people who are undertaxed who invest in garbage and then sell it to the public, like any Ponzi scheme. 

Insisting on spending cuts, as the Mulvaney Budget submission does, harms the general population, leading to a slower economy. Indeed, any spending cuts must be avoided. If anything, secular stagnation is an endemic issue because low marginal rates on high income CEOs invites the rent-seeking we warned about in 2017. This can be remedied by tax increases, a higher minimum wage and increased transfer payments and salary levels. 

When Democrats control fiscal policy, taxes on the wealthy go up. This not only fuels the economy with increased spending, but it extracts money from savings for consumption directly, rather than through bond markets (at interest). Because spending is mostly stable (most increases are simply catch up spending), a GDP growth rate of around 3% results.  

The way to increase growth beyond average is to increase federal and contractor wages and transfer payments, especially the latter. The recipients spend most of the money. Eliminating welfare as we know it under President Clinton helped balance the budget, but cutting capital gains taxes created the tech bubble and the resulting recession. Lower transfer payments made the recovery that much harder. 

The answer cannot be shifting liability down or claiming that we owe debt on a per capita basis. It is raising taxes enough so that the debt is reduced and incomes for most households are increased.  

To sell a tax increase on high incomes (or wealth, for that matter), we must make the wealthy want to pay more. They won’t do so to fund Medicare for All, the Green New Deal or to decrease abortion by increasing the Child Tax Credit. They will do so to get their children and grandchildren out of hock.  Attachment Three details why it is the wealthy who should be concerned that their tax rates are too low. 

Attachment One – The Tax and Job Cuts Act
Attachment Two – Recession 2020 
Attachment Three – Excerpts from Squaring (and Settling) Accounts: Who Really Owns the National Debt? Who Owes It? - December 2019 

Wednesday, March 11, 2020

Combating Child Poverty in America

Subcommittee on Worker and Family Support, Combating Child Poverty in America,- March 11, 2020

None of this is new. The Old Testament prophets and Jesus himself laid the blame for Israel's troubles on those who ignored the cry of the poor and the call to reform. The reality probably has as much to do with location (and no, this is not an invitation to the acolytes of Henry George to weigh in). 

Poverty is a state of mind as much as an economic condition. It is hard to be poor. If you are working, you most likely have to pick and ACA Silver policy, which means deductibles that cannot be paid and premiums that are harder to afford than a working poor budget can managed. Such stress ends marriages, which only leads to worse financial stress when child support must be paid (leaving both parties at subsistence) and the establishment of a second household.


My marriage ended for such pressures (especially since working became harder with a disability). My wife must now contend with my daughter’s disabilities in learning and expression – with much of that treatment outside of what her insurance covers. While Social Security pays an income for my daughter, it is not enough to meet her needs nor does it include Medicare. It would if she were with me, but a young lady is better off with her mother.

We are still better off. Emergency room visits at night are necessary to really understand what the Affordable Act did not cover. On any weeknight, families fill the waiting rooms because they cannot see a primary care physician during the day. If they don’t work, they are not paid, whether for the illness of their child or themselves.

In January, we commented that sick leave is especially essential to prevent the spread of disease. Unless one argues that it is ultimately good for the population to catch minor illness to build immunity, once a worker or their child falls ill, having to work while ill can be torture. With Covad 19, the lack of suck leave can be a death sentence, although more likely for care givers than children.

Conditions have been worse and have been justified by the reactionary same nonsense that claims that in the end, the market will sort everything out. Keynes would respond that in the long run, we are all dead. Let me add that one should not have to wait to die for a day off. Marx would agree. For the market to work, there must be both perfect information and no barriers to entry or exit, no black lists, no private salary information. No such luck.

Increasing the general wage level, through higher minimum wages, will remove workers from poverty. $15 was so 2000s. The new ask should be $20. The concept of being a member of the working poor should be banished from the national conversation with an eventual $20 minimum wage for both employment and training program participation, starting with $15 immediately. This wage level should adjust for inflation automatically. The best support for state budgets is to make sure that everyone is trained up to their potential.

The perception that doing the right thing makes a business non-competitive is the reason we enact minimum wage laws. Because the labor product is almost always well above wages paid, few jobs are lost when this occurs. Higher wages simply reduce what is called surplus value, and not only by Marx. Any CFO who cannot calculate the current productive surplus will soon be seeking a job with adequate wages and sick leave.

The requirement that this be provided ends the calculation of whether doing so makes a firm non-competitive because all competitors must provide the same benefit. This applies to businesses of all sizes. If a firm is so precarious that it cannot survive this change, it is probably not viable without it.

The low wage economy does benefit from the lower prices that may result from them, but a two-tier economy is abhorrent in modern society. Indeed, higher wages, benefits and subsidies provide a bigger bang for the buck than is lost to the donor class. Indeed, the rich will likely see higher profits when more people have more money, although they may find it harder to obtain cheap household labor.

We have included as our usual attachment the latest version of our tax reform proposals. Please refer to the provisions for a Subtraction VAT regarding the remainder of these comments, as well as our treatment of individual payroll taxes, which explain why a child tax credit is better than an EITC. Applying for an EITC is part of why it is expensive to be poor. For most, outside help is needed to calculate it. Paying it is a cost of poverty.

Our main proposed employer-paid subtraction value added tax. This levy would be used more to channel tax expenditures to employees rather than through categorical or block grants. The most important feature is an expanded refundable child tax credit, which would be distributed with pay and set to provide income at median income levels.

The S-VAT could be levied at both the state and federal levels with a common base and tax benefits differing between the states based on their cost of living (which would be paid with the state levy). The federal tax would be the floor of support so that no state could keep any part of its population poor, including migrants. It is time to end the race to the bottom and its associated war on the poor.

Poverty becomes multi-generational when parents are not functionally literate in standard English. The only way to get children out of poverty is to educate the parents while meeting their opportunity costs (paying them to attend class). The S-VAT will facilitate such human capital expenditures, with credits to support tuition, wages and benefits for low-skill workers from ESL and remedial education to apprenticeship. These benefits can be used in cooperation with existing workforce investment boards, community colleges and economic development agencies.

Private education providers should also be included in the mix, including and especially the Catholic education system. Blaine Amendments need repeal, opposition to unions ended and a focus on non-college bound students encouraged.

Going back to healthcare, dealing with seniors is absolutely necessary for states to get out of their perception of poverty so that they can fully commit to doing so for Children. Medicaid for senior citizens and the disabled is a huge contingent liability for some states. In his New Federalism proposals, President Reagan offered to assume these costs in exchange for state funding of all other federal support. The first half of this proposal should be implemented in the form of a new Medicare Part E with no requirement for local funding.

The remainder of health costs would be paid through employer subsidies to low-wage trainees, as described above through an S-VAT, with state goods and services taxes (invoice VAT) covering cash, food and health benefits for unattached non-workers until they can be placed in the appropriate employment or disability program (including substance abuse intervention).


Attachment – Tax Reform, Center for Fiscal Equity, February 21, 2020 

Protecting Congress’ Power of the Purse and the Rule of Law

After the Imperial Presidency of Richard Nixon, the Congress enacted the Budget and Impoundment Control Act of 1974 over his veto. It has been largely self-enforcing, although the requirements in current law holding budget certifiers personally responsible for signing off on purchase requisitions provides additional protection. It is why they look so thoroughly on each package before it is sent to the agency procurement activity. They must also certify the legality of the purchase. 

The attempt to violate the Act in the Ukraine manner came to light and protests by members of the permanent government eventually had the funds released. Without such bravery, the money may never have been delivered. We still have questions as to whether this incident was really about election interference, if only because at most the Ukranian appearance desired on CNN would have changed no minds. The questions that remain are whether the President was an audience of one feeding his own paranoia or had darker intentions having to do with his dual allegiances to his Moscow Project (which realistically would never have been added to the Onion Domes in the Moscow Skyline) or personal loyalty to President Putin.  

Events in the immediate future have an impact on how this will all play out. In the very near future, the Supreme Court will hear Trump v. Vance, et al, with the President’s claims of absolute immunity being part of the arguments and eventual ruling. Worries about partisanship among the Justices are overblown. The current Court will rule as they did in U.S. v. Nixon.   

If the Court remands the issue of presidential indictment (and with it arrest) back to the District Court for further consideration, BICA 74 violations which, like the Foreign Gifts and Declarations Act, contain no criminal penalties, will be the least of Citizen Trump’s worries. That being said, it would be good to enact criminal penalties for violating these statutes directed at appointed, rather than career, officials.  

Whether even these can be used on an urgent basis is in doubt. Enforcement of laws requiring that any and all tax returns be delivered to the Ways and Means and Finance Committees, which have criminal penalties, has been delayed. While the chain of command from the IRS General Counsel to the President’s Chief of Staff (and possibly the President himself) will certainly be subject to prosecution and likely conviction, the reluctance to enforce the appearance of Don McGahn does not bode well if partisanship overcomes duty in the Senate.  

In the end, the voters will decide. That Northern Virginia suburbs had record turnout for the former Vice President shows that many Republicans may have found a new home. This does not bode well for Trump defenders.