Friday, May 27, 2016

Links for 05/2716 | National Catholic Reporter

Links for 05/2716 | National Catholic Reporter by MSW. MGB: Congratulations to the bishop on his retirement.



Bravo to Archbishop Cupich on taking the right side of this issue.  Usually when institutions are claiming religious freedom, what they are seeking is religious power and this is no exception.  While unionization of adjuncts is welcome, there is an argument to be made that they are not really employees but instead are independent contractors.  Their relief should be from IRS and HHS, who should reclassify them as employees first and require that they get the same level of benefits as assistant professors (indeed, they should be considered part time assistant professors with at least consideration for tenure).  Where unionization is truly needed is for university staff - and for the staff of university contractors, such as Service Master.



Proffessor Faggioli gets it right.  The Church is moving under Francis from certainty to collegiality (note that the Trumpsters in the Church want certainty) and practicality.  Hopefully the bishops will go forward this and not confuse a lack of absolutism with the teaching being optional.  Here is the money quote.  "I would make it clear that not all discussions of doctrinal, moral or pastoral issues need to be settled by interventions of the magisterium. Unity of teaching and practice is certainly necessary in the Church, but this does not preclude various ways of interpreting some aspects of that teaching or drawing certain consequences from it."



Bravo to Silberstein for keeping the issue alive, although until shareholders demand that CEO and executive candidates bid against each other in open auction, with easier entry into the bidding for CEO, including all subordinate managers, I fear this won't go very far.  Indeed, I think that the thing that will move the needle on this is not shareholder power but selling those shares to the employees and let them vote on these issues (and elect the CEO if there is a tie in low bids).



Thank you for posting the link to the performance of Soussa's The Washington Post.  Nowadays, I prefer the march to the newspaper.

Memories and thoughts for Memorial Day | National Catholic Reporter

Memories and thoughts for Memorial Day | National Catholic Reporter by MSW. MGB: This will be the fourth Memorial Day column of MSW's that I have responded to.  I was surprised I never wrote one myself in the DC Examiner, but there is none recorded on either my Facebook page or my blog.  I have previously remarked that Memorial Day was formerly Decoration Day, where Civil War graves (and really all graves) were kept up.  Now, perpetual care makes that a thing of the past, so we have opted for parades in small town America.



There are lost cemeteries. Enon, Ohio, where I was a boy scout, had one.  For some reason we decided that the winter was the time to reclaim it.  I don't think we counted on 17 degree temperatures, but we did find and clear a Civil War grave.  In prior days, I am sure the entire town would have turned out annually to clear this cemetary, but a new one was built and this one was forgotten in favor of a parade.



Of course, in DC the big parade is Rolling Thunder, where vets on bikes parade at a faster pace then most boy scouts can keep up.  Anyone driving near the Pentagon on Sunday morning will not the lane closures and the noise - and will take a second to think about the soldiers lost in war.



Cities have big events while small towns, or neighborhoods in small towns, opt for the smaller scale.  Ward 3 has a patriotic parade on the Fourth of July that attracts the politicians from the entire city (especially the ambitious ones) - I remember marching in that parade with Council Member John Ray when he was running for mayor and with Mayor Barry, who beat him, when I was his ward healer.



There is also a July 4th parade downtown, there used to be a large concert (with and without alcohol) and huge fireworks the rival New York City (which I have also gone to).



We also have Arlington Memorial Cemetary - and believe me that there are many events there on Memorial Day.  There also used to be an event that I participated in remembering those people killed for non-service injuries that had to do with the war so they could not make it onto the Vietnam Veterans Memorial Wall.  Washington has plenty of events, however they are truly national in scope - and I recall knowing quite a few of the participants on a first name basis.  You have to care to plug in and Washington and environs will seem like a small town too.



Washington has another tradition of not burying African Americans in the District proper.  This practice has not stopped with the end of segregation.  Just outside the D.C. line, Prince Georges County has a huge African American Cemetary that is still the destination of a different kind of memorial parade as funerals go from Anacostia to the outskirts of the city.  In DC, we even die separately.  There are few black faces in the huge crowd for fireworks on the 4th, but if you are lucky enough to tour Anacostia that night you will see neighborhood fireworks bright enough to light up the night - from pinwheels to small rockets.



Of course, small town America is still there, but it is dwindling and in some places becoming a bit angry as Donald Trump stirs the worst in us all.  Luckily it is only a one year deal.

Thursday, May 26, 2016

Links for 05/26/16 | National Catholic Reporter

Links for 05/26/16 | National Catholic Reporter by MSW. MGB: Jared is realist and is hoping that neither the Freedom Caucus or the Sanders wing will try to change the deal. It is probably a sensible strategy, although I think the right wing has more to lose by P.R. standing up for a better control board. As it is, the Hastert rule will need to be suspended to pass the deal. In for a penny...



MSW actually mentioned the Bosnia landing yesterday too, but did not include the very old link. As I said yesterday, she would have known what the pilot announced about the landing precautions they passengers had to take. They may well have been taking live fire precautions.



I agree with Sullivan the same way MSW agrees with Berkowitz. In this case, Sullivan is relying on survey data that shows that most American citizens have a very low opinion of the civil rights of their neighbors (whether it is matter of right decisions on property to how free speech can be). Trump's band of hooligans are the worst of them and Trump is not far behind. In general, this is not a problem because the electoral class has usually had enough grounding in law or at least political science to not let the great unwashed go too far. Trump has no such education, which means either OJT or more mistakes than can be corrected with lawsuits against the United States. Luckily the latest polls are designed to prove their is an election to be waged - when the reality is that an Electoral College landslide is likely (unless Clinton really puts her foot in it - but that has not hurt Trump).

EWTN: The legacy of Mother Angelica | National Catholic Reporter

EWTN: The legacy of Mother Angelica | National Catholic Reporter by MSW. MGB: EWTN is not neo-conservative.  It is reactionary.  Its seeks a Church that will give the faithful certainty and consistency with the past.  To a great extent, that Church died with Vatican II. although St. John Paul and Pope Benedict tried to bring it back  Francis has returned us to that spirit of reform which includes a little adult uncertainty, as the Joy of Marriage indicates.  Could there be a main stream equivalent?  Anything is possible, although with the number of reactionary bishops, it is not likely.



What about radicals?  That could prove interesting and I would love the job, but it would be hard to find serious money to support it.  It would also attract some theologians who really are out in left field as far as agreed upon doctrine is concerned - and that would attract active retaliation from the CDF - especially if there were Masses offered by women (or wymen) priests. The other problem with the left is that the cutting edge has more of its share of the nones, aka committed secularists.  Such content would be more Marxist than Catholic.  A Catholic radical network would keep the left divided, which is exactly what the left does not need.

Politicians and the lies they tell | National Catholic Reporter

Politicians and the lies they tell | National Catholic Reporter by MSW. MGB: Donald Trump is a loud mouth authoritarian and he appeals to authoritarians. The truth is not necessary for them. They want a consistent narrative (like Curia and natural law) rather than the truth. Authoritarians are hard to beat because to do so you have to insult the base as stooges. Its a judgment call to just let him flame out on his own or attack him as a fascist who is unqualified for office. As for her clumsiness about questions of the truth, its why I supported Sanders and why Sanders beats Trump by higher margins in national polls. The core Democratic establishment at all levels want Hillary and now they have her. If their turnout machine can win the swing states and she can beat Trump in the debates we will forget this discussion.

Wednesday, May 25, 2016

Perspectives on the Need for Tax Reform

Comments for the Record
United States House of Representatives
Committee on Ways and Means
Subcommittee on Tax Policy
Hearing on Perspectives on the Need for Tax Reform
Wednesday, May 25, 2016, 2:00 P.M.
By Michael G. Bindner
Center for Fiscal Equity

Chairman Boustany and Ranking Member Neal, thank you for the opportunity to submit these comments for the record to the Tax Policy 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.
Our comments will address our perspective on each consideration identified in the Hearing Advisory and how our four-part approach meets them. 
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 high income and inheritance surtax will take money out of the savings sector and put it into government spending, which eventually works down to the household level.  Growth comes when people have money and spend it, which causes business to invest.  Any corporate investment manager will tell you that he would be fired if he proposed an expansion or investment without customers willing and able to pay.  Tax rates are an afterthought.
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.
Simplicity and burden reduction are very well served by switching from personal income taxation of the middle class to taxation through a value added tax.  For these people, April 15th simply be the day next to Emancipation Day for the District.  The child tax credit will be delivered with wages as an offset to the Net Business Receipts tax without families having to file anything, although they will receive two statements comparing the amount of credits paid to make sure there are no underpayments by employers or overpayments to families who received the full credit from two employers.  
Small business owners will get the same benefits as corporations by the replacement of both pass through taxation on income taxes and the corporate income tax with the net business receipts tax.  As a result, individual income tax filing will be much simpler, with only three deductions: sale of stock to a qualified ESOP, charitable contributions and municipal bonds – although each will result in higher rates than a clean tax bill.
For the Center, the other key motivator is expanding employee-ownership.  We propose to do that by including an NBRT deduction, to partially reduce income to Social Security, to purchase employer voting stock, with each employee receiving the same contribution, regardless of salary or wage level.  In short order, employees will have the leverage to systematically insist on better terms, including forcing CEO candidates to bid for their salaries in open auction, with employee elections to settle ties. 
Employee-ownership will also lead multi-national corporations to include its overseas subsidiaries in their ownership structure, while assuring that overseas and domestic workers have the same standard of living.  This will lead to both the right type of international economic development and eventually more multinationalism.
Simultaneously, the high income and inheritance surtax will be dedicated to funding overseas military and naval sea deployments, net interest payments (rather than rolling them over), refunding the Social Security Trust Fund and paying down the debt.
Both employee-ownership with CEO pay reduction and paying off the debt will lead to two things – less pressure to deploy U.S. forces overseas and sunset of the income tax.
Military spending both overseas and domestic will decline under this plan.  The VAT will make domestic military spending less attractive and overseas spending on deployments will be fought by income taxpayers, who are currently profiteering from such expenses.  Instead, defense spending can shift to space exploration, which also increases invention and economic growth while keeping the defense industrial complex healthy, although now they can pursue profitable enterprises rather than lethality.
In short, our plan promises both peace and prosperity, not for the few but for the many.  Prosperity bubbles up.  It has never flowed down and tax reform should reflect that.

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.

Protecting Small Businesses from IRS Abuse (Part II)

Comments for the Record
United States House of Representatives
Committee on Ways and Means
Subcommittee on Oversight
Hearing on Protecting Small Businesses from IRS Abuse (Part II)
Wednesday, May 25, 2016, 9:30 A.M.
By Michael G. Bindner
Center for Fiscal Equity

Chairman Roskam and Ranking Member Lewis, thank you for the opportunity to submit these comments for the record to the House Ways and Means Oversight Subcommittee.  As usual, we will preface our comments with our comprehensive four-part approach.
  • 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.
Under our proposals, small businesses will collect the basic value added tax, the Social Security Employee contribution and the Net Business Receipts Tax/Subtraction VAT.
The first VAT will likely be a Goods and Services Tax on all value added and few deductions, save the receipts for VAT paid in invoices so that VAT is only charged once (prior GST payments are not taxable a second time, provided the amount paid to date is on the receipt).  A state level version of this tax will likely replace retail sales taxes and state revenue departments will collect both.  The only way there could be trouble is if receipts are doctored or manufactured, assuming that transactions are not electronic.
The Social Security Employee contribution will be collected as it already is with no change.
The Net Business Receipts Tax/Subtraction VAT may also be a dual state/federal levy with a common base and even some common tax credits and deductions, although states will set their own tax rates while passing through the federal rate.  Money will be collected at the state level, but technical support on the various deductions will likely come from both the state and federal level, although the system could be devised so that all collection and investigation occurs on the state level.
Small business will no longer use personal income taxes to file and taxes will only be paid on net incomes transferred to the business owners as wages or profits – and then only above the income levels specified.  Note that this tax will be very much simplified, with deductions for charity, stock sales to a qualified ESOP and possibly municipal bonds (although every deduction allowed necessitates higher rates).
Let us also consider the premise of the question, that small businesses are being victimized by some IRS agents.  If that is the case, then Congress has only itself to blame.  Government employees who are overworked tend to take out their frustrations on those they regulate, although I have found the IRS to be more than kind, even in matter of collection.  To prevent friction, hire more agents and give them adequate equipment and training.  Anecdotal reports of abuse should go down.  Hopefully, state revenue departments will take the lesson and adequately staff, train and equip their employees for any new responsibilities due to tax reform.

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, May 24, 2016

Laudato Si' turns one year old: Time for action | National Catholic Reporter

Laudato Si' turns one year old: Time for action | National Catholic Reporter by MSW. MGB: Our biggest threat to the biosphere (the planet itself will be fine) is still from global thermal nuclear war - and it goes up if we elect Trump. As for warming, it is still moving so gradually that many won't notice it. Whether the projected warming becomes catastrophic is still debateable (the warming period in the Middle Ages was locally warmer than it is now, but evidence indicates the planet was not warmer. The point is, it still a bit cold by historic standards - the task is not to overshoot. One are that is essential is growing our own food inside. Space science can help us develop these systems so that as automation makes external labor a thing of the past, we can still keep busy on basement agriculture. That will allow returning massive amounts of farmland to forest, which should put the breaks on warming rather nicely - hopefully no so much that we set of glaciation.  Of course, to do that we will need to transition to employee ownership and control of the workplace - and if you thought the right wing was against you before, try ending capitalism!

Moving America’s Families Forward: Setting Priorities for Reducing Poverty and Expanding Opportunity

Comments for the Record
United States House of Representatives
Committee on Ways and Means
Hearing on Moving America’s Families Forward:
Setting Priorities for Reducing Poverty and Expanding Opportunity
Tuesday, May 24, 2016, 10:00 AM
By Michael G. Bindner
Center for Fiscal Equity

Chairman Brady and Ranking Member Levin, thank you for the opportunity to submit these comments for the record to the House Ways and Means Committee.  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.
The most important factor in moving people out of poverty is an adequate wage for work.  Ideally, this should come from a higher minimum wage, which puts the burden on employers and ultimately customers for fair pay, rather than a tax support for low wage workers (regardless of parental status). 
The market cannot provide this wage, as there will always be more desperate employees who can be taken advantage of to force wages lower for everyone else.  A minimum wage protects those employers who would do the right thing by their employees if not for their competitors.
A $15 per hour minimum wage is currently being demanded by a significant share of the voters.  Perhaps it is time to listen.  If the marginal productive product of these employees is more than this rate, job losses will not occur – of course, the estimates of this product can be easily manipulated by opponents who believe that managers provide much more productivity than people who actually work, so such estimates should be examined critically.  Internally, people usually have the correct number, but are loathe to share it if doing so hurts their political point.
In some industries, of course, there are plenty of low wage workers who are not as productive as the wage is high (although this makes one wonder whether such industries are worth supporting in the economy).  For these employees, paid education should be available – and by pay we mean tuition and wages.
Workers that are less than literate at a tenth grade level deserve full remedial education, with pay at minimum wage levels.  This can be paid for in a variety of ways under our model.  The usual model is for state governments to provide this education – and in our model the educational institution will also provide case management and stipends and would be funded by the NBRT/Subtraction VAT.  There are other options as well.
Employers could provide remedial education and payroll as an offset of their NBRT obligations.  They could also contribute to a third party provider, such as Catholic Charities and their related education systems, again offsetting their NBRT with the contribution (a full credit for both tuition and stipends).
Other workers need vocational training.  This should be provided through employers.  Training costs would be NBRT deductible, but not creditable, because ideally new workers should pay back the employer with a service requirement in much the same way that military academy students are required to serve some period in uniform, with a student loan program to fund those new workers for whom the employment situation does not work out. 
Training stipends would not be repayable nor would they be creditable or deductible, as allowing tax advantages for such wages at this level would invite no end of mischief in deducting or crediting the value added of mostly productive employees who are also receiving training.  In this case, preventing the gaming of the training stipend will keep the NBRT lower than it otherwise would be.
Some employees require college educations to advance.  The first two years of college would be grouped with the last two years of high school and would be provided by the state (including parochial high school and college), by employers directly or through a third party provider or through contributions to a public or private school.  Students would receive a stipend and both tuition and stipend would be fully creditable against the NBRT.  Labor provided as a supplement to the employer would be fully taxed as other value added.  After the second of school, employees would be paid for the remainder of college and graduate school along the same lines as vocational training.
Aside from higher base wages and training, the best way to keep families out of poverty is to give them enough money.  None other than Milton Friedman suggested a negative income tax and both Republican and Democratic presidents have enacted and expanded the Earned Income Tax Credit and the Child Tax Credit. 
We propose that the Child Tax Credit be increased to at least $500 per month, which is paid for by ending the child tax exemption (which is gone anyway with the income tax for most families) and the deductions for home mortgage interest and property taxes.  Replacing welfare programs and the EITC should allow a $1000 per month credit, which would be paid as an offset to the NBRT and paid with wages.  Even if the NBRT rate must be raised to cover the cost of the excess credit.
The loss of the EITC would be ameliorated by a higher Child Tax Credit, the paid training opportunities and a floor on the Employee Contribution to Social Security.  Social Security accumulation would be held harmless, or increased, by crediting the employer contribution equally (regardless of wage) and funding it with the NBRT.
These proposals will have a positive impact on the prevention of abortion.  Indeed, they are the essence of the Seamless Garment of Life as discussed by Cardinal Bernardin.  The Center urges the National Right to Life Committee to make adoption of these recommendations a scored life issue.  Failure to do so proves the point of NARAL-Pro-Choice America that abortion restrictions would be all about controlling sexuality.  Prove NARAL wrong and adopt these recommendations.
A key part of our agenda is to increase income tax revenue from the very wealthy through our income and inheritance surtax.  The higher the marginal tax rate goes, the less likely shareholders and CEOs will go after worker wages in the guise of productivity while pocketing the gains for themselves.  Since shareholders usually receive a normal profit through dividends, it is the CEO class that gets rich off of workers unless tax rates are high enough to dissuade them.  Sadly, the split tax system we propose makes high enough rates impossible to achieve.
Employee-ownership is the ultimate protection for worker wages.  Our proposal for expanding it involves diverting an every-increasing portion of the employer-contribution to the Old Age and Survivors fund to a combination of employer voting stock and an insurance fund holding the stock of all similar companies.  At some point, these companies will be run democratically, including CEO pay, and workers will be safe from predatory management practices.
It is in our power to make low wage work and family poverty a thing of the past.  Indeed, doing so is the primary reason the Center for Fiscal Equity was created.  We are not proposing hand-outs but a hand up with adequate rewards for taking it.

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.

Debt versus Equity: Corporate Integration Considerations

Comments for the Record

Senate Committee on Finance
Debt versus Equity: Corporate Integration Considerations
Tuesday, May 24, 2016

by Michael Bindner
The Center for Fiscal Equity
237 Hannes Street
Silver Spring, MD 20901


Chairman Hatch and Ranking Member Baucus, thank you for the opportunity to submit my comments on this topic, which are largely a restatement of our submission to a Joint Committee Hearing on July 13, 2011.  

The main change to our comments is to our four part tax reform proposal, which is 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% in either 5% or 10% increments.  Heirs would also pay taxes on distributions from estates, but not the assets themselves, with distributions from sales to a qualified ESOP continuing to be exempt.
  • 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), 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 sixty.

We preface our analysis by noting that debt and equity are not taxed, per se.  Instead, the interest on debt is taxed as income to the lender and their depositors or investors and is considered an expense to those who incur it for the purchase of capital or for home financing while dividends are taxed rather than equity.  Indeed, equity cannot be federally taxed – only the dividend income earned as a result of holding such equity.  State governments can, of course, tax equity under personal property tax provisions and it could potentially be taxed under a state level Equity Value Tax, which would operate on the same principal as a Land Value Tax on economic rent.

Two perspectives on taxing interest and dividends are important to note – the perspective of the producer/business owner and the perspective of the consumer.  Identifying both points of view is essential to any analysis of the economic and equity impacts of tax reform on interest and dividend taxation

Under the VAT and NBRT elements of our proposal, interest paid would continue to be an expense while increases to equity would be considered a result of adding value and therefore subject to tax, whether paid out in dividends or not.  The equity itself, however, is not taxed – rather the income which grows income is. 

Under VAT and NBRT regimes, labor is also taxed while interest paid is not, however the return on equity and labor would ideally be taxed at the same rate – rather than taxing dividends at either a higher or lower rate than income, depending on the tax bracket of the taxpayer and their primary source of income.

An advantage to both VAT and NBRT is that they are potentially much simpler with regard to the tax treatment of interest expenses than the current personal and corporate income tax systems, although that simplicity is as much a function of how the tax laws are written as the inherent nature of these taxes.

Under our proposals, wages, interest income and dividend income for most households would not be taxed directly.  In order to facilitate the payment of VAT, net income would increase by the same percentage as the VAT plus any adjustment due to receipt of refundable Child Tax Credits through NBRT, while gross income would decline to Net Income plus OASI taxes and for high income individuals and families, continued income surtax withholding. 

For most families, taxation would occur through consumption rather than through wages.  The loss of gross income would be for wages which were never paid anyway, as the responsibility for being an object of taxation shifts from the employee to the employer.  Of course, economically, the consumer is the already the ultimate funder of all income taxes currently paid by both labor and capital under the current system.

There is extensive literature already in existence on the tax treatment of interest income to financial services firms.  We will leave review and comment of this highly technical literature to those who are expert in it, as we believe it is beyond the purposes of this hearing.  Such issues are important to consider when implementing legislation and regulation are in the drafting stage – and we surmise that this debate is no where near that point. 

OASI contributions have no impact on the question of interest and dividends unless personal accounts are included as a feature.  Whether such accounts are on the Cato Institute model, with diversified investment, or our model with insured investment in the employing company, equity would largely replace debt and value added to equity would be taxed as income under VAT and NBRT rather than as interest income to the financial institution making the loan.

High income individuals are more likely to be taxed both as consumers and as producers, however, their greater propensity to consume less of a percentage of income in any current period requires a separate surtax, especially if dividends are reinvested rather than spent and capital gains remain unrealized.  In the short term, reinvestment or holding investments leaves this potential income outside the reach of taxation, creating real vertical equity issues that can only be resolved with the adoption of surtaxes on all income above a certain level.

Under our proposal, there would be no separate rate for interest, dividends, disbursements from inheritance or sale of inherited assets (unless the sale is to a qualified Employee Stock Ownership Plan), capital gains or wages.  All income would be taxed at the same rate.  For high income tax payers, all income is fungible.  It matters not whether it comes from dividends or from interest on deposits loaned out to firms who pursue debt finance rather than equity finance.

We propose graduated rates from the $100,000 per year income level to the $550,000 per year level, as it is no more complicated to look up tax due on a tax table for graduated rates than for a single rate, so tax simplification concerns provide no justification for abandoning graduated tax rates.  Indeed, such rates are necessary to compensate for the fact that at higher levels, families are more likely to defer spending for decades, if not generations, and may attempt to avoid taxation permanently.  While in the long term, all income must eventually be spent to have any value, in the short term there are serious equity concerns from not taxing high income individuals at a higher rate because they are less likely to consume within a given period.

Without high income surtaxes, the pool of potential investment becomes more and more concentrated until the vast majority of the population is reduced to wage slavery alone.  Indeed, the lowering of tax rates in the last three decades has produced such a result, with productivity gains going to an ever shrinking high income population at the top of the income distribution, while most workers see income levels rise only by the rate of inflation, even when they are the source of the increased productivity that is growing the economy. 

Drawing this distinction is much more important than the impact of tax reform on debt finance versus equity finance.


Thank you for this opportunity to share these ideas with the committee.

Tuesday, May 17, 2016

Tax-Related Proposals to Improve Health Care

Comments for the Record
United States House of Representatives
Committee on Ways and Means
Health Subcommittee
Member Day Hearing on Tax-Related Proposals to Improve Health Care
Tuesday, May 17, 2016, 10:00 AM
By Michael G. Bindner
Center for Fiscal Equity

Chairman Tiberi and Ranking Member McDermott, thank you for the opportunity to submit these comments for the record to the House Ways and Means Committee.  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.
Proposals along these lines have long been a part of our standard package of health care reforms.  We have long advocated a conversion to catastrophic insurance with a medical savings account to pay for appointments and drugs, although we have always suggested a third element – a Medical Line of Credit to bridge the gap between the current MSA balance at the catastrophic deductible.  The MLC would also pay for services, including acupuncture and reproductive health that may not be covered or coverable under catastrophic insurance.  
Under our standard tax reform proposal, catastrophic policies would be purchased by all employers (and certain self-employed) as an offset to the Net Business Receipts Tax/Subtraction VAT.  While this raises the tax rate, the lack of any tax subsidy would doom private insurance and deny most families medical care.  Likewise, the Health Savings Account would be provided by employers, but would be a deduction rather than a credit.  Medical Lines of Credit would be funded entirely by employees with no tax advantage – as under our plan most employees would not pay any income taxes.
Personal experience with cardiac care (luckily a succession of false alarms) showed that, while this approach makes economic sense, it does not jibe with how doctors operate.  There is no price schedule in the waiting or exam rooms to compare costs for proposed procedures or tests. Health care is not a normal good.  While it responds to market pressures, some care cannot be limited by them. 
I also came to the conclusion with the passage of health care reform – and the electoral rejection of the health care reform above which was not far from what Senator McCain proposed in his 2008 run (and which was not even mentioned as the Republican alternative in the Obamacare debate) – that Americans like their comprehensive insurance.  Most importantly, while the Medical Line of Credit is essential for complete health care, its inclusion essentially short circuits any decision to shop for care.
If the McCain approach cannot pass, will the Affordable Care Act survive the test of time (it has certainly survived all attempts to repeal it)?  Possibly.  The key concept, that people in marginal jobs deserve the same tax subsidies that corporate employees get is sound.  Those parts that fulfill that need, which originated in the Heritage Foundation (which even now clamors for repeal) are also worthy. 
What is less defensible are the higher non-wage income taxes used to fund it, although no bill which just repeals these will survive a Budget Act point of order in the Senate (regardless of House Rules) nor would the political optics look good.  Repeal would hurt too many Americans, so expansion of the tax (along with a rate cut) with some form of consumption or payroll tax– such as the one proposed by Senator Sanders in his single payer plan (or by Mrs. Clinton during her husband’s health care reform effort).  In our proposal, the consumption tax used would be the NBRT/Subtraction VAT.
The main danger to the Affordable Care Act is ease of entry and exit.  If it is too easy to get in, then people will wait until they are sick to sign up.  After they are well, any plan will stop coverage if you stop sending in your monthly premium check.  If enough people do that, rates go up and the cycle goes down.  This eventually leads to a collapse in the system that can be fixed in one of two ways – give everyone cheap and mandatory health care or place health insurers into bankruptcy, like General Motors and Chrysler, and reorganize them into a single-payer system (without any congressional action).  Had the leadership laid out this scenario, it might have stopped the Affordable Care Act – and insurance companies would have most assuredly stopped contributions to the GOP.
The low-cost system with catastrophic care would operate as above (and would hopefully include the Medical Lines of Credit).  Single-payer care would be funded by the NBRT/Subtraction VAT.  Such a tax is superior to the payroll tax proposed by Senator Sanders because it would hit profit.  The upper-income payroll taxes for non-wage income would repealed and incorporated into the NBRT.  
Under Single-Payer, we propose an additional option.  Firms that provide direct health care, such as automobile manufacturers, would not pay for third party coverage at all.  The cost of the coverage provided would be an offset to the NBRT.

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.

The Dividends Paid Deduction Considered

Comments for the Record

United States Senate Committee on Finance

Integrating the Corporate and Individual Tax Systems:
The Dividends Paid Deduction Considered
Tuesday, May 17, 2014, 10:00 AM
215 Dirksen Senate Office Building



Chairman Hatch and Ranking Member Wyden, thank you for the opportunity to address this topic.  The Center for Fiscal Equity believes that dealing with the question of taxing dividends is a key issue in constructing tax reform legislation and ultimately in achieving comprehensive deficit reduction.  

As always, our proposals come within the context of our four-point tax reform and deficit reduction plan:

  • 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% in either 5% or 10% increments.  Heirs would also pay taxes on distributions from estates, but not the assets themselves, with distributions from sales to a qualified ESOP continuing to be exempt.
  • 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), 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 sixty.


We do not believe that providing a tax cut for dividends to corporations is appropriate at this or any other time.  Such a tax cut could not be duplicated for pass-through businesses, partnerships and sole proprietorships – the majority of business taxpayers.  It would foreclose the possibility of enacting consumption taxes, which tax labor and capital at the same rate.  Indeed, such a deduction would essentially turn consumption taxes into a payroll tax, provided that all profits were distributed as dividends (which is actually a proposal for followers of Louis Kelso and his Two Factor Theory).  This proposal is exactly the wrong way to go in this Congress, where it would be vetoed by the sitting President.

The Center for Fiscal Equity believes that lower dividend, capital gains and marginal income taxes for the wealthy actually destroy more jobs than they create.  This occurs for a very simple reason – management and owners who receive lower tax rates have more an incentive to extract productivity gains from the work force through benefit cuts, lower wages, sending jobs offshore or automating work.  As taxes on management and owners go down, the marginal incentives for cost cutting go up.  As taxes go up, the marginal benefit for such savings go down.  It is no accident that the middle class began losing ground when taxes were cut during the Reagan and recent Bush Administrations, both of which saw huge tax cuts.  Keeping these taxes low is also part of why we are experiencing a recovery performing at half speed now.

As long as management and ownership benefit personally from cutting jobs, they will continue to do so.  Tax reform must reverse these perverse incentives.

Tax cuts on capital also produce a host of bad investments that would not otherwise occur.  Every major asset bubble, including the 2008 recession, arose from dividend and capital gains taxes that were too low.  If capital is needed for business because of a demand driven expansion, the Federal Reserve is quite able to make this happen.  Fiscal policy is not, and never has been, the answer to making credit available for expansion.

Our Principal Analyst served on the Computer-Aided Manufacturing – International Cost Management System Project, part of which was the Multi-Attribute Decision Model for investment.  Cost of capital was not a major driver.  Customers who are able and willing to spend had a much greater impact on why investment should take place.  There is one word which typifies an investment manager who follows supply-side economic theory in recommending business investments: unemployed.

Double-taxation of dividends by taxing as value-added and as income to the shareholder is a myth, and a bad one at that. 

If corporate income taxes were expanded to be a subtraction VAT or net business receipts tax that all firms pay, an additional tax on shareholders is merely a surtax paid because there is no other way to fully tax profit at the business level without doing major damage to equity and privacy.

In testimony before the Senate Budget Committee, Lawrence B. Lindsey explored the possibility of including high income taxation as a component of a Net Business Receipts Tax. The tax form could have a line on it to report income to highly paid employees and investors and pay surtaxes on that income.

The Center considered and rejected a similar option in a plan submitted to President Bush’s Tax Reform Task Force, largely because you could not guarantee that the right people pay taxes. If only large dividend payments are reported, then diversified investment income might be under-taxed, as would employment income from individuals with high investment income. Under collection could, of course, be overcome by forcing high income individuals to disclose their income to their employers and investment sources – however this may make some inheritors unemployable if the employer is in charge of paying a higher tax rate. For the sake of privacy, it is preferable to leave filing responsibilities with high income individuals.

Accomplishing deficit reduction with income and inheritance surtaxes recognizes that attempting to reduce the debt through either higher taxes on or lower benefits to lower income individuals will have a contracting effect on consumer spending, but no such effect when progressive income taxes are used. Indeed, if progressive income taxes lead to debt reduction and lower interest costs, economic growth will occur as a consequence.

Using this tax to fund deficit reduction explicitly shows which economic strata owe the national debt. Only income taxes have the ability to back the national debt with any efficiency. Payroll taxes are designed to create obligation rather than being useful for discharging them. Other taxes are transaction based or obligations to fictitious individuals. Only the personal income tax burden is potentially allocable and only taxes on dividends, capital gains and inheritance are unavoidable in the long run because the income is unavoidable, unlike income from wages.

Even without progressive rate structures, using an income tax to pay the national debt firmly shows that attempts to cut income taxes on the wealthiest taxpayers do not burden the next generation at large. Instead, they burden only those children who will have the ability to pay high income taxes. In an increasingly stratified society, this means that those who demand tax cuts for the wealthy are burdening the children of the top 20% of earners, as well as their children, with the obligation to repay these cuts. That realization should have a healthy impact on the debate on raising income taxes rather than carving out even more tax breaks for the wealthy, such as making dividends deductible in the corporate income tax.


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.

Thursday, May 12, 2016

Member Day Hearing on Tax Reform


Comments for the Record

United States House of Representatives

Committee on Ways and Means

Member Day Hearing on Tax Reform

Thursday, May 12, 2016, 10:00 AM

By Michael G. Bindner

Center for Fiscal Equity


Chairman Brady and Ranking Member Levin, thank you for the opportunity to submit these comments for the record to the House Ways and Means Committee.  

The Center offered a flurry of comments for the record during that period where Chairman Camp and his subcommittee held almost weekly hearings on tax reform, partly because tax reform was seen as a way to make lower taxes enacted by President Bush permanent, although the Republican and Democratic caucuses had differing views on whether there should be increased revenue from wealthier taxpayers, with the bipartisan Bowles-Simpson and Domenici-Rivlin commissions arguing for revenue positive reforms.   

Chairman Camp offered his own comprehensive reform, which was essentially a “school solution” which lowered rates and broadened the base.  The approach harkened back to the Tax Reform of 1986, although the historical model had its problems – the first being that it lowered rates on the highest taxpayers to such an extent that they had an incentive to demand labor cost savings with rewards for CEOs who accomplished that mission, leading to wage stagnation that plagues the economy even today, as well as too much money available for investment – leading ultimately to investments in home mortgages that caused the Savings and Loan crisis and the 2008 market crash.  The second problem, also leading to the mortgage crisis and market crash was the deductibility of second mortgage interest, which encouraged borrowers in an ever increasing housing market to use their homes as an ATM machine.  The Center for Fiscal Equity hopes that we do not go this way again.

The President has offered solutions that year much like those of Domenici-Rivlin or Bowles-Simpson. Of course, after he secured passage of the American Tax Relief Act of 2013, which made the tax cuts for the bottom 98% of taxpayers permanent while renewing the Clinton era rates for the top 2%, all talk of tax reform ended, save for discussions of international and corporate reform, which seem to have gone nowhere.   Indeed, due to the number of businesses which file under the individual code, no reform that is not entirely comprehensive is appropriate. 

We doubt that any reform will occur because there have been no talks between the White House and Treasury Department with the congressional tax writing committees.  If they have occurred, then I comment you on your stealth.  Still, this member day is a good sign that bipartisan discussion is possible on this topic, so we are pleased to resubmit our comprehensive four-part approach.

  • 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% in either 5% or 10% increments.  Heirs would also pay taxes on distributions from estates, but not the assets themselves, with distributions from sales to a qualified ESOP continuing to be exempt.
  • 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 have no proposals regarding environmental taxes, customs duties, excise taxes and other offsetting expenses, although increasing these taxes would result in a lower VAT. American competitiveness is enhanced by enacting a VAT, as exporters can shed some of the burden of taxation that is now carried as a hidden export tax in the cost of their products.  The NBRT will also be zero rated at the border to the extent that it is not offset by deductions and credits for health care, family support and the private delivery of governmental services.

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.

The shift from an income tax based system to a primarily consumption based system will dramatically decrease participation in the personal income tax system to only the top 20% of households in terms of income.  Currently, only roughly half of households pay income taxes, which is by design, as the decision has been made to favor tax policy to redistribute income over the use of direct subsidies, which have the stink of welfare.  This is entirely appropriate as a way to make work pay for families, as living wage requirements without such a tax subsidy could not be sustained by small employers.

The income surtax is earmarked for overseas military, naval sea and international spending because this spending is most often deficit financed in times of war.  Earmarking repayment of trust funds for Social Security and Medicare, acknowledges the fact that the buildup of these trust funds was accomplished in order to fund the spending boom of the 1980s without reversing the tax cuts which largely benefited high income households.

Earmarking debt repayment and net interest in this way also makes explicit the fact that the ability to borrow is tied to the ability to tax income, primarily personal income.  The personal or household liability for repayment of that debt is therefore a function of each household’s personal income tax liability.  Even under current tax law, most households that actually pay income taxes barely cover the services they receive from the government in terms of national defense and general government services.  It is only the higher income households which are truly liable for repayment of the national debt, both governmental and public.

If the debt is to ever be paid back rather than simply monetized, both domestically and internationally (a situation that is less sustainable with time), the only way to do so without decreasing economic growth is to tax higher income earners more explicitly and at higher rates than under current policy, or even current law.

The decrease in economic class mobility experienced in recent decades, due to the collapse of the union movement and the rapid growth in the cost of higher education, means that the burden of this repayment does not fall on everyone in the next generation, but most likely on those who are living in high income households now.

Let us emphasize the point that when the donors who take their cues from Americans for Tax Reform bundle their contributions in support of the No Tax Pledge, they are effectively burdening their own children with future debt, rather than the entire populace.  Unless that fact is explicitly acknowledged, gridlock over raising adequate revenue will continue.

CBO projections on the size of the debt and the role of Net Interest are troubling in that they show that while most discretionary and entitlement spending are projected to remain flat while net interest is due to explode.  It is helpful to explore the reasons for this.  This explosion essentially fuels the growth of the growth of the Dollar as the world’s currency.  Essentially, this means that we pay our expenses with taxation (even without adopting the Center for Fiscal Equity Plan) while we roll over our debt without repaying it.  This seems like a wonderful way for American consumers to continue to live like imperial Rome, however it cannot last.

There are two possible ends to this gravy train.  The first is the internationalization of the Dollar, the Federal Reserve and our entire political system into a world currency or government and its concurrent loss of national sovereignty or the eventual creation of rival currencies, like a tradable Yuan or a consolidated European Debt and Income Tax to back its currency.  In the prior case, all nations which use the Dollar will contribute to an expanded income tax to repay or finance the interest on the global debt.  In the second case, the American taxpayer will be required to pay the debt back – and because raising taxes on all but the wealthy will hurt the economy, it will be the wealthy and their children who will bear the burden of much higher tax levies.

In order to avert either crisis, there are two possibilities.  The first is the elimination of deductions, including the Charitable Deduction itemized on personal income taxes – especially for the wealthy.  If the charitable sector, from the caring community to the arts, industrial and education sectors, convince wealthier taxpayers to fight for this deduction.

The second option is higher rates than would otherwise occur, possibly including a much more graduated tax system. Unlike other proposals, a graduated rate for the income surtax is suggested, as at the lower levels the burden of a higher tax rate would be more pronounced.  More rates make the burden of higher rates easier to bear, while actually providing progressivity to the system rather than simply offsetting the reduced tax burden due to lower consumption and the capping of the payroll tax for Old Age and Survivors Insurance.

One of the most oft-cited reforms for dealing with the long term deficit in Social Security is increasing the income cap to cover more income while increasing bend points in the calculation of benefits, the taxability of Social Security benefits or even means testing all benefits, in order to actually increase revenue rather than simply making the program more generous to higher income earners.  Lowering the income cap on employee contributions, while eliminating it from employer contributions and crediting the employer contribution equally removes the need for any kind of bend points at all, while the increased floor for filing the income surtax effectively removes this income from taxation.  Means testing all payments is not advisable given the movement of retirement income to defined contribution programs, which may collapse with the stock market – making some basic benefit essential to everyone.

Moving the majority of Old Age and Survivors Tax collection to a consumption tax, such as the NBRT, effectively expands the tax base to collect both wage and non-wage income while removing the cap from that income.  This allows for a lower tax rate than would otherwise be possible while also increasing the basic benefit so that Medicare Part B and Part D premiums may also be increased without decreasing the income to beneficiaries.

If personal accounts are added to the system, a higher rate could be collected, however recent economic history shows that such investments are better made in insured employer voting stock rather than in unaccountable index funds, which give the Wall Street Quants too much power over the economy while further insulating ownership from management.  Too much separation gives CEOs a free hand to divert income from shareholders to their own compensation through cronyism in compensation committees, as well as giving them an incentive to cut labor costs more than the economy can sustain for purposes of consumption in order to realize even greater bonuses.  Employee-ownership ends the incentive to enact job-killing tax cuts on dividends and capital gains, which leads to an unsustainable demand for credit and money supply growth and eventually to economic collapse similar to the one most recently experienced.

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 choose 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.

The expansion of the Child Tax Credit is what makes tax reform worthwhile. Adding it to the employer levy rather than retaining it under personal income taxes saves families the cost of going to a tax preparer to fully take advantage of the credit and allows the credit to be distributed throughout the year with payroll. The only tax reconciliation required would be for the employer to send each beneficiary a statement of how much tax was paid, which would be shared with the government. The government would then transmit this information to each recipient family with the instruction to notify the IRS if their employer short-changes them. This also helps prevent payments to non-existent payees.

Assistance at this level, especially if matched by state governments may very well trigger another baby boom, especially since adding children will add the additional income now added by buying a bigger house. Such a baby boom is the only real long term solution to the demographic problems facing Social Security, Medicare and Medicaid, which are more demographic than fiscal. Fixing that problem in the right way definitely adds value to tax reform.

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.

Enacting the NBRT is probably the most promising way to decrease health care costs from their current upward spiral – as employers who would be financially responsible for this care through taxes would have a real incentive to limit spending in a way that individual taxpayers simply do not have the means or incentive to exercise. While not all employers would participate, those who do would dramatically alter the market. In addition, a kind of beneficiary exchange could be established so that participating employers might trade credits for the funding of former employees who retired elsewhere, so that no one must pay unduly for the medical costs of workers who spent the majority of their careers in the service of other employers.

Conceivably, NBRT offsets could exceed revenue. In this case, employers would receive a VAT credit.

In testimony before the Senate Budget Committee, Lawrence B. Lindsey explored the possibility of including high income taxation as a component of a Net Business Receipts Tax. The tax form could have a line on it to report income to highly paid employees and investors and pay surtaxes on that income.

The Center considered and rejected a similar option in a plan submitted to President Bush’s Tax Reform Task Force, largely because you could not guarantee that the right people pay taxes. If only large dividend payments are reported, then diversified investment income might be under-taxed, as would employment income from individuals with high investment income. Under collection could, of course, be overcome by forcing high income individuals to disclose their income to their employers and investment sources – however this may make some inheritors unemployable if the employer is in charge of paying a higher tax rate. For the sake of privacy, it is preferable to leave filing responsibilities with high income individuals.

Dr. Lindsey also stated that the NBRT could be border adjustable.  We agree that this is the case only to the extent that it is not a vehicle for the offsets described above, such as the child tax credit, employer sponsored health care for workers and retirees, state-level offsets for directly providing social services and personal retirement accounts.  Any taxation in excess of these offsets could be made border adjustable and doing so allows the expansion of this tax to imports to the same extent as they are taxed under the VAT.  Ideally, however, the NBRT will not be collected if all employers use all possible offsets and transition completely to employee ownership and employer provision of social, health and educational services.

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.