Complexities and Challenges of Social Security Coverage and Payroll Tax Compliance for State and Local Governments

Comments for the Record

United States House of Representatives

Committee on Ways and Means

Social Security Subcommittee

Oversight Subcommittee

Joint Hearing on the Complexities and Challenges of

Social Security Coverage and Payroll Tax Compliance for

State and Local Governments

Thursday, June 29, 2017, 10:00 AM

By Michael G. Bindner

Center for Fiscal Equity

Chairmen Johnson and Buchanan and Ranking Members Larson and Lewis, thank you for the opportunity to submit my comments on this topic. We will leave it to the invited witnesses to comment on how states and territories voluntarily participate in Social Security. Our comments will address how to stabilize state and local retirement plans in the short term and how state and local government personnel might fare under our proposal in the long run.    As usual, our comments are based on our four-part tax reform plan, 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.

The Current State and Local Pension Crisis

In cities and states hit hardest by the Great Recession, among them Chicago and Michigan, both loss of tax revenue and investment assets doomed once solvent retirement plans to funds that needed to be bailed out.  Some of the urgency behind this issue likely also came from a financial sector that was hungry for a new source of fees, which converting from defined benefit plans to defined contribution plans would surely provide.  More than a few campaign contributions were likely made to speed this process.  Even though the economy is bouncing back with home prices, we are likely not done with attempts to raid state retirement programs.

While some privatization could be healthy, as I describe below, trust fund socialism where public assets are used to make CEOs all the more unaccountable to shareholders by insulating them with mutual funds only increases the economic uncertainty faced by the American workers who voted to Make America Great Again.  The proposals below make CEOs more accountable to worker-stockholders in ways never seen before, although these will take time.  Some pension funds in the Rust Belt don’t have time.  For them action is required now.

At President Clinton’s Social Security Summit, the school solution seemed to include adding state and local workers to Social Security as a way to stabilize Social Security.  It turns out that it is even more important to do this to stabilize the retirement of government workers, although giving them a program like FERS, where they do have personal savings and a residual government pension, is the best thing for the interim.

I would hope that your witnesses can describe how to ramp up efforts so that state and local systems can be added to Social Security en masse.

Social Security Personal Accounts

In our proposal, Social Security contributions from employers are incorporated into the Net Business Receipts Tax (Subtraction VAT).  One feature of the tax could be personal accounts for Social Security holding employer voting stock and shares of an insurance fund hold employee-owned firms.

As we wrote in the January 2003 issue of Labor and Corporate Governance, we would equalize the employer contribution based on average income rather than personal income. We would also increase or eliminate the cap on contributions. The higher the income cap is raised, the more likely it is that personal retirement accounts are necessary.

A major strength of Social Security is its income redistribution function. We suspect that much of the support for personal accounts is to subvert that function – so any proposal for such accounts must move redistribution to account accumulation by equalizing the employer contribution.

We propose directing personal account investments to employer voting stock, rather than an index funds or any fund managed by outside brokers. There are no Index Fund billionaires (except those who operate them). People become rich by owning and controlling their own companies. Additionally, keeping funds in-house is the cheapest option administratively. we suspect it is even cheaper than the Social Security system – which operates at a much lower administrative cost than any defined contribution plan in existence.

Safety is, of course, a concern with personal accounts. Rather than diversifying through investment, however, we propose diversifying through insurance. A portion of the employer stock purchased would be traded to an insurance fund holding shares from all such employers. Additionally, any personal retirement accounts shifted from employee payroll taxes or from payroll taxes from non-corporate employers would go to this fund.

The insurance fund will save as a safeguard against bad management. If a third of shares were held by the insurance fund than dissident employees holding 25.1% of the employee-held shares (16.7% of the total) could combine with the insurance fund held shares to fire management if the insurance fund agreed there was cause to do so. Such a fund would make sure no one loses money should their employer fail and would serve as a sword of Damocles’ to keep management in line. This is in contrast to the Cato/ PCSSS approach, which would continue the trend of management accountable to no one. The other part of my proposal that does so is representative voting by occupation on corporate boards, with either professional or union personnel providing such representation.

The suggestions made here are much less complicated than the current mix of proposals to change bend points and make OASI more of a needs based program. If the personal account provisions are adopted, there is no need to address the question of the retirement age. Workers will retire when their dividend income is adequate to meet their retirement income needs, with or even without a separate Social Security program.

No other proposal for personal retirement accounts is appropriate. Personal accounts should not be used to develop a new income stream for investment advisors and stock traders. It should certainly not result in more “trust fund socialism” with management that is accountable to no cause but short term gain. Such management often ignores the long-term interests of American workers and leaves CEOs both over-paid and unaccountable to anyone but themselves.

Progressives should not run away from proposals to enact personal accounts. If the proposals above are used as conditions for enactment, I suspect that they won’t have to. The investment sector will run away from them instead and will mobilize their constituency against them. Let us hope that by then workers become invested in the possibilities of reform.

State and Local Government

At first, state and local governments will go on as they do now, however eventually both capitalist and employee-owned firms will take advantage of offsets in the NBRT that allow alternative funding of government services, from road construction, maintenance, fire safety and police to schools, mental health, hospitals and adjust education (much of current corrections could be handled by mental health systems if easy exit is reformed).  Larger firms in “company towns” may have a virtual monopoly on industrial jobs and government services.  Larger cities may have more than one large cooperative employer. 

Larger cooperatives who take on most or all government functions would “buy out” the Social Security and pension contributions to the federal and local systems and replace them with company voting stock and the insurance trust fund discussed above.  A collection of smaller or larger cooperatives, however, might share public service functions between them.  Such providers would have their own stock and might receive cooperative or stock shares from the major employers in their city or county.  Their workers would have some say in cooperative matters and the cooperatives would have some say in their management.  Of course, non-profits would receive non-voting share and would not necessarily offer formal decision roles to employer partners, but they may have democratic governance through client families, like school boards.

One example of inter-linked cooperatives would be large city transportation and electricity companies who would build and maintain an electric car network (maybe with fusion power) which would also provide electricity to businesses and homes.  Stakeholders with interlocking shares would include road construction firms, firm that would provide computer control, the local power company, possibly one or more automotive manufacturers and the local employers, especially cooperative ones.  Individual workers would have shares in their own firm as well as partner firms, depending on capital requirements and the need for employee and consumer democracy.  No doubt that some of the workers on the public payroll currently would be subsumed into these enterprises, such as the local department of public works or energy cooperative.  Not a bad future.

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.

U.S. Trade Policy Agenda

Comments for the Record

United States House of Representatives

Committee on Ways and Means

Hearing on U.S. Trade Policy Agenda

Thursday, June 22, 2017, 10:00 A.M.

1100 Longworth House Office Building

By Michael G. Bindner

Center for Fiscal Equity

Chairman Brady and Ranking Member Neal, thank you for the opportunity to submit these comments for the record to the Committee on the.  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.

Far be it from the Center to interfere with a dispute between the Committee and the White House over NAFTA.  Such arguments are like those over immigration, where some business owners want employees to stay in the shadows and be abused, others want legal employees (though non-union – repealing right to work laws would end illegal immigration because no one would hire an undocumented worker with union representation) and still other in the conservative camp simply hate the illegality or the ethnicity of the immigrants (speaking of the White House).

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

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

Some of our prior comments to the Trade Subcommittee from June of last year on our standard tax plan still apply, even though that hearing was on agricultural exports. Allow us to repeat them now:

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

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

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

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

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

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

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

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

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

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

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

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

The Department of Health and Human Services’ Fiscal Year 2018 Budget Request

Comments for the Record

U.S. House of Representatives

Committee on Ways and Means

The Department of Health and Human Services’

Fiscal Year 2018 Budget Request

Thursday, June 8, 2017, 1:00 PM

1100 Longworth House Office Building

By Michael G. Bindner

Center for Fiscal Equity

Chairman Brady and Ranking Member Neal, thank you for the opportunity to submit these comments for the record to the House Ways and Means Committee.  As always, our proposals are in the context of our basic proposals for tax and budget reform, which are 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.
•  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.

Discretionary activities of the Department of Health and Human Services would be funded by the VAT.  While some of our VAT proposals call for regional breakdowns of taxing and spending, they do not for this department.  While some activities, such as the Centers for Disease Control, exist outside the Washington, DC metro area, even these are site specific rather than spread out on a nation-wide basis to serve the public at large.  While some government activities benefit from national and regional distribution, health research will not.

The one reform that might eventually be considered in this area is to more explicitly link government funded research with ownership of the results, so that the Department might fund some of their operations with license agreements for some of the resulting research, enabling an expanded research agenda without demanding a higher budget allocation. 

Of course, regionalization is possible if the Uniformed Public Health Service is put into the role of seeing more patients, particularly elderly patients and lower income patients who are less than well served by cost containment strategies limiting doctor fees.  Medicaid is notoriously bad because so few doctors accept these patients due to the lower compensation levels, although we are encouraged the health care reform is attempting to reduce that trend.  Medicare will head down that road shortly if something is not done about the Doc Fix.  It may become inevitable that we expand the UPHS in order to treat patients who may no longer be able to find any other medical care.  If that were to happen, such care could be organized regionally and funded with regionally based taxes, such as a VAT.

The other possible area of cost savings has to do with care, now provided for free, on the NIH campus.  While patients without insurance should be able to continue to receive free care, patients with insurance likely could be required to make some type of payment for care and hospitalization, thus allowing an expansion of care, greater assistance to patients who still face financial hardship in association with their illnesses and a restoration of some care that has been discontinued due to budget cuts to NIH.  This budget contains even more cuts.  These should not be allowed.  Rather, previous cuts must be restored.

The bulk of our comments have to do with health and retirement security.

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.  Increasing these premiums essentially solves their long term financial problems while allowing repeal of the Doc Fix.

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 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.

Note that this budget reintroduces the Obama proposal for a chained CPI, which echoed both the Rivlin-Domenici and the Simpson Bowles Commissions.  No additional fund has been proposed for poor seniors or the disabled, which means there will be suffering.  This should not be allowed without some readjustment of base benefit levels, possibly by increasing the employer contribution and grandfathering in all retirees.  This is easily done using our proposed NBRT, which replaces the Employer Contribution to OASI and all of DI and should be credited equally to all workers rather than being a function of income.

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.

A key provision of our proposal is consolidation of existing child and household benefits, including the Mortgage Interest and Property Tax Deductions, into a single refundable Child Tax Credit of at least $500 per month, per child, payable with wages and credited against the NBRT rather than individual taxes.  Ending benefits for families through the welfare system could easily boost the credit to $1000 per month for every family, although the difference would also be made up by lowering gross and net incomes in transition, even for the childless.

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 adds value to tax reform.  Adopting this should be scored as a pro-life vote, voting no should be a down check to any pro-life voting record.

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. Such a shift would radically reduce the budget needs of HHS, while improving services to vulnerable populations, although some of these benefits could be transferred to the Child Tax Credit.

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.

The Administration believes that the Affordable Care Act is failing.  This is most likely not true, but it one day will be if funding is removed and coverage is gutted for the most vulnerable.   The key question is whether the incentives for the uninsured are not adequate in the light of pre-existing condition reform to make them less risk averse than investors in the private insurance market, the whole house of cards may collapse – leading to either single payer or the enactment of a subsidized public option (which, given the nature of capitalism, will evolve into single payer).  While no one knows how the uninsured will react over time, the investment markets will likely go south at the first sign of trouble.  

We suggest to the Secretary that he have an option ready when this occurs.  Enactment of a tax like the NBRT will likely be necessary in the unlikely event the ACA collapses.  It could also be used to offset non-wage income tax cuts proposed by the House, rather than cutting coverage for older, poorer and sicker Americans.  Single-payer is inevitable unless the President is simply blowing smoke about the ACA failing.

As to the Medicaid decision, if enough states refuse the additional funding for Medicaid to cover the uninsured, the likely consequence should be total federal funding (which would also please adherents to the Hyde Amendment).

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 Economic and Fiscal Benefits of Pro-Growth Policies

Comments for the Record

United States House of Representatives

Committee on the Budget

Hearing on The Economic and Fiscal Benefits of Pro-Growth Policies

Wednesday, June 7, 2017, 10:00 A.M.

1334 Longworth House Office Building

By Michael G. Bindner

Center for Fiscal Equity

Chair Black and Ranking Member Yarmuth, thank you for the opportunity to submit these comments for the record to the Committee on the.  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 obvious answer to whether fiscal and economic growth occurs with pro-growth policies is yes, however the devil is in the details.  Currently, the Committee could adjourn for the year and use the Budget Control Act spending caps to allocate discretionary spending, while leaving tax and entitlement policy alone and achieve economic growth, Indeed, because housing prices have turned around, this year may finally see the underlying economic depression end as under-water borrowers can rejoin the normal churn toward bigger properties to fit their growing families. 

This could have happened in 2009 had the current majority not resisted direct mortgage relief, with White House economic advisor Larry Summers caving on the issue.  Doing nothing would likely result in economic growth and fiscal health, however Republican ideologues will not let a good thing go unruined.  The lingering focus on taming entitlements long championed by your first witness is unnecessary if you consider that the Social Security Trustees are obliged to publish a conservative forecast.  The most likely forecast has Social Security well for the foreseeable future.

Your other headlining witness has helped lead the way in calling for tax reforms which would lower rates and broaden the base.  This was tried in 1986, 2001 and 2003 and the subtotal of these efforts was the Great Recession. 

It is possible to get tax reform right and our four-point program will do it, primarily by giving families more income, at $1000 per month per child, through cancelling home mortgage and property tax deductions, ending the child exemption and closing categorical aid to children, replacing it by more robust training programs.  The other major provision is to raise taxes on the wealthy, which will handily take care of the net interest crisis now looming by taxing the economic class that receives the interest, which will improve the economy by taking the incentive away from job destroyers who get a bonus by decreasing labor costs.  Tax that bonus away and wages will begin to grow, making America great again. However, this will take a degree of bipartisanship that this Congress and Administration have not yet shown.

Allow us to address the current state of tax reform and the recent remarks by the President about priming the pump. What the Center said in June of last year in response to the release of the Blueprint bears repeating.  We have tried the reduce rates and broaden the base. In 1986, it actually happened, although second mortgage interest was left deductible, leading quickly to the savings and loan crisis and eventually the 2008 Great Recession, abetted by capital gains cuts which gave us the tech bubble. Efforts to call tax cuts a prelude to growth ring hollow and even those economists who backed them no longer support such theory.

In The Economist, President Trump and Secretary Mnuchin cast doubt on their support for the DBCFT, instead preferring to simply cut rates for pump priming. This would mainly benefit the wealthy, which is ill advised.

Lower marginal tax rates for the wealthiest taxpayers lead them to demand lower labor costs. The benefit went to investors and CEOs because the government wasn’t taxing away these labor savings. In prior times, we had labor peace, probably to the extent of causing inflation, because CEOs got nothing back for their efforts to cut costs.

The tax reforms detailed here will make the nation truly competitive internationally while creating economic growth domestically, not by making job creators richer but families better off. The Center’s reform plan will give you job creation. The current blueprint and the President’s proposed tax cuts for the wealthy will not.

In September 2011, the Center submitted comments on Economic Models Available to the Joint Committee on Taxation for Analyzing Tax Reform Proposals. Our findings, which were presented to the JCT and the Congressional Budget Office (as well as the Wharton School and the Tax Policy Center), showed that when taxes are cut, especially on the wealthy, only deficit spending will lead to economic growth as we borrow the money we should have taxed. When taxes on the wealthy are increased, spending is also usually cut and growth still results. The study is available at 

http://fiscalequity.blogspot.com/2011/09/economic-models-available-to-joint.html

and it is likely in use by the CBO and JTC in scoring tax and budget proposals. We know this because their forecasts and ours on the last Obama budget matched. Advocates for dynamic scoring should be careful what they wish for.

The national debt is possible because of progressive income taxation. The liability for repayment, therefore, is a function of that tax. The Gross Debt (we have to pay back trust funds too) is $19 Trillion. Income Tax revenue is roughly $1.8 Trillion per year. That means that for every dollar you pay in taxes, you owe $10.55 in debt. People who pay nothing owe nothing. People who pay tens of thousands of dollars a year owe hundreds of thousands. The answer is not making the poor pay more or giving them less benefits, either only slows the economy. Rich people must pay more and do it faster. My child is becoming a social worker, although she was going to be an artist. Don’t look to her to pay off the debt. Trump’s children and grandchildren are the ones on the hook unless their parents step up and pay more. How’s that for incentive?

The proposed Destination-Based Cash Flow Tax is a compromise between those who hate the idea of a value-added tax and those who seek a better deal for workers in trade. It is not a very good idea because it does not meet World Trade Organization standards, though a VAT would. It would be simpler to adopt a VAT on the international level and it would allow an expansion of family support through an expanded child tax credit. Many in the majority party oppose a VAT for just that reason, yet call themselves pro-life, which is true hypocrisy. Indeed, a VAT with enhanced family support is the best solution anyone has found to grow the economy and increase jobs.

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.