Graham-Cassidy-Heller-Johnson Proposal

Comments for the Record

United States Senate

Committee on Finance

Hearing to Consider the Graham-Cassidy-Heller-Johnson Proposal

Monday, September 25, 2017, 10:00 A.M.

By Michael G. Bindner

Center for Fiscal Equity

Chairman Hatch and Ranking Member Wyden, thank you for the opportunity to submit these comments for the record to the Committee on Finance. 

We write in strong opposition to the bill as presented. It combines the worst features of the House-passed bill, the bills recently rejected by the Senate and the kind of state by state deals designed to add objecting Senators to the bill’s supporters that were so roundly criticized when health care reform was initially passed. Because the balance is now so delicate and bipartisanship impossible given recent remarks by certain members and the Speaker of the House, any hint of bicameralism is gone, just like when the Affordable Care Act was passed. The majority has become what it most despised about passing Obamacare.

The news is not all bad, of course. There is a way to end the high unearned-income surtax, roll back pre-existing condition reforms and transform Medicaid so that it is not an onerous future obligation to the States, but without actually killing lower income Americans or at least forcing hospitals to care for them in the most expensive manner and billing them int0 bankruptcy (which you cannot end because it is in the Constitution).

This method was initially proposed by President Obama but rejected in his own party, oddly to pick up conservative Democratic votes in the Senate (which did not ultimately help their reelections). That method is a subsidized Public Option. It could include all with pre-existing conditions or the inability to pay even the most basic insurance (while ending the ability to write garbage policies that will never pay off). All other Medicaid for Seniors, the Disabled and those in long-term care could be federalized in exchange for ending the state and local tax deduction (SALT) as part of tax reform. Indeed, this whole process could be married into tax reform in such a way as to help that reform pass bipartisanly.

We are sure that by now the Committee is well aware of our four-part tax reform proposal. Only one element applies to subsidizing the public option and replacing the high unearned income surtaxes, our proposed Net Business Receipts Tax.

The NBRT  is essentially a subtraction VAT with additional tax expenditures for family support,  health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.

Unlike a VAT, an NBRT would not be visible on receipts and should not be zero rated at the border – nor should it be applied to imports. While both collect from consumers, the unit of analysis for the NBRT should be the business rather than the transaction. As such, its application should be universal – covering both public companies who currently file business income taxes and private companies who currently file their business expenses on individual returns.

Employees would all be covered and participants in government funded remedial education programs would receive coverage and tax credits through the training providers health plan as if they were employees. There will be no more separate Medicaid programs for the poor who are able to learn or work. Those wh0 cannot will be covered by the public option.

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

Business Tax Reform

Comments for the Record

United States Senate

Committee on Finance

Business Tax Reform

Tuesday, September 19, 2017, 10:00 A.M.

By Michael G. Bindner

Center for Fiscal Equity

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

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

Probably the most broken part of our tax code is how businesses are taxed. Corporations pay separate taxes while sole proprietors and ”pass throughs” pay taxes through the personal income taxes of their owners. This has some people being taxed twice, regardless of whether this is appropriate to extract taxes on higher incomes not collected through the business, while others face complexity on their personal forms, as well as a different set of rules. In 2003, President Bush and the Congress tried to fix this but could not, settling instead on a lower rate for dividends and capital gains.

The results of simply cutting rates were not pretty. CEOs and investors had an incentive to keep labor costs in check and pocket all productivity gains, which were huge through automation and outsourcing. Higher tax rates would have put a damper on such behavior. Of course, because not every rich person can be a CEO and because most companies borrowed money rather than issued stock, there were few good investments, which had beneficiaries of the 2001 and 2003 tax cuts seek more exotic vehicles, like oil futures and mortgage backed securities. This (not any action by the GSEs) led to the mortgage boom and the Great Recession (as well as provisions in the 1986 tax reform that let home owners use their houses as ATMs, a provision Trump wants to keep).

The President proposes simply lowering the tax on ”pass through” income, which will increase the number of companies fronting what would have been pay to individuals for salary and rent in order to take advantage of the lower rates. This is tax DEFORM not reform. We tried such cuts in 2003 and the proposed cut will yield the same result, especially if the President succeeds in defanging Dodd-Frank through regulatory reform (again deform).

There is a better way. Value Added Taxes and Net Business Receipts Taxes (Subtraction VAT) will both simplify taxation and treat all businesses in the same way. While some special tax breaks might be preserved in the NBRT, most would not because there would be no way to justify taxing the labor or an activity and not the associated profit or taxing research salaries one way and production wages another. All profit and wage would be taxed at the same rate, which also removes the tax bias against wage income.

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

Some oppose VATs because they see it as a money machine, however this depends on whether they are visible or not.  A receipt visible VAT is as susceptible to public pressure to reduce spending as the FairTax is designed to be, however unlike the FairTax, it is harder to game.  Avoiding lawful taxes by gaming the system should not be considered a conservative principle, unless conservatism is in defense of entrenched corporate interests who have the money to game the tax code.

Our VAT rate estimates are designed to fully fund non-entitlement domestic spending not otherwise offset with dedicated revenues.  This makes the burden of funding government very explicit to all taxpayers.  Nothing else will reduce the demand for such spending, save perceived demands from bondholders to do so – a demand that does not seem evident given their continued purchase of U.S. Treasury Notes.

Value Added Taxes can be seen as regressive because wealthier people consume less, however when used in concert with a high-income personal income tax and with some form of tax benefit to families, as we suggest as part of the NBRT, this is not the case.

This is not to say that there will be no deductions. The NBRT will be the vehicle for social spending through the tax code.

The NBRT base is similar to a Value Added Tax (VAT), but not identical. Unlike a VAT, an NBRT would not be visible on receipts and should not be zero rated at the border – nor should it be applied to imports. While both collect from consumers, the unit of analysis for the NBRT should be the business rather than the transaction. As such, its application should be universal – covering both public companies who currently file business income taxes and private companies who currently file their business expenses on individual returns.

In the long term, the explosion of the debt comes from the aging of society and the funding of their health care costs.  Some thought should be given to ways to reverse a demographic imbalance that produces too few children while life expectancy of the elderly increases.

Unassisted labor markets work against population growth.  Given a choice between hiring parents with children and recent college graduates, the smart decision will always be to hire the new graduates, as they will demand less money – especially in the technology area where recent training is often valued over experience.

Separating out pay for families allows society to reverse that trend, with a significant driver to that separation being a more generous tax credit for children.  Such a credit could be “paid for” by ending the Mortgage Interest Deduction (MID) without hurting the housing sector, as housing is the biggest area of cost growth when children are added.  While lobbyists for lenders and realtors would prefer gridlock on reducing the MID, if forced to chose between transferring this deduction to families and using it for deficit reduction (as both Bowles-Simpson and Rivlin-Domenici suggest), we suspect that they would chose the former over the latter if forced to make a choice.  The religious community could also see such a development as a “pro-life” vote, especially among religious liberals.

Enactment of such a credit meets both our nation’s short term needs for consumer liquidity and our long term need for population growth.  Adding this issue to the pro-life agenda, at least in some quarters, makes this proposal a win for everyone.

Our proposals dovetail on our prior comments testimony on Individual Taxes. Tax benefits and filings that were once found in the individual code would be moved to the Business code.  The most obvious provision is that most families will no longer have to file individual income taxes. Most will receive all of their tax benefits through an employer paid net business receipts tax, which is essentially a subtraction VAT. Health benefits through the Affordable Care Act or the health insurance exclusion for corporate income taxes will come through the NBRT, as will a refundable child tax credit paid through wages or education or social insurance benefits, rather than through end of the year tax filing, the EITC, TANF or SNAP.

The NBRT should fund services to families, including education at all levels, mental health care, disability benefits, Temporary Aid to Needy Families, Supplemental Nutrition Assistance, Medicare and Medicaid. If society acts compassionately to prisoners and shifts from punishment to treatment for mentally ill and addicted offenders, funding for these services would be from the NBRT rather than the VAT.

The NBRT could also be used to shift governmental spending from public agencies to private providers without any involvement by the government – especially if the several states adopted an identical tax structure. Either employers as donors or workers as recipients could designate that revenues that would otherwise be collected for public schools would instead fund the public or private school of their choice. Private mental health providers could be preferred on the same basis over public mental health institutions. This is a feature that is impossible with the FairTax or a VAT alone.

To extract cost savings under the NBRT, allow companies to offer services privately to both employees and retirees in exchange for a substantial tax benefit, provided that services are at least as generous as the current programs. Employers who fund catastrophic care would get an even higher benefit, with the proviso that any care so provided be superior to the care available through Medicaid. Making employers responsible for most costs and for all cost savings allows them to use some market power to get lower rates, but not so much that the free market is destroyed.  Increasing Part B and Part D premiums also makes it more likely that an employer-based system will be supported by retirees.

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

Business owners, whether sole proprietors, partners, Schedule C or 1099 employees will file through the NBRT and also collect VAT, both of which will be coordinated with state revenue agencies and forwarded to the government. 1099 employees will not be required to file or get their own insurance unless they have multiple clients. Even then, the clients will pay the tax on their value added and provide insurance and retirement savings as if they were employees. We have inflated the number of ”small businesses” for quite too long.

While some employee sole proprietors might like the freedom of multiple clients, most work for only one and would rather have full benefits and no tax filing. Congress can do this small thing for them in tax reform. Indeed, there is no reason to do tax reform without such changes (especially the child tax credit expansion). The larger firms will navigate and exploit the tax code regardless of reform, so their interests are not so important unless campaign contributions ARE really bribes.

The VAT and NBRT would eliminate the need for any corporate income tax, or as they used to be called, corporate profits taxes. Because consumption taxes burden labor and profit at the same rate, discounted tax rates on dividends and capital gains would no longer be required. Any residual income or inheritance surtax would be a way to maintain progressivity by charging a higher rate or rates for households receiving higher incomes from the same business activities.

Value added taxes act as instant economic growth, as they are spur to domestic industry and its workers, who will have more money to spend.  The Net Business Receipts Tax as we propose it includes a child tax credit to be paid with income of between $500 and $1000 per month.  Such money will undoubtedly be spent by the families who receive it on everything from food to housing to consumer electronics. 

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

In September 2o11, the Center submitted comments on  Economic Models Available to the Joint Committee on Taxation for Analyzing Tax Reform Proposals. Our findings, which were presented to the JCT and the Congressional Budget Office (as well as the Wharton School and the Tax Policy Center), showed that when taxes are cut, especially on the wealthy, only deficit spending will lead to economic growth as we borrow the money we should have taxed. When taxes on the wealthy are increased, spending is also usually cut and growth still results. The study is available at  

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

Our current expansion and the expansion under the Clinton Administration show that higher tax rates always spur growth, while tax cuts on capital gains lead to toxic investments – almost always in housing.  Business expansion and job creation will occur with economic growth, not because of investment from the outside but from the recycling of profits and debt driven by customers rather than the price of funds.  We won’t be fooled again by the saccharin song of the supply siders, whose tax cuts have led to debt and economic growth more attributable to the theories of Keynes than Stockman and Gramm.

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

Individual Tax Reform

Comments for the Record

United States Senate

Committee on Finance

Individual Tax Reform

Thursday, September 14, 2017, 10:00 A.M.

By Michael G. Bindner

Center for Fiscal Equity

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

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

Our proposals will have a huge impact on what we call Individual Taxes. The most obvious provision is that most families will no longer have to file individual income taxes. Most will receive all of their tax benefits through an employer paid net business receipts tax, which is essentially a subtraction VAT. Health benefits through the Affordable Care Act or the health insurance exclusion for corporate income taxes will come through the NBRT, as will a refundable child tax credit paid through wages or education or social insurance benefits, rather than through end of the year tax filing, the EITC, TANF or SNAP.

Business owners, whether sole proprietors, partners, Schedule C or 1099 employees will file through the NBRT and also collect VAT, both of which will be coordinated with state revenue agencies and forwarded to the government. 1099 employees will not be required to file or get their own insurance unless they have multiple clients. Even then, the clients will pay the tax on their value added and provide insurance and retirement savings as if they were employees. We have inflated the number of ”small businesses” for quite too long.

While some employees might like the freedom of multiple clients, most work for only one and would rather have full benefits and no tax filing. Congress can do this small thing for them in tax reform. Indeed, there is no reason to do tax reform without such changes (especially the child tax credit expansion). The larger firms will navigate and exploit the tax code regardless of reform, so their interests are not so important unless campaign contributions ARE really bribes.

The VAT and NBRT would eliminate the need for any corporate income tax, or as they used to be called, corporate profits taxes. Because consumption taxes burden labor and profit at the same rate, discounted tax rates on dividends and capital gains would no longer be required. Any residual income or inheritance surtax would be a way to maintain progressivity by charging a higher rate or rates for households receiving higher incomes from the same business activities.

Value added taxes act as instant economic growth, as they are spur to domestic industry and its workers, who will have more money to spend.  The Net Business Receipts Tax as we propose it includes a child tax credit to be paid with income of between $500 and $1000 per month.  Such money will undoubtedly be spent by the families who receive it on everything from food to housing to consumer electronics. 

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.

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 in such decisions.

Continuing progressive income taxation is necessary so that lower income investors are not bid out of all the reasonable savings and investment opportunities. It is also important that taxes are high enough so that investors and management do not have an added incentive to keep cutting labor costs. We are below that rate and the economy for most families shows it.

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 2o11, the Center submitted comments on  Economic Models Available to the Joint Committee on Taxation for Analyzing Tax Reform Proposals. Our findings, which were presented to the JCT and the Congressional Budget Office (as well as the Wharton School and the Tax Policy Center), showed that when taxes are cut, especially on the wealthy, only deficit spending will lead to economic growth as we borrow the money we should have taxed. When taxes on the wealthy are increased, spending is also usually cut and growth still results. The study is available at  

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

Our current expansion and the expansion under the Clinton Administration show that higher tax rates always spur growth, while tax cuts on capital gains lead to toxic investments – almost always in housing.  Business expansion and job creation will occur with economic growth, not because of investment from the outside but from the recycling of profits and debt driven by customers rather than the price of funds.  We won’t be fooled again by the saccharin song of the supply siders, whose tax cuts have led to debt and economic growth more attributable to the theories of Keynes than Stockman and Gramm.

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

Reforming How the IRS Resolves Taxpayer Disputes

Comments for the Record

United States House of Representatives

Committee on Ways and Means

Subcommittee on Oversight

Hearing on Reforming How the IRS Resolves Taxpayer Disputes

Wednesday, September 13, 2017, 2:00 P.M.

By Michael G. Bindner

Center for Fiscal Equity

Chairman Buchanan and Ranking Member Lewis, thank you for the opportunity to submit these comments for the record to the Oversight Subcommittee.  As usual, we will preface our comments with our comprehensive four-part approach, which will provide context for our comments.

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

We will leave it to outside and Administration witnesses on how the current system is to be reformed. We are sure that their best counsel will work in the regime we suggest.

There will likely be problems to resolve in our proposed system, where the states collect by the Value Added Tax and the Net Business Receipts Tax and forward the money and records to the Internal Revenue Service. This will not impact most taxpayers, since once they have bought a product, no further action is necessary. Data management blips and cases of fraud to be investigated by state and federal revenue agencies are also outside the scope of this discussion.

Employees with children will need to annually verify the information provided by employers and, if they received less than was reported to the government, notify the IRS who will send a refund and collect the difference from the employer. This may trigger a dispute, but likely most employers will simply pay if there was an error. Fraud is another matter, which is criminal not a dispute to be settled. Other disputes may involve parents double dipping on two jobs or two earners, but these will likely work out a payment plan or contact their divorce lawyers to negotiate who pays.

The more complicated disputes will be on business filings, which will be common for all types of firms, including sole proprietors. The less complicated the VAT and NBRT are, the fewer disputes to be resolved. Indeed, the information on the collections for each will reinforce each other, although calculations will be different. VAT is transaction based while NBRT is based on total revenues less total purchases (1099 contractors will be considered employees). Credits and deductions will be more for employee benefits rather than industry specific tax breaks, so there should be few disputes, especially as any outside employee service organizations will also file their own consumptions taxes to confirm or dispute amounts.

The final area of taxation where disputes may occur is in the high income and inheritance surtax. Whenever an employee or an heir is paid interest, a dividend, a capital gain or an heir sells an inherited asset, information will be transmitted to the IRS, as well as sales to a qualified Employee Stock Ownership Program (untaxed) and aggregated by Social Security Number. Verification will be accomplished to make sure that tax avoidance does not occur through use of multiple SSNs.

Individuals making over $50,000 per year and joint filers making over $100,000 will have their information stored to compare to tax filings, unless the Congress authorizes an automatic filing system.  If the charitable deduction is maintained, it will be added in as well from submitted information. Disputes would occur if the data does not agree, which might trigger an in-person audit if claimed amounts are unreasonable.

Simplicity will minimize disputes and workload, making it easier to solve real problems quickly. Mutual data verification will probably make it too easy to conduct fraud, so there will be spot checks at both the state and federal levels to make sure that ease of service does not lead to criminality and identity theft. Of course, attempting to steal from wealthier taxpayers may lead the perpetrators of fraud in trouble from both the government and their victims, with both having the resources for adequate retribution. Financial fraud leaves a money trail. In the end it may be a stupider crime than robbing a bank.

We suspect that one final matter on the minds of the Committee are disputes over the non-profit status of a political organization receiving charitable contributions. To not quickly provide such status may amount to prior restraint, as long as the IRS and Treasury General Counsel have the budgetary resources to do their job. Cut the budget too much (and it has been cut too much) and both sides of the fence will be slow to receive status (which is what actually occurred). Recent events in Charlottesville have brought the matter forward in a different way.

This raises the question of whether the charitable contributions deduction can be used by Nazi donors or non-profits. Are these contributions considered hate speech? Again, it is doubtful that we can determine this using prior restraint. If the recipient commits acts that qualify as hate speech, essentially acts of terrorism based on race, gender, religion, etc., then we can always disallow the donations that funded it and collect the taxes. Bear in mind that the same rules should also apply to Islamic organizations that may or may not be funding overseas or domestic terrorists. Homeland Security cannot go after donors unless they can prove that terror was the result.

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.

Health Care: Issues Impacting Cost and Coverage

Comments for the Record

United States Senate

Committee on Finance

Health Care: Issues Impacting Cost and Coverage

Tuesday, September 12, 2017, 10:00 A.M.

By Michael G. Bindner

Center for Fiscal Equity

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

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

Under our proposal, Medicare, Medicaid and Subsidies for private insurance will be through the Net Business Receipts Tax (or Subtraction VAT). This would also include the unearned income payroll taxes passed as part of the Affordable Care Act.

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.

The key difference between the two consumption taxes is that the NBRT should be the vehicle for distributing tax benefits for families, particularly the Child Tax Credit, the Dependent Care Credit and the Health Insurance Exclusion, as well as any recently enacted credits or subsidies under the ACA. In the event the ACA is reformed, any additional subsidies or taxes should be taken against this tax (to pay for a public option or provide for catastrophic care and Health Savings Accounts and/or Flexible Spending Accounts).

Employees would all be covered and participants in government funded remedial education programs would receive coverage and tax credits through the training providers health plan as if they were employees. No more separate Medicaid programs for the poor who are able to learn or work.

The NBRT would replace disability insurance, hospital insurance, the corporate income tax, business income taxation through the personal income tax and the mid-range of personal income tax collection, effectively lowering personal income taxes by 25% in most brackets.

Note that collection of this tax would lead to a reduction of gross wages, but not necessarily net wages – although larger families would receive a large wage bump, while wealthier families and childless families would likely receive a somewhat lower net wage due to loss of some tax subsidies and because reductions in income to make up for an increased tax benefit for families will likely be skewed to higher incomes.

For this reason, a higher minimum wage is necessary so that lower wage workers are compensated with more than just their child tax benefits.

We believe that our current insurance system adds no value to health care. Theoretically, insurance pools everyone’s costs and divides them up with everyone paying a monthly share, regardless of the risk they pose.

The profit motive has given us differential premiums based on risk and age. Indeed, the age based premiums in the last attempted health reform were so unaffordable to older Americans in individual plans that the bill could not pass the Senate. Single payer plans, funded through the NBRT, would not have this feature and insurance companies doing claim processing for the government would be paid an adequate profit with little risk.

Short of that, an NBRT subsidized Public Option would allow sicker, poorer and older people to enroll for lower rates, allowing some measure of exclusion to private insurers and therefore lower costs. Of course, the profit motive will ultimately make the exclusion pool grow until private insurance would no be justified, leading-again to Single Payer if the race to cut customers leads to no one left in private insurance who is actually sick.

The NBRT can provide an incentive for cost savings if we allow employers to offer services privately to both employees and retirees in exchange for a substantial tax benefit, either by providing insurance or hiring health care workers directly and building their own facilities. Employers who fund catastrophic care or operate nursing care facilities 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 no so much that the free market is destroyed.

This proposal is probably the most promising way to arrest 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.

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.

Missing from the Labor Force: Examining Declining Employment among Working-Age Men

Comments for the Record

United States House of Representatives

Committee on Ways and Means

Human Resources Subcommittee

Hearing on Missing from the Labor Force:

Examining Declining Employment among Working-Age Men

Wednesday, September 6, 2017, 2:00 PM

By Michael G. Bindner

Center for Fiscal Equity

Chairman Smith and Ranking Member Davis, thank you for the opportunity to submit my comments on this topic. Individuals and members attending this morning’s hearing on disability eligibility will recognize some of these themes.  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.

Since the Great Recession, many workers have been hired back into the economy. For others, getting a new job has become impossible through either age or disability, especially those with behavioral disorders.

Long before applying for assistance, workers have applied for jobs and have been denied. Hiring managers are, therefore, the first line of examination as to whether an unemployed worker is able to return to work, regardless of any legal protections designed to protect their employment rights. Those same managers are the gatekeepers keeping people on disability and older men, regardless of what government claims examiners and doctors determine. If disability payments are available, it is not even worth the considerable effort to try to get back to work.

Should the disabled remain idle? No. Psychiatric and physical rehabilitation programs could carry a stipend with them rather than or in addition to disability benefits, which for some workers are often too low for an adequate standard of living. Such programs should be made available to Medicare beneficiaries (which is not now the case), instead of just Medicaid recipients. These stipends should be at least the same as the minimum wage (which should be $15 per hour) and the children of beneficiaries, like all children, should get a refundable tax credit of $1000 per month per child rather than a payment based on parental salary history.

Even before a disability determination is made, stipend supplemented PRP and physical therapy programs will ease the burden of a long examination process. If someone leaves hospitalization for a disabling condition without a job, such programs should be automatically referred. Indeed, people in partial hospitalization or intensive outpatient therapy who are not employed and probably not employable should start receiving money without any application process. This should also be the case for newly treated substance abuse patients.

Many men are unavailable to work, especially poor and minority men, because of society’s response to drug abuse. While middle class men are diverted to treatment, others are caught up in the criminal justice system and are either incarcerated or have a criminal record which makes re-employment that much harder. It is time to quit criminalizing disease and using prosecutorial discretion to punish low level dealers into cooperation. Legalization will end the ability to traffic in substances that could be sold openly, although for the hardest drugs, hospitalization for abuse should be mandatory and require long-term treatment, not just detoxification.

Some men are mentally disabled due to parental drug use or simply bad educational services. Remedial education should also be paid at the minimum wage with the same stipend. You will find many leaving SSI given such provisions (where they were channeled by state welfare agencies when Messrs.. Clinton and Gingrich ended welfare as we know it). It is time to end TANF and Food Stamps as we know them and start paying people to be able to live up to their full potential.

If vocational or educational training is required, as it likely should be in some cases, then the training provider will serve as both “case worker” and conduit for additional benefits, including the Child Tax Credit. Participants would be paid the minimum wage for engaging in training, along with any additional stipend provided to program beneficiaries of the benefit level were set higher.

Some men 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.

These programs would be funded by the Net Business Receipts Tax/Subtraction VAT proposed in our tax reform program. Employers could either fund the government or sponsor these services themselves for prior employees or employee family members, including siblings.

Many have retired early, either because they have followed the advice of financial professionals and invested wisely so that continued work is not necessary, while others have been able to successfully apply for disability. For early retirees, inflation or higher taxes on dividends and capital gains might bring a return to work.

Economic factors also determine whether work is worth it. Some are comfortable now and don’t need to work, primarily because a capitalist economy is designed to reward savers, supervisors and executives by channeling the productive product labor to those deemed more worthy to spend the money. Supply and demand does not cause this determination unless employers have hierarchical or market power over such wage determinations, which is to say that there is no free market for wages. He who makes the rules gets the gold.

The most important factor in returning people to work 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.

Aside from higher base wages and training, the best way to keep families wanting to work 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, although it will allow more men and women to retire early.  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.

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.

Tax reform is important as well. The NBRT proposed is an element of our tax reform plan. The work men do has been harmed by the drive toward lower costs and prices that has shifted jobs off-shore and to automation. While employee ownership will help control that, tax reform is necessary as well.

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

In September 2o11, the Center submitted comments on Economic Models Available to the Joint Committee on Taxation for Analyzing Tax Reform Proposals. Our findings, which were presented to the JCT and the Congressional Budget Office (as well as the Wharton School and the Tax Policy Center), showed that when taxes are cut, especially on the wealthy, only deficit spending will lead to economic growth as we borrow the money we should have taxed. When taxes on the wealthy are increased, spending is also usually cut and growth still results. The study is available at 

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 of Stockman.

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.