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

http://www.taxpolicycenter.org/taxvox/tax-cuts-wont-make-america-great-again

The myth that tax cuts cause growth is purely due to the donor class wanting tax cuts for themselves, some of which they turn around to fund organizations who are light on real economic education who claim that these cuts cause growth.

My analysis shows very clearly that Reagan's deficits (less net interest) cause growth the next year (it takes time to get to outlays and multiplier effects) and that when the budget was cut, growth was reduced. For the first six years of the term the coefficient of determination was 1.0, perfect association. Looks like proof to me. The independent variable represents the true impact of the injection from or leakage to the bond sector from federal borrowing.

This is why Reagan was different than Bush II, as the prior ran huge deficits and the latter ran the middle eastern wars on the cheap. Indeed, it could be argued that Reagan broke the back on inflation, not Volker, because Reagan gave CEOs an incentive, through lower taxes, to cut wage demand inflation.

Clinton raised taxes to take some of that incentive away and was rewarded with an economy that had less incentive to fight wage gains. Things only went south for him (or rather for Bush) when cutting the capital gains rate spurred the tech boom/bust as everyone wanted to be an Internet Billionaire on the cheap (workers were paid with capital gains rather than salary in many cases - it was all a scam and all due to Gingrich and Clinton).

Bush's tax cuts were like Reagan's and Clinton's on steroids. Because no one was getting higher wages, Greenspan helped everyone mortgage their savings, leading to 2008. The 2010 tax deadline was renewed and growth stayed anemic until 2013 and the ATRA. Proof again that higher taxes on the rich HELP workers, although the donor class does not like them. Corporate cuts will also make it more profitable to cut worker pay and have more money through tax savings than higher tax rates will allow.

There is nothing for non-donors in the Trump Framework. Unless we can get more money to families with higher minimum wages and extreme Child Tax Credits of $1000 per month per child paid with wages, the only thing the Democrats should do is obstruct this tax bill. Of course, that would call for someone who was willing to buck the donor class and loudly call out the Emperor as having no clothes. Publicly accepting this analysis would go a long way in doing that. So would getting others to endorse it.

IRS IT Modernization Efforts

Comments for the Record

United States House of Representatives

Committee on Ways and Means

Subcommittee on Oversight

Hearing on IRS Information Technology Modernization Efforts

Wednesday, October 4, 2017, 9:00 A.M.

By Michael G. Bindner

Center for Fiscal Equity

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

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

We will let the Administration witnesses address the current state of IRS IT, the challenges faced as the IRS seeks to modernize its IT infrastructure, and areas where the IRS could further improve its efforts. Our aim in submitting these comments is to illustrate the IT needs in the tax reform we propose.

Both the value added and net business receipts taxes will collect tax identification numbers at the transaction level. For the NBRT only, Social Security Numbers will also be collected for payroll, contractor reimbursement (assuming that sole proprietor consultants are not given employee status, which is recommended), distribution of the child tax credit, with payroll. Income taxes will require SSNs at distribution of dividends and stock sales, either directly or through a fund or holding company (wage information would already be collected for the NBRT). Charitable contribution data would also be sent to IRS if this deduction is retained.

VAT and NBRT information would be collected at the state level and used by State agencies to assure compliance (to check that receipts claimed in lieu of tax were authentic). Aside from consumption tax verification, there is the verification of child tax credit payments to assure that the employer payment equals what was reported and to assure that households were paid the correct amount by all employers, especially when both parents work or one or both have more than one job.

All income and investment information, including distributions from interest or dividends and sales of stock from an estate (100% taxable) or normal investment (capital gain taxable), as well as sales to a qualified Employee Stock Ownership Program (untaxed) will be forwarded to national IRS and aggregated by SSN.

State, regional and national IRS data will have t0 be compatible and likely processed in the same distributed system. As automation proceeds, compatibility with cash registers and corporate accounting systems will eventually evolve, allowing more frequent VAT payment and reconciliation, eliminating the requirement for annual returns except at the household level, and then only for wealthier households that still pay the income surtax.

It is conceivable that all income surtax payers will receive notification when all data should have arrived and what their refund or payment will be once they correct the information or certify it is correct already. Banking information should be on file, so authorization for payment, either at once or installments should be easy.

As NBRT obligations and deductions and credits for non-governmental performance of social services begin to coincide, decreases in the defense budget and law enforcement (which will be converted largely to the mental health system) and privatizing certain functions, like NASA and drug research and approval eliminate the need for a VAT and debt repayment eliminates the need for an income surtax, federal finance may evolve into a simple spreadsheet that can fit on a pad computer small enough to short out in a bathtub. Our plan gets there much quicker than Grover Norquist ever could.

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

International Tax Reform

Comments for the Record

United States Senate

Committee on Finance

Hearing on International Tax Reform

Tuesday, October 3, 2017, 10:00 A.M.

215 Dirksen Senate Office Building

By Michael G. Bindner

Center for Fiscal Equity

fiscalequitycenter@yahoo.com

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

·         A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure very American pays something.

·         Personal income surtaxes on joint and widowed filers with net annual incomes of $100,000 and single filers earning $50,000 per year to fund net interest payments, debt retirement and overseas and strategic military spending and other international spending, with graduated rates between 5% and 25%. 

·         Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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