Employer Perspectives on the Jobs Gap

Comments for the Record

United States House of Representatives

Committee on Ways and Means

Human Resources Subcommittee

Hearing on Jobs and Opportunity: 

Employer Perspectives on the Jobs Gap

Wednesday, April 25, 2018, 11:30 AM

By Michael G. Bindner

Center for Fiscal Equity

Chairman Smith and Ranking Member Davis, thank you for the opportunity to submit our comments on this topic. We had already submitted comments on local issues earlier this month, which we believe already cover Federal Perspectives, because the Employment and Training Administration mostly provides support for the Workforce Investment Boards, which are effective at the local level. In these comments, we will reiterate the employer perspective and, as usual, how tax reform can be of assistance. 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.

Tax programs can assist employers by providing them with greater incentives to pay for employee training, rather than using their resources to look for already trained employees without having to raise wages. One such tax is the Net Business Receipts Tax the Center proposes. There are three areas where tax changes would encourage companies to do what their current bottom line prohibits.

The first is the way the NBRT is collected. It taxes labor and profit at the same rate, so there is no tax incentive to cut wages to increase profits (assuming adequate taxation of CEOs, who would also have an incentive to cut labor costs and give themselves a bonus, a factor we will likely see very soon).

This correlates with the obvious economic answer to the job shortage problem. Raise wages, not just for new employees, but all of them. It is not up to the U.S. Congress to protect the profit margins of managers and owners who don’t like to share, even after (indeed, especially after) a large tax cut (such cuts are incentive to cut cost, not hire).

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.

The second way is the ability to add credits and exclusions to the NBRT (unlike a Goods and Services Tax). While an education credit could pay tuition, the employer should cover the wage while in training and that wage should be high enough to pay rent, et al.

Some jobs 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.

The third area is wages for families. Older workers are sometimes shunned because they have higher wage demands due to their need to feed and house their families. We suspect that many employers are looking for a way to continue to bypass these workers with the help of Congress Don’t you dare help them.

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 should be counted against the recent repeal of 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. This amount would allow workers with families to compete for the open jobs. It would also PREVENT ABORTION!

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.

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.

Early Impressions of the New Tax Law

Comments for the Record

Senate Committee on Finance

Early Impressions of the New Tax Law

Tuesday, April 24, 2018, 2:30 P.M.

By Michael G. Bindner

Center for Fiscal Equity

Chairman Hatch and Ranking Member Wyden, thank you for the opportunity to comment on the new tax law.

This is not the tax reform bill we had hoped for. Frankly, the path negotiated during the Obama Administration enacted under the American Tax Relief Act and The Budget Control Act were adequate to give us our current economy, which is improving, albeit too slowly for workers. 

We are on record predicting that enactment of the Fiscal and Job Cuts Act (not a typo) will restrict wages and cause other labor cost savings so that executives can cash in on the lower tax rates by earning higher bonuses, so that any economic gains (and growth could come faster) would be from deficit spending. While some companies gave very visible bonuses for the holidays, they did not als0 increase salary levels noticeably. Productivity has made huge gains but wages have not, mostly because employers have a market advantage in the down economy, which is good for CEOs and donors, but bad for the nation.

The tax law was a classic piece of Austrian Economics, where booms are encouraged, busts happen with no bail outs and the strong companies and best workers keep jobs and devil take the hindmost. It is economic Darwinism at its most obvious, but there is a safety valve. When tax cuts pass, Congress loses all fiscal discipline, the Budget Control Act is suspended and deficits grow. Taxpayers don’t mind because bond purchasers are sure to pick up the slack, which they will as long as we run trade deficits, unless the President’s economic naivete ruins that for us.

The two-year Omnibus will eat up most of the effect of the tax cut on the economy, which will now have a negative relationship between deficits (net of net interest, which controls for matching injection to the financial markets from federal borrowing) and economic growth, meaning deficits are good. The closest available curve showing that model are the Bush years, so given the current deficit size, the predicted growth rate in about a year (it takes time to obligate money and pay bills) should be around 3.3% or higher.

If you cut entitlements, growth will be reduced, although wealthier Americans will have more money, which will lead to asset inflation and another sizeable recession, akin to 2008. We had been worried about entitlement cuts, we no longer are. The votes are simply not available in the Senate to enact them.

Of course, we still have a tax reform plan and it does alter how we deal with entitlement spending, including Social Security, by shifting payroll and a good bit of income taxation (including pass-throughs) to a subtraction value added tax/net business receipts tax (NBRT), where certain entitlements can be shifted to employers in lieu of paying a portion of the tax, with this encouraging both employment and participation in training programs in order to have access to social services.

These deduction and credits could include everything from the last two years of undergraduate and graduate education to a more robust child tax credit to health care reform that encourages hiring medical staff directly (thus matching the incentive to cut cost to the ability to do so) to retirement savings in lieu of Social Security, although the savings should be in the form of employer voting stock rather than unaccountable index funds run from Wall Street. These reforms can be hammered out next year or in the next Congress, but the right tax to hold them is clearly the NBRT.

We remind the Committee that in the future we face a crisis, not in entitlements, but in net interest on the debt, both from increased rates and growing principal. This growth will only feasible until either China or the European Union develop tradeable debt instruments backed by income taxation, which is the secret to the ability of the United States to be the world’s bond issuer. While it is good to run a deficit to balance out tax cuts for the wealthy, both are a sugar high for the economy. At some point we need incentives to pay down the debt.

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 (although this will increase). 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. Your children and grandchildren and those of your donors are the ones on the hook unless their parents step up and pay more. How’s that for incentive?

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.

Tackling Opioid and Substance Use Disorders in Medicare, Medicaid, and Human Services Programs

Finance: Tackling Opioid and Substance Use Disorders in Medicare, Medicaid, and Human Services Programs,  April 19, 2018

The Ongoing Opioid Crisis

This national pandemic has been gaining steam for a long time. What was once the province of rural America and a few Doctors Feelgood has moved everywhere. Before Opioids, the recreational pill of choice was the Quaalude, which was before my time. It is the only drug war battle that could be won because there were few suppliers. That is not the case with opioids, which have old patents, new patents and suicidal hybrids that take life on a massive scale. This epidemic affects everyone, from workers with jobs and insured to poor and disabled people on Medicaid, both employed and not and Medicare beneficiaries, both disabled workers and mentally disabled recovering addicts and elderly who never thought they would become addicts, Indeed, the mentally ill former addicts have a much better chance of escaping addiction again because they know when to throw the pills away or they simply refuse them-(I have done both).

The Role of Data

Properly used, Medicare care providers can track pharmacy data in an Accountable Care Organization where everything is in house. If outside pharmacies are available, this becomes harder but not impossible using Pharmacy and Medicare databases. Paper prescriptions are, of course, easier to abuse and should be entered into any tracking system, even if the scrip is not filled automatically. A photocopier, scanner or electronic printer can do amazing things when multiplying pain pills for groups of people. Of course, pharmacy networks can be hacked and overseas pharmacies can be accessed by the Internet, where perfectly legal appearing abusive prescriptions can be had with a credit card. While stopping such trafficking is not the job of Medicare, it does impact the system when beneficiaries become addicted. Creating a cyber-crime unit in HHS or a separate medical crimes unit in Homeland Security is called for here.

The Role of Addiction Prevention

The question of gateway drugs does come up. Alcohol and Opioids have similar uptake patterns according to research reported in the book Beyond the Influence. Of course, opioids are their own gateway if prescribed too long. In prior centuries, Cannabis was used to detox both alcohol and opium addictions. While it is not recommended in most cases, the opioid crisis is not an excuse to resist the legalization of Cannabis for either medical or recreational use and for some, is a better solution for chronic pain. It is time to admit defeat in the culture war on this subject and explore this alternative, even if those who are already addicts probably cannot or will not use it.

I spent years directing community addition programs. They never kept me sober, prevented anyone from drinking and certainly did not prevent anyone who had an extended pain medication prescription from becoming an addict. They may be useful in helping people identify if they are at risk, but most children of alcoholics already know of the risks they have and drink anyway, becoming alcoholic if they are genetically destined to and not becoming alcoholic if not.

Addition prevention is more helpful in medical offices, where proper screening may stop people who use alcohol from becoming cross-addicted to both alcohol and benzodiazepines by combining together. Likewise, educating doctors and changing pain management regimens from 30 days to 30 hours would prevent addition, as well as research on both natural and synthesized cannaboids.

Access to Treatment

Access to both initial and continuing treatment is vital to both addition and mental health care, as addiction can often uncover pre-existing psychiatric conditions that drug and alcohol use was covering up. Even for non-alcoholics, once addiction has been turned on by opioids, the patient can never drink safely again and even moderate or heavy drinking previously will have to end, along with any medicinal effect it had.

For initial treatment, the question is not just access for willing patients, but mandated treatment for the unwilling. The liberalization of commitment laws in the 1970s has likely gone too far. Our first clue was mental patients, especially veterans, living on the street. Even when forced into treatment, taking a sober breath in a few days, treatment plan or no, resulted in release and resumption of the previous lifestyle. This is not freedom or health. State laws or one overarching federal standard must make it easier for families, police, doctors and social service agencies to begin mandatory treatment, with the outcome being assignment to medical care if required and housing beyond shelter space if not already possessed. While some will not need the latter, those who do, especially our nation’s seniors, disabled and veterans, should not be sent back to the cold.

Ongoing should be adequate. Medicaid will pay for a nurse practitioner to see a patient in a psychiatric rehabilitation program twice a month. Non-PRP patients are seen less often if their medication is stable. Affordable Care Act policies authorize fewer visits and Medicare provides for two visits a year, which is not enough even when stable. Talk therapy under Medicaid is weekly and includes any licensed professional. Medicare requires Social Workers and that requirement makes care less available. Stable patients may be seen once every few months, which is hardly effective for more than a brief check-in, especially if a patient is dual-diagnosed with addiction. The pool of allowable treatment professionals must be expanded so that nurse practitioners and licensed counselors can bill Medicare if more frequent visits are desired, with Doctors and Social Workers supervising treatment and proving occasional care, especially medication adjustments.

Early addiction after-care with an HMO (my experience) provided two sessions a week, going to one a week nearing discharge and self-paid sessions for the last few, which a sign of recovery. If relapse is detected during this period, the addiction specialist should be empowered (and the patient funded) to go back into treatment, possibly in a more intense setting than originally. The therapist should be similarly empowered, even with patients with long-term sobriety. Needless to say, Medicare should pay for all of it.

Legislative Solutions

Several proposals were provided above regarding data security, Internet prescription abuse, cannabis legalization, expanding the pool of practitioners under Medicare and the power to initially hospitalize and re-hospitalize addicts and the mentally ill. Freedom requires a clear head but it does not require being a culture warrior. Any so-called Freedom Caucus Member who uses that name should stop if they disagree with me and Drs. Ron and Rand Paul on the Cannabis issue.

Our remaining comments will be in regard to our tax plan.

Medicare is a Hydra, taking money from the Hospital Insurance Tax, the high income dividend and capital gains surtax, patient premiums and copayments and the general fund. Some of the reforms required will be cash intensive. Hospital Treatment will come out of HI and ACA/HI and the general fund. Aftercare will come from Part B or C, with some monies coming from the general fund, including three of every four premium dollars.

It is always important to note that the whole purpose of social insurance, including Medicare, is to prevent the imposition of unearned costs and payment of unearned benefits for not only the beneficiaries, but also their families.  Cuts which cause patients to pick up the slack favor richer patients, richer children and grandchildren, patients with larger families and families whose parents and grandparents are already deceased, given that the alternative is higher taxes on each working member.  Such cuts would be an undue burden on poorer retirees without savings, poor families, small families with fewer children or with surviving parents, grandparents and (to add insult to injury) in-laws.

Recent history shows what happens when benefit levels are cut too drastically.  Prior to the passage of Medicare Part D, provider cuts did take place in Medicare Advantage (as they have recently).  Utilization went down until the act made providers whole and went a bit too far the other way by adding bonuses (which were reversed in the Affordable Care Act).  There is a middle ground and the Subcommittee’s job is to find it and our job to help.

In our plan, funding Medicare has nothing to do with the Income Tax, so bullet two above can be disregarded. Likewise, we would repeal the Medicare and Affordable Care Act dividend and capital gains surtaxes targeted only at upper income taxpayers. Because the benefits are general, the taxation should be as well.

Bullet three on employer contributions to Social Security is also not affected by our proposal, which already moves the Medicare Hospital Insurance Tax paid by employees to the Net Business Receipts Tax/Subtraction VAT.

It could also be moved to Bullet One, the Value Added Tax taken on receipts (along with the Employer Contribution to Social Security), making that part of the tax border adjustable but at the cost of eliminating offsets that can be taken against the NBRT for providing direct insurance and care for employees and retirees, which would make the tax border non-adjustable (no zero rating). If the VAT is used, it would be considerably higher than the 13% proposed by either this Center or Michael Graetz. Just shifting taxes without accounting for ACA/HI inclusion would add 9.3% of income, making the VAT visible for 22.3% of every transaction. The VAT will fund any enhanced Internet law enforcement efforts, however, unless housed in HHS. VAT funding would also mean all savings must come from government enforcement rather than employer/taxpayer efficiency, which would put cost payment and cost cutting in the same hands.

Again, the Net Business Receipts Tax, Bullet Four, proposes to combine all employer income taxes, payroll taxes, ACA taxes and the HI payroll tax. It will include offsets, including an enhanced child tax credit and the health insurance exclusion. It will fund all social insurance costs, including those with state revenue participation, including education and we expect states to fund their share of this tax with matching taxes and the same VAT base.

One of the options is a personal retirement account holding employer voting stock and an insurance fund of such companies (a third to insurance). We believe such employee-owned firms will take bolder cost cutting measures without losing compassion for their retiree/shareholders who could even by-pass Medicare and be funded by an internal plan which must be at least as generous. Note that employee-owned firms could also pay all Part B and D premiums. More information on this aspect is available in our previous comments to the Committee.

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.

Let me also comment on Senator Sanders proposal for Medicare for All. The reality is that Medicare is not as generous as younger people assume and that the Senator’s proposal would eliminate those cost sharing features of Medicare, making it Medicaid for all (but with higher doctor reimbursements) and then replacing both Affordable Care Act and Health Insurance Exclusion supported policies with the expanding program. Of course, like Medicare and Medicaid, it will be impossible to do without using the Affordable Care Act’s Accountable Care Organizations. In other words, health insurance companies are going nowhere nor will all cost control efforts be abandoned. We like our proposal better, which is more cooperative socialist than democratic socialist. In either case, however, something like the Net Business Receipts Tax/Subtraction VAT in Bullet Four will be necessary, especially if we are serious about fighting the Opioid Crisis.

A final word on drug testing. It should lead to treatment, not exclusion of benefits, especially medical benefits, but all other social benefits are as applicable, as no one should have to chose between getting treatment and feeding their children. You would think this would be obvious, but almost every other week some Tea Partier introduces legislation to test SNAP or TANF recipients. Their arguments are without merit.

Jobs and Opportunity: Local Perspectives on the Jobs Gap

Comments for the Record

United States House of Representatives

Committee on Ways and Means

Human Resources Subcommittee

Hearing on Jobs and Opportunity: 

Local Perspectives on the Jobs Gap

Thursday, April 12, 2018, 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. 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.

First, let me suggest that employers work with the local chamber of commerce, workforce investment board and community college to set up strategic partnerships to fill these jobs. This was the strategy of some localities in the early 2000s when the H-1B Technical Skills trainging grants were first operational. Adding the-chambers into the equation was a local innovation that made a lot of sense. Originally enacted by President Clinton, the Workforce Investment Act was replaced by the Workforce Innovation and Opportunity Act. The majority party does not need to reinvent the wheel on this matter. These programs work if they are promoted correctly, which will take additional funds.

Tax programs can also help, especially if funded by a tax such as the Net Business Receipts Tax the Center proposes. There are three areas where tax changes would encourage companies to do what their current bottom line prohibits.

The first is the way the NBRT is collected. It taxes labor and profit at the same rate, so there is no tax incentive to cut wages to increase profits (assuming adequate taxation of CEOs, who would also have an incentive to cut labor costs and give themselves a bonus, a factor we will likely see very soon).

This correlates with the obvious economic answer to the job shortage problem. Raise wages, not just for new employees, but all of them. It is not up to the U.S. Congress to protect the profit margins of managers and owners who don’t like to share, even after (indeed, especially after) a large tax cut (such cuts are incentive to cut cost, not hire).

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.

The second way is the ability to add credits and exclusions to the NBRT (unlike a Goods and Services Tax). While an education credit could pay tuition, the employer should cover the wage while in training and that wage should be high enough to pay rent, et al.

Some jobs 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.

The third area is wages for families. Older workers are sometimes shunned because they have higher wage demands due to their need to feed and house their families. We suspect that many employers are looking for a way to continue to bypass these workers with the help of Congress Don’t you dare help them.

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 should be counted against the recent repeal of 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. This amount would allow workers with families to compete for the open jobs. It would also PREVENT ABORTION!

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.

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.

2018 Tax Filing Season and Future IRS Challenges

Comments for the Record

United States Senate

Committee on Finance

Hearing on the 2018 Tax Filing Season and Future IRS Challenges

Thursday, April 12, 2018, 10:00 A.M

By Michael G. Bindner

Center for Fiscal Equity

fiscalequitycenter@yahoo.com

Chairman Hatch and Ranking Member Wyden, thank you for the opportunity to comment on this year’s tax filing season and future IRS challenges. This tax season will be much like last year’s, as the new tax bill is not effective for that year’s income. For most people, next year will be much the same as last year, although many will no longer itemize, but they will also lose exemptions. For those who use tax preparers or preparation software, there will be little difference.

Some enjoy their civic duty to file taxes, but those who use preparers probably do not, which is most people. The rich will likely use accountants who have other money management duties and who, like the IRS employees, must figure out the new tax rules on pass-through income. For some, these rules equalize the treatment of ownership income between corporate and non-corporate firms, to others this is just another give away to donors. For all businesses, the ending of corporate income taxation and its replacement with a value added tax and/or a net business receipts/subtraction VAT would have been so much easier, save for the resistance of Chairman Hatch.

The reality is that an implicit hidden value added tax is already in force. It is the tax withheld by employers for the income and payroll taxes of their labor force. A VAT simply makes these taxes visible while an NBRT makes them more manageable, allowing employers to adjust pay more easily for larger families, pay for health care or insurance and fund public and non-public schools for dependents and college or technical training for workers, as well as retirement plans that give employees a stake and a say in the firm and a more secure retirement.

As you see, we still firmly believe that it is the tax code more than the IRS that needs reform, and that what the IRS needs most is an adequate budget, although that budget will decline under our recommended reforms. By now, you are very familiar with our usual submission.

• 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 collection of the Employee Contribution to Social Security will be exactly as it is now. Like proposals for a FairTax, the Value Added Tax and NBRT/Subtraction VAT will be collected by the states. If the basic structure of reform is adopted in the states, the biggest change will be the need for a common base between federal and state consumption taxes.

Shifting from retail sales taxes and gross receipts taxes to value added taxes and VAT-like net business receipts taxes will change the nature of most state taxation, while enabling ease of collection of taxes on online sales, since taxes would be levied at every stage of the production process. The IRS will assist states in this process, which will likely take the form of some federal-state compact commission to draft and approve the transitional rules.

If a common base agreement can be negotiated for these taxes, state treasurers can collect both their own taxes and the federal taxes, as well as analytical information on tax credit usage, which can then be shared with the U.S. Internal Revenue Service in order to track income accruing to payers of the federal high income surtax, as well as to recipients of the federal child tax credit, which would be paid to employees with wages under the NBRT and then verified by a mailing from both the employer and the Internal Revenue Service, with employees verifying that their employees paid every dollar to them reported as a credit.

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.

The IRS will likely supplement state-based auditing with reviews of their own, but this is a small price to pay for a reform that will reduce the income tax payment and audit workload by at least 80%. Indeed, income tax simplification (through the elimination of all but a few deductions), will further eliminate the workload generated by remaining income tax payers. As you see, this is a much bigger change than reform around the edges.

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.

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 where 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. Very little IRS Administration will be required to do this. Indeed, data management and mailing could be contracted out. All IRS employees could fit in a bathtub with room for Grover Norquist.

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.

CBO Budget and Economic Outlook

Comments for the Record

United States House of Representatives

Committee on the Budget

The CBO Budget and Economic Outlook

Thursday, April 12, 2017, 10:00 A.M.

By Michael G. Bindner

Center for Fiscal Equity

Chairman Womack and Ranking Member Yarmuth, thank you for receiving our comments on the economic forecast for the next ten years. While comments for the record were not requested, we hope they will be printed in the record and we shall certainly publicize them as well. Our remarks will address the short term economic dynamics as projected from the recent tax legislation and Omnibus spending bill, the medium-term impact on entitlement spending and the long term impact of funding the national debt.

Our analysis projects a downward slopping curve for the relationship between budget deficits net of net interest and economic growth. This means that because taxes were cut, the only way to produce GDP growth, where Gross Domestic Product equals Consumption plus Government Purchases Plus Government and Business Investment Plus Exports minus Imports, is to increase government spending and investment, as well as transfer payments which increase consumption. Government purchases give money to households which also consume, thus spurring business investment.

The reverse does nothing but make rich people richer. What was taught in Basic Macro Economics is still true and nothing anyone reads in The Fountainhead negates it. Indeed, any corporate investment manager who proposes investments without customers with money will soon be receiving transfer payments

It has never been proven that tax cuts create long lasting jobs. While they may create jobs resulting from hair brained schemes, because money thrust at rich people results can only be used on so many good investments, most of the new jobs support booms and busts in housing and in the Internet. For every Amazon there were 1000 failed ventures in the late 1990s. Not a good track record.

Most of the so-called job creators receiving the vast majority of the cuts already have positions or investments. Lowering their tax rates are not an incentive to hire. Investors are not in business to give charity. Individuals are hired to meet increased product and service demand from the commercial and government sectors. Wages increase above the rate of inflation when either collective bargaining or a tight labor market allow workers to demand higher prices.

If taxes are high on job creators, the job creators have no reason to resist such demands, because doing so results in any savings going to the government in tax payments from either business owners or the Executive Class. If taxes are cut for job creators, i.e. the Executive Class (stock holders usually receive a normal return regardless of tax or economic conditions, barring malfeasance), then unions are busted, wage increases are limited to inflation, jobs are outsourced to cheaper regions or nations and the cost savings go to the Executive Class, because lower taxes mean they get to keep more money. While some may get lucky in finding news jobs in new industries, the next effect of this tax cut will be job loss, possibly on a massive scale, hence the correction of the name of the bill to the Tax and Job Cuts Act.

The open secret in this debate is that the Executive Class is also the Donor Class. The reforms for most households give either small cuts or small increases in tax payments. This is a shell game hiding the fact that the only large tax changes in the bill are cuts to the Executive/Donor Class. Gary Cohn even disclosed how excited CEOs were to receive these cuts. It is as if they think they have paid for special consideration from the last campaign season, except there is no ”as if” about it. Not only should these provisions be rejected, but Campaign Finance Reform should be immediately undertaken so such attempts at robbing the Treasury will never happen again.

Fortunately, Congress recently passed an Omnibus spending bill for the current and following fiscal year, causing much needed deficits and increased economic growth starting toward the end of this year, which will be a change in why the economy is growing, but will maintain an approximately 3% growth rate, assuming that the curve is similar to that experienced by the George W. Bush Administration before the crash. Here is our analysis of that period from our 2011 testimony to the Ways and Means Committee regarding Models Available to the Joint Tax Committee (we provided our models to them and they appear to be in use).

The curve changes to negative once fiscal policy changed direction. In a model that explains 57% of the variation and a base growth rate of 2.4%, achieving a 1% growth rate requires an additional 0.27 percent of GDP loss in the financial margin – meaning the anemic growth of the last decade was fueled by deficits. (Applying current Trump era data to the Bush Curve yields a growth prediction of 3.3%, based not on tax cutting, but on deficit spending).

We believe that a Keynesian relationship explains these findings. When fiscal policy in the aggregate takes more money out of the bond markets after taxes have been cut, the running of deficits (net of interest payments) reduces savings and increases consumption by both the government and households.

When budget balancing using tax increases aimed at lower wage workers occurs, such as an increase in the payroll tax or “sin taxes” or through cuts to spending, such as Gramm-Rudman-Hollings, and deficits are smaller compared to net interest, the economy contracts as the savings sector on average increases at the expense of both government and household spending.

When budget balancing occurs because of higher marginal tax rates, however, money is removed from the savings sector in comparison to the consumption sector, making more credit available as well as higher government and household consumption.

This is essentially what happened when Presidents Bush and Clinton raised taxes in the 90s. Even though the budget neared and achieved balance, consumption continued in both the government and household sectors, although there were cuts, both absolute and programmatic, in the defense sector, while credit was widely available. When capital gains tax rates were cut in 1997, however, the savings sector received a greater share of output, resulting in an investment boom which we now know exceeded the availability of high value investment opportunities, driving up both asset prices and allowing junk investments to enter the market, which could not provide adequate returns in most cases, causing the 2001 recession.

The tax cuts of 2001 and 2003 reduced revenue and increased deficits to record levels in the post-war era, with further asset inflation leading to the current economic depression, especially in the housing market.

We are on record predicting that enactment of the Fiscal and Job Cuts Act (not a typo) will restrict wages and cause other labor cost savings so that executives can cash in on the lower tax rates by earning higher bonuses, so that any economic gains (and growth could come faster) would be from deficit spending.

Countering with budget cuts, particularly to seniors, the disabled and the poor, both worthy and unworthy, will lead to the proceeds of these tax cuts being used for the kinds of assets that lead to boom and bust cycles, most recently the 2008 Great Recession.

When Social Security was saved in the early 1980s, payroll taxes were increased to build up a Trust Fund for the retirement of the Baby Boom generation. The building of this allowed the government to use these revenues to finance current operations, allowing the President and his allies in Congress to honor their commitment to preserving the last increment of his signature tax cut.

This trust fund is now coming due, so it is entirely appropriate to rely on increased income tax revenue to redeem them. It would be entirely inappropriate to renege on these promises by further extending the retirement age, cutting promised Medicare benefits or by enacting an across the board increase to the OASI payroll tax as a way to subsidize current spending or tax cuts.

Aside from the short term economic benefit to workers from not giving CEOs an incentive to cut labor costs, (which Congress took a pass on by making such cuts), we remind the Committee that in the future we face a crisis, not in entitlements, but in net interest on the debt, both from increased rates and growing principal, as CBO continues to project. This growth will only feasible until either China or the European Union develop tradeable debt instruments backed by income taxation, which is the secret to the ability of the United States to be the world’s bond issuer.

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 of which 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. Your children and grandchildren and those of your donors are the ones on the hook unless their parents step up and pay more. How’s that for incentive?

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.

CBO Budget and Economic Outlook

Comments for the Record

United States Senate

Committee on the Budget

The CBO Budget and Economic Outlook

Wednesday, April 11, 2017, 10:30 A.M.

By Michael G. Bindner

Center for Fiscal Equity

14448 Parkvale Road, Suite 6

Rockville, MD 20853

fiscalequitycenter@yahoo.com

Chairman Enzi and Ranking Member Sanders, thank you for receiving our comments on the economic forecast for the next ten years. While comments for the record were not requested, we hope they will be printed in the record and we shall certainly publicize them as well. Our remarks will address the short term economic dynamics as projected from the recent tax legislation and Omnibus spending bill, the medium-term impact on entitlement spending and the long term impact of funding the national debt.

Our analysis projects a downward slopping curve for the relationship between budget deficits net of net interest and economic growth. This means that because taxes were cut, the only way to produce GDP growth, where Gross Domestic Product equals Consumption plus Government Purchases Plus Government and Business Investment Plus Exports minus Imports, is to increase government spending and investment, as well as transfer payments which increase consumption. Government purchases give money to households which also consume, thus spurring business investment.

The reverse does nothing but make rich people richer. What was taught in Basic Macro Economics is still true and nothing anyone reads in The Fountainhead negates it. Indeed, any corporate investment manager who proposes investments without customers with money will soon be receiving transfer payments

It has never been proven that tax cuts create long lasting jobs. While they may create jobs resulting from hair brained schemes, because money thrust at rich people results can only be used on so many good investments, most of the new jobs support booms and busts in housing and in the Internet. For every Amazon there were 1000 failed ventures in the late 1990s. Not a good track record.

Most of the so-called job creators receiving the vast majority of the cuts already have positions or investments. Lowering their tax rates are not an incentive to hire. Investors are not in business to give charity. Individuals are hired to meet increased product and service demand from the commercial and government sectors. Wages increase above the rate of inflation when either collective bargaining or a tight labor market allow workers to demand higher prices.

If taxes are high on job creators, the job creators have no reason to resist such demands, because doing so results in any savings going to the government in tax payments from either business owners or the Executive Class. If taxes are cut for job creators, i.e. the Executive Class (stock holders usually receive a normal return regardless of tax or economic conditions, barring malfeasance), then unions are busted, wage increases are limited to inflation, jobs are outsourced to cheaper regions or nations and the cost savings go to the Executive Class, because lower taxes mean they get to keep more money. While some may get lucky in finding news jobs in new industries, the next effect of this tax cut will be job loss, possibly on a massive scale, hence the correction of the name of the bill to the Tax and Job Cuts Act.

The open secret in this debate is that the Executive Class is also the Donor Class. The reforms for most households give either small cuts or small increases in tax payments. This is a shell game hiding the fact that the only large tax changes in the bill are cuts to the Executive/Donor Class. Gary Cohn even disclosed how excited CEOs were to receive these cuts. It is as if they think they have paid for special consideration from the last campaign season, except there is no ”as if” about it. Not only should these provisions be rejected, but Campaign Finance Reform should be immediately undertaken so such attempts at robbing the Treasury will never happen again.

Fortunately, Congress recently passed an Omnibus spending bill for the current and following fiscal year, causing much needed deficits and increased economic growth starting toward the end of this year, which will be a change in why the economy is growing, but will maintain an approximately 3% growth rate, assuming that the curve is similar to that experienced by the George W. Bush Administration before the crash. Here is our analysis of that period from our 2011 testimony to the Ways and Means Committee regarding Models Available to the Joint Tax Committee (we provided our models to them and they appear to be in use).

The curve changes to negative once fiscal policy changed direction. In a model that explains 57% of the variation and a base growth rate of 2.4%, achieving a 1% growth rate requires an additional 0.27 percent of GDP loss in the financial margin – meaning the anemic growth of the last decade was fueled by deficits. (Applying current Trump era data to the Bush Curve yields a growth prediction of 3.3%, based not on tax cutting, but on deficit spending).

We believe that a Keynesian relationship explains these findings. When fiscal policy in the aggregate takes more money out of the bond markets after taxes have been cut, the running of deficits (net of interest payments) reduces savings and increases consumption by both the government and households.

When budget balancing using tax increases aimed at lower wage workers occurs, such as an increase in the payroll tax or “sin taxes” or through cuts to spending, such as Gramm-Rudman-Hollings, and deficits are smaller compared to net interest, the economy contracts as the savings sector on average increases at the expense of both government and household spending.

When budget balancing occurs because of higher marginal tax rates, however, money is removed from the savings sector in comparison to the consumption sector, making more credit available as well as higher government and household consumption.

This is essentially what happened when Presidents Bush and Clinton raised taxes in the 90s. Even though the budget neared and achieved balance, consumption continued in both the government and household sectors, although there were cuts, both absolute and programmatic, in the defense sector, while credit was widely available. When capital gains tax rates were cut in 1997, however, the savings sector received a greater share of output, resulting in an investment boom which we now know exceeded the availability of high value investment opportunities, driving up both asset prices and allowing junk investments to enter the market, which could not provide adequate returns in most cases, causing the 2001 recession.

The tax cuts of 2001 and 2003 reduced revenue and increased deficits to record levels in the post-war era, with further asset inflation leading to the current economic depression, especially in the housing market.

We are on record predicting that enactment of the Fiscal and Job Cuts Act (not a typo) will restrict wages and cause other labor cost savings so that executives can cash in on the lower tax rates by earning higher bonuses, so that any economic gains (and growth could come faster) would be from deficit spending.

Countering with budget cuts, particularly to seniors, the disabled and the poor, both worthy and unworthy, will lead to the proceeds of these tax cuts being used for the kinds of assets that lead to boom and bust cycles, most recently the 2008 Great Recession.

When Social Security was saved in the early 1980s, payroll taxes were increased to build up a Trust Fund for the retirement of the Baby Boom generation. The building of this allowed the government to use these revenues to finance current operations, allowing the President and his allies in Congress to honor their commitment to preserving the last increment of his signature tax cut.

This trust fund is now coming due, so it is entirely appropriate to rely on increased income tax revenue to redeem them. It would be entirely inappropriate to renege on these promises by further extending the retirement age, cutting promised Medicare benefits or by enacting an across the board increase to the OASI payroll tax as a way to subsidize current spending or tax cuts.

Aside from the short term economic benefit to workers from not giving CEOs an incentive to cut labor costs, (which Congress took a pass on by making such cuts), we remind the Committee that in the future we face a crisis, not in entitlements, but in net interest on the debt, both from increased rates and growing principal, as CBO continues to project. This growth will only feasible until either China or the European Union develop tradeable debt instruments backed by income taxation, which is the secret to the ability of the United States to be the world’s bond issuer.

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 of which 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. Your children and grandchildren and those of your donors are the ones on the hook unless their parents step up and pay more. How’s that for incentive?

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.