2017 Tax Law: Impact on the Budget and American Families

House Budget,  2017 Tax Law: Impact on the Budget and American Families, February 27, 2019

There is absolutely no reason to infer that TCJA did anything for growth. Tax cuts for the wealthy might increase corporate investment, but only when interest rates are high. They are not.

The Balanced Budget Act of 2018 is entirely responsible for increases in government purchases and consumption (by beneficiaries, government employees, contractors and secondary effects in private sector households). Exports and imports may have a change due to the trade war, not TCJA. Private sector investment in plant and equipment is on a longer time line for any recent intervention to be important.

Other investments in asset inflation have ABSOLUTELY NO EFFECT ON ECONOMIC GROWTH. If Mr. Gale believes otherwise, please provide detail of how such gambling has any effect on GDP aside from McMansions and other luxury goods.

U.S.-China Trade

W&M, February 27, 2019

China is sitting on a time bomb. Their difficulties arise from their treatment of domestic migrants from rural areas working in Chinese factories. Eventually, these migrants will object to the locality system imposed upon them and demand the same level of pay, benefits and consumerism as is earned by those designated as urban. When this occurs, the valuation of the Yuan will occur, assuming that the Chinese Communist Party survives. We do not make this assumption, however.

The sad fact in U.S.-China trade is the CEO/Donor Class attack on unions for the past 30 years. It 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.  As Chinese workers are not allowed to unionize, the working class in both nations become expendable factor in production rather than human beings. 

The recent election is an opportunity to begin to undo the damage and our tax reform plan can help. Our prior comments on our standard tax plan still apply, even though that hearing was on agricultural exports. Allow us to repeat them now:

The main short-term impact of our plan on trade 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. The most important if these would be a $1000 per month per child refundable tax credit, distributed through payroll rather than during tax time. Such a credit would keep consumption afloat. It would be a bulwark against recession and also (pay attention pro-life movement) abortion.

 NBRT services are 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 can have a huge long-term impact on trade policy, probably much more than trade treaties, if one of the deductions from the tax is purchase of employer voting stock (in equal dollar amounts for each worker). 

For too long the mere mention of Personal Retirement Accounts has been like holding a lightning rod in a thunderstorm. Democrats forget that the attack on George W. Bush for doing so had no impact on the 2004 election. Turnout was juice by support for the war in Iraq, the defense of traditional marriage and the non-existence of the response to the Swift Boat Veterans for Truth-speak (the continuation of the Butcher/Tea Party/MAGA/Russia right-wing conspiracy). The 2006 win was because of the bad management of the Iraq War and rampant Republican corruption.

Engaging in real debate rather than obstruction could have given us insured accounts holding employer voting stock voted by union proxies with equal employer tax credits funded on an uncapped payroll or consumption tax, such as the NBRT.
Personal Accounts would not be used for speculative investments or even for unaccountable index fund investments where fund managers ignore the interests of workers. Accounts invested in index funds do not have that feature, although they do serve to support American retirees who because of them have a financial interest in firms utilizing foreign labor, particularly low-wage Chinese labor.

The USA accounts proposed by President Clinton had the same feature, although as a supplement to the Social Security benefit rather than a partial replacement, although this feature would be muted by enactment of value added taxes. The flaw in using foreign investment to make up for lost worker revenue is that eventually foreign workers either radicalize or become consumers and demand their own union rights.

The tendency for consumerism to follow industrialization is why globalization is a poor substitute for expanding the domestic population, as the Center proposes with its expanded Child Tax Credit, which we propose as an offset to the NBRT.

It would be better for all concerned if American workers were already in an ownership position due to repeal of the Taft-Hartley Act prohibitions on concentrated pension fund ownership and the enactment of personal retirement accounts. We can turn the tide for workers and encourage employee-ownership (aka cooperative socialism) now through Democratic means as part of a Green New Deal.

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).

China could end its peasant labor system in advance of revolution.  Hopefully quick adoption of our suggestions to expand employee-ownership is more likely than revolution in China. If not, trade wars and rumors of trade wars will always be with us, along with the damage they do to both the financial markets and the real economy.

Eventually, 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.

We remind the Committee that in the future we face a crisis in net interest on the debt, both from increased rates and growing principle. This growth will only feasible until either China or the European Union develop tradable debt instruments backed by income taxation. 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. 

This is the secret to the ability of the United States to be the world’s bond issuer. It is why a trade deficit is not necessarily a bad thing, although the President does not seem to realize this. Indeed, exporting the debt is the essential feature of neo-liberalism, as is the belief that saving more for retirement with tax assisted accounts while shifting jobs overseas can have their slavery pay for our retirements. At some point overseas workers will rebel, so 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. For every dollar you pay in taxes, you owe $13 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. Most workers cannot reliably save, or even eat . Don’t look to them to ever 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 to raise taxes?

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.

Drug Pricing in America, Part 2

We provided written comments to Part 1 of this hearing.  They lead some interesting questions that we would like you to ask the pharmaceutical company witnesses. Our guess is that some may already be on the agenda for Tuesday's hearing.

1. How would your company respond to the enactment of Medicare for All, which makes Medicare services available to an ever expanding age cohort of patients at Medicaid prices with the difference financed with higher payroll or employer paid consumption taxes?

2. If employers could avoid a portion of their consumption taxes by providing direct care and medication directly to employees, how would you respond. How do you currently adjust your price structures for large self-insured employers?

3. The Center for Fiscal Equity proposed the following scenario on intellectual property issues for both orphan drugs and large market drugs originally developed using governmentally sponsored research: 

Have every drug approval disclose all government supported research used to develop the product, giving the sponsoring agency the right to both share in the profits and have a say in the pricing. This both keeps the research dollars flowing and limits cost.

A main problem with high cost drugs, especially orphan drugs, is the high development costs and the cost of small batch manufacturing. This could drive the need to raise drug prices for mature drugs in order to subsidize the orphans, although some hikes are undertaken because no one can stop them. 

The solution for this is for NIH and the FDA to own the rights to orphan drugs and to contract out research and development costs as it does basic research, as well as testing and production.

PhARMA would still make reasonable profit, but the government would eat the risk and sometimes reap the rewards. HIH/FDA might even break even in the long term, especially if large volume drugs which were developed with government grants must pay back a share of basic research costs and the attached profits, as well as regulatory cost.

Please respond to this scenario.

We hope you find these questions useful for Tuesday's hearing.

How Middle Class Families are Faring in Today’s Economy

Subcommittee on Select Revenue Measures, February 13, 2019

Thank you for the opportunity to submit comments to the subcommittee. We look forward to working with the new Congress.  In these remarks, we will both explain why the Middle Class is not faring so well, but also how it can fare better. As usual, we will preface our comments with our comprehensive four-part approach, which will aid members’ familiarity with its points, inform new committee members and provide context for our comments. We will follow this with a further exploration of who is and is not in the middle class and how we can make life better for it.

•          A Value Added Tax (VAT) to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure every American pays something. Carbon taxes are included in this category.
•          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.
•           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 term Middle Class has become a catch all. While it can be defined in term terms of percentiles, it is much more complicate than that. Formerly, economics defined each class into three subclasses (upper middle and lower). The lower class is now called the poor and the working poor, who have no illusions about their poverty.

The upper class is simply called the wealthy. They are is limited to the top 2% of incomes or the notorious one-percent as designated by Occupy Wall Street. The very rich, which I have called the Donor Class, usually hit at about the 0.1% of income.

The upper middle class are people who are fairly well off and can called comfortable, although they have fears about adequate retirement savings brought on by the loss of defined benefit pensions. As an aside, this change should be investigated by this Committee and the Financial Services Committee to determine whether the shift was manufactured by the investment industry in order to earn larger commissions. This industry is likely a major driver in seeking new tax advantaged savings instruments, which are good for the business of milking commissions out clients, which keeps them in the upper middle class as well.

Every time a new savings opportunity emerges, those who use it feel that they must take full advantage to avoid poverty in retirement. Of course, the biggest danger for these savers is the lack of good instruments available to them, which has them seek higher reward investments with more risk, like tech stock and mortgage backed securities, as well as buying “too much house” because of lower interest rates which sometimes do not stay low.

The upper middle class would be well served with less savings opportunities and renewed radicalism in bringing back pension rights.  This would make them feel more secure in retirement planning, although this would not be good for the financial services industry, from brokerage to insurance.

Ending the need to compulsively save would also be good for the Treasury, both to collect more in what is now avoided in tax advantaged accounts and to end subsidies like the mortgage interest deduction. This will also to end demand for continued tax benefits that the upper middle class really don’t need to live comfortably. Such a development would likely hurt K Street, who play off the insecurities of the financial services industry in fear that tax reform will kill the goose that laid the golden egg.

The insecurities of the upper middle also drives donations to campaign and political action committees and campaign fundraisers who would otherwise have to work for a living. Let the takeaway from last November be that enough is enough. Tax reform would kill that golden goose, but it is time for that goose to be served on a platter.

For purposes of our tax reform plan, upper middle class would be those who make over $50,000 a year (before tax benefits) or families who make twice that. The upper class would be those who get to what is now considered the top marginal tax rate, while the really wealthy are those who Senators Warren Markey and Harris and Representative Ocasio-Cortez would force into even higher tax brackets, although I would put in more interim brackets between $400,000 and $10,000,000. Pity the upper middle class.

We have made these remarks to delineate those who need less help and pay more tax, not only regardless of their ability to give to campaign committees, but because they are able to do so. The real middle class is radicalizing, as last November demonstrates, and not just because they feel that the President of the United States needs to be arrested (and that those who do not talk about that are guilty of abetting his conduct – and yes, that means the Majority).

The wealthy are also worthy of mention because of how their historically low marginal tax rates lead to lower wages for the working class and the entry levels of the professional class (who have now found a reason to vote). The dirty little secret of the 1981 tax cuts, the 1986 tax reform and the 2001, 2003, 2010 and now the 2017 tax cuts is their ability to control wage inflation.

Much as we used to love to give credit to or blame Paul Volcker for breaking inflation, the real cause was the micro-economic incentives which go with decreases in the marginal rate paid by CEOs and investors (the big dollar donor class). When rates were higher, especially before the Kennedy/Johnson rate cuts), America had labor peace and CEOs and management worked for reasonable salaries. The latter had no desire to cut wages or break unions, because if they did so, all of those savings, which would be paid to them in bonuses, would go the Internal Revenue Service. Lower tax rates changed that.

Lower tax rates also made money available to chase the same supply of investment instruments, which bid up their price, and caused the invention of a whole range of new products which would be built up and sold by the emerging financial class, who would profit-take and watch what they created go bust and start yet another modern recession, especially the Great Recession just experienced. Only higher tax rates or increased deficit spending control such asset inflation (and the consumption cycles associated with them – which Marx thought was the driver of the boom bust cycle – Marx had a failure of imagination).

The Tax and Job Cuts Act (not a typo) 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 baseline discipline is (as it should be) 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.

Modern economics has become infected with the idea that higher tax rates and lower public spending hurt the economy. By definition, this is not case. The exact opposite is true. To refresh our memories of what is in the U.S. Code and most basic economics textbooks, Gross Domestic Product equals equal government purchases, consumption from government employee, contractor, transfer recipient and second order private sector spending, which leads to private sector investment, and exports net of imports (which creates a source of funds for debt finance).

Sadly, there are witnesses coming before the Subcommittee, especially but not only those requested by the majority, who quarrel with this definition. Don’t invite these people to testify, it only spreads untruths.

Anything that is not part of GDP is considered “savings” or in reality, is asset inflation. If you want to end poverty, give poor people and retirees more money and the economy will grow. Increase government expenditure (even bombers) and the economy will grow, including for the now notorious upper middle class. Now that I have set the stage after three pages, let us discuss how our tax reform plan will do so.

Our value added tax won’t do so, because it does increase consumer prices unless the transition to it increases net wages by the same percentage as the new Goods and Services Tax. The tax should be very broad, because it will be a substitute for income tax collection now taken by the lower tiers of the income tax (even as paid by the wealthy).

Tying the VAT  to government spending, especially on a regional basis (which would require a constitutional amendment to repeal the single rate requirement for excise taxes), because this would lead to less spending on whatever is taxed, which we propose to be domestic spending for military and civil government. While this will provide a decrease in funds for the middle class Making the link between discretionary spending and taxes makes for a more deliberative process that may see demands for higher spending and taxes. That would be up for the voters to decide, especially if regional caucuses to make such decisions were created, although that is a step too far for now.

As a new development to our plan, carbon taxes (CVAT), if enacted, would fund environmental enforcement, research and remediation (but not income redistribution, see below). As a sin tax, it will discourage use of greenhouse gases but will also be the goose that lays the golden egg for Green New Deal spending.

Both the VAT and CVAT would be zero rated at the border. Not doing so would be an unconstitutional consumption tax. Burying these taxes currently in the income tax likely violates this provision, which is an essential reason to break them out separately. The Net Business Receipts Tax supports workers rather than customers and taxpayers, so it will not be zero rated at the border. Doing so would be an incentive to short change both public and employer support of worker needs.

We have already made clear the reasons for a higher income and inheritance surtax. Taxing all cash or in-kind distributions from estates, including sale of estate assets and their distribution as cash taxes heirs on the same rules as workers. The dead have never ever paid taxes. If you can’t take it with you, it cannot be tax free. Since there are no U-Haul attachments to hearses, we can be fairly certain of that.

The VAT, CVAT and the Net Business Receipts Tax/Subtraction Value Added Tax (NBRT or SVAT -  which can be used interchangeably) are balanced budget taxes, meaning that they must either be increased or spending lowered  (or the reverse) to keep these funds in balance. We mention this because such balance allows the Surtax to eventually end the current practice of rolling net interest on the debt to new borrowing.

The surtax will also be used to fund deployment of troops and because such spending is usually debt financed. This will also be a disincentive to war (which is one of the President’s priorities – even a broken clock is correct twice a day – and I am sure he will not consider me a nice person, which I regard as a badge of honor).

Most importantly, the Surtax will pay down the debt itself, starting with paying back the Social Security Trust Fund. It can only be paid back with income taxes. Consumption taxes or additional retirement taxes is a disservice to those of us who subsidized spending due to tax cuts on the wealthy. The wealthy must pay this back.

At the risk of repeating ourselves yet again, we remind the Committee that in the future we face a crisis in net interest on the debt, both from increased rates and growing principle. This growth will only feasible until either China or the European Union develop tradable debt instruments backed by income taxation. 

This is the secret to the ability of the United States to be the world’s bond issuer. It is why a trade deficit is not necessarily a bad thing, although the President does not seem to realize this. Indeed, exporting the debt is the essential feature of neo-liberalism, as is the belief that saving more for retirement with tax assisted accounts while shifting jobs overseas can have their slavery pay for our retirements. At some point overseas workers will rebel, so 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. For every dollar you pay in taxes, you owe $13 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. Most workers cannot reliably save, or even eat . Don’t look to them to ever 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 to raise taxes?

The Old Age and Survivors Insurance payment is only included if a tie between retirement income and wages is necessary to preserve broad based support for the program. There should be a floor, however, because most of the heavy lifting to support retirees will come from the NBRT, with these contributions to FICA credited on an equal dollar basis, rather than as a tie to wage levels. Doing so makes contributions less regressive, both because they tax all value added and because there is no upper limit to their collection. This ends the need for the Earned Income Tax Credit. Lowering the ceiling on the Employee contribution reduces what must be paid out in benefits to those who are in the upper middle class and above.

Other than limiting what the wealthy can take from workers in economic rent, the engine of redistribution will be the NBRT. For those who are new to our comments, the NBRT is collected from employers but is not visible on purchase receipts, making it an SVAT.

It is designed to redistribute income within companies rather than having the government do it through more overt subsidies. The child tax credit will be paid out, as it is now, through wages, but doing so will not require any tax filing, save to verify that what is reported to the government matches what is distributed to workers. Setting it to $1000 per child per month makes it adequate to provide what the Department of Agriculture estimates to be the actual cost of raising a child. None other than Milton Friedman suggested a negative income tax and both Republican and Democratic presidents have enacted and expanded the Child Tax Credit. 

This can be called a Pro-Life measure, not because it elects Republicans, but because it distributes enough money to families, including single mothers, to end the need to resort to abortion, or even contraception, for economic means. It is part of what Catholic Social Teaching calls a fair wage.

The fair wage is 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.  If the Minority wishes to prove NARAL wrong they can adopt these recommendations.

The most important factor in moving people out of poverty is an adequate wage for work.  Ideally, this should come from

The market cannot provide a fair wage for families., 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 loath to share it if doing so hurts their political point. A higher minimum wage puts the burden on employers and ultimately customers for fair base wages, rather than subsidies to low wage employers.

In some industries there are plenty of low wage workers who are not as productive as the wage is high (although this makes one wonder whether such industries are worth supporting in the economy).  For these employees, paid education should be available – and by pay we mean tuition and wages.

Workers that are less than literate at a tenth grade level deserve full remedial education, with pay at minimum wage levels.  This can be paid for in a variety of ways under our model.  The usual model is for state governments to provide this education – and in our model the educational institution will also provide case management and stipends and would be funded by the NBRT/Subtraction VAT.  There are other options as well.

Employers could provide remedial education and payroll as an offset of their NBRT obligations.  They could also contribute to a third party provider, such as Catholic Charities and their related education systems, again offsetting their NBRT with the contribution (a full credit for both tuition and stipends).

Other workers need vocational training.  This should be provided through employers.  Training costs would be NBRT deductible, but not creditable, because ideally new workers should pay back the employer with a service requirement in much the same way that military academy students are required to serve some period in uniform, with a student loan program to fund those new workers for whom the employment situation does not work out. 

Training stipends would not be repayable nor would they be creditable or deductible, as allowing tax advantages for such wages at this level would invite no end of mischief in deducting or crediting the value added of mostly productive employees who are also receiving training.  In this case, preventing the gaming of the training stipend will keep the NBRT lower than it otherwise would be.

Some employees require college educations to advance.  The first two years of college would be grouped with the last two years of high school and would be provided by the state (including parochial high school and college), by employers directly or through a third party provider or through contributions to a public or private school. 

Students would receive a stipend and both tuition and stipend would be fully creditable against the NBRT.  Labor provided as a supplement to the employer would be fully taxed as other value added.  After the second of school, employees would be paid for the remainder of college and graduate school along the same lines as vocational training. This is good for both the working class and those with the ability, but not the means, to enter the professional class, especially those who are overlooked because of family earning history or the color of their skin.

Working and low lever professional class workers demand lower salaries because of the uncertainly of unemployment. Paying for education at all levels ends this uncertainty, leading to demands for higher wages over and above the statutory minimum. People are poor as much from fear of losing what they have as from their skills and education deficits. The paid training programs here stop that uncertainly.

Aside from child supplements and education, the NBRT would cover health care, with offsets for purchasing third party insurance for workers and retirees or proving direct care for them with internal medical staff and even facilities. The NBRT will also consolidate taxation to any new Public Option and all of Medicare and, Medicaid, Veterans Health Care and the Affordable Care Act.

Covering retirement will also be part of the NBRT Employee-ownership is the ultimate protection for worker wages.  Our proposal for expanding it involves diverting an every-increasing portion of the employer-contribution to the Old Age and Survivors fund to a combination of employer voting stock and an insurance fund holding the stock of all similar companies. 

At some point, these companies will be run democratically, including CEO pay, and workers will be safe from predatory management practices. This is only possible if the Majority quits using fighting it as a partisan cudgel and embraces it to empower the professional and working classes. It is in our power to make low wage work and family poverty a thing of the past.  Indeed, doing so is the primary reason the Center for Fiscal Equity was created.  We are not proposing hand-outs but a hand up with adequate rewards for taking it.

Drug Pricing in America, Part 1

Finance, Drug Pricing in America: A Prescription for Change, January 29, 2019

Ways and Means, The Cost of Rising Prescription Drug Prices, February 12, 2019 

As you may recall from previous, we have advocated for  a combination of catastrophic insurance, health savings accounts (Archer) and medical lines of credit, which is a bit more liquid version of a flexible spending account, with all accessed by one card with costs allocated based on account balances and income levels. Poor people would have minimum or even no copays, but would always have credit access. As income rises, so would copays and available balances, as well as catastrophic deductibles. Such a plan, however, has no chance of passage and if adequate to maintain access, would not save money either. We no longer endorse this approach.

Our proposed Net Business Receipts Tax/Subtraction Value Added Tax would replace corporate income taxes and proprietary and pass through taxes and treat all business income the same. It would provide for the health insurance exclusion or fund single payer insurance.

Single payer health care, aka, Medicare for All (with Medicaid level copays and premiums) could allow consumer advertising to be waste if the government plays hardball with drug makers, although for now it cannot even play hardball on Medicare Part D purchases. In single payer, there would likely be VAT funding, and advertising costs would come with a VAT paid to the advertiser and passed along to the consumer.

Companies who hire their own doctors and pharmacists and buy their own drugs would get a tax exclusion from single payer (third party insurance would be discouraged), and would negotiate with drug makers for lower prices, although this would leave small firms at a distinct disadvantage and would discourage such practices as franchising and 1099 employment. Still, on the whole, it would decrease cost while not discouraging innovation. Expanding the Uniformed Public Health Service into the Medicare and Medicaid markets (edging out HMOs) would also lead to cost cutting on drugs.

Limiting advertising has been proposed by Senator Shaheen and her cosponsors. This dances on limiting the freedom of speech, although this is not absolute for commercial speech. The FDA could limit these ads, as could the Federal Trade Commission.

While some favor restricting patent rights, I would argue in favor of having every drug approval disclose all government supported research used to develop the product, giving the sponsoring agency the right to both share in the profits and have a say in the pricing. This both keeps the research dollars flowing and limits cost.

A main problem with high cost drugs, especially orphan drugs, is the high development costs and the cost of small batch manufacturing. This could drive the need to raise drug prices for mature drugs in order to subsidize the orphans, although some hikes are undertaken because no one can stop them. The solution for this is for NIH and the FDA to own the rights to orphan drugs and to contract out research and development costs as it does basic research, as well as testing and production.

PhARMA would still make reasonable profit, but the government would eat the risk and sometimes reap the rewards. HIH/FDA might even break even in the long term, especially if large volume drugs which were developed with government grants must pay back a share of basic research costs and the attached profits, as well as regulatory cost.

Paying for the Green New Deal

The Tax Policy Center had a piece today regarding the lack of specifics in the GND and how much it might cost (and that may slow the economy). You can find the article and my response at https://www.taxpolicycenter.org/taxvox/green-new-deal-would-cost-lot-green

It is not true that the GND will slow the economy. Just the opposite. What passes for modern economics is flawed, not even keeping with the official definition of GDP, which equal government spending, consumption from government employee, contractor, transfer recipient and second order private sector spending, which leads to private sector investment, and exports net of imports (which creates a source of funds for debt finance). Nothing in that definition reduces growth and it is the model of the GND that Representative Ocasio-Cortez ran on and Senator Markey embraced.

From separate proposals, we know that part of the freight will be picked up by putting in a 70% tax rates on income over $10 Million (which would probably capture only CEOs of companies with over 1,000 employees. An interim level would also be useful, say 50%. It goes without saying that the Trump tax cuts would be repealed and a carbon tax instituted. If  looks at what her fellow DSAs propose, you may have to actually score my tax plan. As a reminder it includes

• an income and inheritance surtax for all income received from employment, dividends and cash from inheritances (including the sale of assets) over $50,000 (double for joint filers and widows) to eventually fund net interest (no rollover), overseas defense spending (greatly reduced) and debt pay down, starting with Social Security for the Boomers;
• a net business receipts/subtraction value added tax (SVAT) to pay for social spending (Medicare for All, FICA employer contributions credited equally for old age and survivors insurance and all unemployment and disability insurance and education (including paid remedial, vocational and college) with offsets for the increased child tax credits in the GND (I propose $1000/month/child), and any retirement savings (equal for each worker) that is devoted toward employee-ownership (with a $15 minimum wage so that people work for more than their CTC);
• employee contribution to FICA (if retained);
• Carbon Taxes (CVAT) for infrastructure and remaining GND items and a Goods and Services tax to fund the rest of domestic spending (military and civil).

Any presidential candidate flying the DSA/Warren/Harris radical democratic party flag will find this all very useful. We can also include a wealth tax that could also be dedicated to paying down the national debt - possibly at 13 times the prior year's income tax collections net of Treasury notes already possessed and canceled (which may result in a refund). If that figure is untenable in one year, it can always be split into two or more years. The Federal Reserve would have to shift to funding employee owned company debt, possibly as part of an insurance fund to protect against another Enron type loss.

Presidential and Vice-Presidential Tax Returns

As the Committee and Subcommittee know, Chairman Neal can request the tax return of anyone, including President Trump. Usually, this is unnecessary because it has become the custom. President Nixon did so in a publicity stunt to show he was “not a crook.” I am certain that, because Citizen Trump is likely the target of more than one investigation, that Special Counsel Mueller has already obtained his returns.

In this instance, I advise Mr. Neal to withhold on seeking Citizen Trump’s returns until doing so will support the likely work of the Judiciary Committee in investigating the possibility of impeachment. They should not be released for public consumption or until they are material to an impeachment vote or Senate trial and not for public curiosity. The desire for some to do so has amounted to grandstanding that should not be dignified by the Committee.

For the purposes of this hearing, allow me to paraphrase the judicial axiom, hard cases make bad law. I would urge that we take great care in requiring what has been customary. While it might have given Candidate Trump pause before entering the race, hindsight is 20/20. Given his conduct in office, it is likely he would have filed suit and pursued election anyway. Given what we know of his business dealings, he seems oblivious to the past or to the authority of law.

Requiring the release of returns for a candidate for federal office skirts dangerously close to adding to the constitutional requirement for serving. The Court in U.S. Term Limits v. Thornton (citation omitted) found that extending such limits was unconstitutional. Mr. Trump may have actually had a case.

There is also the slippery slope argument. (While it is a logical fallacy to make such arguments, in this case, it applies). While Presidents and their Administrations have, from time to time, engaged in criminal behavior, the sad fact is that members of Congress are not immune from such conduct. If subject legislation is passed, or likely before, many will call for the release of the returns of sitting members of Congress and their opponents.

It need not stop there. Currently, there are IRS Statistics on Income Publication SOI Tax Stats – County Data is incomplete for the highest income levels because their release would be traceable to individual filers. As a tax scholar who proposed a high income and inheritance surtax, I would find free access to data at all income ranges quite useful to my analysis. Indeed, expanding publication to this area has actual public policy benefits apart from criminal investigations.

The question then remains, why stop now? If one citizen can be forced to release their personal tax information to the public, all citizens could one day be subject to such disclosure. Indeed, it would come up with every background check for applicants and employees. This information would be valuable to employers to make sure no outside income exists beyond the usual ethics disclosures.

The standard objection to privacy concerns is that no one should refuse disclosure if they have nothing to hide. That is the justification for any witch hunt (sadly, in this case Citizen Trump is correct in his characterization, at least regarding this matter).

I trust that you can divine my feelings about this matter.

Improving Retirement Security for America’s Workers

Let me remind the Committee that official projections by the Trustees are required to be conservative. As the Economic Policy Institute found many years ago when attempts were being made to justify personal accounts in Social Security, there is truly no solvency problem if more realistic estimates are used.  Of course, that relates to the system as a whole, not on how the Trust Fund is to be reimbursed, as we reiterate below.  These remarks reflect those made to prior Congresses. They remain applicable, for the most part.

Lessons from the Great Recession

The 2008 Recession triggered a much longer asset-based Depression. This had both temporary and permanent effects on the trust fund’s cash flow. The temporary effect was a decline in revenue caused by a slower economy and the temporary cut in payroll tax rates to provide stimulus that has since been repealed, although the amount was added to the Trust Fund for later withdrawal, regardless of contributions not made.

The permanent effect is the early retirement of many who had planned to work longer, but because of the recent recession and slow recovery, this cohort has decided to leave the labor force for good when their extended unemployment ran out. This cohort is the older 77ers and 99ers who needed some kind of income to survive. The combination of age discrimination and the ability to retire has led them to the decision to retire before they had planned to do so, which impacts the cash flow of the trust fund, but not the overall payout (as lower benefit levels offset the impact of the decision to retire early on their total retirement cost to the system).  In addition, it has been made easier for workers over 50 to retire on disability (as I have done), with many of us approved on the first try.

The Reagan-Pepper Compromise

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. The 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 or by enacting an across the board increase to the OASI payroll tax as a way to subsidize current spending or tax cuts.

The cash flow problems experienced by the trust fund are not the trust fund’s problem, but a problem for the Treasury to address, either through further borrowing – which will require continued comity on renewing the debt limit – or the preferable solution: higher for those who received the lion’s share of the benefits from the tax cuts of 1981, 1986, 2001, 2003 and 2017. 

The ultimate cause of the trust fund’s long term difficulties is not financial but demographic. Thus, the solution must also be demographic – both in terms of population size and income distribution. The largest demographic problem facing Social Security, Medicare and Medicaid, is the aging of the population. In the long term, the only solution for that aging is to provide a decent income for every family through more generous tax benefits.

The free market will not provide this support without such assistance, preferring instead to hire employees as cheaply as possible. Only an explicit subsidy for family size overcomes this market failure, leading to a reverse of the aging crisis.

We propose a $1000 per month refundable child tax credit payable with wages as part of our proposal for a Net Business Receipts Tax.  This will take away the disincentive to have kids a slow economy provides. Within twenty years, a larger number of children born translates into more workers, who in another decade will attain levels of productivity large enough to reverse the demographic time bomb faced by Social Security in the long term.

Sadly, we first made this recommendation eight years ago, which is a lost opportunity to expand family size for most of a generation.

Such an approach is superior to proposals to enact personal savings accounts as an addition to Social Security, as such accounts implicitly rely on profits from overseas labor to fund the dividends required to fill the hole caused by the aging crisis. This approach cannot succeed, however, as newly industrialized workers always develop into consumers who demand more income, leaving less for dividends to finance American retirements. The answer must come from solving the demographic problem at home, rather than relying on development abroad.

This proposal will also reduce the need for poor families to resort to abortion services in the event of an unplanned pregnancy. Indeed, if state governments were to follow suit in increasing child tax benefits as part of coordinated tax reform, most family planning activities would be to increase, rather than prevent, pregnancy. It is my hope that this fact is not lost on the Pro-Life Community, who should score support for this plan as an essential vote in maintaining a perfect pro-life voter rating.

This is not to say that there is no room for reform in the Social Security program. As I wrote in the January 2003 issue of Labor and Corporate Governance, Congress should equalize the employer contribution based on average income rather than personal income. It should also increase or eliminate the cap on contributions. The higher the income cap is raised, the more likely it is that personal retirement accounts are necessary.

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

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

If employer voting stock is used, the Net Business Receipts Tax/Subtraction VAT would fund it. If there are no personal accounts, then the employer contribution would be VAT funded.

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

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

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

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

If funding comes through an NBRT, there need not be any income cap on employer contributions, which can be set high enough to fund current retirees and the establishing of personal accounts. Again, these contributions should be credited to employees regardless of their salary level.

Conceivably a firm could reduce their NBRT liability if they made all former workers and retirees whole with the equity they would have otherwise received if they had started their careers under a reformed system. Using Employee Stock Ownership Programs can further accelerate that transition. This would be welcome if ESOPs became more democratic than they are currently, with open auction for management and executive positions and an expansion of cooperative consumption arrangements to meet the needs of the new owners.

We also suggest a floor in the employer contribution to OASI, ending the need for an EITC – the loss would be more than up by gains from an equalized employer contribution – as well as lowering the ceiling on benefits. Since there will be no cap on the employer contribution, we can put in a lower cap for the employee contribution so that benefit calculations can be lower for wealthier beneficiaries, again reducing the need for bend points.

The new Majority should not run away from this proposal to enact personal accounts. If the proposals above are used as conditions for enactment, we suspect that it won’t have to. The investment sector will run away from them instead and will mobilize the next version of the Tea Party against them. Let us hope that the rise of Democratic Socialism in the party invests workers in the possibilities of employee ownership.