DoD FY 2020 Budget

House Budget, March 27, 2019
Senate Budget, April 9, 2019

To provide context to these comments and to educate new members, here is our four-part approach to tax reform:

• 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. A Carbon VAT is included.
• 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%.  Capital Gains Taxes will be replaced by an Asset VAT or A-VAT in long-held assets and a Tobin Tax for short term trades would fund the SEC and pay down the debt.
• 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. Collection is accomplished by states, who forward data to the IRS.

During the last Congress, budget and appropriation processes were examined without result. DoD financial planning and operations depend on prompt enactment of funding legislation. The solution must include incentives to keep the process moving.

Automatic appropriations would occur at Joint Budget Resolution marks, and if no resolution is passed, revised Budget Control Act spending caps would end this difficulty and spur action by both parties. Because BCA levels are too low, the marks in the Act could be increased by the legislation amending the process itself. These marks should be realistic rather than punitive. Part of any reform must include new caps be set through 2025, when parts of the TCJA expire as well.

Our tax reform plan includes rationalizing domestic civil and military discretionary spending and VAT funding both. For more budgetary responsibility, a Constitutional Amendment is required to enact a regionally specific VAT because under the current constitutional authority all excuses, including VAT, must be nationally uniform.  Regions could then decide on whether they can afford more or less spending or higher or lower taxes to support it, nut with a requirement for fund balance. These decisions would require another round of base closings and realignments. 

Our current proposal is to reorganize the current ten administrative regions to  seven regions of approximately 71 electoral votes and greater autonomy.  Each will have a regional vice president and House and Senate caucus who, among other things, set fiscal policy. Creation of regional Vice Presidents and caucuses can occur through legislation, although they could also be constitutionalized.

A constitutional amendment would be required, however, to allow the Electoral College in each region to select the regional Vice President when that individual is not of the same party of the President.

Spending that is national in scope, such as overseas military deployments, naval sea operations and strategic nuclear spending, would be funded by the Income Surtax and Asset VAT, while domestic national spending, such as the National Institutes of Health and NASA would be funded by a national VAT.

In our proposal, the military services would also reorganize along regional lines, with an Air Wing and Army for each region. Naval base operations would be regionally funded and led as well. Deployed forces would continue to be operated under current command structures. Nuclear weapons systems procurement would remain national and would be commanded on a national basis.

No regional Vice President will control nuclear weapons. National command authorities will  be nationally funded. The National Nuclear Security Administration in the Department of Energy will also be nationally funded. Product commands would have regional and national funding based on unit deployment within CONUS and overseas. Operations and Maintenance funding would be regional, with deployed operations funded nationally under bullet two of our proposal.

Costs for the Veterans Administration and for military retirement will be funded through the VAT, the NBRT and the income surtax. Non-entitlement costs will be VAT funded. Entitlements for retirees and veterans, including normal retirement pay, will be funded through the S-VAT, especially if a personal retirement account system holding shares in the new employer replaces current pension, while disability retirement and health care for service in combat will be funded nationally through the income surtax in bullet two above.

We expect that during this time of war, the income surtax as currently estimated will not be adequate to fund all overseas deployments, which will necessitate continued deficit financing. Indeed, the entire Central Command war effort has depended on Overseas Contingency Operations (aka supplemental appropriations) funding to get past the spending caps in the Budget Act and the Budget Control Act of 2011. Making all deployments that require deficit financing explicit will serve as a good argument for increased tax rates – especially overseas as the income surtax will also fund the payment of net interest and the eventual repayment of war debt. 

The national debt is possible because of progressive income taxation. There is no per capita debt because there are no per capita taxes. 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. If higher income taxpayers wish to finance deployments and roll over net interest payments and debt reduction, starting with the reimbursement of the Social Security Trust Fund as the Baby Boom spends it down, then the high income taxpayers if the future, their children and grand children, will be required to (again, with interest).  

While bringing funding closer to home with regional funding will undoubtedly restrict what can only be regarded as out of control cost growth in Department of Defense, the cutting of too many jobs in the defense sector during what is arguable an economic Depression is not wise either. Tax increases are the preferred way to get to balance.In the long run, as we deescalate from war and must decrease defense research and procurement, we recommend that the appropriation for the National Aeronautics and Space Administration be moved to the defense appropriations subcommittee and that funding for manned space flight and space exploration be increased at the expense of defense research and procurement. 

A significant increase in civilian space exploration is likely just what the economy will need and will impact both the aerospace and nuclear industries, as off-world colonies will undoubtedly require nuclear power if they are to be constructed on any reasonable scale, particularly lunar colonies which will face 15 day dark periods. Initially, these activities will be funded by a nationally based VAT, however as private space infrastructure grows, funding can be transitioned from direct support to loan guarantees for private space operations as citizen access to space increases. Given the risks, however, some degree of direct funding is currently essential to quickly ramp up space infrastructure and thus lower the cost.

The National Priorities publishes a pie chart of discretionary spending which lumped the entire defense budget into a 57% slice. Attachment One presents a summary table on which we base our analysis. Attachment Two offers a more detailed perspective on how departmental spending subtotals relate to size of civilian departments, including when grouped for comparable analysis to DoD as a whole. Attachment Three illustrates how a regional breakdown of the defense budget might look. State level data is not provided in current budget documents, with the exception of military construction projects (MILCON). 

Attachment One – Summary Table

Attachment Two – Shares of Discretionary Budget

Attachment 3 – Regional Distribution

Note that it was impossible to separate out Strategic Nuclear facilities for this simulation. We will use these subtotals to estimate the distribution of domestic Operations and Maintenance (O&M), Military Personnel (MILPERS) and Procurement. The O&M spreadsheet provided by OSD can also be used to estimate the proportions of CONUS (VAT funded) and Strategic and OCONUS forces (Income Surtax & Asset VAT funded). RDT&E will be funded nationally in this illustration. We are confident that the Department of Defense and the Department of Veterans Affairs could present regional breakdowns should our recommendations be enacted. to calculate such figures. 

The 2017 Tax Law and Who It Left Behind

Thank you for the opportunity to submit these comments for the record for the Committee on Ways and Means on the fallout from the Tax and Job Cuts Act (not a typo). Use of the term “Left Behind” is apt, because the tax law, if maintained, would be, like the novels, apocalyptic.

Let us first lay out who was not left behind: the wealthy, corporations and other business owners. The tax cuts on the second two were designed to promote hiring. They did not.

As we stated in to the Committee in February, 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. Only the passage of the Orwellianly named Balanced Budget Act of 2018 staved off another boom-bust cycle, which is the goal of Austrian supply-side economics.

The (il)logic of reducing tax rates on the rich is to let a million start-ups bloom until the market busts and the next new thing emerges, Devil take the hindmost. BBA2018 prevented such insanity. As long as the current tax cuts are in force, the money not collected in taxes should be made up with bond sales, else all sorts of mischief occur in the area of asset accumulation and inflation.

Such accumulations are not economic growth, they are the manufacture of speculative investment bubbles that always lead back to recessions and depressions. There is no such thing as a business cycle, only rich people who are undertaxed who invest in garbage and then sell it to the public, like any Ponzi scheme.

Growth is defined as a positive change in the Gross Domestic Product, not in the price of assets. BBA2018 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.

We remind the Committee that in the long-term 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, which is the secret to the ability of the United States to be the world’s bond issuer. At some point, however, 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.

The first group the Trump Tax Law leaves behind is our progeny, or rather, the progeny of the wealthy. My child is becoming a social worker, an artist or a photographer. Don’t look to her to pay off the debt. The children and grandchildren of Members 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?

Tax preparers are doing well because tax reform did not take anyone off the tax rolls in so obvious a way that they no longer have to get help to see otherwise.

Our reforms make it obvious who does not need to file. Indeed, no one may need to. With an asset VAT in place and dividends taxed at normal rates, employers could submit salary, dividend and child tax credit data with their subtraction VAT filing (collected by the states) and have IRS calculate their tax bill automatically. Employers would withhold taxes for high-income individuals and only send a refund to anyone who had dividend withholding on total income under the standard deduction.

The alternative is to have employers simply pay a surtax for high income earners at various rates and for all dividends to be assessed at the Asset VAT rate, which is similar to the proposal discussed by Lawrence B. Lindsey in testimony to the Senate Finance Committee (sans A-VAT).

EITC payers still have to do hard calculations (keeping preparers in business). A better way is to put a floor on the Old Age and Survivor’s Employee levy and let an averaged employer contribution pick up the slack, as proposed earlier and explained. In Attachment One.  A better way to give childless workers more money is a higher minimum wage.

Children lost out because the Child Credit was not made refundable or adequate. The unborn were also left behind because inadequate family income is the cause for the vast majority of abortions.

Workers were left behind  because there is still no clear path to employee-ownership of the workplace assisted by tax policy changes and because taxes on the CEO class still invite the extraction of economic rent from them in terms of wages, benefits and union rights. (Also described in Attachment One). They must also still file taxes instead of their employers doing so. In general, while the wealthy got a cut, they merely got a shell game
Taxpayers in general lost out because corporate income tax payers can demand special breaks on their taxes that they could not demand under a consumption tax system, which taxes wages and profit at the same rate.

On the up side, giving both corporations and pass-throughs a tax cut lays the groundwork for shifting from individual income and corporate taxes to consumption taxes. Congratulations to the Republicans for slipping this by Chairman Hatch. This step gets us to real tax reform, as I have proposed for over 20 years and will again explain using our comprehensive four-part approach. It has recently been updated.

• 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. This would include a Carbon Value Added Tax.
• 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%. Capital Gains Taxes will be replaced by an Asset VAT or A-VAT in long-held assets and a Tobin Tax for short term trades would fund the SEC and pay down the debt.
• 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. Collection would be accomplished by the states, who would forward data to the IRS.

Our new proposed A-VAT removes the need for including heirs in the personal income surtax, other than on any direct transfer of cash or trust fund income over the standard deduction in a single year, which should still be taxed at normal income rates. The Death Tax on inherited assets will be repealed for everyone, but with the following proviso. Any asset transferred by inheritance or created by exercising stock options will be taxed at 100% of value when sold, rather than only the gain from inheritance or as a step up from when the deceased purchased them. As always, sales to a qualified broad-based ESOP are A-VAT free. We advocate tax simplification, not evasion. Tax evasion by the rich should not be considered a conservative value.

President’s Fiscal Year 2020 Budget Proposal

Senate Budget, March 13, 2019
House Budget, March 12, 2019
Senate Finance, HHS Budget, March 14, 2019
Senate Finance, March 14, 2019
House Ways and Means, March 14, 2019
House Budget, HHS Budget, March 26, 2019

Finance and Ways and Means only: 

The federal budget process is broken. The solution must include incentives to keep the process moving.  Automatic appropriations would occur at Joint Budget Resolution marks, and if no resolution is passed, revised Budget Control Act spending caps would end this difficulty and spur action by both parties. Because BCA levels are too low, the marks in the Act could be increased by the legislation amending the process itself. These marks should be realistic rather than punitive. Part of any reform must include new caps be set through 2025, when parts of the TCJA expire as well. 

Omitted from HHS: As long as the current tax cuts are in force, the money not collected in taxes should be made up with bond sales, else all sorts of mischief occur in the area of asset accumulation and inflation. Such accumulations are not economic growth, they are the manufacture of speculative investment bubbles that always lead back to recessions and depressions. There is no such thing as a business cycle, only rich people who are undertaxed who invest in garbage and then sell it to the public, like any Ponzi scheme.  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, which is the secret to the ability of the United States to be the world’s bond issuer. At some point, however, 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. 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 to raise taxes? 

All Committees:

We have added a Carbon Value Added Tax to the first bullet of our comprehensive four-part approach to tax reform. An 25% Asset Value Added Tax will be added to the second bullet so that capital gains taxes can be repealed, making automatic filing possible based on submissions to the IRS from federal NBRT income and tax credit data provided by state revenue agencies (see bullet four). Aside from these changes, our proposals are identical to what we have stated previously, and can be found in Attachment One.

March 26th Addition to HHS Budget:

Our new proposed A-VAT removes the need for including heirs in the personal income surtax, other than on any direct transfer of cash or trust fund income over the standard deduction in a single year, which should still be taxed at normal income rates. The Death Tax on inherited assets will be repealed for everyone, but with the following proviso. Any asset transferred by inheritance or created by exercising stock options will be taxed at 100% of value when sold, rather than only the gain from inheritance or as a step up from when the deceased purchased them. As always, sales to a qualified broad-based ESOP are A-VAT free. We advocate tax simplification, not evasion. Tax evasion by the rich should not be considered a conservative value.

Creating and Enforcing Rules to Benefit American Workers

Subcommittee on Trade, March 26, 2019

As usual, we will preface our comments with our comprehensive four-part approach, which will provide context for our comments. It has recently been updated.

• A Value Added Tax (VAT)/Goods and Services Tax to fund domestic military spending and domestic discretionary spending with a rate between 10% and 13%, which makes sure very American pays something. A Carbon VAT or C-VAT can be included in this category and would be offset by a lower GST.
• 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%.  An Asset VAT or A-VAT in long-held assets and a Tobin Tax for short term trades would fund the SEC and pay down the debt.
• 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) or Subtraction VAT or S-VAT is the vehicle for tax expenditures for family support,  health care and the private delivery of governmental services. It funds 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.

Discussions over Trade are like arguments are like those over immigration, where some business owners want employees to stay in the shadows and be abused, others want legal employees (though non-union – repealing right to work laws would end illegal immigration because no one would hire an undocumented worker with union representation) and still other in the conservative camp simply hate the illegality or the ethnicity of the immigrants.

Attacking unions for the past 30 years has taken its toll on the American worker in both immigration and trade.  That has been facilitated by decreasing the top marginal income tax rates so that when savings are made to labor costs, the CEOs and stockholders actually benefit.  When tax rates are high, the government gets the cash so wages are not kept low nor are unions attacked.

Too many NLRB nominee filibusters and budget cuts to DOL enforcement have been conscious attempts to break unions by the current minority. Sadly, there is no opportunity to reverse them until the next Congress.  So must real consideration of returning to confiscatory taxes on the CEO class of 70% to 90%. These are the only way, aside from an explosion of employee ownership and workplace democracy (including open bidding for CEO pay) to stop the wealthy from union busting and extracting economic rent in the form of lower wages and benefits from workers.

As long as the current tax cuts are in force, the money not collected in taxes should be made up with bond sales, else all sorts of mischief occur in the area of asset accumulation and inflation. Such accumulations are not economic growth, they are the manufacture of speculative investment bubbles that always lead back to recessions and depressions. There is no such thing as a business cycle, only rich people who are undertaxed who invest in garbage and then sell it to the public, like any Ponzi scheme.

We remind the Subcommittee 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, which is the secret to the ability of the United States to be the world’s bond issuer. At some point, however, 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. 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 to raise taxes?

Please see Attachment One for our prior comments to the Trade Subcommittee from 2017 and before on Trade, NAFTA and agricultural exports regarding our standard tax plan.

The addition of an Asset VAT should have the same effect as capital gains taxation in our second bullet, but can be collected outside of personal income taxation. This has the added feature of either retaining a personal income tax, but one that can be filed automatically or included in a surtax on the Subtraction VAT filed by employers. We would be glad to help develop these ideas in discussions with staff and direct testimony.

Social Security Benefit Enhancements

Subcommittee on Social Security, Hearing on Protecting and Improving Social Security: Benefit Enhancements March 13, 2019, 2:00 PM 

Like yesterday’s comments, our submission today is based on two elements of our four-part approach to tax reform, the employee contribution to Old Age and Survivors Insurance and our Net Business Receipts/Subtraction Value Added Tax. Attachment One contains this discussion. Attachment Two reprises our discussion on employee-ownership, with the following paragraphs pulled forward.

NBRT/SVAT collections, which tax both labor and profit, will be set high enough to fund employee-ownership and payment of current beneficiaries. All employees would be credited with the same monthly contribution, regardless of wage.  The employer contribution to Old Age and Survivors Insurance will continue to provide income sensitive payments to current retirees, which will bolster the political acceptance of the entire system. 

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.   

Using the NBRT/SVAT is superior to using payroll taxes because there is no ceiling to the amount collected to fund current retirees. Increasing the rate to expand the portion of the tax allows the expansion of benefits to current retirees. Employee-Ownership provides an incentive to workers to innovate and thus produce higher earnings for the firm, which will also expand retirement benefits.

TEMPORARY POLICY IN THE INTERNAL REVENUE CODE

SUBCOMMITTEE ON SELECT REVENUE MEASURES, TEMPORARY POLICY IN THE INTERNAL REVENUE CODE, Tuesday, March 12, 2019, 2:00 PM

Chairman Thompson and Ranking Member Smith, thank you for the opportunity to submit our comments on this topic. The hearing advisory is ambiguous as to whether it concerns expiring tax provisions, in which case we refer the committee to our comments of March 14, 2018, which we resubmit as an attachment, or, to quote Tax Policy Center’s Daily Deductions for March 7, 2019:

The recent announcement that Treasury and IRS say they will rely less on sub-regulatory guidance such as revenue rulings, revenue procedures, notices, and announcements, as well as temporary regulations.  The department said that because these interpretations do not go through the formal notice-and-comment process, they don’t have the full force of law.  

We are not surprised that this would immediately trigger a hearing. We said as much in our comments on the TPC website. Our answer is the same as any good tax attorney would say. It depends. Internal procedures, notices and announcements should be published in the Federal Register as information.

Revenue rulings that are precedential must be published somewhere, probably also in the Register and on the Treasury and IRS web pages. Those that constitute permanent changes that will require rule making, notice and comment on the same basis as Code changes required by the Tax Court, which are part of the common law and must retain the mandated effect. We are confident you already know this, but the rookies in the Trump Administration may not, in which case all of this may be a temporary problem. 

Approaching 25: The Road Ahead for the WTO

Finance, Approaching 25: The Road Ahead for the World Trade Organization, Tuesday, March 12, 2019

Attachment One repeats selected comments from the Ways and Means Committee’s hearing on U.S. China Trade from February 27, 2019 and from this Committees hearing on the U.S. Trade Policy Agenda from March 2018. As usual, we will preface our comments with our comprehensive four-part approach, which will provide context for our comments. (Omitted)

Regulatory capture theory is essential to explain how international trade associations work, from NAFTA to the WTO. Capture theory, which is part of the Public Choice School of economics, is associated with George Stigler and others. While it is usually associated with national and state regulation, such as the Food and Drug Administration and the late, great Interstate Commerce Commission, it is equally applicable here. It is similar to what we all learned as Iron Triangles or Issue Networks.

The gist of the theory is that, while regulation is initially promulgated for the public good, relationships between government and regulated industries grow symbiotic. This occurs because professional expertise is often industry specific. This expertise is interchangeable in regulated industries, regulatory staff, on K Street, the academy and congressional staff. Campaign contributions often grease the skids of communication. Regulation always begins with private sector resistance until relationships are established. Eventually, regulatory agencies are co-opted by industry and the resistance stops. While there is still an oppositional dynamic, by and large capture helps steer the regulatory ship.

Capture is so complete in trade that industrial panels are often the most important part of modern trade agreements. In NAFTA, these take the form of Chapter 19 Panels. These panels wield super-national authority, allowing them to over-ride governmental actions which are seen as contrary to free trade as the industry sees it. Such industrial favoritism is likely the glue that gets trade agreements past congressional approval. While treaties are part of federal supremacy in Article IV of the Constitution, ceding this authority to industry is likely beyond what the framers would have expected – and they were often mercantilists. Of course, the U.S. Constitution may itself be an instance of regulatory capture.

The impact of capture are very real barriers to entry, both for professionals and for newer companies. Larger firms dominate small ones, who must find a link to an existing larger company in order to even function. While regulations favoring small businesses attempt to steer such relationships, especially by introducing affirmative action into such decisions, these actions are also captured by industry. 

There is no need to drain the swamp. The swamp seems just fine where it is. Indeed, calls to do so under the banner of populism are likely to give temporary advantage to industry, but it will later adjust (if it is even really changed), with changes in Administration and the benching of its team of rookies.

Many would say that the status quo is unsustainable, others like it perfectly well. Progressives and Democratic Socialists call for bigger and better regulations. The far-left simply considers this an improvement of the same cage. The social democracies of northern Europe have developed a cozy relationship with their capitalists, but have no idea how to transition to true employee sovereignty, which is the ultimate goal of socialism. The answer is that you cannot do deep reform through the deep state. The obstacles are too great.

The only alternative to regulatory capture and industrial domination is not to better regulate capitalism, but to overcome it – not through revolution (which simply turns the party bureaucrats into capitalists, but to occupy capitalism from within. This starts with transforming employee-owned firms. The answer is not change to employee culture over a monthly dinner and pep rally or training line workers to read financial statements. This is also a creating a better cage.

Real change will come from matching corporate governance to corporate ownership. Hierarchical management structures from capitalism are discordant. They do not deliver on the promise of ownership. Employee ownership, to work, must embrace true democracy in both management and the decision to expand the scope of the enterprise from better production to matching production to consumption, also by democratic decision-making. This will start with how leadership is consumed as a good (leading to open auction for executive jobs with the final choice between the low bidders determined by election). 

Employee ownership will continue from decisions on the cafeteria menu to local sourcing and farm ownership, building or buying apartments for younger workers, as well as single family units and abandoning outside finance for retirement and home mortgages with no interest loans. Such features will attract workers and firms to this model to something more than the monthly chicken dinner. 

Currently, employee ownership is undertaken with smaller companies rather than major industries. It will not remain there when ownership is transformed. Larger enterprises will convert franchisees to managers and absorb their employees, extending union membership and board representation. Consultants paid through 1099 employment with only one client also be added to the employing firm. 

The NBRT/SVAT reforms can facilitate the expansion of ownership on a fairly rapid basis, with rates set high enough to pay for obligations to current retirees and the transition to ownership. While the employee contribution to Old Age and Survivors insurance will continue to be linked to income, the employer contribution will become part of the SVAT, with employer contributions credited to each employee without regard to wage. 

Ownership rights and benefits can also be extended to overseas employees, both subsidiaries and in the supply chain, preventing international trade from being used to arbitrage wages in a race to the bottom, raising the standard of living for overseas workers and ending the need for international trade agreements. Industrial and workers interests will be identical to each other and to the national interest of all parties. International organizations could be an honest broker to estimate wages at an equivalent standard of living rather than based on currency trading. See Attachment One for more detail.

It can go even faster if employers can reduce such taxation by making current employees, former employees and retirees whole as if they had worked under the proposed system from the start. If our proposed high income and inheritance surtax is adopted (where cash from inheritances and estate asset sales are considered normal income), some of the proceeds can be used to distribute the Trust Fund to speed employee ownership, as well as ESOP loans. Note that heirs, sole proprietors and stock holders who share to a broad-based ESOP will avoid taxation on that income, including our proposed 25% VAT on asset sales. 

Expediting ownership with the assistance of tax reform will end the need for NAFTA and the WTO (unless national governments balk at allowing international employee ownership. Even then, the need for such organizations, and for government in general, will eventually fade away. 

Hearing on Promoting Competition To Lower Medicare Drug Prices

Subcommittee on Health, Hearing on Promoting Competition to Lower Medicare Drug Prices
Thursday, March 7, 2019

The decision to not allow Medicare Part D to follow the Department of Veterans Affairs and negotiate down drug prices helped end the balanced budget that President Bush inherited from President Clinton. This bill also pushed Bruce Bartlett out of the Republican Party and prompted the writing of the book that sealed the deal. The passage of that legislation was fishy, from leaving the vote open unto the wee hours of the night to future hiring of the law's author by big PhARMA.

While the Affordable Care Act helped ameliorate the worst feature of the Act, the coverage gap in the middle, it did not eliminate it. Perhaps competition will allow that gap to be filled. I would not use it to reduce the deficit at this time. The Tax Cut and Jobs Act, which did not give much of the former to the vast majority of taxpayers and could lead to reduction of the latter, its harm is offset by higher government spending.

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 this definition includes tax cuts for the wealthy, which mainly produce asset inflation rather than real growth. To forestall asset inflation, deficits must remain high and entitlements should not be cut. I am quite sure that Mr. Holtz-Eakin disagrees with me on this point, but again, his version of modern economics is flawed.

The real danger to our economy is the growth of net interest on the debt, both from rate increases and from continually rolling over net interest costs into new borrowing. This growth in debt is 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. 

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?

We preface our remaining 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.

• 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.

Bullet Two would take care of the hole we are digging ourselves into, provided that taxation and spending under the other bullets.

If passed, Medicare for All would provide an ever growing pool of beneficiaries with Medicare benefits at Medicaid prices, with the difference being paid by either a payroll tax (employee and/or employer) or with an NBRT/SVAT, which would tax both labor and profit. More beneficiaries will make drugs even cheaper to purchase if Medicare is allowed to negotiate with drug providers.

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

The NBRT can also 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.

In the long run, employers, especially ESOPs and cooperatives could replace health care services for both employees, the indigent and retirees and opt out of Medicare for All and receive an offset for NBRT/SVAT levies.  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.

Expanding the number of employee-owned companies and cooperatives could be established with personal retirement accounts. Accounts holding index funds for Wall Street to play with will not help.

Accounts would instead hold voting and preferred stock in the employer and an insurance fund holding the stocks of all such firms.  NBRT/SVAT collections, which tax both labor and profit, will be set high enough to fund employee-ownership and payment of current beneficiaries.. All employees would be credited with the same monthly contribution, regardless of wage.  The employer contribution would be ended for health care at all levels.