2019 Tax Filing Season and the 21st Century IRS

Subcommittee on Oversight, National Taxpayer Advocate on the IRS Filing Season, March 7, 2019
Senate Finance, April 10, 2019 (revisions in italics)

For most people, this  year will be much the same as last year, although many will no longer itemize, but they will also lose exemptions. The new forms will at least let paper filers know that there is a change. For those who use tax preparers or preparation software, there will be little difference.

The Tax Cut and Jobs Act gave most people neither a real tax cut or jobs. The goal was to stimulate an already growing economy by giving tax breaks to "job creators." The reality is that these cuts went to asset speculators, as they always do. It does not matter what the asset markets do, they are their own master and their prices are about too much money chasing too few good instruments, which leads to funding such garbage as Bitcoin. Eliminating that inflation through bond sales is a good method, as is making such sales unnecessary through higher tax rates on the wealthy, preferably from an income and inheritance surtax.

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

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

We preface our remaining comments with our newly revised 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. Capital gains taxes will be replaced by an Asset VAT or A-VAT of between 20% and 30%. At inheritance or at the exercise of options, previous tax payments will be set to zero. Brokers will collect these taxes and remit them to the SEC. Sales to qualified ESOPs will remain tax free. Short term trades will be subject to a Tobin Tax.
• Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.
• A VAT-like Net Business Receipts Tax (NBRT), which is essentially a subtraction VAT with additional tax expenditures for family support,  health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.

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

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

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

There will likely be problems to resolve in our proposed system, where the states collect by the Value Added Tax and the Net Business Receipts Tax and forward the money and records to the Internal Revenue Service. This will not impact most taxpayers, since once they have bought a product, no further action is necessary.

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

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

Individuals making over $50,000 per year and joint filers making over $100,000 will have their wage and dividend income information submitted to the IRS as part of NBRT filings, which will be stored to compare to tax filings, unless the Congress authorizes an automatic filing system where all income surtax payers will receive notification when all data should have arrived and what their refund or payment will be once they correct the information or certify it is correct already. Banking information should be on file, so authorization for payment, either at once or installments should be easy. Very little IRS Administration will be required to do this. Indeed, data management and mailing could be contracted out. All IRS employees could fit in a bathtub with room for Grover Norquist.

Comprehensive Legislative Proposals to Enhance Social Security

WM: Social Security Subcommittee, Comprehensive Legislative Proposals to Enhance Social Security, April 10,  2019

As a reminder, we suggested in our first installment of the series, we reminded the subcommittee of the virtues of social insurance in achieving decent outcomes regardless of circumstances of birth and family size, as well as fostering employee-ownership as the best way to assure a decent middle-class retirement by putting people back into the middle class as workers and giving them control of the workplace. We also attached previous comments distinguishing the upper middle class, who is doing quite well without help, but because they are particularly vocal and are frequent political donors, get more help than is justified. The attachment also explored the use of a monthly tax credit of $1,000 for each child as a way to, along with a $15 per hour minimum wage for workers and students, lift families out of poverty regardless of prior circumstances. Let us add here that concerns that this damages society by reducing the need for self reliance is total and utter nonsense. That some consider such reliance as mandated by Christianity have no real knowledge of Jesus or the Kingdom of God.

In our second installment the next day we explained how shifting from payroll to subtraction value added taxes could allow us to walk and chew gum at the same time, setting rates high enough to fund current retirees while creating personal accounts holding employer voting stock in two-thirds of the account with the other third holding shares in other employee-owned firms. A key provision is the crediting of employer contributions equally, i.e. without regard to wage levels. This allows inserting a lower ceiling and a higher floor in the employee tax and ending the EITC in favor of a larger refundable child tax credit.

In both of these hearings, the attachments included a restatement of our four-part tax reform plan, which includes funding for entitlements. We have added an asset VAT as a replacement for capital gains taxes. This tax is part of our high income surtax provisions, which should be set high enough to fund returning the Social Security Trust Fund to the taxpayers who built it up in the first place. Here is our current proposal. Updates since our last submission are italicized.

• 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. Capital gains taxes will be replaced by an Asset VAT or A-VAT of between 20% and 30%. At inheritance or at the exercise of options, previous tax payments will be set to zero. Brokers will collect these taxes and remit them to the SEC. Sales to qualified ESOPs will remain tax free. Short term trades will be subject to a Tobin Tax.
• 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.

A key part of our proposal is to provide an incentive for upper-income Americans to stop demanding tax cuts to be used in asset speculation, which triggers Social Darwinian boom-bust cycles so that the next big thing can emerge and Devil take the hindmost. The reality is that innovation happens when customers have money, not liquid paper.

Let me (again) remind the committee of our ling term debt crisis. As long as Europe does not link its currency to consolidated debt guaranteed by a continental income tax, we can keep rolling over interest payments into new borrowing. Once they realize this is how we succeed, the borrowing window will be closed.

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).   On Friday last, we created a table that illustrates how much each income strata owe. This is relevant to Social Security because a nation without credit cannot finance long-term retirement, even with substantial employee ownership and control. This table should end the career of Grover Norquist.

Our proposals are not new. Giving them to the new Majority is. I urge the new leadership to stop using the prospect of personal accounts as an electoral issue. I have not and will not suggest that these accounts be used as a subsidy for the asset inflation of Wall Street. Indeed, these accounts shift finance from Wall Street to employers and in doing so will fund investment in plant an equipment, not commissions for mortgage bankers. Our legislative proposal for Social Security reform, which was last provided regarding the 2016 Trustees Report, is Attachment One.

Treasury FY 2020

House Appropriations, Treasury, April 9, 2019

Please allow me to comment on the Department of the Treasury Appropriation. We hope that these comments are useful is fashioning questions. They reflect how the Department might cope with tax reform. For context, we recommend a four part reform.

• 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. Capital gains taxes will be replaced by an Asset VAT or A-VAT of between 20% and 30%. At inheritance or at the exercise of options, previous tax payments will be set to zero. Brokers will collect these taxes and remit them to the SEC. Sales to qualified ESOPs will remain tax free. Short term trades will be subject to a Tobin Tax.
• Employee contributions to Old Age and Survivors Insurance (OASI) with a lower income cap, which allows for lower payment levels to wealthier retirees without making bend points more progressive.
• A VAT-like Net Business Receipts Tax (NBRT), which is essentially a subtraction VAT with additional tax expenditures for family support,  health care and the private delivery of governmental services, to fund entitlement spending and replace income tax filing for most people (including people who file without paying), the corporate income tax, business tax filing through individual income taxes and the employer contribution to OASI, all payroll taxes for hospital insurance, disability insurance, unemployment insurance and survivors under age 60.

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

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

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

There will likely be problems to resolve in our proposed system, where the states collect by the Value Added Tax and the Net Business Receipts Tax and forward the money and records to the Internal Revenue Service. This will not impact most taxpayers, since once they have bought a product, no further action is necessary.

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

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

Individuals making over $50,000 per year and joint filers making over $100,000 will have their wage and dividend income information submitted to the IRS as part of NBRT filings, which will be stored to compare to tax filings, unless the Congress authorizes an automatic filing system where all income surtax payers will receive notification when all data should have arrived and what their refund or payment will be once they correct the information or certify it is correct already.

Banking information should be on file, so authorization for payment, either at once or installments should be easy. Very little IRS Administration will be required to do this.
Both before and after reform, many improvements are possible as long term employees retire, particularly from the IRS.
As taxpayers shift from paper forms to electronic filing, error detection accomplished by the IRS (which required its own error detection for its manual data entry) has been transferred to preparation software. As use of automation increases, data auditing needs go away over time, freeing up resources to pursue malfeasance. Automation even redirects customer service to preparers, provided they are well trained. These changes are incremental. Big change requires tax reform.

As we all know, there is more to Treasury than the IRS. Any reform must go through the Office of Tax Policy. We urge an increase in funding to examine what occurs after the repeal of the Tax and Job Cuts Act (not a typo).

One of the Department's growth industries is the Bureau of the Public 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).  This table shows the impact by income strata.

Of course, for the Department to participate in any reform, it must be funded. As you well know, During the last Congress, budget and appropriation processes were examined without result. Treasury financial planning and operations depend on prompt enactment of funding legislation. The solution must include incentives to keep the process moving. We propose a Joint Budget Resolution to start the process. 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. 

The media assures us that Secretary Mnuchin will be questioned on the submission of Citizen Trump's tax returns. 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.” It turns out that a reexamination of his returns led to greater scrutiny and a heavy tax bill. 

As a general matter, we 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. We trust that you can divine our feelings about this matter.

Bill Gale of TPC has a Great book out!

The book is called Fiscal Therapy: Curing America's Debt Addiction and Investing the Future. The Tax Policy Center has an event you should go to on Wednesday, April 10th. Info is here. Bill summarizes it here, including my initial review:

I like this book. He hits the right notes on taxation (both value added and progressive) and economic rent. I have a bit of disagreement on what is important in recent economic history and in the models he uses to say why the debt is dangerous, but I disagree mostly with those economists, not Bill. Still, these are more a distinction than a difference. Well done! I will add more comments as I get closer to the end.

Buy the eBook here.

My further comments are in reference to the posts on this site and the five book set that is also on Amazon Collected Comments to the U.S. Congress. My apologies to those who wish a summary. While I sometimes do those, many book reviews (including mine) provide a counter-point discussion where the reviewer shares his or her own thoughts on the book content.

Chapter 1, Government at a glance gives an overview of the government and its funding that sets the stage for the rest of the book. No arguments yet.

In Chapter 2, How We Got Here, Why It Matters, Gale takes us from Hamilton to Trump. Allow me to comment on the last 56 years 40 years.

The main consequence of the successive Reagan cuts, aside from goosing secondary markets, especially stocks, which are entirely savings and do nothing to increase growth unless matched by bond sales, is that they changed the calculus for the rich regarding decades of labor peace and killed all inflation due to worker demands for higher wages. As a result, inflation became manageable and wages after inflation stagnated or were reduced for the working class. All productivity gains went to professionals, shareholders and especially the C-Suite.

Before the Kennedy-Johnson cuts and the Reagan cuts, any cuts in labor costs were simply transferred to new taxes, so cuts did not occur. All that changed with tax cuts and until high rates are brought back or C-Suite salaries are controlled by open competitive bidding for those jobs with every member of the lower level of management in that industry deemed qualified to bid, workers will continue to lose. Give them more pay and they will make there own human capital investments. The center will not hold otherwise. The anti-tax coalition which depended on MAGA is about to collapse with Trump, which will also eviscerate the assumption that the 2017 tax cuts will be made permanent. They won't even survive 2021.

The Bush cuts did raise high income taxes while decreasing them for the upper middle in the "hump" rate of 33%. The change was mostly optics, although it did help increase revenue and improve progressivity at the high end. Still, in my analysis, as income increased the effective tax rate from the income tax increased the effective rate of  social security taxes (including the employer contribution) decreased, leaving an effective rate of 30.9% after about $50,000 gross income. Progressivity happened at the low end and then became proportional. Nice trick.

Clinton increased progressivity at the high end, taking money from the savings sector and giving it to the consumption side, which resulted in a 3% stable growth rate and put us on a virtuous cycle which took money from the savings sector while decreasing the need for government bonds.

Sadly, because Clinton traded SCHIP for lower capital gains rates it became easier to build an internet startup than actually working, leading to the tech boom and bust. Bush. The Second Cut taxes on all, but especially the rich.  He  had Greenspan offset the expected decline in GDP by giving everyone a credit card. This was fueled by a perverse deduction in the 1986 for second mortgages that made every home an ATM. This led to the Great Recession, which was actually a Depression due to the loss of value in homes. This made it impossible to sell so many could not upgrade, even with adequate income to afford a bigger home.

2010 was a mistake. Higher taxes on the rich would have decreased asset price reinflation while increasing GDP by definition (government purchases + consumption by government employees, contractors and beneficiariesand second order consumption in the private sector, with third order investment in real capital investment (not asset inflation)).

The entire fiscal cliff and budget debate, including Rivlin-Domenici and Simpson-Niles was about the paper tiger named Grover Norquist and his hold on the GOP. The goal was enough baseline discipline to raise $3 Trillion to let Obama keep his promise to make the Bush cuts permanent for the bottom 98% of households while letting the cuts on the top 2% expire. That this happened in 2013 gave cover to Norquist and the GOP to accept Obama's terms. Since then, no one has cared about the baseline.

Every excess spending bill is necessary to keep the economy alive. Overall, it will be a good year, no thanks to Trump, who had no say in negotiating the Balanced Budget Act of 2018. He simply signed where told.

The decrease in savings and asset inflation stopped the boom bust cycle that feeds the dreams of Austrian Economists to discover the new worthy rich, losers be damned. As a result, the economy grew and will continue to grow because spending increases and bond purchases offset the gains to the savings sector due to the TCJA. Reversing the tax cuts will increase GDP, by definition, especially if spending is not cut.

There is no reasonable compromise position here. The Austrians are simply wrong. There is enough incentive for the next Mark Besos to build a better mouse trap without the need for boom bust. If anything, giving consumers more money by giving high end savers less in tax advantages helps innovation more. Investors are even better off because they get real returns rather than paper gains.

Chapter 3 is about The Challenge we face. While entitlements are expanding, I don't agree that they are the challenge. Social Security is only out of balance by conservative estimates (the kind that killed pensions and forced everyone to by 401(k)s and IRAs). Realistic assumptions have the funds in balance forever (see the analysis by EPI). We both agree that the biggest issue is interest expenses feeding on themselves If something is not done.

There is no such thing as per capita spending. Retirees benefit by collecting Social Security and getting Medicare. Their collection of Medicaid is not so much a benefit as a lifeline. Both of these are a gain in opportunity benefits for the children who would otherwise care for them. Such benefits are a function of family size, with smaller families and orphaned middle ages gaining more benefit.  Without these programs their costs would be unbearable, especially if they are not in the top 20% of income.

The other factor, aside from the economic rent charged to employees by the C-Suite as enabled by low marginal tax rates) is lower population. When taxes were higher, fathers would sometimes get a wage bump with a new child. Now he is fired and replaced by two Millenials who like coding.

Defense spending is uneven as well. Soldiers come from all economic classes, although enlisted start lower (for some it is their only out from poverty). As in all capitalist enterprise, the C-Suite gets a huge subsidy. Compensation is capped at $1 Million on the cost side, but profits can be used to enhance, which is a backhanded subsidy to the asset inflation sector. There are exceptions to every rule.

In Chapter 4, Termites and Wolves, Gale discusses the possible economic impacts offered by most economists. I beg to differ on the state of economic modeling of fiscal policy.

Debt cannot restrict growth unless someone tries to mess with interest rates to restrict inflation or we get back on a boom-bust cycle because a prices are too low. We can grow ourselves out of it by taxing away asset speculation and funding more spending, which increases GDP by definition. Any experts not connecting these dots are simply wrong.

Borrowing that offsets speculation is a good thing. Higher taxes which allow less spending, stop asset speculation (which is NOT capital investment) and decrease borrowing from overseas is even better, provided foreign speculators are taxed enough to prevent asset inflation. Capital growth results from expected consumption, not speculation or tax policy. Any corporate investment manager who does otherwise is quickly unemployable.

A national savings model that equates speculation gains with national income is also wrong. IMF models justify preventing GDP growth in the name of funding foreign capital sources. These go beyond wrong to a financial war crime.

Greece's problem was imposed austerity to benefit hedge fund investors. All EU debt should be dealt with on a Hamiltonian model and funded with a continental income tax. Until this occurs, US debt is unimpeachable. After it occurs (and it must), we will have a problem unless we annex our creditors and retire paper. This also may be inevitable or they could annex us It is six of one and half dozen of the other if all voting representation is on the same basis. As it is, because the President controls allied military affairs (why Trump must go), Europe is our colony.

Some states become third world economies if they are shy about raising property tax rates when base values drop or by refusing to make income taxes more progressive. These are self inflicted wounds.

In the $1 example, a dollar of government spending raises GDP. Tax cut dollars for the rich increase speculation and do nothing for GDP.

Gale does a good job in discussing economic rent in Chapter 5, Solving the Debt Problem Fairly.

This brings up the question of who owes the debt. It is implicitly owed by the ability to pay taxes. People who cannot pay, do not owe. Just as there is no such thing as per capita spending (especially on Interest, which is owned by both the wealthy and the almost wealthy with good investments, regardless of nationality) there is no per capita debt. The relationship of taxation yo debt is 1 to 13. If you pay $1, you owe $13. An easy payout. Or you pay $10 thousand you owe $130 thousand. Not easy, but probably less than the location value of your house if that value is market price less depreciated house cost. Maybe Henry George was right all along.

The gist is that people with low income on average have children with low income. There is a great deal of lifetime mobility in the middle, as Brad Schiller repeatedly reminds us. It is at the top where having rich parents often means being a rich taxpayer later on.

Driving this point home is the essential element in the discussion of generational equity. While default or hyperinflation would hurt everyone, the poor will stay poor, the middle will be insecure but the rich could lose everything, at least in terms of liquid assets. Since they are at the most risk and have the most benefit from inequality, it is on them to pay more, now and later. Making anyone under the 80th percentile pay anything more over and above current spending or cutting their benefits and jobs at all would only slow GDP. Making the top 20% pay more or get less, especially the top .1%, is actually good for GDP and for their progeny.

The discussion in Chapter 6, The Politics of Deficits, the Deficits if Politics starts with the change in distribution by party between Republican and Democrats reminds me of a discussion I had when I was David Koehler's research assistant in doctoral school at American. His model of ideological ratings in the Senate 20 years ago showed overlap and made calculating the "yolk" or the generalized median set to find a majority. My thought that the appropriate process should be (or would be) to assume party discipline and limit the yolk to attitudes in the majority. Sadly, events proved me right.

Chapter 7 is about Healthcare Reform. Key factors in health outcomes are a history of systemic racism that just does not exist in other G-7 nations or in the social Democratic countries with generous health and education programs. This also leads to obesity as SNAP makes buying soda rather than milk essential.

In comments to Senate Finance arlier this year on drug prices, I proposed having the government retain the rights to orphan and high cost drugs and contract out testing and development and manufacturing programs, eliminating much of the risk to PhARMA and their ability to charge high drug prices.

We do need to change the incentives for health care spending before we become a chronically ill nation of patients. The GOP solution that even they won't touch makes the best microeconomic sense. Give everyone catastrophic care (you can even do it by single-payer) with employers providing either comprehensive to worthy employees, health savings accounts to most of us and nothing to the working poor, although they may collect an insurance payout when they die from lack of care. I wish that were a joke. A medical line of credit paid for by employees would give us a better cage, but because healthcare is not a normal good, do nothing for high costs, especially in the last year of life.

The neo-liberal answer is Obama care, which was the GOP plan until it had Obama's name on it. There is no policy reason for them to behave so. It is all racism. The only reason the Dems went with it was to embarrass the GOP by making them reject their own plan. GOP corrections were quietly included, although they still voted no.

A public option, which would have required even higher FICA surtaxes in the wealthy or a payroll tax (or VAT) to fund would have been better, especially if mandates were repealed (as they were under the TCJA), as well as universal coverage. This would have led to single payer, especially if all of Medicaid were part of the public option, if not Medicare too. Eventually, and probably quickly, the pool of uninsureables increases with insurance company profits. Eventually, single payer would result as only healthy people would be insured in the private market.

Hillarycare was simply the public option with HMOs for everyone. Medicare for All is simply another step. My Medicaid is an HMO. Even with single payer, third party payment would live on in contracted out claims processing.

The answer is single-payer funded by a subtraction VAT which would include a carve out for employers who provide superior care or equal care with their own doctors and specialist/hospital arrangements. This would make the responsible pay or and payee interests identical and give them the actual incentive to reduce cost and the ability to do so.

Health care cost is a misnomer. Providers are constantly cutting cost to increase profit. The real problem is health care price. This will only be lowered by company provided direct care, more hospitals (especially the almost extinct public ones), or by regulating monopoly pricing of health insurance and hospitals as public utilities.

Chapter 8 is about Saving Social Security. My reform proposal on th tax side, in brief is on the employer side of FICA, take over all DI and SI for non-retirees and all HI taxes. Credit OASI employer contributions equallyand VAT fund to tap profit as well as payroll and eliminate caps. Lower employee cap to decrease benefits to the rich and put in a floor. Raise VAT enough to compensate. Use S-VAT if insured accounts holding employer voting stock are included. Use a GST if not. I have written to much about how to use Social Security Personal Accounts to bring about cooperative Socialism to repeat here. Like many, Bill disagrees with the premise but has not yet considered the promise.

Chapter 9 is about investing in people.

My key to doing that is using a subtraction VAT (S-VAT) to fund a larger per child tax credit, as well as healthcare and remedial education.

Since the market won't do what is needed, the government must. Give each child $1,000 a month as an offset to an S-VAT and demographics improve and the abortion issue goes away, putting another stake in the chest of the GOP (which has no heart to puncture). Sadly, the TPC model would need a major upgrade to estimate this. If you have to change your model, you have to put me on a panel to explain why. Volume 2 of my Collected Comments contains multiple submissions on Social Security and Income Security. Cooperative employers will fund university education and R&D. A little S-VAT can go a long way.

Chapter 10 is about Investing for Growth and Security.

When the bridge to nowhere was cancelled, the road to nowhere had already been built. It turns out that both were part of an overall plan, which is essential in frozen Alaska, to link the town to its airport on an island. This would end the need to take the ferry. It is cheaper to clear a bridge than break the ice. Once the snow stops, no more removal is necessary. Not so with ice breaking. The ignorant battle against the bridge was political theater. The earmark was a way to bypass departmental policy and do projects where national and local government, including the DOT, are on the same page. Doh!

In the future, roads should have a good with cars connecting to it for power and control (so much for using DUI for intervention). Local cooperative employers will pay for the projects in lieu of taxes, including power generation and distribution to homes. The roofs will be grass covered to absorb the sun and rain and stop the snow (retractable walls. Solar panela are a trend. Car makers may or may not be part of the project through interlocking ownership. Whether these are funded through use or as a cooperative resource is up to the worker owners. Any 30 year infrastructure plan should take into account the next 30 year's of social progress (which will be partially funded by redirecting S-VAT revenue to ownership).

Worldwide ownership will of it a crimp on the DoD Budget (unless you are prefunding civil war). Instead, research and procurement will be converted to space and ocean exploration, colonization and designing and building the self-supporting of the future, and not just in the US.

Trains should be part of this. Not funding trains and low gas taxes (much of which can be funded with a GND Carbon VAT).

The next 100 year's will be as different as 100 years ago. Dream that big, not in increments.

Instead of an infrastructure bank, the Fed will provide credit, insurance and management consulting services to employee owned cooperatives, although the trade may be in standard labor dollars instead of currency. Woe to the billionaires and those they fund. This assumes we let the Fed survive. Given their ownership by the banks, that may not be a valid assumption.

Without profit taxes there will be no federal tax breaks. You cannot exempt VAT for one person's labor and profit and not others.


In the interim, defense spending will be split between domestic regionally based VAT funding and overseas funding by income surtaxes, again, with a transition to space and habitat development. This will be quickly privatized through use by employee owners. VA costs may or may not be split.

Chapter 11 is Taxing People. I don't believe the Reagan cuts were enacted as advertised. Starve the beast was never as much the goal as starve the poor so that they will serve the rich and to allow the rich mire monopoly money (until their toxic junk is sold to the middle classes before it collapses. It seems like we need to go back to a class tax.

If you look at total debt and the fact that it is 13 times income tax collections, then the wealthy 1% are in hock to the rest of us to the tune of 7 Trillion dollars (yes, with a T). It is even more if only the top 25% must pay the surtax. Of course, a fair share of that will be paid by the A-VAT (until employees own everything) and at which point there will be no billionaire CEOs. Before then, the rich will need to pay back or redistribute the debt globally (although I am sure most of the Tera-rich have a U.S. Tax ID number). The 75% to 99% strata owe $9T, with the lower 75% owing $2.5T. See the jpg.

As you see, Obama left too few people paying adequate income tax. He should have raised taxes on the top ten, not the top two percent. We can fix that.

Tax expenditures are a feature, not a flaw. Without them, rates would be lower but social costs will be higher for some. It needs to be managed. The 20% rates are too low. 26 is a lovely number. 30 better still. This should also be the A-VAT rate. It should be high enough so that owners would want to sell to qualified ESOPs to avoid the tax.

Average growth does not exist. Democratic administrations generally have a flat 3% rate, Republicans go up and down with more volatility and a lower average growth rate.. We can raise the average by never again electing a Republican MAGA may make that happen.

VAT is used for family subsidies. The lower US taxes reflect lack of rate of Tariff effects implicit with VAT. Lower marginal rates give us rent seeking (which controls inflation)  and subsidizes asset inflation, not GDP. Only growth in real productive capital is part of GDP.

For the record. I beleve that Reagan's chief economist was not correct. (Hope it wasn't you). I could use stronger language having to do with equine anatomy.

The predictor of growth is not taxes. The only financial measure relating fiscal policy and GDP is Deficit/surplus net of net interest as a % of GDP lagged one year to account for multiplier effects. Too much in tax cuts fuels speculation. Since any real assets need no outside finances, the cuts went to mortgage backed securities and NYMEX. Regulation in 2007 crashed NYMEX and MBS could not cover the loss because they were simply BS.

Tax expenditures holp the economy. At best, cutting taxes on the rich boosts the premium market and subsidizes asset inflation.

TR86 was a cut in marginal rates which increased rent seeking. It made things worse but it did give us a permanent baseline.

Fiscal policy, especially tax policy, determines how income income is organized, especially when you include contracting, tax expenditures and multiplier effects. The question is, do like the status quo? If not, by how much?

Chapter 12 is Taxing Business. It seems that it contains some form of intellectual property export tax. Exports cannot be taxed. Period.

If wages are only taxed through VAT the exemption make that labor tax free. Sales by charities should always pay vat, but the svat should only tax wages of non-profits and charities (except sale). Financial firms would be taxed the same way but also be subject to the asset VAT. Medical purchases would be VAT taxed, both GST and SVAT.

VAT could also be collected by states and remitted to federal government.

Chapter 13 is about Carbon Taxes. Carbon taxes should be explicit so they do not cascade. That should include energy used to make and transport products. Calling them a VAT makes them receipt visible. They should be high enough to both fund research in fusion and incentivize it's use. If VAT would be otherwise used to fund discretionary environmental spending, then a C-VAT should be offset with a lower GST.

The way to get a C-VAT passed is go threaten direct industrial intervention, which should still be forced when possible.

In the end, higher taxes may be an incentive to work more to preserve current consumption. It is why need cooperative socialism to shift to private social services to take that incentive away. That is not as radical as it seems.