Securing the Nation’s Fiscal Future

House Budget, Investing in America's Economic and National Security, February 17, 2019
Senate Budget, The Budget Control Act: A Review of Cap-Adjusted Spending, February 27, 2019
Senate Budget, Fixing a Broken Budget and Spending Process:  Securing the Nation’s Fiscal Future,  June 26, 2019

We have based these remarks on our previous comments and our response to the final report of the Joint Select Committee on Budget and Appropriations Process Reform. They reflect what I published in my book, Musings from the Christian Left in 2004 and which I transmitted to the House Budget Committee in September of 2011 and June of 2016 and to the Senate Committee in October 2011 and to this Joint Select Committee in July.

The federal budget process is broken. It must be replaced with a new budget process that allows for agreement on broad issues and a continuation of government while the details and controversies at the programmatic level are worked out. The solution must include incentives to keep the process moving.

To achieve compromise earlier, we recommend that a permanent Joint Budget Committee draft the JBR to be enacted by a date certain to avoid reverting to the budget caps. This will provide both expedited process and likely early involvement of the White House, who would release detailed appropriation requests only after the JBR is passed. A two-year budget process is suggested to assure the process is completed on time.

The JBR would trigger automatic appropriations at the beginning of the fiscal year, with detailed appropriation marks at the same proportionate levels as the current services budget. If no JBR is passed, then the marks in the Budget Control Act of 2011 would have the same force, allowing automatic appropriations in the same manner. This tie to the BCA is not meant to be used and it should not be if the Congress operates bipartisanly under effective leadership. If that leadership breaks down, however, the government absolutely must have a backup procedure.

As the Committee knows, the BCA marks were devised to avoid a self-inflicted debt limit crisis and to conform to baseline requirements to fund making the tax cuts in the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003 permanent for all but the richest 2% of households. There was no appetite for making detailed tax and spending fixes that would raise revenue from wealthier taxpayers. A quirk in baseline calculations allowed the prior tax cuts to expire and be reinstated for the bottom 98% under the American Taxpayer Relief Act of 2012. In 2017, the Tax Cut and Jobs Act was passed with no concern for long term balance, which was reinforced by the Balanced Budget Act of 2018.  The TCJA expires, in part, in 2025. BBA 2018 expires at the end of this fiscal year.

JSC Co-Chairman Lowery commented in her opening statement on November 15th that the Budget Control Act of 2011 marks are too low and that this leads to the inability to pass appropriations bills.

Automatic appropriations 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.

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 are on record predicting that enactment of the Tax and Job Cuts Act (not a typo) will restrict wages and cause other labor cost savings so that executives can cash in on the lower tax rates by earning higher bonuses, so that any economic gains (and growth could come faster) would be from deficit spending. While some companies gave very visible bonuses for the 2017 Christmas holidays, they did not also increase salary levels noticeably. Productivity has made huge gains but wages have not, mostly because employers have a market advantage in the down economy, which is good for CEOs and donors, but bad for the nation.

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

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?

We should do so sooner rather than later. This should be possible when the realignment that began last November is completed in 2020 (if not sooner). At that point, taxes should go up to a level that will allow any new spending baseline adjustments to be made permanent.

The Benefits of Immigration

House Budget, Building A More Dynamic Economy:  The Benefits of Immigration, June 26, 2019

Our history as a nation is full of instances where immigrants and the conquered, both among the First Nations and the Mexican people, have been treated as second class citizens. 

In many quarters, they still are. It was only in 1955 when Mexican Americans were recognized as deserving protected status in Hernandez v. Texas, with undocumented children recognized as deserving a free public education in Plyler v. Doe in 1982. As a matter of course, the returns on both grazing fees and extraction are still slow in coming to First Nation bank accounts and often at less value than they could get on their own. 

We have a long way to go in dealing with the rights of minority Americans in our society. These same efforts need to be applied in dealing with migrants of all national and ethnic backgrounds. Recent pronouncements from the White House, sometimes encouraged by one of the President’s closest aides, are leading us in the wrong direction. It is hoped that the representatives in these cases will seek both civil and criminal contempt citations to end the journey backwards, so that we may finally begin to move forward. If our detention facilities are harmless, let Mr. Miller spend some time enjoying public hospitality within them for however long it takes for legal asylees to have their cases processed.

But enough grandstanding on my part; the question before this Subcommittee is not only that the Administration is wrong, but why and how it can be remedied. The option is not and never has been whether immigration occurs, but how it does. Our current regimen rewards the trafficking of migrants for the personal gain of what can only be called private slaveholders (although I suspect that some undocumented migrants are made to work while in detention, albeit under the table, making such servitude public.

While trafficking victims are entitled to legal status as a remedy for their abuse, it seems to be the exception, rather than the rule. This is especially true for those trafficked into the sex trade. In many jurisdictions, sex workers are treated as criminals rather than victims themselves with their owners developing symbiotic relationships with law enforcement, rather than workers at all levels receiving intervention for addiction and atavistic behavior. Health people simply do not pimp.

In some industries, particularly food production, harvesting and processing labor that would only be sustainable through a collective bargaining agreement is performed at the threat of deportation and sanctions from law enforcement for those who leave prior the payment of their indentures. Union membership and open migration (or at least NAFTA visa status equivalent to that extended to our Canadian neighbors) will assure fair pay and worker safety.

The conditions cited in what is supposed to be a modern society are allowed to occur because individually and collectively, we life cheap food and cheapened relationships. I ask, did you enjoy your morning orange juice, sausage and eggs this morning? Maybe you should not. I am sure that is not the benefit of migration the Subcommittee wanted to hear, but it must do so. 

Remedies to such situations would increase the cost of living for some, but would provide both economic and social benefit for all workers and strata of society. Worker solidarity would ease social resentment for all those of all ethnicities, increase economic wellbeing and remove a stain that should have been cleaned long ago. 

Our public debate has been cheapened by resistance to the changes we all know are necessary. In this day and age, that we must even mention ending human bondage as a benefit of legal migration is sickening. That an immigration deal in 2010 that would have improved the situation, albeit with more punitive measures than necessary, was scuttled because the question of birth-right citizenship was raised from out of nowhere shows corrupted our polity as become. That a second-rate real estate mogul gained the presidency by fanning related racial animus is a national tragedy. 

The internal politics of the Republican Party is likely permanently damaged by this tragedy. Nativists, industries that benefit from human bondage and those who would end it fight for the soul of the party. That the opposing, now majority, party has used this partisan fratricide for cynical political gains, as evidenced by the debate in this House on daring a vote to adopt a highly punitive immigration bill that should never have passed the other body shows that there is plenty of blame to go around.

Now that I have vented my spleen about how both sides and the American people have benefited from dysfunction, let us talk solutions.

Renegotiate the proposed U.S.-Canada-Mexico Agreement to give Mexican citizens the same visa rights as Canadians.

End federal sanction to enact right-to-work laws.

End the requirement for current undocumented workers to possess current legal status, allowing them to apply for whatever status they would otherwise be entitled to given their circumstances. Note that the requirements to attain citizenship will still require considerable effort, even with what is admittedly amnesty. 

Grant equal amnesty to those who, upon a well-funded comprehensive investigation, would likely face criminal prosecution, if not extradition for human rights violations (I am only shading this a bit). Until we admit that we, as a society, have benefited from the evils of human bondage, no progress can be made in righting the wrongs mentioned above.

I apologize to those who were seeking the usual saccharin tales of foreign students and H-1B holders making creating the next big App or providing nursing care to an aging Baby Boom. We simply have bigger fish to fry.

Members Hearing on SALT Impact

Ways and Means , Subcommittee on Select Revenue Measures, Members’ Day Hearing focused on the recent changes made to the  federal tax treatment of state and local taxes, June 25, 2019

Next week we present our views on the SALT deduction and why it may be more a crisis for donors than for state and local government. Please allow us to turn the tables and provide questions to ask members who testify before the subcommittee this afternoon. Feel free to circulate these to your colleagues in advance of the hearing. 

Did your state or local governments increase tax rates after the Great Recession in order to maintain service levels as property values decreased? 

What was the result of doing so or not doing so? 

Have services been cut in your state or region since the passage of the TCJA? 

Have property values increased or decreased since passage, in line with the general trend nationwide? 

Has your state or local government increased income taxes to claw back tax cuts given to high-income taxpayers by the TCJA? 

Have higher income residents been selling or abandoning their residences in your district or state in order to seek lower tax jurisdictions? 

Have state and local office holders felt donor pressure to reduce income and property tax rates since the limitation of the SALT deduction took effect? 

Have you or fellow members been feeling the heat? 

If tax reform shifting most current funding of domestic civil, military and entitlement spending to consumption taxes, would you favor having any surtax on income be relatively free of deductions? (note that an asset VAT for the same purpose would only be offset for sales to a qualified Employee Stock Ownership Plan). 

Please see the Attachment regarding our debt crisis. Does this information change your mind about reinstating the SALT to its former levels? 

Mexico’s Labor Reform

Ways and Means, Subcommittee on Trade, Mexico’s Labor Reform:  Opportunities and Challenges for an Improved NAFTA, June 25, 2019

That labor reform has occurred in Mexico is good news for those of us who resist comprehensive trade as a means to give American consumers a better deal, while simultaneously taking American jobs and benefiting from the abuse of overseas workers without such rights. Indeed, such developments are everything the current Administration insists it is for, but has only lucked into because of the efforts of career civil servants. I am sorry for the cynicism, but it seems to be justified.

As we commented just last week to the full committee, trade negotiations have taken on the character of economic gunboat diplomacy, but without the Navy. These occur because the President is ill equipped by his background as a businessman to work cooperatively, which is the essence of governance in a free society. He has a freer hand in trade negotiations. 

Sadly, his experience as a CEO has not served the nation well. The modus operandi of most executives is to break things in order to be seen fixing them.  This must stop. The public is not amused, including the Chamber of Commerce, farmers and the stock and commodity markets...NAFTA negotiations and its successor, as well as similar free trade agreements are an example of this. The Trans-Pacific Partnership was one such effort, but it was derailed by presidential politics on both sides. In trade, what is good politics is often not good economic policy.

 This is not to say that there are not fundamental issues that need to be addressed in current and future agreements. We have reservations in matters having to do with the U.S.-Mexico-Canada Agreement.  We have previously expressed concerns about Chapter 19 Tribunals and their effect on extending sovereignty to industrial oversight and to the disparate treatment of Mexican migrants when compared to Canadian NAFTA visa holders. 

From last week’s comments, Canadian (including refugees from Hong Kong) and American citizens can immigrate for one year (renewable) on a NAFTA visa. Mexican workers cannot. This is purely racism. 

Progress in Mexican labor relations mitigate, but does not remove, these concerns, nor do they solve the problems undocumented migrants face, particularly on the southern border. Please see Attachment One with our comments for tomorrow’s Budget Committee hearing about how migrants improve the economy (through their bondage). It is a bitter pill.

Labor reform will take the pressure off of migration, although that is now the case already. Mexican workers who can join a Union in Mexico and not in so called right-to-work states will face an easier choice to stay home. We hope that this will lead manufacturers in such states to rethink their positions on organized labor and American labor unions to seek expansion into these states and to link with Mexican unions in solidarity. This may increase prices for some goods, particularly food, but it will increase wages even more, particularly among lower wage workers. We have suffered under a two-tier economy for too long, with undocumented workers suffering the most of all.

 As a more union-based economy progresses on both sides of the border, the desire for more workplace democracy through employee ownership, as well as for solidarity between domestic and overseas workers, including joint multi-national ownership of what are now internationally based capitalist firms. Tax reform can certainly facilitate expanding ownership when actual worker control, rather than simply a change in management at the top, evolves.

 We will not spend time on our tax reform proposals except to say that our proposed subtraction VAT could have a huge impact on long term trade policy, probably much more than trade treaties, if one of the deductions from the tax is purchase of employer voting stock (in equal dollar amounts for each worker).  We will repeat these comments from last week in Attachment Two regarding trade and Attachment Three regarding the benefits of Employee Ownership.

Harm from Recent Limitations to the SALT Deduction?

Ways and Means, Subcommittee on Select Revenue Measures, How Recent Limitations to the SALT Deduction  Harm Communities, Schools, First Responders, and Housing Values, June 25, 2019

Before learning how limitations on SALT deductions harm communities, schools, first responders and housing values, we must first determine if they do or not.  This all depends on whether local jurisdictions feel that they cannot increase, or worse feel that they must decrease, their tax rates in response to the recent tax reform (which we assure you, we are no fans of, as we demonstrate in the Attachment).

In the recent Great Recession, some states kept services at current levels and others were forced into deep cuts until they agreed to increase property tax rates to account for lower housing values, leaving revenue static and keeping services in place. To assume that the loss of the SALT deduction through higher standard deductions for some and their reduction for others is to assume that America Legislative Exchange Council member governments were correct in not wanting to increase property tax rates. Again, this is not the case.

In 1998, the Washington, D.C. Financial Management Authority commissioned a study to determine if wealthy taxpayers would flee if their income taxes were increased. The study found that they did not. Future Mayor Anthony Williams pushed back efforts by certain Members of the Council seeking to lower taxes to take into account the District’s renewed financial health as the result of federal legislation relieving the District of pension liabilities for public safety and educational professionals and certain other state functions. No one left.

No one will leave the high tax states where taxpayers (who are also donors, as they were in the District) no longer have access to the SALT deduction. I cannot imagine leaving an apartment in Midtown Manhattan or a mansion in the Hamptons or Kings Point, etc., just because a tax cut was lost. I can imagine the same taxpayers asking for special consideration to keep political donations flowing to local officials, who are more dependent on such contributions due to less attention to their down ballot offices.

The Tax Cut and Jobs Act likely lowered tax burdens for most of the higher income SALT deduction users. I could not foresee such a tax bill leaving any millionaire behind. Rather than figuring out how to revisit the issue of lower deductibility, Congress should consider increasing these tax rates. Until then, states should have no qualms in increasing tax rates for those who benefited from the TCJA. 

If state income tax rates are relatively flat at higher income levels, states should create higher rates for such income ranges. Indeed, some states have. Rather than jumping on a SALT repeal bandwagon, they should imitate those who have clawed back federal tax cuts and especially those who have increased tax benefits for families after having done so, as should the Ways and Means Committee.

Real comprehensive tax reform (rather than the faux reforms of the TCJA) could end this problem by shifting funding of domestic military, civil and entitlement spending to a menu of consumption taxes (both invoice and subtraction/net business receipts), while a high income and dividend surtax and an asset VAT fund overseas, strategic and sea deployments (which are usually debt funded), net interest and debt repayment. Attachment Two provides further information on how tax reform would work. 

Lest we forget, we have a problem with long term debt. Restoring tax breaks to high income local taxpayers will not help this. Attachment Three from our book, The Future is Calling: It Wants a Refund, shows why this is important and who debt reduction will benefit most. Unless people start buying my books en masse, it will not be my daughter, but it will likely be the children and grandchildren of members of Congress and especially their donors.

Budget Lessons from States

Senate Committee on the Budget, Fixing a Broken Budget Process: Lessons from States, Wednesday, June 19, 2019

Our budget process reforms have been transmitted to both Budget Committees and the JSC more than once. They reflect what we transmitted to the Joint Select Committee on Budget and Appropriations Process Reform in July 2018 and to this committee on February 27th of this year (which is included in an attachment).

As any political science graduate and former member knows, State legislatures have limited sessions, almost always mandated by state constitutions. At the end of these sessions, the clock is unplugged or its batteries are removed, usually to finish appropriations for the upcoming fiscal year. If the legislature is gridlocked, a special session or even a series of such sessions is called to finish these bills, usually before the start of the new fiscal year on July first. Budget balance requirements, automatic reductions and a line item veto decrease delays, with a scheduled session to review item vetoes.

States can also rely on federal block or categorical grant funds to both control taxes and dictate the amount of revenue required.

City and county grants can also be reduced, although this invites retaliation by local political committed who may support primary or general election challengers.
Methods used by Congress, from year ling sessions to a series of continuing resolutions, are not required. Some states have biennial budgeting. The Congress is currently experimenting with this tool, which was recommended by the JSCBAPR.

A summary of our previous comments to this Committee on February 24th to responding to their proposals is attached. Our proposals include automatic appropriations and an increased control period with higher appropriation levels until 2025, when the temporary provisions of the TCJA expire.

Attachment - The Budget Control Act: A Review of Cap-Adjusted Spending, Wednesday, February 27, 2019

Economic Realities of Struggling Families

House Budget, Economic Realities of Struggling Families, June 19, 2019
WM Subcommittee on Worker and Family Support, Leveling The Playing Field For Working Families, March 7, 2019

Sadly, we have actually gone backwards from the original testimony provided in May 2016. Families are working harder for less money when adjusted for inflation.

The most important factor in leveling the playing field is an adequate wage for work.  Ideally, this should come from a higher minimum wage, which puts the burden on employers and ultimately customers for fair pay, rather than a tax support for low wage workers (regardless of parental status).

The market cannot provide this wage, as there will always be more desperate employees who can be taken advantage of to force wages lower for everyone else.  A minimum wage protects those employers who would do the right thing by their employees if not for their competitors.

A $15 per hour minimum wage is currently being demanded by a significant share of the voters.  Perhaps it is time to listen.  If the marginal productive product of these employees is more than this rate, job losses will not occur – of course, the estimates of this product can be easily manipulated by opponents who believe that managers provide much more productivity than people who actually work, so such estimates should be examined critically.  Internally, people usually have the correct number, but are loathe to share it if doing so hurts their political point.

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

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

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

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

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

Some employees require college educations to advance.  The first two years of college would be grouped with the last two years of high school and would be provided by the state (including parochial high school and college), by employers directly or through a third party provider or through contributions to a public or private school.  Students would receive a stipend and both tuition and stipend would be fully creditable against the NBRT.  Labor provided as a supplement to the employer would be fully taxed as other value added.  After the second of school, employees would be paid for the remainder of college and graduate school along the same lines as vocational training.

Aside from higher base wages and training, the best way to keep families out of poverty is to give them enough money.  None other than Milton Friedman suggested a negative income tax and both Republican and Democratic presidents have enacted and expanded the Earned Income Tax Credit and the Child Tax Credit. Attachment One is our revised Tax Reform Proposal which addresses these proposals and how they relate to overall reform. Tax reform in the last Congress is a key factor in keeping worker wages static. See Attachment Two for our now oft repeated analysis of the law.

Employee-ownership is the ultimate protection for worker wages.  Our proposal for expanding it involves diverting an every-increasing portion of the employer-
It is in our power to make low wage work and family poverty a thing of the past.  Indeed, doing so is the primary reason the Center for Fiscal Equity was created.  We are not proposing hand-outs but a hand up with adequate rewards for taking it. Please see Attachment Three for more on Employee Ownership.

China’s Belt and Road Initiative

Senate Finance, Subcommittee on International Trade, Customs, and Global Competitiveness
China’s Belt and Road Initiative, June 12, 2019

News reports on this project indicate that China's partners in this endeavor are adopting more authoritarian means to quell dissent. Where, in the American system, the government will provide compensation for land seizure, I doubt that current residents receive compensation, assuming they held title in the first place.

Like the Slave Power in the antebellum South, even speaking out against the project is not allowed. This is an extension of the despotism of Chinese state capitalism. While recent events in China have the appearance of a free market, the reality is that Party Members are at the Center of most enterprise.

This is not terribly different than the progress of economic and political freedom in the Global North of the Western World. While a Marxist revolution has never occurred in a Marxist state, a Marxian analysis (not the elevator speech that Stalin and Mao implemented), society moves forward in largely predictable ways.

Aristocracy (or Party) brings about industrialization under a capitalistic despotism, which includes militarism and imperialism. As the peasantry is forced into slave like conditions in urban factories, they soon acquire skills and savings. Eventually, they demand civil and union rights, which their capitalist masters resist until a consumer surplus is required to match the labor surplus, usually because production exceeds worker income.

Marx posited that this would lead to a boom-bust cycle. We now know that this cycle actually helps the working class, so unionization, social and political democracy exist, despite capitalist resistance. Indeed, it is often the fear of socialism that forces concessions, thus delaying revolution.

Marx was not familiar with how public spending and debt control the business cycle, as opposed to imbalances in production and consumption. Keynes got close and Hayek and von Mises thought that the cycle was a healthy thing, yielding both innovation and removing failed enterprise. Their contention was that aiding failed enterprise let recession linger, the hindmost be damned.

This dynamic still plays out in our polity, where discredited supply side tax cuts fuel a boom bust cycle, while neo-liberal regimes increase taxation to remove excess savings, asset inflation and speculation in questionable investments and channel funds to activities that actually result in increase gross domestic product.

The other alternative is deficit spending, which also limits asset inflation, et al, channeling tax cuts toward bond sales. This usually includes high military spending and the need for global hegemony to justify it.

The current example of this dynamic is the recovery, which really took off when President Obama successfully forced Speaker Boehner and Leader McConnell to accept higher taxes on the savings sector and when the ironically named Balanced Budget Act of 2018 ate the liquidity produced by the Tax Cut and Jobs Act if 2017.

A more robust recovery would have resulted save for neo-liberal limitations on transfer payments, which could be destabilizing to capitalism, as the rise of the Democratic Socialism among the Millennial generation demonstrates. The drive toward employee ownership and cooperatives is another trend toward a more socialistic economy, not by rage but by arbitrage.

This has everything to do with China and the Belt Road. One possible future is that expanding Chinese militarism will face American Hegemony in the same way that emerging Japanese and German militarism (both of which occurred in states with a vigorous industrial middle class) clashed with British and American imperialism, leading to the Second World War (or the Great Patriotic War as it was and is known in Russia – which has replaced political imperialism with economic imperialism and private capitalist and political corruption which would have made Nelson Rockefeller and Boss Tweed proud). Knowledge can help us to avoid another super-power conflict, at least for now. Nuclear weaponry adds some urgency toward finding another alternative.

Resisting the evolution of China will no more work than attempts to preserve our imperialism in the Pacific against Japanese expansion, which was ended through nuclear blackmail (and without an adequate arsenal of such weapons, we were bluffing) and the extension of hegemony absorb Germany and Japan, expanding of late into Eastern Europe, as well as recent wars in the Middle East and South Asia. We have reached our limit and China will anti them, thanks to their new silk road and belt.

At some point, inevitable economic and political change will overcome Chinese authoritarianism. Until them, deterrence, rather than conflict is essential. Indeed, continuing engagement helped bring the Soviet empire to its knees. This is also something we should try in Cuba.

Creating demand for our goods will have Chinese workers and workers in their new client states demand more, leading to either evolution or revolution. It will not be perfect, but neither is the American system, which depends on undocumented labor from the Global south (often with slave-like conditions replacing violence with threats of deportation) and exploitative contracts with farmers to keep food growing and processing cheap.

Oddly, the best alternative is more democracy and ownership in the American workplace. To protect themselves from job loss from their own supply chain and subsidiaries, such firms will assure that overseas workers have the same standard of living and workplace democracy that they enjoy, thus subverting authoritarianism in the Global South and East. Change in American companies cannot come from governmental action.

American workers must seek this for themselves, starting with the cooperative and employee owned sector. As this evolves, personal accounts in Social Security owning employer voting stock will accelerate workplace democratization, which is a measure that this Committee could enact, along with the Subtraction VAT that we have long suggested in our previous comments. In this way, real American cooperative socialism can overcome Chinese state capitalism, which is both faux socialism and faux free market rolled into one.

Attachments: Tax Reform, Employee Ownership

Attachment – The Budget and Appropriations Process

The federal budget process is broken. It must be replaced with a new budget process that allows for agreement on broad issues and a continuation of government while the details and controversies at the programmatic level are worked out. The solution must include incentives to keep the process moving.  To achieve compromise earlier, we recommend that a permanent Joint Budget Committee draft the Joint Budget Resolution (JBR) to be enacted by a date certain to avoid reverting to the budget caps. This will provide both expedited process and likely early involvement of the White House, who would release detailed appropriation requests only after the JBR is passed. A two-year budget process is suggested to assure the process is completed on time.

The JBR would trigger automatic appropriations at the beginning of the fiscal year, with detailed appropriation marks at the same proportionate levels as the current services budget. If no JBR is passed, then the marks in the Budget Control Act of 2011 would have the same force, allowing automatic appropriations in the same manner. This tie to the BCA is not meant to be used and it should not be if the Congress operates bipartisanly under effective leadership. If that leadership breaks down, however, the government absolutely must have a backup procedure.

As the Committee knows, the BCA marks were devised to avoid a self-inflicted debt limit crisis and to conform to baseline requirements to fund making the tax cuts in the Economic Growth and Tax Relief Reconciliation Act of 2001 and the Jobs and Growth Tax Relief Reconciliation Act of 2003 permanent for all but the richest 2% of households. There was no appetite for making detailed tax and spending fixes that would raise revenue from wealthier taxpayers. A quirk in baseline calculations allowed the prior tax cuts to expire and be reinstated for the bottom 98% under the American Taxpayer Relief Act of 2012. In 2017, the Tax Cut and Jobs Act was passed with no concern for long term balance, which was reinforced by the Balanced Budget Act of 2018.  The TCJA expires, in part, in 2025. BBA 2018 expires at the end of FY 2019.

JSC Co-Chairman Lowery commented in her opening statement on November 15th that the Budget Control Act of 2011 marks are too low and that this leads to the inability to pass appropriations bills. Automatic appropriations 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 2030 so that budget passage is assured through the next presidential term.

Attachment Debt

Attachment - Debt, The Future is Calling: It Wants a Refund, 2019

In the future we face a crisis, not in entitlements, but in net interest on the debt, both from increased rates and growing principal. This growth will only feasible until either China or the European Union develop 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.

While it is good to run a deficit to balance out tax cuts for the wealthy, both are a sugar high for the economy. At some point we need incentives to pay down the debt.

The national debt is possible because of progressive income taxation. The liability for repayment, therefore, is a function of that tax. The Gross Debt (we have to pay back trust funds too) is $19 Trillion. Income Tax revenue is roughly $1.4 Trillion per year. That means that for every dollar you pay in taxes, you owe $13 in debt (although this will increase).

People who pay nothing owe nothing. People who pay tens of thousands of dollars a year owe hundreds of thousands.

The answer is not making the poor pay more or giving them less benefits, either only slows the economy. Rich people must pay more and do it faster. My child is becoming a social worker, although she was going to be an artist. Don’t look to her to pay off the debt. Your children and grandchildren and those of your donors are the ones on the hook unless their parents step up and pay more. How’s that for incentive?

If that is not enough, let’s talk raw numbers.
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.

Attachment Employee Ownership

Attachment – Employee Ownership from Improving Retirement Security for America’s Workers, Center for Fiscal Equity, June 6, 2018

In the January 2003 issue of Labor and Corporate Governance, we proposed that Congress should equalize the employer contribution based on average income rather than personal income. It should also increase or eliminate the cap on contributions. The higher the income cap is raised, the more likely it is that personal retirement accounts are necessary. A major strength of Social Security is its income redistribution function.

We suspect that much of the support for personal accounts is to subvert that function – so any proposal for such accounts must move redistribution to account accumulation by equalizing the employer contribution.

We propose directing personal account investments to employer voting stock, rather than an index funds or any fund managed by outside brokers. There are no Index Fund billionaires (except those who operate them).

People become rich by owning and controlling their own companies. Additionally, keeping funds in-house is the cheapest option administratively. I suspect it is even cheaper than the Social Security system – which operates at a much lower administrative cost than any defined contribution plan in existence.

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

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

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

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

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

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

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

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

The new Majority should not run away from this proposal to enact personal accounts. If the proposals above are used as conditions for enactment, we suspect that it won’t have to.

The investment sector will run away from them instead and will mobilize the next version of the Tea Party against them. Let us hope that the rise of Democratic Socialism in the party invests workers in the possibilities of employee ownership.

Pathways to Universal Health Coverage

House Budget, Establishing a Single-Payer Health Care System, May 22, 2019
Ways and Means, Pathways to Universal Health Coverage, June 12, 2019

These comments will include the need for a single-payer solution, three ways to provide universal coverage, funding issues and other considerations. Attachments will include repeated comments previously provided to the budget and revenue committees.

That there should be a single-payer program is obvious from the logic of social insurance. While there is an element of personal responsibility for some conditions, others are due to bad luck in the genetic lottery, also known as picking the wrong parents or bad Karma.

This is an issue with patients with mental illness and alcoholism (both of which, for this writer, came from an adrenal tumor that was not found until 45 years after symptoms presented – too late to arrest the resulting diseases), congenital heart disease and bad cholesterol, type I diabetes and most cancers.

There is not logic in rewarding people with good genes and punishing those who were not so lucky (which, I suspect, is most of us). Nor is there logic in giving health insurance companies a subsidy in finding the healthy and denying coverage for the sick, except the logic of the bottom line. Another term for this is piracy. Insurance companies, on their own, resist community rating and voters resist mandates – especially the young and the lucky. As recent reforms are inadequate (aside from the fact of higher deductibles and the exclusion of undocumented workers), some form of single-payer is inevitable. See attachment one for more on Surprise Medical Bills from yesterday’s hearing in the Ways and Means Health Subcommittee.

There are three methods to get to single-payer, a public option, Medicare for All and single-payer with an option for cooperative employers.

The first to set up a public option and end protections for pre-existing conditions and mandates. The public option would then cover all families who are rejected for either pre-existing conditions or the inability to pay. In essence, this is an expansion of Medicaid to everyone with a pre-existing condition. As such, it would be funded through increased taxation, which will be addressed below. A variation is the expansion of the Uniformed Public Health Service to treat such individuals and their families.

The public option is inherently unstable over the long term. The profit motive will ultimately make the exclusion pool grow until private insurance would no longer be justified, leading-again to Single Payer if the race to cut customers leads to no one left in private insurance who is actually sick. This eventually becomes Medicare for All, but with easier passage and sudden adoption as private health plans are either banned or become bankrupt. Single-payer would then be what occurs when

The second option is Medicare for All, which I described in an attachment to yesterday’s testimony and  previously in hearings held May 8, 2019 (Finance) and May 8, 2018 (Ways and Means). Medicare for All is essentially Medicaid for All without the smell of welfare and with providers reimbursed at Medicare levels, with the difference funded by tax revenue.

Medicare for All is a really good slogan, at least to mobilize the base. One would think it would attract the support of even the Tea Partiers who held up signs saying ”Don’t let the government touch my Medicare!” Alas, it has not. This has been a conversation on the left and it has not gotten beyond shouting slogans either. We need to decide what we want and whether it really is Medicare for All. If we want to go to any doctor we wish, pay nothing and have no premiums, then that is not Medicare.

There are essentially two Medicares, a high option and a low one. One option has Part A at no cost (funded by the Hospital Insurance Payroll Tax and part of Obamacare’s high unearned income tax as well as the general fund), Medicare Part B, with a 20% copay and a $135 per month premium and Medicare Part D, which has both premiums and copays and is run through private providers. Parts A and B also are contracted out to insurance companies for case management.

The other option is the Medicare Advantage (Part C) HMO. You pay a premium and copays, but there is much more certainty, while ABD are more like a PPO, but costs can go much higher. So much higher that some seniors and the disabled get Medicap coverage for the copays. Which is high and which low, I am not sure. They are both now managed care.

Medicaid lingers in the background and the foreground. It covers the disabled in their first two years (and probably while they are seeking disability and unable to work). It covers non-workers and the working poor (who are too poor for Obamacare) and it covers seniors and the disabled who are confined to a long-term care facility and who have run out their assets. It also has the long-term portion which should be federalized, but for the poor, it takes the form of an HMO, but with no premiums and zero copays.

Obamacare has premiums with income-based supports (one of those facts the Republicans hate) and copays. It may have a high option, like the Federal Employee Health Benefits Program (which also covers Congress) on which it is modeled, a standard option that puts you into an HMO. The HMO drug copays for Obamacare are higher than for Medicare Part C, but the office visit prices are exactly the same.

What does it mean, then, to want Medicare for All? If it means we want everyone who can afford it to get Medicare Advantage Coverage, we already have that. It is Obamacare.  The reality is that Senator Sanders wants to reduce Medicare copays and premiums to Medicaid levels and then slowly reduce eligibility levels until everyone is covered. Of course, this will still likely give us HMO coverage for everyone except the very rich, unless he adds a high-option PPO or reimbursable plan.

Either Medicare for All or a real single payer would require a very large payroll tax (and would eliminate the HI tax) or an employer paid subtraction value added tax (so it would not appear on receipts nor would it be zero rated at the border, since there would be no evading it), which we discuss below, because the Health Care Reform debate is ultimately a tax reform debate. Too much money is at stake for it to be otherwise, although we may do just as well to call Obamacare Medicare for All and agree to leave it alone.

The third option is an exclusion for employers, especially employee-owned and cooperative firms, who provide medical care directly to their employees without third party insurance, with the employer making HMO-like arrangements with local hospitals and medical practices for inpatient and specialist care.

Employer-based taxes, such as a subtraction VAT or payroll tax, will provide an incentive to avoid these taxes by providing such care. 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 or Medicare for All. Making employers responsible for most costs and for all cost savings allows them to use some market power to get lower rates.

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. The employee-ownership must ultimately expand to most of the economy as an alternative to capitalism, which is also unstable as income concentration becomes obvious to all.

The key to any single-payer option is securing a funding stream. While payroll taxes are the standard suggestion, there are problems with progressivity if such taxes are capped and because profit remains untaxed, which requires the difference be subsidized through higher income taxes. For this reason, funding should come through some form of value-added tax.

For the past eight years, we have had a standard plan with four elements followed by explanatory paragraphs. The following is a different presentation with the same concepts. Future testimony will include this presentation as an appendix. Let us first define terms and acronyms.

Individual payroll taxes. These are optional taxes for Old Age and Survivors Insurance after age 60 (or 62). Their collection tax occurs if an income sensitive retirement income is deemed necessary for program acceptance, otherwise they will be included in the S-VAT. The ceiling should be lowered to reduce benefits paid to wealthier individuals and a floor should be established so that Earned Income Tax Credits are no longer needed. Subsidies for single workers should be abandoned in favor of radically higher minimum wages.

Income Surtaxes. Individual income taxes, which exclude business taxes, above an individual standard deduction of $50,000 per year. It will include initial cash distributions from inheritance (except those from the sale of estate assets, see below). This tax will fund net interest on the debt (which will no longer be rolled over into new borrowing), redemption of the Social Security Trust Fund, strategic, sea and non-continental U.S. military deployments, veterans’ health benefits as the result of battlefield injuries, including mental health and addiction and eventual debt reduction.

Asset Value-Added Tax (A-VAT). A replacement for capital gains taxes and the estate tax. It will apply to assets held for a longer period of time, exercised options, inherited assets and the profits from short sales. Tax payments for option exercises and inherited assets will be reset, with prior tax payments for that asset eliminated so that the seller gets no benefit from them. In this perspective, it is the owner’s increase in value that is taxed. Free assets to the seller will be counted as such. As with any sale of  liquid or real assets, sales to a qualified broad-based Employee Stock Ownership Plan will be tax free. These taxes will fund the same spending items as income or S-VAT surtaxes. This tax will end Tax Gap issues owed by high income individuals.

Subtraction Value-Added Tax (S-VAT). These are employer paid Net Business Receipts Taxes that allow multiple rates for higher incomes, rather than collection of income surtaxes. They are also used as a vehicle for tax expenditures including healthcare (if a private coverage option is maintained), veterans' health care for non-battlefield injuries, educational costs borne by employers in lieu of taxes as either contributors, for employee children or for workers (including ESL and remedial skills) and an expanded child tax credit.

The last allows ending state administered subsidy programs and discourages abortions, and as such enactment must be scored as a must pass in voting rankings by pro-life organizations (and feminist organizations as well). An inflation adjustable credit should reflect the cost of raising a child through the completion of junior college or technical training. To assure child subsidies are distributed, S-VAT will not be border adjustable.

The S-VAT is also used for personal accounts in Social Security, provided that these accounts are insured through an insurance fund for all such accounts, that accounts go toward employee-ownership rather than for a subsidy for the investment industry. Both employers and employees must consent to a shift to these accounts, which will occur if corporate democracy in existing ESOPs is given a thorough test. So far it has not.

Regardless, S-VAT funded retirement savings will be credited equally for every worker, which allows for funding both the current program and personal accounts and lessens the need for bend points in benefit calculations. It also has the advantage of drawing on both payroll and profit, making it less regressive.

Invoice Value-Added Tax (I-VAT) Border adjustable taxes which show up on purchase invoices. The rate varies according to what is being financed. If Medicare for All does not contain offsets for employers who fund their own medical personnel or for personal retirement accounts, both of which would otherwise be funded by an S-VAT, then they would be funded by the I-VAT to take advantage of border adjustability. I-VAT also forces everyone, from the working poor to the beneficiaries of inherited wealth, to pay taxes and share in the cost of government. Enactment of both the A-VAT and I-VAT ends the need for capital gains and inheritance taxes (apart from any initial payout). This tax would take care of the low income Tax Gap.

I-VAT will fund domestic discretionary spending, disability and survivors insurance (which will no longer be tied to income and shall be raised to the increased minimum wage rate and adjusted for inflation), and OASI employer contributions if personal accounts are not enacted and non-nuclear, non-deployed military spending, possibly on a regional basis. Regional I-VAT would both require a constitutional amendment to change the requirement that all excises be national and to discourage unnecessary spending, especially when allocated for electoral reasons rather than program needs.

As part of enactment, gross wages will be reduced to take into account the shift to S-VAT and I-VAT, however net income will be increased by the same percentage as the I-VAT. Adoption of S-VAT and I-VAT will replace pass-through and proprietary business and corporate income taxes.

Carbon Value-Added Tax (C-VAT). A Carbon tax with receipt visibility, which allows comparison shopping based on carbon content, even if it means a more expensive item with lower carbon is purchased. C-VAT would also replace fuel taxes. It will fund transportation costs, including mass transit, and research into alternative fuels (including fusion). This tax would not be border adjustable.

The enactment of single-payer insurance raises the following concerns, most of which are addressed above. They are the funding of a public option, the funding of health care for veterans, which will replace Tri-Care and the funding of battlefield injuries, which may or may not be shifted to private care – but the latter must be medically indicated and done only with the consent of the veteran so served.

Timelines are also concerns. Medicare for All be done gradually by expanding the pool of beneficiaries, regardless of condition. Relying on a Public Option will first serve the poorest and the sickest, but with the expectation that private insurance will enlarge the pool of those not covered until the remainder can safely be incorporated into a single-payer system through legislation or bankruptcy.

Tax reform would also be phased in. Minimum wages and the asset VAT would happen first. All else will follow.

Celebrating Fathers and Families: Federal Support for Responsible Fatherhood

Subcommittee on Worker and Family Support,  June 11, 2019

These comments include our a portion of our comments to the subcommittee from March of this year and September 2017 and May 2016, as well as  new tax reform proposals. We addressed the need for both a higher minimum wage and the need to advance employee ownership for all workers, including fathers and mothers. We would never ignore these factors.

At the outset, we must recognize that some fathers face major league pitchers while others are born on third base. Add bad inner city schools and endemic racism, including and especially in the criminal justice system, which sends black men to jail while white middle class men get treatment and you can see why many men distrust the government as a solution to their problems.

It is time to quit criminalizing disease and using prosecutorial discretion to punish low level dealers into cooperation. Legalization will end the ability to traffic in substances that could be sold openly, although for the hardest drugs, hospitalization for abuse should be mandatory and require long-term treatment, not just detoxification. Men with mental health conditions are also more likely to be jailed then helped. It is time for that to stop, which will take less money but better management.

Many men, young and old, have applied for jobs and have been denied. Hiring managers are, therefore, the first line of examination as to whether an unemployed worker, men of color or ex-convicts are able to find work, regardless of any legal protections designed to protect their employment rights. These protections must be strengthened with criminal penalties. Maybe that will cause a paradigm shift on who gets hired.

A key factor in keeping wages low is decades of tax policy designed to control inflation, bust unions and increase the salaries of the donor class. A key part of our agenda is to increase income tax revenue from the very wealthy through income taxes and an asset value added tax.  The higher the marginal tax rate goes, the less likely that CEOs will go after worker wages in the guise of productivity while pocketing the gains for themselves.

The Costs of Climate Change: Risks to the U.S. Economy and the Federal Budget

Ways and Means, Economic and Health Consequences of Climate Change,May 15, 2019
House Budget, The Costs of Climate Change: Risks to the U.S. Economy and the Federal Budget,  June 11, 2019
Energy Taxes from September 2012, December 2012, and June 2016

Carbon tax advocates propose subsidies to the poor, however the best route for  is a subtraction VAT with offsets paid to individual workers and their families. Plutocrats will not agree to it unless the alternative IS government actions, not just requirements but temporary seizure and government cleanup, paid for by the polluters themselves.

The most basic step to at least get wealthier taxpayers on board (including the upper-middle class) is to cap flood insurance benefits to a level where beach houses properties  can no longer be insured. Even that small step could never be enacted. Too many donors have beach houses.  Our economic system is the problem. Until we move to something more cooperative, the well-off will turn their economic power into political power.

Without a technical solution, (like fusion, which Koch et all are slow rolling) all the incentives in the world will not stop plutocrats from stopping every attempt at regulating emissions unless people start dying from the air, as they are in China and did in Pennsylvania from the smog. The river had to be actually burning in Cleveland before anything was done. Expect no less, which is why the hurricanes are coming in handy now.

Polluters will only accept carbon taxes as an alternative to direct regulation. Indeed, if we dropped fuel efficiency standards and imposed carbon taxes instead, I suspect that car makers and the energy industry would jump on board. Of course, some level of regulation, like some level of social welfare, helps save business owners from themselves. Indeed, one need only remember the smog that blanketed Beijing during their Olympics to see what happens from minimal regulation.

 A carbon tax will likely not fix Chinese pollution, but I bet that if real abatement were demanded, the Party-Industrial Complex and its American enablers would jump on it. Of course, their worst nightmare is a carbon tax enforced on the carbon they release in China in making goods for export, including coal. Worse yet for them would be international air quality standards, although to date sovereignty stops at the border while capitalism does not. This allows Americans to benefit from dirty Chinese air. Until the air is universally clean, excess carbon dioxide looks like a mere fad.

 Any income remediation would also need to cross borders, because we benefit from their pollution and any loss of Chinese worker income from carbon or pollution taxes. Either way, an American value added tax with a carbon add-on could be useful as well as subtraction VAT/Net Business Receipts Taxes to distribute family income supplements, which are more essential than simply offsetting carbon or pollution taxes. The time is past for us to buy cheaper goods here while the children of Chinese peasants (both in industry and on the farm) suffer.

 We have updated the four-part tax reform plan, which now includes a carbon tax or Carbon Value Added Tax (for greater visibility). Our treatment of energy taxation are included in Attachment One.

Foreign Threats to Taxpayer Funded Research

Committee on Finance, Foreign Threats to Taxpayer – Funded Research:  Oversight Opportunities and Policy Solutions, June 5, 2019

We will leave the security analysis and proposals to the named witnesses testifying in Executive Session except to say that their proposals will not work. Foreign hackers are too good and their manufacturers too corrupt not to steal any funded technology with a mod and a wink from their governments. This is especially the case if the result is manufactured there. Big PhARMA is as craven as their foreign counterparts. 

The answer is to co-opt China and other nations, giving them a role in helping with the research. Indeed, some diseases originate there, so it is stupid not to include them. They will then have an incentive to go after any rogue manufacturers or hackers (except for their help in running the data). 

In January of this year we submitted comments regarding Drug Pricing in America. We argued in favor of having every drug approval disclose all government supported research used to develop the product, giving the sponsoring agency the right to both share in the profits and have a say in the pricing. This both keeps the research dollars flowing and limits cost. 

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

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

The Government can include the relevant provisions on the government’s owning and licensing the results and granting manufacturing concessions in any agreements with foreign agencies, especially for orphan diseases. Of course, adding all of Asia to the potential market makes it more likely that any investment will yield a profit.