Tax Reform One Pager

Attachment  - Tax Reform 

Individual payroll taxes will continue to fund Old Age benefits and survivors’ insurance for retired spouses. This retains a link between salary level and benefits. A floor of $20,000 per year eliminates the need to file a separate EITC, along with an increased minimum wage.  A ceiling of $75,000 per year reduces benefits for upper-income individuals. With an asset VAT, post-retirement income tax filing is eliminated.

Invoice Value-Added/Goods and services taxes (I-VAT) fund discretionary military in the continental U.S., discretionary civil spending and entitlement spending that cannot be transferred to an employer paid tax credit, including the employer contribution OASDI for existing retirees, a subsidized public option or single-payer catastrophic. Employer OASI and DI contributions would be credited on an equal dollar basis, rather than linked to income. I-VAT would be zero rated for exports and fully burdened on imports. The latter could also be funded by the asset VAT (decreasing the rate by from 19.5% to 13%).

Carbon VAT (C-VAT) provides more visibility than a carbon tax, so that consumers can make more informed choices about their carbon footprint. It would replace fuel taxes and fund environmental research and enforcement, mass transit and infrastructure.

Subtraction value added taxes (S-VAT) are a non-border adjustable vehicle to distribute tax benefits to employees and their families, including an expanded refundable child credit distributed with pay; health insurance for workers and retirees, savings accounts and Tri-care; stipends and tuition from ESL to grade 14; and personal retirement accounts credited on an equal dollar basis, holding shares of employer voting and preferred stock and an insurance fund holding stock in all such firms. TANF/SNAP programs will be eliminated

High Salary Surtaxes above an individual standard deduction of $75,000 per year, with rates from 6% to 36%. Surtax, multi-tier S-VAT and A-VAT fund net interest, redemption of FICA Trust Funds, strategic, sea and non-continental U.S. military deployments, veterans’ health benefits for battlefield injuries, and further debt reduction. A multi-tier S-VAT could replace surtaxes in the same range. Transferring OASDI employer funding from existing payroll taxes would increase the rate but would allow it to decline over time. So would peace.

Asset Value-Added Tax (A-VAT) at 24% or 20% of price replaces individual filing on income from capital gains taxes, stock option exercise, rental property, estates and gifts, dividends, pass-through income and interest. Taxes are collected at sale or distribution. Sales to qualified broad based ESOPs remain zero-rated. Payments for option exercise, inherited and gifted assets will be at market rate with no credit for prior taxation. 

Before rates are adjusted, Table 3 allows us to look at how collections might be impacted by these proposals. Salaries and wages for 70% of taxpayers would go away and, with FICA taxes, be collected through the I-VAT, C-VAT and S-VAT.  The top $5 trillion in salary would be subject to income tax. The bottom $2.5 trillion in salary and wages would be shifted. The A-VAT pick up taxation of interest ($105.7 billion), ordinary dividends ($215.5 billion), capital gains subject to preferential rates ($992.4 billion) and pass-through taxes from partnerships and Chapter S corporations ($832.6 billion). Add 3% to the rates paid on this income (14% tax increase).

CBO Budget and Economic Outlook 2020

House Budget, CBO Budget and Economic Outlook, January 29, 2020

Please allow us to provide our own forecast for the near and long term economies. It is a synthesis of many of our recent comments.

Our comments on November’s hearing on Reexamining the Economic Costs of Debt noted that spending aggregates are fairly stable over time, which is why it is so hard to cut the budget by following this path. Most of the volatility is in tax policy. When taxes are increased, the budget deficit goes down. When they are cut, the budget deficit increases.

When Republicans control tax policy, tax cuts result in higher savings and lower wages for the non-CEO class (again, as explained in Attachment One). The only way to keep consumption going is to keep the economy moving is to borrow as much as taxes are cut, plus the cost of net interest rolled over into further debt. After this point, increased spending is necessary for increased growth.

The reason the economy continues to grow is increased spending. Dealing only with spending cuts harms the general population, leading to a slower economy. Indeed, any spending cuts must be avoided. If anything, secular stagnation is an endemic issue because low marginal rates on high income CEOs invites the rent-seeking we warned about in 2017. This can be remedied by tax increases, a higher minimum wage and increased transfer payments and salary levels.

When Democrats control fiscal policy, taxes on the wealthy go up. This not only fuels the economy with increased spending, but it extracts money from savings for consumption directly, rather than through bond markets (at interest). Because spending is mostly stable (most increases are simply catch up spending), a GDP growth rate of around 3% results.

These findings on the relationship between parties and economic growth follow from a study we shared with the Ways and Means Committee Hearing on Economic Models Available to the Joint Committee on Taxation for Analyzing Tax Reform Proposals on September 21, 2011.

Our independent variable is what we call the financial margin, where the financial margin is the deficit/surplus added to outlays for net interest, all expressed as a percentage of Gross Domestic Product (GDP) and regressed onto growth in real GDP in the next year, removing inflation from the analysis.

We have updated our analysis since our 2011 comments, which were shared at the time with CBO and the Joint Tax Committee (as these comments will be).

There are two models for the Obama years. From the depths of the Great Recession until the passage of the American Taxpayer Relief Act, the Bush era tax rates on the rich remained in force, so that running large deficits was required to produce economic growth. After ATRA was passed, the curve pivoted and lower deficits led to higher growth. The Obama conditions lasted until the passage of the Tax Cut and Jobs Act. Deficits are roaring back. There are not enough observations since passage to plot a curve, however it appears that spending money into the economy us having the desired effect.

In our standard budget process attachment, which we included in our comments earlier this month on Why Federal Investments Matter: Stability from Congress to State Capitals, we reminded the Committee if why it is important to keep spending high while lower taxes in high incomes are in effect.

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.

Earlier this year, Congress enacted the Bipartisan Budget Act of 2019. Like BBA18, BBA19 keeps spending up to keep money in circulation rather than in savings. As we stated a year ago in our comments about the economic outlook,

BBA18 helped, but not enough to prevent the kind of asset speculation that always ends up badly. Our remarks from last year are sadly prescient. There are storm clouds in the horizon. I doubt that the CBO is aware of them.

As we stated a few weeks ago, as well as in comments from September,

A recession is inevitable because tax cuts and monetary policy are fueling asset speculation while fiscal policy is not. 

The current speculative toy is crypto-currency, especially Bitcoin. Bitcoin is starting to attract poor people. Coin collection machines now allow being paid in Bitcoin rather than in store credit or cash. Criminals also love it too. It is being sold as a way to invest and grow rich. There is even a fancy name for it: quantum finance.

Dealer claims that Bitcoin has big rises and smaller crashes simply proves the point that we are dealing with a legal Ponzi scheme. When the top of the food chain cashes out and everyone else realizes that they own a worthless product.

In the current bond market, properties that have been seized in foreclosure have been purchased with private equity and are so heavily leveraged that they cannot be sold until the holding company files for bankruptcy in the next Great Recession. See Homewreckers: How a Gang of Wall Street Kingpins, Hedge Fund Magnates, Crooked Banks, and Vulture Capitalists Suckered Millions Out of Their Homes and Demolished the American Dream by Aaron Glantz, who should be called to testify.
https://www.amazon.com/dp/0062869531/ref=cm_sw_r_cp_apa_i_tYx2DbD133ZR7

The C-SPAN Book TV discussion with Mr. Glantz will give the committee a heads-up on what such testimony would include. See https://www.c-span.org/video/?465567-1/homewreckers

The long and short of it is that many now have to rent or own leveraged properties. Our absentee landlords have cashed out and left others to bled us dry. They essentially own us because we have to work harder and longer to have a place to live while those who have cashed out live in gated and high-end assisted living communities. In the last year, Exchange Traded Funds have been all the rage. Who wants to bet on where the latest pool of junk is hiding?

We suggest holding hearings as soon as possible to deflate this cancer before it kills the economy.

We also have a long-term debt problem, primarily because taxes in the wealthy have been cut too much. As we wrote in our comments to the November 2019 hearing in the Debt, spending cuts are not the answer.

Cutting current discretionary or entitlement spending simply makes the problem worse. Both of these increase consumption in the same way that tax cuts fund the savings and speculation sector. Plant and equipment still follows from expected sales (consumption), not the cost of credit.

The way to increase growth beyond average is to increase federal and contractor wages and transfer payments, especially the latter. The recipients spend most of the money. Eliminating welfare as we know it under President Clinton helped balance the budget, but cutting capital gains taxes created the tech bubble and the resulting recession. Lower transfer payments made the recovery that much harder.

The answer cannot be shifting liability down or claiming that we owe debt on a per capita basis. It is raising taxes enough so that the debt is reduced and incomes for most households are increased.

To sell a tax increase on high incomes (or wealth, for that matter), we must make the wealthy want to pay more. They won’t do so to fund Medicare for All, the Green New Deal or to decrease abortion by increasing the Child Tax Credit. They will do so to get their children and grandchildren out of hock.

These comments are repeated in our latest paper on the debt, Squaring and Setting Accounts: Who Really Owns the National Debt? Who Owes It? Additional comments in the debt and guaranteeing payment of obligations to the generation now retiring can be found in Attachment One.

We are not without solutions. Our tax reform plans, which can be found in Attachment Two, provide more money to families with children, while a higher minimum wage for both work and education from ESL and adult remedial education to technical certification and junior college through our Subtraction Value Added Tax proposal.

Again, from two weeks ago, the other circuit breaker in a recession is increased income taxation on the wealthy. Recessions do not happen, as Marx and Schumpeter posited, from overproduction or a business cycle. They come about because the wealthy have received tax breaks which encourage asset inflation and questionable investment (often with an assist from the Federal Reserve so that such investments may be migrated to Main Street). Higher income tax rates take money from the savings sector so that the consumption sector can recover (even without government subsidies).

Higher taxes on the wealthy are beneficial to the economy, now and in the next recession, because they take money out of asset inflation in the savings sector and can then be used to increase spending on the elements of GDP: government purchases, household consumption, net exports and plant and equipment investment (which is not part of asset speculation, as supply side economists falsely assert).

Acting sooner rather than later will save working and middle-class families another round of pain.

Attachment One – Excerpts from Squaring and Setting Accounts: Who Really Owns the National Debt? Who Owes It? - December 2019
Attachment Two – Tax Reform, Center for Fiscal Equity, September 13, 2019

Paving the Way for Funding and Financing Infrastructure Investments

Ways and Means, Hearing on Our Nation’s Crumbling Infrastructure and the Need for Immediate Action, March 6, 2019
House Budget, America’s Infrastructure: Today’s Gaps, Tomorrow’s Opportunities, and the Need for Federal Investment, September 25, 2019

Ways and Means, Paving the Way for Funding and Financing Infrastructure Investments,  January 29, 2019 

Our comments rely on my experience as a program analyst in the District of Columbia Office of the City Administrator. The City Administrator is an ex officio member of the Chief Financial Officer’s capital projects operations.

Our comments include our usual four part tax reform plan, which can be found in our prior submissions, although it has been modified to fund the Green New Deal (GND).

This proposal now includes a Carbon Value Added Tax as part of our proposal for a VAT/Goods and Services Tax. The CVAT would fund discretionary aspects of the GND, thus reducing the need to fund these activities with a GST. The CVAT may or may not subsume gasoline tax, which is the primary funding source for highway infrastructure.

The Net Business Receipts/Subtraction Value Added Tax (SVAT) would fund any income redistribution to families (which is also part of the GND). The Income and Inheritance Surtax would fund any reimbursement to the Highway Trust Fund, in the event it ever contains a long-term positive balance.

For most states and localities, infrastructure is funded with federal fuel taxes, state fuel taxes, tolls and property taxes for neighborhood roads. Many states have increased their  fuel taxes to fund infrastructure deficits. States that belong to the Legislative Exchange Council are less likely to take this step, which is perilous. Our federal system allows states to mess themselves up, so we will not address this problem except to say that states who do not charge adequate taxes do not deserve an extra subsidy from federal funds because of their folly.

In the short term, tolls could be considered for states who will not responsibly increase their fuel taxes. The nature of these projects preclude their adoption on a national basis.  Their  use  is hardly universal. Local High Occupancy Toll or HOT lanes are created using local entrepreneurs, however are virtually empty most of the time.

HOT lanes have become transportation for the wealthy, leaving the working class to deal with the crowded main highway system. While HOT lane providers do upgrade the infrastructure to adjacent lanes as well, their rush hour pricing and general disuse will not maintain public favor for long. These roads may help fund immediate infrastructure deficits, their pricing structure may not return promised revenue, which will end their  usefulness.

The use of income taxes, wealth taxes or our income and inheritance surtax may be used against separate short-term borrowing, which is how HOT lanes are financed, with these funds guaranteeing the debts if projects fail to achieve revenue goals, so backstopping such projects with taxes on the wealthy is justified, but it should not be the normal way of funding this aspect of the GND, which should provide adequate infrastructure funding for everyone.

As the title of this hearing emphasizes, our need is urgent. Bridges are about to start tumbling down according to the reports of most highway engineers. It is amazing that more have not collapsed.

For the present, the answer must be higher fuel taxes. They must also remain a direct excise rather than a proportion of fuel prices because prices vary from state to state. This would violate Article I, Section 8's prohibition requiring equal national excise taxes, although individual states could explore the idea. Regardless, the coalition for a higher national excise collapsed long ago, causing our infrastructure crisis.

The reason for this collapse is the end of earmarking. The late Senator John McCain (God rest his soul), was a driving force in the elimination of this funding tool, while Congressman Bud Schuster was its champion.

Earmarks lost favor because of the bad publicity on Alaska's Bridge to Nowhere, which was necessary to reach a vital airport destination. Ironically, the road to the bridge was built and became the road to nowhere because it was part of the overall plan. Governor Sarah Palin's lack of courage in defending the project led to the downfall of earmarks and the coalition for higher fuel excise taxes.

Earmarks simply codified agreements by the local members of Congress and the Senate, the Federal Highway Administration and state and local government to plan specific projects rather than leave their planning solely up to the Department of Transportation. Without these constituencies, the natural constituency for higher fuel taxes could not hold out against general anti-tax sentiment. In essence, government stopped doing its job to represent the interest of society rather than its vocal anti-tax minority.

Bring back earmarks and projects will go forward and fuel taxes can be raised with little heartburn.

Like HOT lanes, local road funding also has a race and class bias, with higher income neighborhoods often getting better roads due to the linkage of road repairs to property tax levels. This reflects the general inequality in society.

Reducing general equality is beyond the scope of this crisis, although it will solve our infrastructure problem in the long term. Establishing personal retirement accounts holding index funds for Wall Street to play with will not help. Accounts holding voting and preferred stock in the employer and an insurance fund holding the stocks of all such firms will, in time, reduce inequality and provide local constituencies for infrastructure improvements and the funds to carry them out.

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

ESOP loans and distribution of a portion of the Social Security Trust Fund could also speed the adoption of such accounts. Our Income and Inheritance Surtax (where cash from estates and the sale of estate assets are normal income) would fund reimbursements of the Trust Fund.

Employee-owned firms could fund local infrastructure in neighborhoods which are located adjacent to their facilities and would join with neighboring cooperative firms to own both local utilities and build improved smart highways. Such highways would be controlled by a central computer, provide electricity and control to operate vehicles through an overhead deck (with different roadways for trucks) and would be funded by payroll lines of credit or employee spending accounts. They would essentially be HOT lanes for everyone.

State and local governments, as well as automobile manufacturers, would be partners in these consortia and would trade stocks and bonds with other consortium members as their stake in these enterprises. These will be the ultimate earmarks.

Paid Family and Medical Leave

Ways and Means, Paid Family and Medical Leave: Helping Workers and Employers Succeed, May 8, 2019
Ways and Means, Legislative Proposals for Paid Family and Medical Leave, January 28, 2020

The issue of leave is just the start of reform, not it’s end.

Paid family leave is standard in the industrialized world. Whether this is required by law or subsidized through tax supported subsidies, this is an essential subsidy for all families. Indeed, even without provisions for family emergencies, some form of paid time off for holidays, leisure or illness is essential for both individuals and society as a whole.

Sick leave is especially essential to prevent the spread of disease. Unless one argues that it is ultimately good for the population to catch minor illness to build immunity, once a worker or their child falls ill, having to work while ill can be torture.

Paid leave is an essential element of human dignity for all workers. One class of employee, permanent full-time workers, both professional and blue collar union members, receive these benefits, as well as health care and retirement. The remainder do not. While some contract workers can afford to budget for these needs, especially those professionals with multiple clients, they are usually professionals who have very marketable skills. Other employees are covered through their parents who have such benefits. Their ability to eat and receive care is not contingent on employment, although some families depend on their labor to survive.

The standard excuse is that contract workers chose their work circumstances and are responsible to budget for leave, time off and the payment of income and payroll taxes. The reality is that most contract workers, whether they contract directly with a client or through a staffing company, are paid less than their co-workers where they should actually receive a higher wage to cover their benefit costs.

Often, these workers are entitled to full-time employment, but enforcement is non-existent. The government, both state and federal, are part of the problem, sometimes intentionally. The same is true of wage and hour, civil rights, workplace safety and fair housing law is likewise unenforced.
Any enforcement usually requires private tort relief and those who are entitled to relief have no access to legal counsel. Hiring the manpower to actually enforce existing rules would likely keep everyone who wants a job employed. Sadly, this joke falls flat with most workers because the joke is on them, even regarding finding work for our glut of law school graduates.

This is compounded by “PRETALIATION.”  Those who sue get a reputation for demanding their rights, so they cannot find further employment. They might as well be considered disabled, as are many who are fired for cause. This treatment applies to federal applicants and employees as well. Again, the government is part of the problem.

Allowing states to enact right-to-work laws also compounds these difficulties, as union power generally implies fair pay, benefits, working conditions and due process. As I have commented previously to this Committee, the last 40 years have seen retrenchment in union and employee rights, subsidized by marginal income tax rates that rewarded the new wage slavery by letting the CEO class keep their booty and kick back a share in campaign donations and assistance from non-profit “experts.”

None of this is new. The Old Testament prophets and Jesus himself laid the blame for Israel's troubles on those who ignored the cry of the poor and the call to reform. The reality probably has as much to do with location (and no, this is not an invitation to the acolytes of Henry George to weigh in).
Conditions have been worse and have been justified by the reactionary same nonsense that claims that in the end, the market will sort everything out. Keynes would respond that in the long run, we are all dead. Let me add that one should not have to wait to die for a day off. Marx would agree. For the market to work, there must be both perfect information and no barriers to entry or exit, no black lists, no private salary information. No such luck.

Information sharing and reprisal, while inconvenient here, can be fatal in some Central American nations. Just ask the White House about the problem of immigrants streaming toward our borders. Blame unfettered capitalism, not the cartels. Indeed, the cartels would be out of business save for client American capitalism, drug criminalization and immigration restriction. To close the circle, those most affected by the lack of family leave are undocumented workers. They are unlikely to enjoy the proposed benefits because they cannot safely complain when they are denied. That is the reason they are imported and hired in the first place.

The free market will never supply the proposed benefit. To do so may lead to a better workforce in some industries, but most employers fear that such gains will be offset with loss of market share to lower priced competitors, or that if benefits are shifted from management to employees, it will lose key talent to competitors, especially at top levels.

Let me assure these employers that giving executives too much money helps executives, not shareholders or other stakeholders. Ask anyone whether this nation is better off with such a one as our President. Those not afraid of a reactionary primary challenger will say no if they are being honest.

The perception that doing the right thing makes a business non-competitive is the reason we enact minimum wage laws. Because the labor product is almost always well above wages paid, few jobs are lost when this occurs. Higher wages simply reduce what is called surplus value, and not only by Marx. Any CFO who cannot calculate the current productive surplus will soon be seeking a job with paid family leave. If such leave is required by law, he may find one. The requirement that this be provided ends the calculation of whether doing so makes a firm non-competitive because all competitors must provide the same benefit. This applies to businesses of all sizes. If a firm is so precarious that it cannot survive this change, it is probably not viable without it.

The low wage economy does benefit from the lower prices that may result from them, but a two tier economy is abhorrent in modern society. Indeed, higher wages, benefits and subsidies provide a bigger bang for the buck than is lost to the donor class. Indeed, the rich will likely see higher profits when more people have more money, although they may find it harder to obtain cheap household labor.

No one on either side of this debate is surprised by any of this information, although most of us should be shamed by it because we are informed and have done nothing. Paid family leave is a necessary baby step and will be hard enough to pass because there are reactionaries who believe suffering lifts people out of poverty, as long as they suffer no tax cuts or lose any opportunities to invest in speculative garbage.

This cannot be where it ends. Low marginal tax rates that encourage the CEO/Donor class to extract economic rent from workers must increased to reverse this long term trend. Without such extraction, all workers would have shared in the technology revolution of recent decades. Indeed, much of the cost cutting experienced of late is the result of increased use of low wage touch labor, not automation. Union rights must be restored and enforced by the Department of Labor. Making it business friendly has been disastrous for workers. Existing protections must be robustly enforced. If they are not, the people who need paid family leave will not receive it.

In the long run, moving to more employee and cooperative ownership (and consumption) will end the need for required benefits. Democratic ownership and control will simply produce better and more humane decisions and industry self-regulation will put the brakes on any who do not.

We have written about the benefits of getting to employee ownership and how to bring it about. Our Net Business Receipts/Subtraction Value Added Tax proposal can be both a vehicle for benefits, including paid family leave (if you have it, your tax rate is lower), an expanded child tax credit which will help families achieve an adequate income and broad based and equally earned employee ownership. Our prior comments can be found in an attachment.

Our newest feature is an Asset Value Added Tax paid by the buyer and collected by the broker, rather than relying on the income tax for collection of capital gains taxes (which increases the tax gap dramatically). No prior value added tax will be credited for inherited assets or options exercised, although the current ESOP sale tax exclusion will remain in place. This will decrease speculation and increase employee democracy. It is a feature, not a flaw.

Attachment – Retirement and Family Income and Employee Ownership
Improving Retirement Security for America’s Workers, Wednesday, June 6, 2018

Why Federal Investments Matter

House Budget, Why Federal Investments Matter:  Stability from Congress to State Capitals,  January 15, 2020

Federal support for highways and pollution control is would be funded with our proposed carbon VAT (for receipt visibility for more informed consumer choice) and our attachment on infrastructure. The key to making such taxes adequate, aside from recognizing the inelastic nature of gasoline prices, is to bring back “pork barrel” spending. We repeat previous material provided to the committee on infrastructure in March of last year in Attachment One. 

Some states receive support through military impact aid. Support for Native Americans is also important, although the biggest support for them may be in taking government out of the equation, allowing them to deal directly with extraction and ranching interests. Too much money has been lost to them in translation. It is racist to infer that they cannot manage these affairs themselves or that ranching interests need a buffer to do so. 

We have attached excerpts from our recently released paper on the debt, Squaring and Setting Accounts: Who Really Owns the National Debt? Who Owes It? These include comments previously submitted to the budget and revenue committees on our tax reform plan and the national debt.  

Our main tool in providing for human services is an employer-paid subtraction value added tax. This levy would be used more to channel tax expenditures to employees rather than through categorical or block grants. The most important feature is an expanded refundable child tax credit, which would be distributed with pay and set to provide income at middle class levels.  

The S-VAT could be levied at both the state and federal levels with a common base and tax benefits differing between the states based on their cost of living (which would be paid with the state levy). The federal tax would be the floor of support so that no state could keep any part of its population poor, including migrants. It is time to end the race to the bottom and its associated war on the poor. 

The S-VAT will also facilitate human capital expenditures, with credits to support tuition, wages and benefits for low-skill workers from ESL and remedial education to apprenticeship. These benefits can be used in cooperation with existing workforce investment boards, community colleges and economic development agencies.  

Private education providers should also be included in the mix, including and especially the Catholic education system. Blaine Amendments need repeal, opposition to unions ended and a focus on non-collegebound students encouraged. 

Medicaid for senior citizens and the disabled is a huge contingent liability for some states. In his New Federalism proposals, President Reagan offered to assume these costs in exchange for state funding of all other federal support. The first half of this proposal should be implemented in the form of a new Medicare Part E with no requirement for local funding.  

The remainder of health costs would be paid through employer subsidies to low-wage trainees, as described above through an S-VAT, with state goods and services taxes (invoice VAT) covering cash, food and health benefits for unattached non-workers until they can be placed in the appropriate employment or disability program (including substance abuse intervention). 

Increasing the general wage level, through higher minimum wages, will remove workers from poverty. The concept of being a member of the working poor should be banished from the national conversation with an eventual $20 minimum wage for both employment and training program participation, starting with $15 immediately. This wage level should adjust for inflation automatically. The best support for state budgets is to make sure that everyone is trained up to their potential. 

Tax credit support for families is a better recession circuit breaker than waiting for the Congress and state legislatures to act, although increasing the child tax credit (which should be inflation adjusted) is the best way to provide immediate stimulus, as do higher Food Stamps (which would be mostly repealed by a higher CTC).  

The other circuit breaker in a recession is increased income taxation on the wealthy. Recessions do not happen, as Marx and Schumpeter posited, from overproduction or a business cycle. They come about because the wealthy have received tax breaks which encourage asset inflation and questionable investment (often with an assist from the Federal Reserve so that such investments may be migrated to Main Street). Higher income tax rates take money from the savings sector so that the consumption sector  can recover (even without government subsidies). 

Higher taxes on the wealthy are beneficial to the economy, now and in the next recession, because they take money out of asset inflation in the savings sector and can then be used to increase spending on the elements of GDP: government purchases, household consumption, net exports and plant and equipment investment (which is not part of asset speculation, as supply side economists falsely assert). Again, please see Attachment Two. 

A recession is inevitable because tax cuts and monetary policy are fueling asset speculation while fiscal policy is not. The current speculative toy is crypto-currency, especially Bitcoin. Bitcoin is starting to attract poor people. Coin collection machines now allow being paid in Bitcoin rather than in store credit or cash. Criminals also love it too. It is being sold as a way to invest and grow rich. There is even a fancy name for it: quantum finance. 

Dealer claims that Bitcoin has big rises and smaller crashes simply proves the point that we are dealing with a legal Ponzi scheme. When the top of the food chain cashes out and everyone else realizes that they own a worthless product. 

In the current bond market, properties that have been seized in foreclosure have been purchased with private equity and are so heavily leveraged that they cannot be sold until the holding company files for bankruptcy in the next Great Recession. See Homewreckers: How a Gang of Wall Street Kingpins, Hedge Fund Magnates, Crooked Banks, and Vulture Capitalists Suckered Millions Out of Their Homes and Demolished the American Dream by Aaron Glantz, who should be called to testify. 

https://www.amazon.com/dp/0062869531/ref=cm_sw_r_cp_apa_i_tYx2DbD133ZR7 

The C-SPAN Book TV discussion with Mr. Glantz will give the committee a heads-up on what such testimony would include. See 

https://www.c-span.org/video/?465567-1/homewreckers 

The long and short of it is that many now have to rent or own leveraged properties. Our absentee landlords have cashed out and left others to bled us dry. They essentially own us because we have to work harder and longer to have a place to live while those who have cashed out live in gated and high-end assisted living communities. In the last year, Exchange Traded Funds have been all the rage. Who wants to bet on where the latest pool of junk is hiding? 

We suggest holding hearings as soon as possible to deflate this cancer before it kills the economy. 

As we have stated previously, our budget process is badly broken. Our solutions to this ongoing crisis are again presented in Attachment Three. These also include why the Tax and Job Cuts Act (not a typo) aggravate the problem. We need more spending, not less, on both entitlements and discretionary programs. The proposed cuts will make asset inflation worse by freeing up more money to leverage the schemes described above. 

The 2018 election has made Administration spending cut proposals dead on arrival. If the Intelligence Committee obtains testimony from investigations underway by the Southern District of New York regarding the President’s handler in the current impeachment trial, possibly arresting him as well, the proposed cuts will be a thing of the past. Vice President Pence will prove more reasonable and is unlikely to retain the Acting White House Chief of Staff. Mr. Mulvaney is likely the force behind the proposed cuts and Mr. Pence was known as a compromiser in his time as Governor of Indiana. Should he be implicated in the current scandal, the ascendant Madame President will surely withdraw any new spending cut proposals and work toward repeal of the ill-advised Trump-Ryan tax cuts. 

Attachment One - Our Nation’s Crumbling Infrastructure, March 6, 2019  

Attachment Two – Excerpts from Squaring and Setting Accounts: Who Really Owns the National Debt? Who Owes It? - December 2019 

Attachment Three– The Budget Process, February 27, 2019