FY 2022 Budget Priorities: Members Day

House Budget: FY 2022 Budget Priorities: Members Day, March 23, 2021

WM: Members Day, March 23, 2021 

The revenue side should be familiar to you . The Center for Fiscal Equity has had a tax plan which has more or less been the same since we were The Generation X Committee for Social Security, Tax and Healthcare Reform in November 1998. While there have been some modifications since those days, such as the inclusion of a separate credit invoice value added tax and an asset value added tax, the main elements are recognizable. 

Since those days, we have also written on the budget process. No one doubts that the process is broken nor would they argue that the measures recommended by the Joint Select Committee of 2018 did nothing to improve it. The coin of the realm in Washington is information. 

If detailed estimates are held back until a general outline on spending is agreed to as a Joint Budget Resolution (considered by a Joint Budget Committee), the process would move more quickly. Everyone wants to see the numbers. Likewise, should the process fail, as it often does, there should be a fallback. 

The next incarnation of the Budget Control Act should list reasonable budget targets that would act as a JBR should none be passed by a date certain. When the new fiscal year starts, the current service estimates would become law if the relevant appropriation has not passed, with any late passage taking the form of a supplemental. These proposals have been submitted to the Committee many times, so I will not bother adding a more detailed attachment.

Senior members and staff may have seen some of our spending proposals before, many of which date to the Fiscal Commission which did its work in 2010, largely to pay for making the Bush tax cuts for the bottom 98% of households permanent, while allowing the Clinton era and Affordable Care Act taxes on the top 2% take effect, as scheduled, in 2013. I must note that the period of accelerated growth after the great recession started when taxes on the wealthy went up.

I did not agree with President Obama’s resolve to hold the middle class harmless in passing the ACA, nor do I favor President Biden’s resolve to only increase taxes on incomes over $400,000 per year. Such promises foreclose tax reform, a long needed increase in the motor fuels tax (to balance out gains in fuel efficiency or a carbon tax and taxes required for broad based health care reform. 

President Bush 41 was not denied a second term because he went back on his no new taxes pledge. Indeed, the 1990 Tax Act began the period of growth in the 1990s, which were accelerated by President Clinton. As we come out of the COVID recession, higher taxes on the wealthy are desirable, and will occur. Our tax reform provisions double down on them. Our usual attachment, including a summary of how current provisions will change, is attached (as usual).

Our spending proposals mirror our tax reform proposals and will be dealt with in the same order.

Retirees and the disabled need more money, while minimum wage workers should not feel the burden of payroll taxation. Therefore, there should be a floor on the employer contribution of $16,000. If and when the minimum wage is increased, this floor would go up correspondingly to $20,000 for a $10 minimum wage to $24,000 for a $12 minimum wage. The $10 wage should take effect immediately, phasing to $12. You can argue about a $15 or $18 minimum after the mid-term elections.

The payroll tax floor and increases to the minimum would be paid for by ending the Earned Income Tax Credit and decoupling the employer contribution from wages earned. Instead, some type of consumption tax, either paid for through a goods and services tax or a subtraction VAT, with no limit on either.

Current benefits will be rebased to reflect the higher minimum wage as if they were inflation. My benefits are higher than average and they are not adequate to provide food for the month nor unsubsidized housing. Due to a disability and my income level, I qualify for assisted housing and rental support. My housemate, whose benefits are less, receives food stamps and is dual enrolled in Medicaid as well as Medicaid.

We should not have to face a smorgasbord of programs while still having to scrape by at the end of the month. Additionally, neither of us can afford transportation, aside from free bus service provided by Montgomery County. We need a rise, as do all of the retired and disabled. Disability should pay the same amount as a minimum wage, full time job.

This is a huge ask, but additional consumption taxes with no ceiling, and the tendency of minimum wage increases to lead to higher wages for the working class will fund increased benefits going forward.

The next element of the plan is health insurance. While there is an argument to increase Part B and D benefits for Medicare, doing so would eat up most of the higher income proposed above. Doing this is a nasty habit. While Social Security should not be means tested, Parts B, C and D should be. Those receiving the bottom rate should not have to pay higher premiums. 

Those who meet the threshold on taxing benefits should pay a 35% premium. As importantly, the amount at which taxes must be counted as income should be indexed for inflation and the amount increased to include the same percentage of retirees who are excluded from paying additional taxes as when the threshold was adopted.

President Reagan’s New Federalism proposal would have removed Medicaid from state budgets in exchange for ending or block granting other federal programs. This was a good idea then and a better idea now. Medicaid Part E should be created to both relieve states and the District of Columbia (or Washington, Douglass Commonwealth) from providing Medicaid for Seniors and the Disabled and seeing to enforcement of practice standards for nursing homes who receive these funds.

Medicaid for poor families should be distributed, where possible, through the health insurance plan of their educational providers or the plan for state and local government employees. 

The working poor, as well as patients with pre-existing conditions should be automatically enrolled in a Public Option as part of further improvements to the Affordable Care Act. Ending pre-existing condition reforms are likely the price for passing such changes’

Subsidies for the public option, as well as increases to the Child Tax Credit (which should be expanded to replace EITC payments to poor families), would be funded by a subtraction VAT or by offsets to quarterly payroll, income and estimated tax payments. 

The child tax credit level passed in the American Recovery Act should be made permanent and doubled, with distribution through private sector payrolls, unemployment insurance benefits, emergency benefits for families and paid participation in educational programs.

Programs, both public, private and sectarian, will include the following

• English as a Second Language
• Expanded Job Corps
• General Education Degree preparation
• Technical and vocational training
• Psychiatric and occupational rehabilitation programs 
• Community College to an Associate's Degree 

All of the above should include a stipend at the minimum wage pending satisfactory performance and be tuition free). Education providers will be the conduit to tax benefits and any other state or federal subsidies.

SNAP payments should be abolished, as well as TANF, except for people who cannot be enrolled in another program. For these, SNAP must include a cash benefit, thus ending the incentive to sell food stamps in order to buy toilet paper or gasoline.

Local welfare programs will channel clients to appropriate educational programs (with no legal residency requirement), training through workforce investment boards or other social services. One Stop programs should really be handled in one stop.

It should be noted that a great many federal welfare and educational programs can be eliminated by these reforms, both at the state and federal levels. Subtraction and Invoice Value Added Taxes will be collected and audited by state governments. The Asset Value Added Tax will be collected by the Securities and Exchange Commission. High Salary Surtaxes will be collected by the Bureau of the Public Debt, which will also issue tax prepayment bonds.

Discretionary, intergovernmental programs outside of human services and military spending based in the continental United States would be funded by invoice taxes as well. Programs would be managed regionally.  A regional vice president will oversee regional administration.

Regional boundaries will be changed so that, to the extent possible, they represent roughly the same number of equal electoral votes. Each region will have two appropriations and authorizing  subcommittees, two for civil spending and two for military spending. Federal Reserve and Appellate Court boundaries will be reset to be consistent with each region and reset as necessary with every decennial census. 

Budget levels in each region will be set based on goods and services taxes (called an invoice VAT in the attachment) collected by purchases, including imported goods, in that region. A constitutional amendment will be proposed to the states allowing for regional excise taxes rather than the current national excise tax. This will also be the case for subtraction VAT levels, with recommended tax levels included in the President’s Budget each year. Regions will therefore get what they are willing to pay for. 

Department of Defense product and logistic commands will be funded based on where units are assigned and based. Strategic systems will be nationally funded.

An additional amendment will also include election of regional vice presidents by each region through either direct election or the electoral college, with one elector for each congressional district and additional electors assigned by the majority of the popular vote for that region. In the interim, this could occur by compact - although ratification of such an amendment would be easier than negotiation of such a compact.

Strategic and overseas military deployments and civil spending, as well as grants to regions whose economies will not support their levels of spending, will be funded by the Asset Value Added Tax. This tax, as well as a surtax on high salaried individuals, will be dedicated to funding net interest payments on the national debt, reimbursing the Social Security and Medicare Trust Funds and decreasing the debt held by the public. 

Worker safety, equal employment opportunity and wage and hour enforcements must be fully staffed, overseen or operated by the U.S. Department of Justice and partially funded through fines, preferably criminal fines. The next frontier in civil rights enforcement must be criminalization. Adding a sting to non-compliance will work where consent decrees do not. These activities will also be funded by the asset value added tax and income surtaxes.

If possible, the AVAT rate will be negotiated internationally to prevent race to the bottom. A portion of AVAT proceeds collected internationally may also fund allied deployments.

The AVAT will include zero rated for sales to qualified ESOPs. Once such systems are in wide use, funding of the employer contribution to OASI will move to subtraction VAT collection, with offsets for purchasing preferred shares in the employing firm and in an insurance fund holding such shares. This option will not be enacted any time soon, but is inevitable.

These proposals will maximize both equality and liberty. The size of government will be reduced, but its functions will live on, as they must. There is no reason, other than toxic partisanship, that these proposals cannot be supported by both parties.

Attachment: Tax Reform