Bipartisan Retirement Legislation

Finance: Building on Bipartisan Retirement Legislation: How Can Congress Help?  July 28, 2021

The title is a bit ironic. Only Congress can build on retirement legislation. Whether Congress is helping or not is the open question. Gridlock is not helping, although sometimes doing nothing is better than faux bipartisanship that makes things worse. 

The current structure of Social Security found its genesis in the 1983 Greenspan Commission, which resulted in a Social Security Trust Fund, which raised taxes on workers for their future retirements while avoiding the repeal of President Reagan’s signature tax cuts.

Many think tanks of a certain ideology hint that we cannot afford the burden of retirement spending as repaying trust is a budget buster. It is not. Certain people simply must pay what they owe. Whatever the future of Social Security, for the present, the burden of repaying the Trust Fund is on the wealthy, not current or future retirees. The bill is now coming due and those families who received the benefit of this plan owe the rest of us some money. 

Truth is more important than bipartisanship. 

The 1990s found us in a pension crisis. Actuaries sold the nation on the belief that pay-as-you-go pensions were not adequate. Investments must be fully funded. This led many companies to stop funding their plans altogether, shifting funds to defined contribution programs. As fortune would have it, the financial sector had many ideas (and products to sell) to fill this need. It is almost as if the actuaries had been talking to those who created the new regime.

Bipartisan reforms of late have been an effort to strengthen this regime. They have been good for many retirees. Most retirees, however, were not able to afford to make the required savings because their incomes were not adequate to do so. By most, I mean the vast majority. Few workers have the economic clout to insist on wages high enough to adequately save. Those who do are bedeviled by the need to “hit their number.” Job one in doing this is to control the income and benefits of the non-professional class.

The only thing that saves most retirees and the disabled is Social Security. It is not currently adequate. Before the Reagan Revolution, the National Commission on Social Security did its work, releasing its recommendations in 1981, which were rejected out of hand. The report is available at https://www.ssa.gov/history/reports/80commission.html. The Commission found that the best way to assure retirement security is to build it around, not away from, Social Security.

The Commission noted that savings would not have increased were it not for the program. Like now, the economy was a concern for solvency. The Pandemic may be duplicating those economic conditions, especially if the Fed starts to fight inflation.  The declining birth rate was a concern then. It still is. One thing that is different is that productivity was stagnant the decade before. It is not stagnant now (although the gains have not been shared.

They proposed a higher retirement age (eventually passed), general funding (which is now programmed in as the trust fund is paid down), independent funding of Medicare, Medicaid, Disability and SSI under a separate agency, (trust funds have met with limited success) and other recommendations for 88 in total. Their OASDI trust fund was only for a year. More than a few of their recommendations deserve a second look, particularly with regard to healthcare and disability insurance.

We cannot turn the clock back to 1981 (or November 1980). This does not mean that we are without options. Committee members and staff are likely familiar with our proposed solutions. The tax reform plan to enact them can be found in our first attachment. We will refer to it in the text.

Our first task must be to increase incomes for workers and retirees.

The President’s Budget features a permanent increase in the Child Tax Credit, retaining the refundability added as part of the American Rescue Plan Act. The CTC is the ultimate in bipartisan legislation. Both Republicans and Democrats have added to it, although only now has it become refundable for smaller families. It is still not adequate.

Making these reforms permanent and increasing benefit levels further should be seen as bipartisan as well. As we have pointed out (because our Center has a religious bent), higher incomes for families are one of the most effective ways to reduce the number of abortions. We call upon the U.S. Conference of Catholic Bishops and the National Right to Life Committee to make doing so a required vote to maintain a perfect pro-life voting record.

If we want people to save for retirement, we must make sure that they can also eat and have adequate housing and medical care. Higher incomes achieve both of those goals (while the latter is outside the scope of these comments).

Our tax reform plan, specifically the Subtraction Value Added Tax, details how the Child Tax Credit can be paid out without turning the Internal Revenue Service to society’s pay master. Payments through the IRS are a temporary expedient, but this is likely too much government for Republican members to support on a permanent basis. Distributing benefits through other government payments, such as Social Security, Unemployment Insurance and TANF training stipends and through wages (as an offset to either the subtraction VAT or quarterly payments to the IRS) is more likely to stand the test of time.

Our second attachment addresses how to raise the minimum wage and why this is essential for retirees. Enacting these changes must be a required vote for ratings by the American Association of Retired Persons and other retiree coalitions.

Our second task is to reform how Social Security taxes are collected.

Disability Insurance, the Employer Contribution to FICA and Supplemental Security Insurance should be decoupled from wages and credited on an equal dollar basis. Our first attachment explains how this can be done through tax reform. Doing so could be funded by consumption taxes in three ways.  

Our (Credit) Invoice VAT will increase the competitiveness of our exports and protect worker jobs while decreasing employer costs. Our Subtraction (Net Business Receipts) VAT is useful if options include personal accounts holding employer voting and preferred stock (but in no cases should it be invested in the stock market). Our Asset VAT is appropriate for funding the repayment of the Social Security Trust Fund.

Each of these proposals (all of which can be used) burden the entire economy, as well as investors, who have had the benefit of worker productivity, especially that part of productivity which featured the destruction of unions and limiting pay and benefits for all but the top 10% of households. There are no caps to increase with these taxes and they can be adjusted more easily than payroll taxes (which are regressive).

Our third task is to move toward employee ownership, which allows a return to defined benefit compensation.

Our Asset VAT can be enacted as a replacement for estate (death) taxes and capital gains and income taxes (including dividends, interest, rent and pass-throughs) through personal income tax filing. Corporate income taxes and business taxes collected through individual income taxes and all but the highest taxes on salaries would be shifted to our subtraction VAT. The Asset and Invoice VATs are superior to Wealth Taxes because they are impossible to dodge. This also makes them superior to the Estate Tax.  This is described in detail in our first attachment. 

The key feature of the Asset VAT would be an easier path for shareholders to avoid taxation on sales to qualified Employee Stock Ownership Plans. This benefit is available to only a small number of business owners. It should be available to every investor and heir. It would not be paid by inheritors until they sell the family business, farm or share holdings. ESOP sales allow them to avoid taxation altogether (except when purchasing new shares or spending the gains).

Employee-ownership is real liberty for workers. Capitalist ownership fosters an authoritarian workplace, not a libertarian one. Being paid to obey is not freedom. Any libertarian worthy of the name must recognize this.

The 2017 tax reform brought capital gain and profit taxes into a small range. They should be set to a single rate rather than being debated with each change of administration. When net interest payments on the debt become less workable, this is one of the taxes that would be increased, along with a high salary surtax (which could be collected through tax prepayment bonds for a quick buy-back). 

We must put our fiscal house in order. It is the most important thing we can do for retirees.

Attachment - Tax Reform

Attachment - Raising the Minimum Wage to Raise Retirement Income

USMCA After One Year

Finance: Implementation and Enforcement of the United States – Mexico – Canada Agreement: One Year After Entry into Force, July 27, 2021

Just a quick note to remind you that Mexico and Canada have consumption taxes and the United States does not. This complicates our trade policy and makes such agreements a complicated mess favoring some industries over others. Please see our usual analysis on consumption taxes and trade.

Regarding Mexico, if we had the same arrangements with Canada on temporary visas, agricultural workers could come in easily, send money home and eventually return (as many do). These visas should also have an overt path to residency  after three renewals.

Attachment: Trade Policy and Value Added Taxes

Attachment - Raising the Minimum Wage to Raise Retirement Income

An increased minimum wage is an essential part of increasing income. Earlier this year, Senate Republicans countered the proposal for a $15 per hour wage with a $10 wage. This would return the current wage to the purchasing power it had at the last increase. Let us join hands and make this change now and with no phase-in period. From this point forward, the wage must be automatically indexed for inflation.

When this is done, the benefits of current retirees should be adjusted accordingly. An additional Cost of Living Adjustment is necessary as well. Food prices have gone through the roof and current retirees are suffering. We cannot wait for an end of the year price adjustment.

Over and above inflation, the minimum wage should reflect increased labor productivity. To get to parity with where wages and productivity diverged, a $12 per hour wage is necessary. Another way to reward workers (and retirees) for productivity gains is to shorten the workweek to 32 hours (with 26 hours being considered full time for the purpose of benefits). In this case, the wage could be set to $11 per hour. 

Would these changes cost jobs? Hardly. Low wage workers are sent home when workload is low and required to stay (or not call in) when workload is high. Their work is supplemented by work by higher wage workers in high demand situations, regardless of how much more these workers are paid. Unlike salaried workers, low wage workers are never allowed to sit or stand around doing nothing. Lower wages would not change this.

A statutory wage increase means that employers who do the right thing and pay a higher wage are not put at a competitive disadvantage to those without scruples. This is the logic behind increasing the child tax credit. Without such a credit, workers with children would either not be welcome or would, as now, suffer hunger while working.

Higher wages, ideally $18 an hour ($15 was so 2000s), would be accompanied by alternative educational opportunities (with pay) so that workers who are less productive would be paid the same wage to increase both literacy and job skills.

Defending and Investing in U.S. Competitiveness

Finance, Fiscal Responsibility and Economic Growth: Defending and Investing in U.S. Competitiveness, July 14, 2021

For many years, trade policy has focused mostly on cheap prices over plentiful jobs. Selling products gathers income while making them incurs cost.  Advocating for or against tariffs provides campaign chairs a valuable resource to cultivate donors and hold them hostage in the face of changes.

The status quo will continue until the Dollars and Treasury Notes lose their status as world money and the premium investment for bond holders. Unless action is taken to raise taxes on those who we would otherwise borrow from, they will continue to privately be fine with increasing debt. The actual obligation to repay the debt is a function of income tax paid (FICA creates assets, not debt).  Please see the first attachment for more information on who owes and owns the debt and why it qualifies as class warfare.

Replacing tariffs with border adjustable value added taxes functions is also donor bait. Unless VAT enactment is broad based as part of a tax reform that leaves most families off of the tax rolls, industries will pour money into campaign coffers to try to get exemptions for their products. Please see the second for more about how trade policy and tax reform interact.

VAT enactment’s advantage is that incurring such taxes without inviting retaliation. Raising tariffs invites trade wars, as our recent experience proves.  The biggest improvement in our trade policy is the recent change in Administrations. Our current President will not pursue gunboat trade policy and will make infrastructure happen without having an elusive infrastructure week.

Trade is an area where climate change must be addressed. Global warming requires a global solution. On warming in general, there is no doubt that it is man-made.  While there was a warm period around the first millennium, we came to it gradually. 

Industrialization may have ended what is called the Little Ice Age, but that warming is sudden and has dire consequences. We do not know that it will stop the way it did in the Middle Ages, indeed, it is not likely to, which makes these hearings vital. Starting with the coasts, there will be sea level rise.The flooding shown in Vice President Gore’s latest film shows how bad it is getting. 

The wealthy don’t seem to care about sea level rise, because they have flood insurance. 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 scuttling every attempt at regulating emissions. Historically, unless people start dying from the air, as they are in China and did in Pennsylvania from the smog, nothing gets done. The river had to be actually burning in Cleveland before anything was done. 

Expanding freight rail should be a big part of that story. It saves energy and emits less carbon. While this will impact long-haul trucking, a growing economy, fueled by families with more money, will more than make up the difference in short-haul delivery.

Many ports will need to change configurations to expand freight rail and reduce reliance on long-haul trucking. This is a luxury problem. Such problems are a perfect object for expanded federal assistance to our railroad infrastructure. Either loans or grants should fit the bill. Higher motor vehicle fuel taxes can help transport goods as well as people. 

A carbon value added tax (rather than a simple carbon tax embedded in the price) will better allow consumer choice for both consumers and distributors. Polluters will only accept carbon taxes as an alternative to direct regulation. If we dropped fuel efficiency standards and imposed carbon taxes instead, I suspect that car makers and the energy industry would jump on board. 

Some level of regulation, like some level of social welfare, helps save business owners from themselves. One need only remember the smog that blanketed Beijing during their Olympics to see what happens from minimal regulation. China is now going all in on renewable energy. Will we learn the same lesson?

We have the capacity to do both. Regulations need to be ramped up AND Carbon Value Added Taxes need to be enacted to fund infrastructure and research into technical solutions like Helium-3 fusion and electric cars which receive computer control and power from a covered roof deck - preferably one topped with grass. 

I use the term carbon value added tax (CVAT) because energy prices are tax inelastic. When energy is needed, it is purchased, especially for transportation. Unless gasoline taxes approach $4 per gallon, people simply fill up their SUV’s and cope with the price changes. There is plenty of space to increase gas taxes before consumers change their behavior.

Because energy expenses are inelastic, price information needs invoicing to help make intelligent choices and to educate the public on the necessity for these taxes. Nothing wakes people up like seeing something on an invoice.

The Fair Tax, the Green New Deal, Carbon Taxes, and Goods and Services (Credit Invoice) Taxes all assume some sort of subsidy to hold poor families harmless - some kind of rebate or prebate. Many even believe that levying such taxes could be a good way to increase household income to for poorer families, which would also produce economic growth. I agree that subsidizing families will increase growth, however I submit that the best way to do so is through either existing subsidies or wages. 

Recent changes to the Child Tax Credit are the best trade infrastructure we can hope for, although a higher minimum wage is even more desirable. People need more money to buy imported goods and to go back into the labor force. There are many discouraged workers, some of which turn to less than legal means to earn an income. It is time to allow them back into the light. Work does not meet the needs of many workers. Now is the time to change this.

Increasing the Child Tax Credit, making it permanently refundable and establishing a carbon VAT should all be elements of comprehensive tax reform. The nation has already taken steps on the journey to reform in passing the American Rescue Plan Act. Reform should be bipartisan so that it has staying power. One possible point of compromise is to end the requirement for all but the wealthiest to file income tax.

Our tax reform plan is designed to provide adequate income and services to families (both with increased minimum wages and child tax credits) through employer-paid taxes, funding government services through a goods and services tax, separating out taxation of capital gains and income from income to an asset value added tax and higher tier subtraction VAT collections on wage income up to the $340,000 level and above, with additional personal income taxation for incomes over $425,000. Please see our third attachment for details.

Attachment - Debt as Class Warfare

Attachment - Trade Policy

Attachment - Tax Reform

Expanding Housing/HUD FY 2022 Budget

WM Oversight: Expanding Housing Access to All Americans , July 14 2021

HBUD: HUD FY 2022 Budget, June 23, 2021 

President’s Budget: Increase the supply, quality, and affordability of rental housing. Extend key tax benefits for lower- and middle-income workers and families. Deliver nutrition security to America’s vulnerable families. 

The best housing and nutrition programs are an adequate income. We support the President’s proposal to make the American Rescue Plan Act provisions for a Child Tax Credit that is both refundable and more adequate, as we detailed in our comments earlier this month. 

We propose directing this credit through existing government income support programs, including Social Security Old Age, Survivors and Disability, Supplemental Security Assistance, Veteran’s Benefits, Temporary Disability and Unemployment Insurance. A major problem with our social welfare programs is the multiplicity of programs. 

Distributing CTC payments through existing income support programs ends the need to apply for multiple income streams and changes how the credit is perceived. It must be a part of regular income, not part of an end of the year bonus. 

Workers and paid participants in workforce development, recovery and remedial education programs will receive their CTC with payroll, either through a subtraction VAT (as described in the second attachment) or as an offset to the employer's quarterly income tax payments.

The CTC can be increased (and paid for) through higher subtraction VAT or income tax rates, as well as by decreasing funding for other aid programs and tax expenditures, including the mortgage interest deduction. The latter rewards upper middle class borrowers and lenders, rather than those who need the aid most. The President’s resolve to not increase taxes on income under $400,000 is a perilous resolve, especially if it gets in the way of directing money to those most in need.

The other essential element in removing families from poverty, as well as singles, is an increased minimum wage. The Minority’s proposal for a $10 per hour wage is acceptable, for now, as long as it is the first step (meaning with no phas- in) as part of a process to strengthen wages on a track to $18 per hour with a shorter work-week. Workers have not shared in compensation for higher productivity. The best way to turn this around is to reward them for working smarter by cutting the work week.

Some populations, such as the aged, survivors and the disabled who cannot work will still require public programs to provide both housing and rent support. Benefit levels for these programs must be increased. As I state in the appendix, current benefits are below what is required for 80% of households. When the minimum wage is increased, benefits must be recalculated. 

In the interim, we need a Cost of Living Increase - not at the end of the year, but as a supplemental appropriation. Without such aid, many of us will have to chose between housing and food. 

Higher benefits also mean that landlords will receive higher rents, which is necessary post-pandemic. Things are tough all over, especially for housing providers.

Attachment three addresses housing discrimination, which is a fact of life in America, even fifty years after the Fair Housing Act was passed. Efforts must be redoubled and penalties increased. Fighting discrimination civilly has not worked well. Criminal penalties are needed. I am interested to see who opposes such a thing. I would only ask them one thing. WHY?

President’s Budget: Support workforce development; provide four additional years of free education. Make historic investments in education. 

The specifics of our proposals in this area are included in the President’s Budget attachment and our tax reform attachment. These programs should compensate for the opportunity costs for participation at the minimum wage.

Local housing agencies will still be necessary to guide and provide funding for vulnerable renters with deficient life skills. Remedial education programs, which are addressed below and in the President’s Budget attachment are also an avenue for such training and assistance. Case management would be handled by training providers, who would arrange for housing life skill training. 

Training should include the need to pay rent on time, even during a moratorium. The blanket moratorium has been ill-used by many households to fund spending on unmet needs. They now face eviction because the money is gone.

Veterans should be specifically targeted for workforce development programs as well.

President's Budget: Fulfill the sacred obligation to our veterans. 

The mental health and housing needs of veterans, both recent and lingering, are endemic. My great-grandmother’s second husband, Frank Squibb, was a World War One veteran who suffered from PTSD (as we now know it) and died young. I do not have all the details, but I assume alcohol was also involved. For whatever reason, he was disowned by the family and I write this testimony in subsidized housing rather than a family estate. I know many recent veterans and I assure you that we have learned little in the century since then.

This is an area where coordination between HUD, DVA and DoD is essential. This help must go beyond management and computer systems and include the human element of soldiers, veterans using services and those who need services can interact on a less formal, but not unprogrammed basis. 

HUD, the DVA, and DoD must both actively facilitate this program and join state and local governments in reaching out to those who suffer, from active duty soldiers to veterans both receiving and in need of services. 

For those mentally ill or addicted veterans who do not trust the system, less restrictive systems should be developed - including providing camping supplies and a place to camp and a more permissive attitude to active drinking and drug use until help is sought. Such systems do not encourage use. No addict needs encouragement. They build the trust that makes recovery possible.

This is a project that can start small and, if successful, scale up quickly. At present, it takes courage more than money, especially the courage for bureaucracy to try solutions that are outside of the box. Some amount of money would be useful to start the ball rolling, although there are likely excess supplies in Materiel Command inventories to provide necessary equipment, including clean needles. An amount in the tens of millions, which is pocket change, is all that is needed.

President's Budget: Build and retrofit buildings across the country for energy efficiency and expanded housing options. 

Partnership between IRS, HUD, DOE and EPA will increase resources for local housing agencies and approved building contractors. There are many contractors who are less than honest, so a program to pre-screen them is necessary.

A starting point in creating such a list is to convert public housing and offer rental housing assistance in planning and installing energy efficiency retrofits. A cheap and easy way to help offset the carbon emissions and better manage stormwater is planting roofs with grass, as well as any roof decks in covered highways described in our Budget Proposals (but not attached due to space restrictions.

Smart Growth must also be encouraged in urban planning.

Responding to the upcoming depression 

Attachment three includes the experience of my family with the 2008 recession and its effect on our housing (which was purchased through federal low income housing programs). When things got tough, the support that got us into housing did not help us keep it.

Attachment four details why we are headed for a second Depression in a bit more than two decades. A hint, nothing has changed, there was no accountability and houses which were lost turned into single-family rentals whose mortgages have been securitized. 

In 2009, home values plummeted. Even borrowers (such as my family) who did everything right (except buying at the top of the market), found themselves unable to sell our homes. In my family’s case the Federal Reserve or the Virginia Housing Development Agency marked these properties to market, what can only be called an Economic Depression would not have occured.  

Why use the term depression rather than recession? Because recessions are a slowing of economic growth. When real estate, especially housing values, decline below their financing, the entire economy is depressed in a way that simply restoring output will not cure.

The Dodd-Frank Act provides for liquidity when crashes, such as the upcoming disaster, occur. However, neither the law nor the Federal Reserve provide any relief to the renters, homeowners and credit card customers whose debts are being purchased by the Federal Reserve and remarketed. 

When the Fed marks bonds to market, M3 is reduced. The money vanishes in the same way it was created, with a keystroke. This also deflates the financial markets. Experience has shown that simply throwing money out of the window of the Central Banks did nothing to improve the economy. Forgiving debt would have.

Let us not repeat (or rather continue to repeat) the bad practices that left the economy in the doldrums. During the pandemic, the Federal Reserve has purchased bad paper, but without benefit to those whose debts are held in those bonds.

This time around, credit card balances and back rent should be forgiven when the Federal Reserve buys the bonds that hold the debt. Loans could also be written down, which would stop bondholders from benefiting from issuing bonds that should never have been issued in the first place. Renters of both commercial and residential property should be offered the chance to purchase their locations and homes, with assistance from Government Sponsored Enterprises, with their paper replacing the debt paper that has been securitized in Exchange Traded Funds.

ETFs may take a hit, but what was falsely sold as AAA paper would actually become what was sold. Bad landlords, and Glantz demonstrates that Mr. Mnuchin and Mr. Ross truly are bad landlords, degrade properties so that the bonds that were issued for them to cash out are nowhere near the value at issue.

In 2009, the United States aided and abetted those who created the crisis. We are currently repeating the mistake. When the inevitable crisis occurs again, doing the right thing will also be the right medicine for the economy.

I mention this issue here so that and General Provisions for this industry include these actions and because part of any bailout will require appropriated funds. In 2008, the bill passed with the promise that borrowers would be helped. Mr. Paulson lied. Let us act truthfully this time around. 

Attachment: FY2022 President's Budget

Attachment: Tax Reform

Attachment: Federal Housing Assistance Programs

Attachment: Depression 2021