The EARN Act Markup

Finance: Open Executive Session to Consider The Enhancing American Retirement Now (EARN) Act, June 22, 2022

With respect, this legislation is almost worse than nothing. We have gone, as a workforce, from defined benefits to defined contributions - but only for those who have enough money to save a portion of income without cutting back on basic needs.

The first 2% of contributions should be automatic and fully funded by employers and have zero vesting. After that, employers should match 2% for every 1% of employee buy-in. The federal government should be equally generous with its employees in FERS. Cap the employee contribution at 2% and the employer at 6% of salary, with up to 3% (half) allowed to be in employer voting or preferred stock.

To achieve real equality, apply these percentages to payroll as a whole and credit to employees on an equal dollar basis. The same rule should be applied to funding OASDI contributions.

Because most employers will want to underfund, create a subtraction value added - net business receipts tax to fund the child tax credit, healthcare (funding either direct care, 3rd party care or Medicare for All) and pension contributions. Taxes can be offset by direct service, but benefit payments and stock purchases must be real and not an accounting trick.

If a sufficient minimum wage and child tax credit were enacted, employees will be able to save money (and will do so in a structured fashion as envisioned in this bill).

AT PRESENT, WORKERS CANNOT AFFORD TO SAVE! 

Refundable savings tax credits are only window dressing for the two-tiered economy. Indeed, it codifies the current situation. Unless this legislation includes increases to the minimum wage and child tax credits above American Rescue Plan Act levels, these provisions are simply window dressing for enacting the usual subsidies to the top 25% of households. The 75% who really need help saving need more than token savings subsidies.

For both of these provisions, the franchise community will cry bloody murder. These are crocodile tears. Franchisors will adjust agreements because their competitors will do so as well. These provisions will also lead to an examination of whether the franchise model still pays if employees are assured adequate retirement, healthcare and family income as the result of tax legislation that delivers basic justice to workers.

Supply Chain Resiliancy

Finance, International Trade: Supply Chain Resiliency: Alleviating Backlogs and Strengthening Long-Term Security, June 15, 2022

Please let me address two issues the Administration witnesses cannot.

The first is the role of the Chinese in the supply chain crisis. SARS-CoV-2 was not the reason for this issue, at least not directly. Rather, according to published reports, the Chinese government was offended by off-hand remarks by the Prime Minister of Australia on the origins of COVID, leading to an embargo on Australian coal. This led to an energy crisis in the industrial coast of China. In essence, China cut off its nose to spite its face. When Indonesia suspended all coal exports, including to China, the crisis deepened.

The Trump-manufactured trade war with China showed how bad petulance can be in trade policy. Such petulance is a key feature of authoritarianism. This always backfires on the authoritarian. The Chinese fit of pique had ramifications for the United States supply chain. Profiteering by port operators was not the sole cause of our current supply chain issues.

The United States and its commercial sector need to diversify, but not in the way capitalists would do so on their own. Africa will be the next major labor market. In the past, capitalist firms would set up factories in developing nations with excess labor forces (usually due to modernization of agriculture or rent seeking by landed elites) and pay the workers as cheaply as possible. It is the messy way to industrialize. It seems to work, but it carries human costs while workers gather the leverage to organize and the power to increase domestic demand by consumption. Both of these factors increase wages.

We need not be messy about assisting the Motherland on its road to industrialization. As capitalism moves toward establishing a foothold in Africa, our trade policy must be ready to insist on the right of African workers to organize, partnered with the American labor movement in helping them to do so. We can partner with American colleges to establish campuses in sub-Saharan Africa so that their best and brightest need not come to us. We can come to them.

Technical assistance on employee-ownership (which is still emergent in the United States), as well as in the creation of property rights for farmers, is essential. Finally, we can assist Africa in creating commodity futures markets of their own so that farmers can obtain working capital by selling futures and decide whether it is in their interest to sell food abroad. The natural progress toward industrialization is not inevitable. It can move past exploitation without stopping there.

This brings us to the second supply chain issue: energy prices.

The world has plenty of available oil. What it does not have is an honest futures market. The Dodd-Frank reforms led to regulation of the New York Mercantile Exchange, especially the oil futures floor. When Mick Mulvaney was made acting director of the Consumer Financial Protection Authority, these regulations were quietly gutted.

The petulance of Trump strikes again. If Obama did it, Trump tried to undo it. That the inevitable oil futures bubble happened to this Administration is simply bad luck. The prior Administration did not have the mental faculties to play such three dimensional chess.

The challenge for the current Administration is to quietly restore these regulations, which I assume it is doing. If this can be managed, energy prices will decline rather than crash - as they did in 2008. When Congress made attempts at regulating oil futures trading, the balloon burst and traders had to cover their positions. The assets available to do this were mortgage backed securities and credit default swaps. We all know where that led.

Action to increase capital gains taxes as part of Build Back Better will also help deflate commodity prices as smart traders cash out of all sorts of assets. As they do so, junk assets will quietly be devalued rather than starting a rush for the exits. When the oil futures prices begin to slide, those holding the bag may be able to cover their currently insane bets. At least we can hope so.

Massive pain may be inevitable, but we must at least try to avoid it. The best shot we have is to Build Back Better. Members of both parties need to put duty to country ahead of loyalty to party and make sure the bill passes (even with Potemkin opposition). Overt obstruction will be remembered in November if it leads to collapse. In November 2008, voters knew who to blame. They will know who to blame if the economic ship is not righted soon and obvious sabotage has occurred.

You Tube Video Link: https://youtu.be/PoGruTy2d48

Ensuring Women Can Thrive/The Burnout Epidemic

House Ways and Means, The Burnout Epidemic and What Working Women Need for A Stronger Economy, June 15, 2022

Working men can also experience burnout if they have been the stay at home parent prior to returning to work. I was in that circumstance, doing the bathing and homework and making dinner after a full day of work as a federal contractor working as if I were a federal employee (but without the benefits and protections - but that is the topic for another committee). In general, however, these duties often fall upon mothers. It is safe to say, however, that everyone is burnt out. 

Worries about the state of the economy do not help.  If most people knew why inflation is raging, they would be even more upset. Few realize, including in the policy community, that the quiet deregulation of the Consumer Financial Protection Authority, especially the NYMEX Oil Floor, under Mr. Mulvaney is the real reason for this crisis.

Lower wage workers face particular worries. The increased advance child tax credits under the American Rescue Plan Act have expired, renewing financial pressure on all families - but particularly those with inadequate incomes.

The solution to all of this is to re-regulate NYMEX and to Build Back Better. I will address each item, in turn. These comments are based on items as proposed, rather than as compromised within the Majority.

I have also attached our tax reform proposals, as our recommendations depend on where the money comes from. Note that these proposals have been changed. Taxation of dividends and interest have been shifted to the high income surtax and higher tiers of the subtraction VAT. This is more appropriate because the SVAT is designed to capture both capital and wage income. This change is consistent with that principle.

House Budget: Ensuring Women Can Thrive in a Post-Pandemic Economy, March 16, 2022

Workforce development, for additional years of free education, historic investments in education.

Too often, women in government provided training programs, especially TANF, are pushed into occupational fields for the benefit of society, not the women themselves. Many are victims of inadequate education as they were coming up. We owe it to them, as we leave the pandemic, to take this opportunity to right decades of bad behavior by the educational and public welfare systems.  There should be no such thing as low wage work. The more we can channel people into appropriate training, the more traditionally low wage jobs will have to pay to meet staffing needs.

Most importantly, participation in education, remedial/ESL or training should be paid the statutory minimum wage, which should go up to at least $10/hour immediately. 

Social services agencies would direct educationally underserved women (regardless of immigration status) to the most appropriate training or placement program based on their potential, not the need for people to clean bed pans. Stipends and child tax credit payments would come through the education provider and be included in their invoice to the state government. Signing up for training should require no screening process for eligibility.

Make critical investments in childcare

As stated last year, childcare arrangements should be the responsibility of the employer. Tax incentives should thus be an offset to an employer-paid tax, preferably one on total value added (both labor and capital),  with either neighborhood care or care at or near the workplace financed by the employer. In Smart Growth urban planning, this can be the same thing.

Create paid universal and family leave

The free market cannot provide such benefits universally, so they must be required. To aid marginal firms, these benefits can be paid for as an offset to employer-paid taxes as above.

Extend key tax benefits to lower and middle income workers and their families. Deliver Nutrition Security….

All families should receive these benefits, which should also come from an employer-paid tax. Self-employed workers with children and only one client should be considered employees of their client. If wealthier households benefit too much from such tax benefits, they need to pay more in tax so that offsets are a necessity. 

The Child Tax Credit should support the income of each dependent child at median wage levels and be fully refundable. If a family participates in education and training, as mentioned in point one above, their child tax credit should be paid with a training stipend set to the minimum wage. Including these benefits with pay reduces the need for a $15 minimum wage. Paid training, an adequate child tax credit and a higher minimum wage allows for an end to SNAP and TANF for most women and their families. 

These reforms MUST be scored as pro-life legislation and be funded more broadly than the President has promised. We are all for raising taxes on the wealthy, but these funds should be targeted to national defense, net interest payments  and debt reduction (starting with the Social Security Trust Fund). An asset value added tax (which is described below with our employer-paid subtraction VAT) should be the primary way the wealthy are taxed - along with surtaxes on middle ($85,000 - $200,000) and upper income salaries ($200,000+). Make tax benefits adequate and the 1099 economy will go be replaced with higher statutory employment.

Having served on the staff of a major abortion rights organization in the past, I can assure you that no such organization WOULD EVER OPPOSE HIGHER LIVING STANDARDS FOR WOMEN AND THEIR FAMILIES!

The chief obstacle for funding families is not the feminist movement. It is the so-called right to live movement who would rather women be penalized for having abortions than subsidized so that they are not necessary. Over the course of many decades, I have had conversations with conservative members of the pro-life community. When push comes to shove, they oppose the measures above because their objections to abortion are more about sexuality than the welfare of children.

In the pro-choice movement, many jump to the defend women’s bodies argument before first addressing the need for adequate family income. Doing so now will shame the leadership of the pro-life movement into supporting these provisions to Build Back Better.

Many in the pro-life movement already do. Catholic Charities USA, NETWORK and the Catholic Health Association all stand with working and poor women. They must be very publicly leveraged to get the U.S. Conference of Catholic Bishops behind them as well - and to have the bishops insist that these measures be considered must-pass legislation for the computation of pro-life voting records. 

Catholic members of Congress and the President should also lead on this effort. It is time to stop grandstanding on this issue. These measures must pass - and on a larger scale than provided for in Build Back Better. On this International Day of the Woman (when the comments were drafted), how can we not do so?

Attachment: Fiscal Year 2022 Budget

Attachment: Tax Reform (videos included in link)

Video: https://youtu.be/r21OMEgWOHY

How the American Rescue Plan Saved Lives and the Economy

House Budget: How the American Rescue Plan Saved Lives and the U.S. Economy, June 14, 2022

The American Rescue Plan Act saved the lives of all who availed themselves of its benefits. Not everyone got the memo that being vaccinated was a good idea, not a political ploy. Of those, most survived their illnesses, but certainly not all. Omicron is still debilitating for those who have never been exposed to or vaccinated against SARS-CoV-2. Some of us got sick before a vaccination was even possible. 

Many in that era died because the Centers for Disease Control and the World Health Organization did not wish to acknowledge that the disease began with nasal or “seasonal allergy” symptoms, laid dormant for a week then came back with a vengeance. President Trump’s efforts to not stir a panic did not cause this oversight, although humoring his ego detracted from the ability of senior leadership to catch the diagnostic errors of that time.

Before the pandemic raged, the nation was headed for asset value losses which would have triggered a depression. We dodged that bullet, but the gun is still loaded. The Pandemic provided a temporary reprieve as the Federal Reserve propped up bondholders who have invested (again) in bad housing and commercial property debt. Subsidies to families and loan purchases by the Fed delayed the pain, however the pain is inevitable.  

One aspect of the American Rescue Plan Act was the stimulus payments. Those who had lower incomes spent them on unmet needs or caught up on rent or debt. Combined with enhanced Food Stamp benefits and refundable prepaid child tax credits, some even had money to invest. Sadly, some of this investment made it into cryptocurrency and has or soon will be lost.

Individuals on Social Security Old Age, Survivors and Disability Insurance may have ignored their entitlement to higher Food Stamp benefits. I am one such person. When I first received SSDI, my SNAP entitlement was only $14, so I let it lapse. I did not reapply when the $250 monthly benefit was introduced. Sadly, I am not alone. Social Security could have done a better job of informing beneficiaries that this option was available. Many of us have gone hungry. 

The annual cost of living adjustment has been less than adequate. In this environment, it should be semi-annual - especially if the additional $250 per month in SNAP benefits are allowed to expire. These are federal funds in either case. One or the other option must be undertaken. What was a lifesaving benefit for seniors, the disabled and the economy under the American Rescue Plan Act should not be allowed to expire. 

Enhanced Food Stamps have cushioned the blow for poorer families whose advance refundable Child Tax Credit payments have lapsed. Between enhanced SNAP and enhanced CTC, many children have emerged from poverty for the first time in their lives. The loss of both income sources will put them back into peril.  It is penny-wise and pound foolish to keep OASI, SSDI and CTC benefits so low that applying for SNAP is necessary. The best option will be to not only restore the ARPA CTC benefit, but to make it more generous while withdrawing SNAP entirely.

To repeat our remarks regarding the Treasury Department Budget:

Some of the bipartisan opposition in the Senate came from those who consider direct subsidies from the IRS to have the “stink of welfare.” I advise such Senators in both parties to raise the minimum wage so that no one is having to work just to receive this credit and that the best way to distribute the credit is with wages.

For middle income taxpayers whose increased credits are less than their annual tax obligation, a simple change in withholding tables is adequate. Procedures are already in place to deliver refundable credits to larger families. 

Employers can work with their bankers to increase funds for payroll throughout the year while requiring less money for their quarterly tax payments (or estimated taxes) to the IRS. The main issue is working out those situations where employers owe less than they pay out. This is especially true for labor intensive industries and even more so for low wage employers. A higher minimum wage would make negative quarterly tax bills less likely. Again, no one should have to subsist mainly on their child tax payments.

While we can hope that, in the short term, obstruction on increasing the CTC can be dealt with. Going forward, now that the American Rescue Plan Act has expired, any permanent increase to and refundability of the child tax credit (and ideally an even more generous credit) will require permanent tax reform.  We include our prescription for such reforms at our third attachment. 

One of the central proposals in this plan is the creation of a Subtraction Value Added Tax (Net Business Receipts Tax), which would replace the corporate income tax and filing of business taxes as part of the personal income tax.  The difference between changing quarterly withholding and enacting a subtraction VAT  is six of one and a half dozen of the other. 

The reason for this is that the proposed subtraction VAT is based on the notion that employers would be responsible for paying and reconciling the taxes now filed by employees. This would add little additional burden to employers (especially the self-employed) but end the burden of filing taxes for all but the highest salaried employees.

I have attached our tax reform proposals to provide context for our comments. Note that these proposals have been changed. Taxation of dividends and interest have been shifted to the high income surtax and higher tiers of the subtraction VAT. This is more appropriate because the S-VAT is designed to capture both capital and wage income. This change is consistent with that principle.

Attachment: Depression 2022 Video

Attachment: Tax Reform (videos included)

Video: https://youtu.be/bJELbIWmLbA

Impact of South Dakota v Wayfair

Finance: Examining the Impact of South Dakota v. Wayfair on Small Businesses and Remote Sales, June 14, 2022

I have attached our tax reform proposals to provide context for our comments. Note that these proposals have been changed. Taxation of dividends and interest have been shifted to the high income surtax and higher tiers of the subtraction VAT. This is more appropriate because the S-VAT is designed to capture both capital and wage income. This change is consistent with that principle.

Fifty years ago, cash registers were not computerized. This forced cashiers to either use math to determine sales taxes or refer to a table provided by the state revenue department. We have come a long way since then. Online ordering programs now easily calculate and allocate sales tax payments on interstate transactions.

If goods and services value added taxes were the rule, rather than sales taxes, the Wayfair case would not have come up. Taxes would have already been embedded in the price. There would have been no incentive for tax avoidance to keep customers happy. Instead, states would have been more aggressive in seeking interstate compacts to redistribute that last bit of value added at point of sale.

In the current regime, firms that collect sales taxes receive sales taxes paid out through their federal tax filing. In essence, the United States already has value added taxes, except that they are also an intergovernmental transfer. 

We advocate a national GST (invoice VAT) to fund military and civil discretionary spending. Adding a line item for taxes to the invoice creates downward pressure on such spending. Passing a constitutional amendment to allow regional excise taxes and spending would introduce competition to cut discretionary spending even more. 

At the same time, adding a consumption tax reduces any advantage to borrow from assets to avoid taxes on current consumption or to seek tax advantage schemes to eliminate inheritance taxes. This includes life insurance, establishing trusts and advocating against the “death tax.”

We also propose a subtraction value added tax (S-VAT) to collect taxes to either be submitted to the government to fund social services, healthcare, family income and education or create tax expenditures so that employers would simply provide family income and services in lieu of paying higher taxes. In essence, this would be the Fair Tax without prebates or the covert effort to end support for needy families through the tax system.

The federal S-VAT is not relevant to our discussion. A local one is. There would be no interstate (or international) adjustment because a state and local S-VAT would be used to fund benefits to employees and their families. They are a placeholder for a cooperative economy in which employee-owned firms would provide health, social and educational services to employees and their families, as well as income support for larger families. 

In a mature cooperative economy, a federal S-VAT would be unnecessary. Firms would simply do the right thing on family income in a way that is not possible today because of market disincentives to provide more family income, regardless of individual productivity. These circumstances are why the child tax credit at median income levels is the only moral choice.

Back to the matter at hand, firms that will charge no VAT will not report it, but this would deprive them and any of their customers the opportunity to take advantage of any VAT credit. We suspect most firms will register for a VAT number.

Attachment: Tax Reform (links included)

Video: https://youtu.be/2Ivw3CjDpbs

Attachment - Tax Reform

Attachment – Comprehensive Tax Reform, June 11, 2022

Since October 1998, we have had a standard plan which included business and personal income taxes and reforms to Social Security and Healthcare.  The following is a different presentation with the same concepts.

Note that these proposals have been changed. Taxation of dividends and interest have been shifted to the high income surtax and higher tiers of the subtraction VAT. This is more appropriate because the S-VAT is designed to capture both capital and wage income. This change is consistent with that principle.

Individual payroll taxes. Employee payroll tax of 7.2% for Old Age and Survivors Insurance. Funds now collected as a matching premium to a consumption tax based contribution credited at an equal dollar rate for all workers qualified within a quarter. An employer-paid subtraction value added tax would be used if offsets to private accounts are included. Without such accounts, the invoice value added tax would collect these funds. No payroll tax would be collected from employees if all contributions are credited on an equal dollar basis.   If employee taxes are retained, the ceiling would be lowered to $85,000 to reduce benefits paid to wealthier individuals and a $16,000 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. If a $10 minimum wage is passed, the employee contribution floor would increase to $20,000.

High income Surtaxes. Individual income taxes on salaries, interest and dividends, which exclude business taxes, above an individual standard deduction of $85,000 per year, will range from 7.2% to 57.6%. 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 asset sales, exercised options, inherited and gifted assets and the profits from short sales. Tax payments for option exercises, IPOs, inherited, gifted and donated assets will be marked to market, 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.  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. A 26% rate is between the GOP 23.8% rate (including ACA-SM surtax)  and the Democratic 28.8% rate as proposed in the Build Back Better Act. It’s time to quit playing football with tax rates to attract side bets. A single rate also stops gaming forms of ownership. Lower rates are not as regressive as they seem. Only the wealthy have capital gains in any significant amount. The de facto rate for everyone else is zero.  For now, however, a 28.8% rate is assumed if reform is enacted by a Democratic majority in both Houses.

Subtraction Value-Added Tax (S-VAT). These are employer paid Net Business Receipts Taxes. S-VAT is a vehicle for tax benefits, including

Health insurance or direct care, including veterans' health care for non-battlefield injuries and long term care. 

Employer paid educational costs in lieu of taxes are provided as either employee-directed contributions to the public or private unionized school of their choice or direct tuition payments for employee children or for workers (including ESL and remedial skills). Wages will be paid to students to meet opportunity costs.  

Most importantly, a refundable child tax credit at median income levels (with inflation adjustments)  distributed with pay. 

Subsistence level benefits force the poor into servile labor. Wages and benefits must be high enough to provide justice and human dignity. This allows the ending of 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). 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. S-VAT funded retirement accounts will be equal-dollar credited for every worker. They also have the advantage of drawing on both payroll and profit, making it less regressive. 

A multi-tier S-VAT could replace income surtaxes in the same range. Some will use corporations to avoid these taxes, but that corporation would then pay all invoice and subtraction VAT payments (which would distribute tax benefits. Distributions from such corporations will be considered salary, not dividends.

Invoice Value-Added Tax (I-VAT) Border adjustable taxes will appear 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, equal dollar employer OASI contributions, 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. The latter could also be funded by the asset VAT (decreasing the rate by from 19.5% to 13%).

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 Added Tax (C-AT). 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-AT 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 unless it is in other nations, however in this case the imposition of this tax at the border will be noted, with the U.S. tax applied to the overseas base..

Tax Reform Summary

This plan can be summarized as a list of specific actions:

1. Increase the standard deduction to workers making salaried income of $335,00 and over, shifting business filing to a separate tax on employers and eliminating all credits and deductions - starting at 7.2%, going up to 28.8%, in $50,000 brackets.

2. Shift special rate taxes on capital income and gains from the income tax to an asset VAT. Expand the exclusion for sales to an ESOP to cooperatives and include sales of common and preferred stock. Mark option exercise and the first sale after inheritance, gift or donation to market.

3. Employers distribute the child tax credit with wages as an offset to their quarterly tax filing (ending annual filings).

4. Employers collect and pay lower tier income taxes, starting at $85,000 at 7.2%, with an increase to 14.4% for all salary payments over $135,000 going up 7.2% for every $50,000- up to $235,000.

5. Shift payment of HI, DI, SM (ACA) payroll taxes to employers, remove caps on employer payroll taxes and credit them to workers on an equal dollar basis.

6. Employer paid taxes could as easily be called a subtraction VAT, abolishing corporate income taxes. These should not be zero rated at the border.

7. Expand current state/federal intergovernmental subtraction VAT to a full GST with limited exclusions (food would be taxed) and add a federal portion, which would also be collected by the states. Make these taxes zero rated at the border. Rate should be 19.5% and replace employer OASI contributions. Credit workers on an equal dollar basis.

8. Change employee OASI of 7.2% from $18,000 ($20,000 for $10 minimum wage) to $85,000 of wage income.

Videos

Update regarding dividend and interest taxes 

Update pursuant to Build Back Better

Video One: Individual payroll taxes and high wage/salary surtaxes 

Video Two:  Asset value added taxes

Video Three: Subtraction value added taxes (net business receipts)

Video Four: (Credit) Invoice value added (Goods and Services) taxes and carbon added taxes 

Video Five: Summary

Video Six: Winners and losers 

Department of the Treasury, FY23

Finance, The President’s Fiscal Year 2023 Budget, June 7, 2022

WM: Fiscal Year 2023 Budget, June 8, 2022

We are quite sure that there will be questions from the Minority about the National Debt. I have a question for the Secretary and Minority members and Senators. Who benefits from the National Debt (both public and private)? Who is on the hook for paying it back? Does the question of Debt as a percentage of GDP have any relevance. 

Anyone familiar with our work at the Center for Fiscal Equity knows that we have a few possible answers to these questions.  In reverse order, debt as a percentage of GDP is meaningless. The more salient measure is debt as a multiple of income taxes paid. Using this standard shows exactly how unsustainable our current fiscal course is. 

We have attached a one page summary regarding Debt Ownership as Class Warfare that addresses the other two. The key findings of our research is that the top 10% own the majority of public debt assets and owe the  majority of debt obligations. The top 1% owe over a third and own more than 40%. In short, those who pay and those who owe are the same people: capitalists. Without the national debt, leveraging private banking, debt and investment - especially  the intrinsically worthless assets in secondary markets - is impossible.

We are all for ending the National Debt, along with capitalism as we know it today. Capitalism is about to drive the nation into ruin again. The Pandemic provided a temporary reprieve as the Federal Reserve propped up bondholders who have invested (again) in bad housing and commercial property debt. Subsidies to families and loan purchases by the Fed delayed the pain, however the pain is inevitable. 

Please see the second attachment about Depression 2022, refer it to the Secretary and ask her to respond to it in your post-hearing questions. I would hope that these scenarios are already on the radar of the Assistant Secretary for Economic Affairs.

The most important question for the Secretary to face is whether there was a reaction via correspondence or phone calls from families who had finally received an adequate advance Child Tax Credit under the American Rescue Plan Act and had it taken away at the end of last year because of bipartisan obstruction against continuing to do so.

Some of the bipartisan opposition in the Senate came from those who consider direct subsidies from the IRS to have the “stink of welfare.” I advise such Senators in both parties to raise the minimum wage so that no one is having to work just to receive this credit and that the best way to distribute the credit is with wages.

For middle income taxpayers whose increased credits are less than their annual tax obligation, a simple change in withholding tables is adequate. Procedures are already in place to deliver refundable credits to larger families. 

Employers can work with their bankers to increase funds for payroll throughout the year while requiring less money for their quarterly tax payments (or estimated taxes) to the IRS. The main issue is working out those situations where employers owe less than they pay out. This is especially true for labor intensive industries and even more so for low wage employers. A higher minimum wage would make negative quarterly tax bills less likely. Again, no one should have to subsist mainly on their child tax payments.

While we can hope that, in the short term, obstruction on increasing the CTC can be dealt with. Going forward, now that the American Rescue Plan Act has expired, any permanent increase to and refundability of the child tax credit (and ideally an even more generous credit) will require permanent tax reform.  We include our prescription for such reforms at our third attachment. 

One of the central proposals in this plan is the creation of a Subtraction Value Added Tax (Net Business Receipts Tax), which would replace the corporate income tax and filing of business taxes as part of the personal income tax.  The difference between changing quarterly withholding and enacting a subtraction VAT  is six of one and a half dozen of the other. 

The reason for this is that the proposed subtraction VAT is based on the notion that employers would be responsible for paying and reconciling the taxes now filed by employees. This would add little additional burden to employers (especially the self-employed) but end the burden of filing taxes for all but the highest salaried employees.

Debates on the Child Tax Credit have used $75,000 as a benchmark.  This debate has gone on so long that the numbers have changed. What used to be proposed at $75,000 per year should now be delivered at $85,000.  Likewise, economic reports, particularly by the IRS Statistics on Income, should be shifted to reflect this reality. Between $50,000 and $100,000, there should be five groups. Between $100,000 and $200,000, there should at least be four so that the border between the fourth and fifth quintiles can be more adequately expressed. Every tax wonk in the nation will appreciate this.

Our second major proposal is the creation of an asset value added tax. There are two debates in tax policy: how we tax salaries and how we tax assets (returns, gains and inheritances). Shoving too much into the Personal Income Tax mainly benefits the wealthy because it subsidizes losses by allowing investors to not pay tax on higher salaries with malice aforethought. 

With tax subsidies for families shifted to an employer-based subtraction VAT, and creation of an asset VAT, taxes on salaries could be filed by employers without most employees having to file an individual return. It is time to TAX TRANSACTIONS, NOT PEOPLE!

The tax rate on capital gains is seen as unfair because it is lower than the rate for labor. This is technically true, however it is only the richest taxpayers who face a marginal rate problem. For most households, the marginal rate for wages is less than that for capital gains. Higher income workers are, as the saying goes, crying all the way to the bank.

In late 2017, tax rates for corporations and pass-through income were reduced, generally, to capital gains and capital income levels. This is only fair and may or may not be just. The field of battle has narrowed between the parties. The current marginal and capital rates are seeking a center point. It is almost as if the recent tax law was based on negotiations, even as arguments flared publicly. Of course, that would never happen in Washington. Never, ever.

Compromise on rates makes compromise on form possible. If the Affordable Care Act non-wage tax provisions are repealed, a rate of 26% is a good stopping point for pass-through, corporate, capital gains and capital income. 

A single rate also makes conversion from self-reporting to automatic collection through an asset value added tax levied at point of sale or distribution possible. This would be both just and fair, although absolute fairness is absolute unfairness to tax lawyers because there would be little room to argue about what is due and when. 

Ending the machinery of self-reporting also puts an end to the Quixotic campaign to enact a wealth tax. To replace revenue loss due to the ending of the personal income tax (for all but the wealthiest workers and celebrities), enact a Goods and Services Tax. A GST is inescapable. Those escapees who are of most concern are not waiters or those who receive refundable tax subsidies. It is those who use tax loopholes and borrowing against their paper wealth to avoid paying taxes. 

For example, if an unnamed billionaire or billionaires borrow against their wealth to go into space, creating such assets would be taxable under a GST or an asset VAT. When the Masters of the Universe on Wall Street borrow against their assets to avoid taxation, having to pay a consumption tax on their spending ends the tax advantage of gaming the system. 

This also applies to inheritors.  No “Death Tax” is necessary beyond marking the sale of inherited assets to market value (with sales to qualified ESOPs tax free). Those who inherit large cash fortunes will pay the GST when they spend the money or Asset VAT when they invest it. No special estate tax is required and no life insurance policy or retirement account inheritance rules will be of any use in tax avoidance.

Tax avoidance is a myth sold by insurance and investment brokers. In reality, explicit and implicit value added taxes are already in force. Individuals and firms that collect retail sales taxes receive a rebate for taxes paid in their federal income taxes. This is an intergovernmental VAT. Tax withheld by employers for the income and payroll taxes of their labor force is an implicit VAT. A goods and services tax simply makes these taxes visible.

Should the tax reform proposed here pass, there is no need for an IRS to exist, save to do data matching integrity. States and the Customs Service would collect credit invoice taxes, states would collect subtraction VAT, the SEC would collect the asset VAT and the Bureau of the Public Debt would collect income taxes or sell tax-prepayment bonds. See the last attachment for details on this.

Before this happens, the question for the Secretary is if her analytical budget is big enough to consider such options as these.

Attachment: Debt Ownership as Class Warfare  Video

Attachment: Depression 2022 Video

Attachment: Tax Reform (video links provided in text)

Attachment: Tax Administration Video

YouTube Video for comments: https://youtu.be/azVxkDBN7AA