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