Child Support for States and Tribes

WM Welfare & Oversight: Strengthening the Child Support Enforcement Program for States and Tribes , November 29, 2023

The question of child support magnifies the issue that causes most divorces, the financial stress faced by most families. Rather than using governmental hard power to force such support on largely poor families, use soft power to provide higher incomes to both existing and broken families, ending the cycle of poverty. 

In May and October, we discussed raising minimum wages, reforming TANF and increasing the child tax credit. We will continue our comments to the last point. 

An adequate and fully refundable child tax credit ends the need for child support enforcement, Supplemental Aid to Needy Families, dependent care benefits under Social Security survivors and disabled benefits programs, thus securing the program’s long term health, and the paperwork intensive Earned Income Tax Credit.

The President’s Budget proposes that the Child Tax Credits enacted as part of the American Recovery Plan Act be restored. During that period, payment of the child tax credit was in advance of the annual tax filing. This is appropriate and will change the culture of such credits, which should be for continuing support, not an annual bonus. 

We agree with increasing the CTC to at least American Rescue Plan Act levels and refundability. We would make it $1,000 per month and phase it out from the median income to the 90th percentile. During the pandemic, the IRS managed payments. This had the “stink of welfare” that even some Democratic Senators objected to, which led to its discontinuance. 

I submit that, over the long-term, it would be more acceptable to distribute them either through other government subsidies, such as Unemployment Insurance, Disability Insurance, or a training stipend OR through 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. 

Tax reform can be used to facilitate this process. Instead of having each family file to collect their child tax credits and EITC (as an end of the year bonus), enact an employer paid subtraction value added tax and make child tax credits and health insurance tax benefits an offset to the payment of this tax and remove most families from having to file at all. Tax offsets could also be created to fund paid family medical leave, sick leave and childcare provided through employers.

High Income Individuals

Finance: Examining How the Tax Code Affects High-Income Individuals and Tax Planning Strategies, November 9, 2023

How do the wealthy game the system? Let me count the ways:

• Borrowing from accumulated shares at favorable terms for additional acquisitions or to fund new enterprises and to fund lavish personal spending.
• Using Life Insurance so that heirs avoid taxation of intergenerational wealth.
• Using duty free zones to hide investment assets, such as art for investment.
• Using gifts, inheritance and donations to avoid capital gains taxation.
• The ability to offset financial losses to reduce the taxation of wages and salaries.
• Tax Cuts whenever a Republican is in the White House and controls one or both chambers.
• Leveraging these tax cuts into ownership of the national debt, which is the leverage that allows capitalism to go off the rails into speculation.

For the first four bullets, see our tax reform plan in the first attachment for more detail.

The solution to the first two bullets is to enact a (credit) invoice value added tax, as well as an asset value added tax.  We propose that subsidies to families be paid through an employer-paid subtraction VAT, so that they may be distributed with wages or alternatively with other government benefits under the Social Security Act, including Unemployment Insurance.

The invoice VAT will hit every dollar spent, including when goods, services and assets are purchased abroad and brought home. Duty Free zone exemptions on paying such taxes must be abolished above $100. Consumption taxes cannot be avoided by taking funds out of investments or insurance policies, including that portion of the subtraction VAT that is channeled to workers and their families.

The next to bullets are fixed by repealing capital gains taxes entirely and replacing them with an asset value added tax. There should only be one rate for asset VAT, which should be set at the rate for long-term capital gains. This would also be the rate for every short term transaction. This would technically be a tax cut, which will force Republicans to support it or be called out by Mr. Norquist.

At initial public offering, option exercise and the first sale after inheritance, gift or donation, the sale would logically be marked to market. If a family keeps the stock or company, there will be no tax until someone else buys it. 

The second tax cut would be to expand the ESOP tax exemption to all sales of public stock, rather than just private stock. Maximizing employee-ownership will bring a new level of motivation and excellence to the economy.

There is no hiding from a value added tax taken at each transaction. Any increased value added would be paid immediately rather than being part of a portfolio which allows offsets from business losses to reduce taxes on wages and salaries.

While requiring the taking of capital gains at death is emotionally satisfying, it has no chance of passage, especially if this breaks up family businesses. While we are in favor of breaking up such fortunes as a general principle, it simply cannot be done until inherited firms or shares in public companies are sold. Zero-rating ESOP sales fulfills the promise of wealth redistribution to workers. Simply forcing the sale of assets keeps them in the capitalist sector, doing nothing for the working class.

Personal income tax filing on wage and dividend income for middle income households will be replaced with a subtraction value added tax surtax for income above the ceiling for FICA employee contributions, which will be graduated from a 6.5% rate to a 26% rate for income over $425,000.  Again, without capital gains taxation, there is no way to offset dividend and salary income. Using an employer collected surtax with capital gains taxes exported to the asset VAT makes it possible to end filing for all but the top 1% of households.

At $500,000, an individual surtax ranging between 6.5% and 26% would fund net interest payments, debt reduction and paying down the Social Security Trust Fund. For this reason, these payments will be made to the Bureau of the Public Debt. The Asset VAT will be collected by the SEC. 

The subtraction VAT, any carbon added tax and the Invoice VAT, which you can call a Fair Tax will be collected by the states (who will also do any auditing on tax collection issues).  It is an offer that Republican members cannot refuse. 

The 2017 personal income tax changes should not be made permanent or extended, as has been proposed. This will reward savings and speculation, rather than providing an incentive to invest in plant and equipment. The latter responds to greater levels of consumption by households funded by both the public and private sectors, including Social Security recipients. For a more detailed treatment of why this is the case, see the second attachment - which was drafted in 2017 in opposition to the Trump-Ryan-Brady tax cuts. The third attachment explains why any Fiscal Commission should use repeal of these tax cuts as its baseline assumption.

The last attachment, which is an excerpt from my book, Settling (and Squaring) Accounts: Who Owns the National Debt? Who Owes It? It shows who really benefits from deficit spending. It is time for the Republicans to wipe their crocodile tears on this issue.

Attachment: Tax Reform

Attachment: TCJA

Attachment: Fiscal Commission

Attachment: Debt Ownership as Class Warfare Video

Woke Investing

WM: Ensuring that “Woke” Doesn’t Leave Americans Broke: Protecting Seniors and Savers from ESG Activism, November 7, 2023

First, we would like to associate ourselves with the testimony of the AFL-CIO regarding the ability of most Americans to save for retirement. Without adequate income, they simply cannot. This can be changed.  We have proposals to raise wages generally, most especially for the working poor and disadvantaged.

• Raise the minimum wage to its purchasing power in 1965, which is somewhere in the neighborhood of $12 to $13 per hour for a 40 hour work week, or to a dollar more if the work week is shortened to four days at seven hours per day prior to overtime pay.
• Increase the Child Tax Credit, starting at post-pandemic level and increasing it to enough of an extent that Supplemental Aid for Needy Families can be safely abolished.
• Reestablish temporary disability for those who cannot work, including released inmates, alcoholics, addicts and those with mental illness who must focus on their recovery and who face stigma in returning to work. 
• Provide these individuals with educational programs to address any deficits, intensive outpatient services and psychiatric rehabilitation services. Pay participants the minimum wage for doing so - with program administration and health benefits managed by the educational provider, such as the Catholic school system.
• Increase Social Security benefits below the first bend point by 40%, as for most retirees and almost all of the disabled have little or no retirement savings. Starving retirees or forcing them to apply for Food Stamps is not a reasonable incentive to save more.
• For the future, shift the employer contribution to FICA to a credit invoice value added tax, with equal dollar crediting to each worker in any quarter.

Please see our attached tax reform plan, which will show how each item on this list would be funded.

Secondly, we entirely agree that pension funds should not be “woke.” Instead, they should allow for the active participation of fund management for the benefit of retired or soon to be retired investors. This would necessitate changes to law, including abandoning the concept of a unitary board of directors, abandon the prudent expert rule under ERISA and adjusting the thresholds in the Taft-Hartley to allow organized labor to invest more aggressively for the benefit of their members, as follows:

• Allow up to one third of pension assets to be invested in the firms that employ members.
• Allow up to one third to be invested in companies which provide goods and services to members, including in the banking, homebuilding, medical and retail sectors with adequate board representation in line with amounts invested, rather than simply serving as an oversight mechanism which allows Chief Executive Officers to line their pockets.
• Allow up to one third to be invested for merger and acquisition purposes, including investment in non-union owned firms with the specific goal of changing these arrangements.

It seems we have run out of thirds, which leaves no room for ESG investment.

Attachment - Tax Reform