FY25 IRS Budget/2024 Tax Season

 Finance: The President’s Fiscal Year 2025 IRS Budget and the IRS 2024 Filing Season, April 16, 2024

As I mentioned the last two  years, support contractors could be more widely used for customer and information technology services. This would identify the balance of spending to justify the budget request for FY 2025.

Additional analytical resources are required for tax reform initiatives such as a Fair Tax initiative and exploration of options due to expiration of the Trump/Ryan/Brady tax cuts. The Ways and Means Committee and the Committee for a Responsible Federal Budget are agitating for a Fiscal Commission to justify or pay for some kind of extension of the 2017 Tax Bill. 

While such an extension should be allowed to die on the vine, analytical resources should be budgeted for the debate and a consideration of alternatives, such as those presented last year to the Ways and Means Committee. My comments on those alternatives, plus a presentation of my own, are attached.

This year, the House has passed a reboot of the pandemic era child tax credit distribution. This will require more funds, although with tax reform, this could be done more cheaply. Such a change is essential in a post-Roe environment. If women must keep their pregnancies, then they must be funded adequately to raise the child to maturity.

To prevent the “stink of welfare” that Senator Manchin so objects to, CTC payments should be included with wages for all employees - not just those with three or more children. They should also be distributed through other federal and state assistance programs - some of which can be reduced to do so.

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. For the coming year, they merely need to be expanded to all families with children. 

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. Indeed, no one should have to subsist mainly on their child tax payments.

As usual, we have attached the latest version of our tax reform plan, with a separate attachment on how implementation of this plan would affect IRS manpower. The answer is that the change would be drastic. It would also allow the Committee to focus more on how social welfare is being delivered in general, as well as eliminating current roadblocks to promptly filing for Social Security Disability Income.

Attachment; Tax Policy Options

Attachment: Tax Reform Videos included

Attachment: Tax Administration Video

Trade Policy 2024

WM: Biden Administration’s 2024 Trade Policy Agenda with United States Trade Representative Katherine Tai, April 16, 2024

Finance: The President’s 2024 Trade Policy Agenda, April 17, 2024

As Russian aggression in Ukraine continues, it must be a key component of our trade policy, not just including the obvious connection to our Foreign Military Sales program, which is being used to aid Ukraine directly and to backfill contributions by our NATO allies.

Europe’s energy independence is also a related issue, which means that replacing Russian energy with other sources is a relevant issue - and a reason to consider alternatives like increased support of nuclear power here and abroad (development of small modular reactors) and its use to replace gasoline with electric vehicles - either battery powered or tethered electric cars and trucks (on separate roadways. 

These changes are necessary, regardless of Ukraine, due to global climate change - particularly regarding the warming of the Barents Sea and its impact on the continued warming of the Northern Hemisphere. In short, the thermostat is broken and only drastic change, like replacing gasoline in urban areas, is required.

Replacing Ukrainian and Russian grain in the developing world is another priority - however such replacement should not rest with the United States, at least not in the long term. Instead, developing nations need help in developing nations to feed themselves. For too long, agricultural aid and trade have been predatory, designed to destroy local agriculture for the sake of our own. We need to ship know-how, not grain, whenever possible, although such know-how should respect local land ownership practices rather than imposing the Anglo-American system of ownership fee-simple arising as a grant from the British monarchy or state government.

Our comments from last year touch on still lingering issues of trade with China and the possible resurrection of something like the Trans-Pacific Partnership, immigration as a trade policy issue, consumption taxes and the issue of Tier 2 OECD corporate tax policy reforms. We have included them as an attachment, along with our usual attachments on taxation and trade policy, consumption taxes and an asset value added tax (which will include a need for a negotiated rate).

Some income taxation of the very wealthy as a way to reduce the debt is appropriate, as are the use of an income tax system (or subtraction value-added tax) to fund adequate tax support for families. Taxation for other domestic government, including contributions from employers to social insurance, should be replaced with a credit invoice value added tax or some sort of fair tax. To not do so runs counter to the spirit of the constitutional provision banning export taxes.

Attachment: 2023 Trade Policy Agenda

Attachment: Taxation and Trade Policy Video

Attachment: Consumption Taxes (Video links included)

Attachment: Asset Value Added Tax Video

The Truth About the 2017 Tax Relief Law

WM:  Expanding on the Success of the 2017 Tax Relief to Help Hardworking Americans, April 11, 2024

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 first attachment - which was drafted in 2017 in opposition to the Trump-Ryan-Brady tax cuts.

The second attachment, which is an excerpt from my book, Settling (and Squaring) Accounts: Who Owns the National Debt? Who Owes It? This lays out in greater detail why government spending leads to higher GDP and why speculative investment does not, as well as a history of the relationship between deficits/surpluses in one year and growth the second year - including graphs showing these relationships by tax regime.

The 2017 Act took a year to make its way through the economy. It is not included in the last graph in the second attachment, because the next point was the pandemic. The one data point we had showed that, post tax cuts, GDP declined by one percentage point. The current tax regime requires significant deficits to produce economic growth. Once the 2017 tax bill expires, the balance will begin to shift in the tax system so that growth can occur alongside declining deficits and additional spending cuts.

The 2017 cuts rewarded hard working investment managers and the denizens of Wall Street. Mortgage Backed Securities markets, this time investing in commercial and family rental units (which is how Steve Mnuchin and Wilbur Ross made their bones - and why they championed pandemic stimulus so as not to go personally bankrupt) were incentivized by the 2017 law. They received the wealth, not those who were stuck in homes where maintenance was shifted to renters - which means that the homes Mnuchin got for pennies on the dollar are deteriorating, not creating actual wealth.

If the Committee is serious about helping hardworking Americans, increase the minimum wage and continue to press the Senate to pass the committee’s increases to the Child Tax Credit. Work must pay for people to continue to work. 

In 2021, the House proposed increasing the minimum wage to $15 per hour as part of reconciliation. Until the Senate Parliamentarian ruled that this was out of order and the votes did not exist to overrule her, the Republican Minority counter-offered a $10 per hour. 

American workers would appreciate putting that counter-offer back on the table, while ending the tipped wage sub-minimum rate. American customers are not nearly generous enough for this to be at all just. Wherever either (or both) options are proposed as ballot initiatives, they pass. In some states, higher minimums have been enacted and more economic activity, rather than less, has occurred. The reason is obvious - when lower income people have more income they spend it all back into the economy. When wealthier people get a tax cut, they take it out of the economy and into Wall Street speculation. The sad irony is that it is in the so-called “Red States” where the minimum wage has not been raised where the economy lags.

Franchise holders have a history of paying low wages and justifying their opposition to wage increases because their wages would be squeezed out. This is not the case because, again, sales will increase to compensate. That being said, the conditions of franchise employment and franchise agreements deserve attention, as well as the tactic of using the franchise system to avoid unionization and paying for such things as health insurance. If the onus on providing health care and voting for representation is shifted to the franchisor, some firms will decide that turning franchise and gig  employment into full-time employment is better. That would be a socially desirable outcome.

Any tax reform should regularize how capital gains are taxed. Our tax reform plan contains a proposal for an asset value added tax, which will tax transactions, not people or their end of the year balance sheets. 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. To avoid heirs having to pay the asset value added tax altogether, 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.

In March of this year, the Budget Committee held a “Markup” of the FY25 Budget, concurrent with the President’s submission. As I stated then, the economic monster that was the 2017 Tax Law will take care of itself next year by sunsetting automatically. The March Budget Resolution was beyond Dead on Arrival. It was Buried on Passage. It did not make a dent in the news of the day.

The motivation for keeping the Trump Cuts alive is obvious. It is an attempt to bring Republican donors back to the Majority Party. Since the Insurrection, donations have not only fallen flat, they have all but disappeared. As long as the Party is tainted with Trumpism, not even preservation of these undesirable tax cuts will save it. Hopefully, the donor class is also aware of the underlying economics, which demands higher tax rates to function correctly.

Thank you for the opportunity to address the committee.  Please contact us for an in person briefing or to arrange for a public hearing on our tax reform proposals. Remember, given the involvement of members in the sad events of January 6th, there should be no delay in shifting from grandstanding to seeking actual compromise. The alternative is a 28.8% capital gains tax rate and a matching corporate income tax rate as proposed by President Biden with passage assured by soon to be Speaker Jeffries. 

Attachment: Tax Cuts and Jobs Act

Attachment: Deficit Economics

Attachment: Tax Reform Videos included

Treating Substance Abuse in Federal Health Programs

Finance Healthcare: Closing Gaps in the Care Continuum: Opportunities to Improve Substance Use Disorder Care in the Federal Health Programs, April 9, 2024

The way to improve care, such that patients cannot slip through the cracks of addiction (and mental health) care is to pay them for ongoing participation in partial hospitalization and other psychiatric rehabilitation programs. 

This should be a part of a program, funded by a subtraction value added tax, to participate in remedial education from ESL to literacy at the tenth grade level, followed by either technical education or completion of secondary education and advancement to the completion of an associate's degree.

During paid education (at a minimum wage that has at least doubled), healthcare must be an included component, with failure to pursue both sobriety and education as needed leading to some form of rehospitalization.

This must apply to drug court participants as well. Simply dumping people into half-way houses or into the Oxford system, with no concern for their educational development and a bias to low wage labor is a guarantee of relapse and recidivism. The prison industrial complex needs to close its revolving door and be replaced with real care.

Veterans healthcare is also incomplete. Again, some form of paid psychiatric rehabilitation with continued medical care and payment for participation is a key to keep people engaged in their recoveries.

Veterans and parolees, as well as other addicts, mentally ill individuals and the chronically poor have opportunity costs that must be met so that they can put recovery ahead of engaging in low wage work (aka wage slavery).

Please see the attached comments from 2021 before this committee and Ways and Means from February, where we propose that mental healthcare and addiction in the criminal justice system be shifted to mandatory hospitalization, the need to hold patients longer and deal with either alcoholic relapse or medication noncompliance are discussed.

Attachment: Mental Healthcare in America Video