Wednesday, September 25, 2024

Small Business Remote Sales Tax Collection

Finance FREG: Providing Small Business Relief from Remote Sales Tax Collection, September 25, 2024

A Reform Agenda

Currently, firms and individuals who charge sales taxes deduct these tax payments from income. These deductions should be credits instead, as the current regime is simply a subsidy to states who collect sales tax.  This small TAX CUT will remove the resistance to enacting a VAT - and the customer at the end of the supply chain pays the same amount of tax as they would for a retail sales tax. There is no tax on top of tax paid.

Sellers on such platforms as Amazon benefit from tools provided by the platform - which collects the money on their behalf. Comprehensive reform which includes credit invoice value added taxes will feature automation, including modules to deal with remote sales. 

Such reforms are a good deal for small businesses, as exempting such firms from VAT filing deprives them of the rebate of taxes paid to vendors. Again, the current income tax deduction for sole proprietors only provides a deduction of sales tax paid - rather than a credit.

Please see the following excerpt from our larger tax reform attachment:

Credit Invoice Value-Added Tax (CI-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. 

CI-VAT forces everyone, from the working poor to the beneficiaries of inherited wealth, to pay taxes and share in the cost of government. As part of enactment, gross wages will be reduced to take into account the shift to S-VAT and CI-VAT, however net income will be increased by the same percentage as the CI-VAT. Inherited assets will be taxed under A-VAT when sold. Any inherited cash, or funds borrowed against the value of shares, will face the CI-VAT when sold or the A-VAT if invested.

Background on Consumption Taxes

Eventually, the United States needs to join the rest of the developed world and enact consumption taxes on consumer goods and services, net business receipts and an innovative tax on asset sales - which would replace capital gains taxation and would require negotiation of an international rate to prevent rate arbitrage. 

The first two would make it easier to pay taxes in general because the simplicity of the first and the fact that the second would replace the business income tax while becoming a conduit for employee health and family support benefits - and would entirely replace the need for most families to pay personal income taxes (if not all) - which would greatly cut down on paperwork requirements businesses currently face. 

The reality is that business collects the revenue and submits it to the Treasury, along with a mountain of information to subsidize the tax preparation industry - who are consistent donors to both Chambers - especially the revenue committees. 

The proposed Fair Tax’s use of a retail sales tax, rather than use of a value added tax at each purchase (but note - the tax is only paid on the base markup  - not the taxes owed because of the markup) will lead to fraud as retail purchase are credited as wholesale - which under the FT is not taxed. This is a huge potential loss. This schema is proposed by Fair Tax sponsors because they misunderstand who VAT works. For the Fair Tax to ever pass, rather than being a talking point for fundraising, it must work like a VAT.

When VAT is paid by a merchant or manufacturer, the VAT that they paid for that good or service supplied is refunded to them. 


Tuesday, September 24, 2024

Abolish TANF

WM:  Reforming Temporary Assistance for Needy Families (TANF): States’ Misuse of Welfare Funds Leaves Poor Families Behind, September 24, 2024

WM Welfare and Work: Where is all the Welfare Money Going? Reclaiming TANF Non-Assistance Dollars to Lift Americans Out of Poverty, July 12, 2023

TANF should be abolished. It is designed to train poor people with limited literacy and skills to do dirty, lower wage work in hospitality or medical assistance. It is one stage below computer systems training at community college through what was once the H-1B technical skills training program (which I staffed in the Department of Labor, although at the time, we also trained medical assistants).

Almost thirty years into the program, its main success is pruning the welfare rolls because of the penalties it put in place for non-compliance. Such non-compliance is easy to fall into for those who are less than fully literate.

The focus of human services spending, which is best provided through the private, charitable or cooperative economy, is to keep people in training or transition them to disability in however much time it takes to do so.  There should be no weeding out of the non-compliant.

When I graduated from Loras College and began graduate studies at the American University, the Washington Area Consortium of Universities held a conference on poverty. Every speaker in every topic area cited education as the key avenue to upward mobility.

For those who are homeless or families in bad housing, the first goal should be decent housing at public expense, although such situations should be supervised to make sure that program beneficiaries know how to run their own households. Program housing should be available until participants are able to find a job or long term educational placement which either pays enough to attain or offers through a longer term educational setting.

Food Stamps should also be abolished and replaced with a child tax credit that provides income which is adequate to feed, clothe and house an additional child, which can be up to $1000 per month. The current amount, which is set to expire in 2025, is $2000 per year. It will revert to $1000 per year, or less, because it is non-refundable. During the pandemic, it was $3,000 per year, or $3,600 for younger children. The President’s Budget proposes this amount be restored and made permanent. It is not adequate, but it's a start.

The President’s Budget also includes funding the first two years of education at community college. The same level of funding should be provided to students in technical training after grade ten and should be available to students at both public and accredited private schools, including religious schools. In Espinoza v. Montana, prohibitions on funding private schools (Blaine Amendments) were found to be unconstitutional. New (and existing) funding should reflect that fact.

Local public, charitable (including religious) and private social welfare and educational providers should provide both case management and housing, as stated above.

Participants should be paid a stipend of at least the minimum wage (which also needs to be increased to $11 per hour with a 30 hour week. For those unable to work or study, that amount should be paid to fund temporary disability. Again, SNAP would be discontinued. Participants in drug court with unmet literacy needs and the disabled in need of either psychiatric rehabilitation services or occupational therapy would be paid to attend education and rehabilitation activities.

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.  An $11 wage makes up for cutting hours from 40 a week to 32. For training program participants, 30 hours per week is more than enough.

A main problem with current training regimes is that potential students have opportunity costs that are not covered by training. TANF is simply too narrowly tailored and directs too many people to low wage work, especially in the dirtiest jobs in the medical field. The woke among us do not have to look hard for the intrinsic sexism and racism in this scheme.

Providing minimum wage pay to attend school will assure that, when the wage is increased, those without skills will not be priced out of the economy - as some fear when opposing raising the wage. One reason to raise the minimum wage is precisely so no one lives only on their child tax credit proceeds.  There are some in both parties who believe that the child tax credit should have a work requirement. I agree if that work includes being paid to go to school.

Paid training must be provided to those whom the education system and the former culture of dependency has failed. The caricature of the welfare cheat was never reality, however those who were and are trapped in poverty usually have educational deficits, as well as a history of family incarceration due to the war on drugs and its disproportionate penalties for Black and Hispanic men.

English as a Second Language should not only be free, but workers should be paid to attend, irrespective of immigration status. Part-time workers should also be eligible for this benefit.

Payments for tuition, stipends and family support would be funded by employer-paid subtraction value added taxes. Ideally, both state and federal subtraction VAT will be enacted. A federal VAT would be levied to assure that a minimum amount of funding is available should states underfund their programs, which some will. 

Our attachment on Consumption Taxes provides information on how this tax would work. These proposals are what the Fair Tax would look like if it was designed to work effectively and provide family benefits without making the Social Security Administration and state government the paymaster for delivering prebates. The proposed (Credit) Invoice VAT replaces the current deduction for sales taxes paid with full crediting of the same amount (and then adding the federal portion).

Tax reform undertaken during this process would end tax filing for most families (and certainly all poor ones). The more generous child tax credit and higher minimum wage (including for training) allows for the abolition of the EITC.

Attachment: Consumption Taxes (Video links included)

Trump, Roe and Dobbs

Finance: Chaos and Control: How Trump Criminalized Women’s Health Care, September 24, 2024

A Moral End to Roe and Dobbs

In the November 2023 edition of Logos, Crumley and Jones took on the question of a moral vindication of Roe v. Wade, doing a good job of covering the waterfront on the moral status of pre-born – the term unborn calls forth images of a zombie apocalypse. I argue that the more important debate is how to weigh the interests of the various actors in the drama that is abortion law and politics. Let us begin by casting the play. Not every actor will make the cut.

The main characters are the child at various stages in the roles of zygote, blastocyst,  post-gastrulation embryo, doomed fetus and viable child; mothers, supported by their doctor and family members; American citizens and residents in general; James Madison and the ratifiers of the Bill of Rights and the authors and ratifiers of the Fourteenth Amendment; State Governments; the Confederacy and its heirs - Team Pro-Life, which include the American Catholic Bishops, their Evangelical enablers and true believers (until the Moral Majority – Evangelicals were not pro-life) and the various organizations who are active in the movement;  Donald Trump and Vladimir Putin; the Supreme Court; the various organizations supporting choice; Congressional Republicans and Congressional Democrats and God.

Since the last shall be first, let us give God the first audition. God sends regrets and has been trying to tell his agents to take Them off the casting list (take that as either trinitarian or woke). God has no personal stake in this play, nor will They punish anyone on the cast. God, to be qualified as a Supreme Being, must not depend on Their creatures for moral validation. They are not codependent. 

For those who are Christian, the Son said that He/They were gentle and humble of heart, Their yoke is easy and Their burden light – and that the Father (YHWH aka Being) is perfect, and we should be perfect in the same way – in Love (aka Shekinah – the Spirit), not conduct. This is for our temporal happiness. God cannot see what God does not have – sinfulness – this is the true interpretation of the axiom that God cannot bear the sight of sin – it is because God has no relation to it, having none of it. God must, therefore, be considered a Humanist, having no personal interest in this particular drama, but loves the entire cast anyway – even Trump.

The relationship between Trump and Putin turns the pro-life movement into a scandal, especially as there are those who excuse the Insurrection because of it. Any moral authority they had – although I will address the bishops separately – is gone. The fact that many of them have grown wealthy and turned the issue to a cash cow earns them the Bum’s Rush. Paging Security! The Choice Movement will also be dealt with later, although their activities in support of the Democrats do not earn them style points. 

We now have the cast. Without reference to Divine Authority, the play must be based on constitutional and legal relationships and a humanistic view of morality. Absolutism left the audition with God.  Humanism is not necessarily relativistic. If it were, it would not exist as a separate entity absent its social construction. 

Humanism has at its basis, personal and social/moral happiness within this life. For instance, we do not countenance murder because doing so leads to our being murdered – as is too often the case when youth take revenge into their own hands and the community allows them to do so. Theft and infidelity are moral or immoral on the same basis, although people may make arrangements on either – although personal experience has taught that such things do not work out. 

This sets up the dialogue on abortion perfectly. How does the Golden Rule, which is ultimately humanistic, relate. Some would say that abortion is the same thing as murder in the above context. No, it is not. 

The related situation is whether one has an opinion on ending one kind of pregnancy allows them to be free of other such interference with their own pregnancy loss. This is where the pro-choice movement get style points back, because being left alone with one’s family and doctor regarding the death of a child must be considered a universal right. We could end there, but that would be premature. Society, the child and the mother (with doctors and family as supporting characters) now enter the stage.

To keep this rated PG-13, we will omit what got the child to the zygote stage. At this point, a zygote has chromosomes from each parent, but is not using the entire set. At this point, it is a collection of stem cells that, with the development of the chorion – which becomes the bag of waters or placenta, becomes a blastocyst. If you remove a few stem cells, or even half in the case of twinning, the child has no loss of integrity – so it is not really a child yet. At gastrulation, this changes. Regardless of whether there is an eternal soul (and I believe there is), the materialistic soul picks up at this point and keeps on chugging until its electro-chemical activity has ceased at death (or is restarted after a near death experience or if the cold-water reflex preserves life before decay starts). 

Does this end the question, regardless of the right of families to be left alone (the violation of which might lead to few police officers being attacked by protective fathers)? No. This is where the American Public, as a Greek Chorus, enters the play, along with James Madison and the other constitutional actors.

At this point of the story, we examine what is meant by the right to life, not as proffered by the self-styled movement, but the one actually found in the Bill of Rights. In the Fifth Amendment, the right to life is limited to its taking by the Government. It has no other meaning. In the Fourteenth Amendment, this right is expanded to being taken by State governments. In both cases, the Child at all stages has an equal right to life. For this reason, pregnant women cannot be executed. 

This logic also applies to the Unborn Victims of Violence Act. If the child is harmed with its mother, it and its heirs have a right to civil and criminal redress. In the Act itself, however, the right to abortion is guaranteed. In other words, there is no need for a so-called Freedom of Choice Act. The Supreme Court erred when it did not consider this question and the Pro-Choice movement erred when it did not cite the Act during the argument over Dobbs, instead relying on stare decisis. They did a bad job of reading the room.

Cue the Supreme Court. The reason that Roe was rightly decided was that viability, which was not well defended as a principle, implies the ability to be born. Prior to that ability, there can be no enforceable right to life against the mother. Further, the Fifth and Fourteenth Amendments do not protect an individual from being murdered. That is a social contract question, not an essential rights question. Thank you to Locke and Hobbes for the Cameo role.

Cue the Confederacy and State Governments and then haul them off the stage. The reason Dobbs was wrongly decided  is that letting this matter reside with the State Governments is the same mistake the Founders made by allowing slavery to exist as a matter of state power, and later segregation in the matter of Plessey v. Ferguson. That Justice Alito cited Plessey to resurrect the same view of state power on the abortion issue would be funny save for the fact that it is so harmful to both women and the rule of law in this country. 

The mistake the pro-choice movement made was not making this point and not justifying the right to abortion in terms of viability, rather than birth, as its border – as under Roe and the Constitution they are the same thing – but only if the point is made. The other mistake that the pro-choice movement and Justice Brenan made was not specifically stating the role of Congress in further defining when the right to be considered as if born begins. That was a bridge too far for the movement, but it was a necessary one to prevent the current status quo. 

The current post-Dobbs regime allows Attorney General Paxton to pursue cheap publicity for threatening a woman who needed a necessary abortion because the child she was carrying could not survive. Because her moral right to life is absolute and because her child could never be born, the child has no moral right against hers. 

This is where I bring back the Catholic Church so that we may all boo them, as they teach differently. They still fear that God will smite them if they follow this very rational point to its conclusion. Boo them twice for thinking that the honor of God must be protected, when it is their own honor that they are seeking. Again, from the start, God has no personal stake it this over what is good for people in this life. Now use their own bishops crooks to remove them from the stage.

Cue the Democrats and Republicans from Congress. Like it or not, the Fourteenth Amendment has given them the power to decide this issue – and in a way that the Supreme Court cannot resist, and that State Governments cannot usurp. We are now left with the mother, the doomed child, Mitch McConnell and Chuck Shumer. Each side wants Congress to enact a law to either affirm Roe or nationalize Dobbs. To end the debate, their wish needs to be granted – and this can only happen if they compromise.

Up to the point when a fetus can be delivered live, abortion must remain unrestricted. After that point, the child has a right to be born – and a right to be allowed to then die. There is no moral responsibility to give extraordinary measures to the dying, no matter what age. Those who wish to do so are pursuing a political position, not a moral one. 

What bothers our Greek Chorus are those methods that are used to terminate a pregnancy once a child can be physically delivered. A lethal injection of sodium pentothal without first tranquilizing the condemned man is considered cruel and unusual. It shocks the conscience, even if administered in utero. The subsequent dismembering of the fetus, especially without the lethal dose, is even more abhorrent. Those who object to these acts are not wrong. 

Induction, therefore, is the only acceptable way to end a pregnancy once it can physically occur. It should be allowed, however, at any time in the pregnancy – especially for the doomed child whose eventual stillbirth is injurious to the mother. No one has a right to not be born. This is the appropriate place to draw the line and the inevitable conclusion for any political compromise. When this occurs, both the pro-life and pro-choice movements can exit the stage, with the curtain descending to leave the mother, the child, the doctor and, if called, clergy for baptism. 

The alternative for the Church is to let the unsavory methods of abortion continue. If it stands in the way of compromise, it is causing such methods to continue under the pretext of honoring God. This makes absolutely no sense. This implies that Catholic hospitals should participate in the movement for fetal hospice, which is exactly what I propose.

On the matter of Down’s Syndrome children, no one has any room to object to their early birth and hospice period, but especially without providing for respite care for parents and a life-long right to full disability benefits at the maximum level, regardless of work history. It is the lack of these that cause families to face the agonizing decision of whether to abort these children or not. 

Speaking for the disabled, the rest of us could use a raise as well. Four-fifths of retirees and all the disabled have only benefit checks to sustain us. The thought that we must be punished for not saving adequately is abhorrent, as is not enacting a child tax credit at median income levels so that all families can comfortably afford having an additional child. If the Catholic Bishops wish to redeem themselves after some of them supported Trump and other Republicans, it is their moral duty to insist on such benefits as a positive (social contract) right.

Thursday, September 19, 2024

Oil Price Inflation

House Budget: The Cost of the Biden-Harris Energy Crisis, September 19, 2024

The need to regulate oil futures became obvious in 2008, when it was found that speculation - rather than physical  supply - was driving oil prices. 

The U.S. Energy Information Administration had reported in 2023 that speculation is a major driver of oil prices.  This study, which reflects the 2008 situation and which has not been taken down since, lays this out in great detail at https://www.eia.gov/finance/markets/crudeoil/financial_markets.php  

In June of 2008, CFTC Commissioner Bart Chilton testified on the Increasing Transparency and Accountability in Oil Markets Act, then under consideration. Sadly, when the Act was passed, investment bankers could not cover their positions, so they dumped their mortgage backed securities - which were also worthless. This brought on the Great Recession and the passage of Dodd-Frank to make sure it would not happen again.

In the waning days of the Obama Administration, the Commodity Futures Trading Commission issued a proposed rule to limit speculation in oil market futures contracts, as well as other derivatives contracts, subsequent to the Dodd-Frank Act. Unexpectedly, Donald Trump was elected President.  

As reported by Robert Pozen of the Brookings Institution, on February 3, 2017, Trump issued one of his “executive order” memoranda that, while they had no effect, set off a chain of events that would gut Dodd-Frank reforms, including those which attempted to regulate oil futures speculation. 

In February 2018, Mick Mulvaney was appointed as the acting director of the Consumer Financial Protection Bureau. His mission was to tear down the Bureau and its recent regulations. The Trump tax reforms were just taking effect. The Financial Times reported that month that ‘Fundamentals do not matter to (a) new breed of oil speculator.’  

On July 31, 2018, the CTFC published a “Notice of Proposed Rulemaking to amend Commission regulation 41.25 to update the position limit rules for SFPs to provide regulatory comparability with equity options, foster innovation by providing a framework for position limits on SFPs that are not covered under the existing rules, and provide flexibility to DCMs in setting position limits for such products.”  In other words, they took their foot off the brakes.  A series of final rules were published and withdrawn, including one issued in the waning days of the Trump Administration - January 14, 2021 - on position limits for derivatives. 

When Russia invaded Ukraine, oil prices shot through the roof - mostly because there was too much money in the speculation sector. Because the Trump tax rates are still in force, undue rewards for speculation are still available - and why energy prices are still above what they should be, given the supply of oil available.

To add injury to injury, Blackrock has led other oil investors in pressuring U.S. oil companies to hold back on increasing supplies in order to keep prices high - and to do so in cooperation with OPEC. The Senate Budget Committee is now investigating reports from the FTC that former Pioneer Oil CEO Scott Sheffield attempted to collude with OPEC to increase prices and profits for his company in doing so. Democrats on the House Energy and Commerce Committee are also investigating.

Perhaps the Committee should keep up with what the other chamber and members of the minority are doing to uncover the truth, rather than playing politics in order to cover up what their side of the aisle is doing to keep oil prices, and with them, inflation high for American consumers.

There is little danger that the current effort to blame inflation of Vice President Harris will affect the election. The main questions are whether the release of all evidence against Citizen Trump on September 26th will cause him to end his campaign; if he stays in, how these disclosures will affect the election; if he leaves, who will the National Republican Committee choose to replace him with - i.e., whether the GOP is stuck with Senator Vance - especially if Ambassador/Governor Haley decides not to save the Party at the last moment.

Attachment: Energy Taxes

Tuesday, September 17, 2024

Lower Health Costs through Inflation Reduction Act

Finance: Lower Health Care Costs for Americans: Understanding the Benefits of the Inflation Reduction Act, September 17, 2024

The President proposed further action to Lower Health Care Costs, making permanent the expanded premium tax credits that the Inflation Reduction Act extended, providing Medicaid-like coverage to individuals in States that have not adopted Medicaid expansion, paired with financial incentives to ensure States maintain their existing expansions.

We supported this proposal but noted that the President is forgetting his promise to create a  Public Option. We disagreed with the president on how to shore up the HI trust fund and expand the Affordable Care Act.  ACA subsidies are too low and are funded by taxing the wrong people (investors). Families in the Silver Plan still have problems meeting copays and paying premiums. The funding is also unfortunate. Rather than expanding Medicaid, replace it for the non-elderly with the  Public Option proposed in 2009.  Please see the attachment in single-payer healthcare in general.

The public option should be extended to individuals who are denied coverage under pre-existing condition rules. Such rules must be revoked as the price of passing the bill. Such a trade-off is necessary for enactment of such a proposal on a bipartisan basis. 

Developing the Public Option needs to be funded in the 2025 budget, or at least for 2026. Particularly, it should explore the impacts on coverage and cost of automatically enrolling individuals who are denied coverage under pre-existing condition rules. 

The way to fully fund healthcare is through an employer-paid subtraction value added tax, which is an employer paid Net Business Receipts Tax.

Instead of increasing corporate tax rates, we suggest eliminating Corporate Profits taxes and taxation of business income on Form 1040 with a Subtraction VAT (with limited offsets for employee and and possibly retiree healthcare) and a credit invoice tax on both labor and profit. The combined rates of these taxes will burden both profits and labor costs, raising much more money.

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. 

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

Subsistence level salaries and benefits force the poor into servile labor. These 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 President’s Budget cites PhARMA profits as a rationale for increasing business income tax rates.  He proposes raising Tax Rates for Large Corporations. PhARMA’s excuse for high prices is for developing orphan drugs. We have a proposal to solve that problem.

PhARMA justifies its profits because it is burdened with high development costs for new and orphan drugs. We renew our call for a more “corporate approach” for government research and testing of new drugs.

Part of ARPA-H is the funding for research on orphan drugs and the lingering problem of their cost once research leads to product development. In comments to Senate Finance on March 16th of this year, we repeated our proposal in this area for NIH to retain ownership in any such drug and contract out its further development and manufacture. Keeping ownership in public hands ends the need for drug companies to charge extreme prices or increase prices for its existing formulary to fund development. 

PhARMA would still make reasonable profit, but the government would eat the risk and sometimes reap the rewards. NIH/FDA might even break even in the long term, especially if large volume drugs which were developed with government grants must pay back a share of basic research costs and the attached profits, as well as regulatory cost.

Attachment: Single Payer

Thursday, September 12, 2024

Tax Reform 2025 and Tax Avoidance

Finance: The 2025 Tax Policy Debate and Tax Avoidance Strategies, September 12, 2024

There are a number of tax avoidance schemes currently in play, as well as poor taxes and one potential scheme that would evolve should the Fair Tax be taken seriously, as well as a way to cut administrative costs if enacted. 

The most notorious tax avoidance is when the wealthy borrow money against their unrealized assets to live a lavish lifestyle and/or to develop new business lines. That money is borrowed avoids selling assets - which would trigger income tax events. Unrealized capital gains, when inherited below the level where inheritance taxes accrue, are a huge transfer of wealth (and for some, power over employees). Using life insurance and trust arrangements to avoid taxes are in the same ballpark.

Collection of capital gains taxes (and using dividends to avoid paying one - or capital gains to avoid the other) are based on the honor system, so that much of the required income disclosure and tax payment is never made. Long-term asset holding (including doing so to not recognize gains) is taxed at a lesser rate. 

The current regime also allows the taxation of gains to be offset by losses - literally failure or the overuse of available deductions - particularly in real estate. Moving tax events from an end of the year accounting to taxing each transaction will end the ability to hide gains forever - especially if the borrowing of unrealized gains is no longer advantageous due to the transition to consumption taxes.

The deductibility of wages of employees, which forces employees to pay taxes and to pay experts to prepare these taxes, is a huge tax break for business.  The reality is that business collects the revenue and submits it to the Treasury, along with a mountain of information to subsidize the tax preparation industry - who are consistent donors to both Chambers - especially the revenue committees. 

Payments to preparers to help families file the Earned Income Tax Credit is a poor tax. Higher minimum wages, paired with a higher child tax credit, provides more to those who need income subsidies while not making them wait for their money. Having such a refund paid in one lump sum makes it look like a windfall, while putting families in the position of needing such a windfall because they cannot make ends meet.

Deducting wages also leads to the taxation of wages and profit at different rates, which spreads inequality and interferes with the economy. The offloading of labor costs is the chief reason that corporate (and non-corporate) tax breaks are so ubiquitous. 

If labor and capital were taxed together through value added taxation, the justification for special tax breaks on profit goes away. This also eliminates any benefit from moving company locations off-shore, even when headquarters staff remain in the United States. There would also be no need for an international agreement on corporate income tax rates - because such taxes would no longer exist if our proposed reforms are enacted.

The proposed Fair Tax’s use of a retail sales tax, rather than use of a value added tax at each purchase (but note - the tax is only paid on the base markup  - not the taxes owed because of the markup) will lead to fraud as retail purchase are credited as wholesale - which under the FT is not taxed. This is a huge potential loss. This schema is proposed by Fair Tax sponsors because they misunderstand who VAT works. For the Fair Tax to ever pass, than being a talking point for fundraising, it must work like a VAT.

When VAT is paid by a merchant or manufacturer, the VAT that they paid for that good or service supplied is refunded to them. Currently, firms and individuals who charge sales taxes deduct these tax payments from income. These deductions should be credits instead, as the current regime is simply a subsidy to states who collect sales tax.  This small TAX CUT will remove the resistance to enacting a VAT - and the customer at the end of the supply chain pays the same amount of tax as they would for a retail sales tax. There is no tax on top of tax paid.

The proposed prebate to either Fair Tax or VAT provides for tax payment refunds only. This forces current subsidies for working class families to move from the tax system (which is the biggest source of such support) to a reconstituted social welfare system with the attendant bureaucracy. 

Some Fair Tax supporters like the idea of simply ending these subsidies - while also refusing to raise wages for the working class.  Not raising the minimum wage - and refusing to index it - suppresses wage growth for working families making under $110,000 per year - which is 80% of the population. Such premeditated inequality is abhorrent in any civilized society and those who support the Fair Tax to do so, especially if they also support banning abortion, are acting shamefully.

During the American Rescue Plan Act, the IRS distributed the enhanced refundable child tax credit. Instead, this should be distributed with wages, and Vice President Harris’ proposed credit size should be enacted for all children - not just during the first year. To pay this credit without an income tax system, as well as to distribute health insurance subsidies, a subtraction value added tax is necessary - although taxes collected at the base rate should be revenue neutral - in other words, the tax rate should fund the subsidies provided to wage earners on average. Some firms would be given a refund, while some would pay if their employees have fewer children than other firms. The refund would be limited to an offset against the collected credit invoice goods and services tax that we have proposed.  The higher child credit rate can also be used to justify deeper cuts in social welfare plan benefits and administrative costs.

Cutting taxes while borrowing money from those who would be taxed is another huge tax avoidance problem. What is even worse is that, for the highest income taxpayer/bondholders, the bonds that are bought for their high yield mutual fund account are used for speculative investments, some of which are actual junk masquerading as AAA+ bonds. 

Should the economy begin to falter when the Dow and housing prices hit their ceilings, increasing tax rates on the wealthy, as well as on asset sales, will increase consumption and speed recovery. Indeed, if we were to increase these tax rates as soon as possible next year, the high asset values will come down without crashing.

Attachment: Consumption Taxes (Video links included)

Attachment: Asset Value Added Taxes Video


Attachment - Consumption Taxes

Subtraction Value-Added Tax (S-VAT). Corporate income taxes and collection of business and farm income taxes will be replaced by this tax, which is an employer paid Net Business Receipts Tax. 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.

Higher tiers of the subtraction VAT would collect taxes on salaries with a 6.5% rate on income over $85,000, with increments of that amount to a top rate of 26% starting at $340,000 in salaried income. Salary surtaxes, with an option to purchase tax prepayment bonds, would start at $425,000 at 6.5% to a top rate of 26% starting at $680,000. Employers could also be given the option to buy tax prepayment bonds - which could be marketable.

Taxation of dividends will be included in surtaxes to the Subtraction VAT for payments over $85,000 in taxes plus dividends in a given year, however individual filing for wage. dividend and interest income under $425,000 will not be required. Again, the capital gains tax will be abolished.

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

Credit Invoice Value-Added Tax (CI-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. 

CI-VAT forces everyone, from the working poor to the beneficiaries of inherited wealth, to pay taxes and share in the cost of government. As part of enactment, gross wages will be reduced to take into account the shift to S-VAT and CI-VAT, however net income will be increased by the same percentage as the CI-VAT. Inherited assets will be taxed under A-VAT when sold. Any inherited cash, or funds borrowed against the value of shares, will face the CI-VAT when sold or the A-VAT if invested.

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. 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. 

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

Attachment - Asset Value Added Tax

Asset VAT - The 2025 Tax Policy Debate and Tax Avoidance Strategies

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.

Asset Value-Added Tax (A-VAT) is 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. This change would be counted as a tax cut, giving investors in public stock who make such sales the same tax benefit as those who sell private stock.

The repeal of capital gains taxes in the United States will lead to their repeal worldwide. If Asset Value Added Taxes are adopted, the rate should be negotiated so that investors who are able do not market shop for the lowest rate. The recent OECD compact on minimum rates is an example of how tax cooperation on capital can work for other types of asset taxation.

This tax will end Tax Gap issues owed by high income individuals. The base 20% capital gains tax has been in place for decades. The current 23.8% rate includes the ACA-SM surtax), while the Biden proposal accepted by Senator Sinema is 28.8%. Our proposed Subtraction VAT would eliminate the 3.8% surtax. This would leave a 25% rate in place.

Settling on a bipartisan 22.5% rate (give or take 0.5%) should be bipartisan and carried over from the capital gains tax to the asset VAT.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.

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.

Video: https://youtu.be/azVxkDBN7AA

Wednesday, September 11, 2024

Improving CBO

House Budget: Congress and the Congressional Budget Office (CBO): Examining Ways to Improve CBO, September 11, 2024

To restate the obvious, any changes to the Budget Act must be passed by both Chambers, preferably on a bipartisan basis. If this is not the case, the audience for any such discussion is the donor community. Most donors contribute on a bipartisan basis. This year that is not the case - and it is the radicals who seek to tear down the government who have been cut off. Discussions such as this one will not increase contributions.

That is not to say that no changes should be made by CBO, however changes to CBO are not required at this time.  CBO could identify the optimum level for the deficit, which we think should be adequate to fund interest payments and reinvestment by long-term debt holdings, with less or no investment by high yield funds who hold the debt so as to enable speculation in the Wall Street casino by investors whose taxes are too low.

In March of this year, in response to the Markup of the budget resolution that went nowhere (which was reported out, with no media attention, as a distraction from the President’s Budget release), we provided an analysis of who owns and owes the debt. It is excerpted in the first attachment.

We agree that the deficit is too high, largely because tax rates on capital gains and returns are too low. It is up to Congress to make these changes, however the CBO can certainly identify the impact of the deficit on the economy, given revenue policy. 

In April of this year, in a hearing before the Ways and Means Committee on renewing the Trump Tax Cuts (which are soon to expire), we included an analysis of the relationship between deficit finance and economic growth in the following year. They show that when Republican administrations (which lower taxes) are in charge, higher deficits are required to spur growth. When Democrats are in charge, higher taxes with lower deficits encourage growth.  I have included this analysis in the second attachment. 

The general rule is not the case during the current regime, because two “moderate” Democrats stopped the President’s fiscal policy from enactment - so we are still under the influence of the Trump era policies. The coming election will either lead to gridlock or domination by the current President’s party, which will end the Trump tax cuts and lead to a restoration of the Obama economy or election of the other party - which will encourage speculation until the economy crashes (although we may have passed the turning point already).

Attachment: HBUD FY25 Budget: Buried on Passage

Attachment: Deficit Economics