There are some things Trump can't do

Trump does not control the judges. Most are professional.

He cannot get impose Schedule F without changing law - and he won't be able to.

Trump needs to be given better staff - one that offers him neat plans and empowers him to make decisions, rather than treat him like a child. He lives by values, not competence, which is not only a valid way to think - it is what the people voted for.

Transition Tax Team Comment 2

Submission to the Transition Team and to Secretary-Designate Bessent

WM Republican Tax Teams Comment on Main Street, Working Families, American Workforce, Community Development, New Economy, Rural America, Supply Chains, and U.S. Innovation, October 11, 2024

Letting the 2017 Tax Law Die and Saving Main Street

Can the nation endure current levels of inequality? Not unless we are willing to kill Main Street for the benefit of Wall Street. 

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 plants and equipment. The latter responds to greater levels of consumption by households funded by both the public and private sectors, including Social Security recipients.

The Tax and Job Cuts Act (not a typo) was a classic piece of Austrian Economics, where booms are encouraged and busts happen with no bailouts. Strong companies and best workers keep jobs and the devil takes the hindmost. It is economic Darwinism at its most obvious, but there is a safety valve. When tax cuts pass, Congress loses all fiscal discipline, the Budget Control Act baseline discipline is (as it should be) suspended and deficits grow. Bond purchasers pick up the slack caused by the TCJA, which they will as long as we run trade deficits, unless the President’s economic naiveté ruins that for us.

Modern economics has become infected with the idea that higher tax rates and lower public spending hurt the economy. By definition, this is not the case. The exact opposite is true. To refresh our memories of what is in the U.S. Code and most basic economics textbooks, Gross Domestic Product equals equal government purchases, consumption from government employee, contractor, transfer recipient and second order private sector spending, which leads to private sector investment, and exports net of imports (which creates a source of funds for debt finance). In other words, economic growth comes from doing good by Main Street.

Anything that is not part of GDP is considered “savings” or in reality, is asset inflation. If you want to end poverty, give poor people and retirees more money and the economy will grow. Increase government expenditure (even bombers) and the economy will grow, including for the now notorious upper middle class.

Lower tax rates also made money available to chase the same supply of investment instruments, which bid up their price, and caused the invention of a whole range of new products which would be built up and sold by the emerging financial class, who would profit-take and watch what they created go bust and start yet another modern recession, especially the Great Recession just experienced. Only higher tax rates or increased deficit spending control such asset inflation (and the consumption cycles associated with them – which Marx thought was the driver of the boom bust cycle – Marx had a failure of imagination).

The Pandemic and the recovery from it generated a planned recession and a period of inflation as the economy reacted to excess stimulus to higher income taxpayers. Giving money to most households did not cause inflation. Letting the “middle class” of households who are paid over $100,000 per year have any additional cash resulted in the current bout of inflation. Money chases the median dollar, not the median household, and the median dollar is earned at the $160,000 level. The stock market is doing well. Rank and  file workers are not.

This was seen when, as pandemic benefits were given, the great resignation took place.

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.

The solution to the problem of the TCJA expiration is to let them, although this would stop some of the beneficial changes from being retained - like shifting tax benefits from exemptions for children to a child tax credit (although this credit needs to be refundable). The opportunity this expiration creates should be the willingness to compromise. 

Simply extending current law is a lost opportunity - especially for those of us who used to be Republicans and who believe most households should not have to file tax returns. Employers already transfer personal income tax payments to the IRS and the accompanying data - for wealthier families, the child tax credit becomes part of pay and is thus distributed with payroll. All workers and students who are parents should have the same benefit with full refundability.

Working Families, the American Workforce, Community Development, the New Economy and Rural America

There are two things that working families need right now: higher wages for work and a separate compensation stream for families with children. What they don’t need is to pay taxes or work at jobs that are so physically demanding or socially useless that work is torture.

Menial labor does not command a high enough pay rate in the current economy - mostly due to the fact that these jobs are taken by migrants - many undocumented - that have no other options. We have again become  a slave society. Society needs to eat food that is not too expensive that requires less touch labor from rural America. 

Science is coming to the rescue with vat grown meat and the kind of hydroponics that have made the Netherlands the new California. These new technologies will take food production from backbreaking work that requires manual dexterity for food harvesting and processing, leading to repetitive stress injuries, to knowledge intensive work to grow food in factories. These will replace morally and ecologically repugnant factory farms where animals are warehoused and loaded with antibiotics - leading to resistance in the consumer population.

Climate change is killing rural America. For the last two years, temperatures of over 110 degrees in the southwest and Midwest, with either too much or too little rain. In the summer, hot winds come from the ocean after being heated there due to the greenhouse effect. These winds drop moisture in the mountains and are reheated as they pass over the Atlantic, dropping their heat in the Barents Sea. This body of water controls the heat transferred to the Arctic Ocean and the air over it. The Arctic zone is the air conditioner for the northern temperate climate. It is broken.

Coal is not the problem in most of the world - it is on its way out and can be replaced by small modular nuclear reactors. The factor that has arisen in modern times, which is when the Barents Sea began warming, is the use of gasoline powered vehicles. These can be replaced by electric vehicles - although battery technology is too expensive for most of the American workforce to afford - and too environmentally damaging to produce at required levels. 

The other problem with the automotive revolution is storage during the day with road congestion in the morning and evening. Tethered electric vehicles on controlled roadways coordinated through a central computer system are the best way to stop warming and congestion in a system that the working class can afford. 

Building out the system will require investment, which can be pre-funded by building up revenue and paying back any borrowing with a 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.

Building a knowledge based food manufacturing and road building system requires an educated workforce, much of which is now marginally literate in English, being underserved by the American education system (which needs teachers) or having arrived from other cases, often without documentation. The Supreme Court ruling in Plyers v. Doe mandates elementary and secondary education for all children, regardless of immigration status.  The same right must be recognized for adult learners.

Even with better jobs, the housing needs of  families with children are beyond the ability of many households to pay for. The free market gives a bonus to workers without children. This is an example of market failure. It requires some degree of redistribution to all families - or rather - to their employers. This burden has been borne by the government through the earned income tax credit, child tax credit and childcare credit, with the last two being inadequate.

Workers should receive these benefits from their employers - who benefit from having workers at their beck and call. Instead of using the IRS as paymaster for families with children, income transfers to these households - as well as work based child care, should be financed and meted out through a tax and tax benefit program for employers. The same benefits should be delivered to government workers and beneficiaries (both the unemployed, the disabled and the retired). 

Health insurance or direct care by in-house doctors, with specialist care and hospitalization covered by contracts in private HMOs. Having healthcare is a family benefit which mainly benefits employees and their employers. Therefore, it should be funded by a tax on employers, which would be partially offset by coverage for employees in the most economical manner (including secondary market insurance coverage). 

Some amount of revenue from employment based taxes should be retained by the government to fund a public option to cover both the poor, the unemployed and those with pre-existing conditions whose care is too expensive to be provided by the private market.

Community development comes from having well compensated employment, both with adequate wages, including a higher minimum wage, child tax credit and long term unemployment insurance (which preserves the availability of the workforce and replaces disability payments.  While employers should certainly coordinate in providing housing close to work sites, aka Smart Growth, these efforts should not be used to displace disadvantaged populations from their existing homes. 

Community development should go hand in hand with human capital development, aka paid education for adult members of these households (compensated at the minimum wage - thus meeting the opportunity costs of these students).

How should all of this be paid for? A net business receipts tax/subtraction- which would replace special taxes to fund employment insurance and the obligation for most (if not all) families to pay or file taxes while being a conduit for providing an adequate child tax credit (between $500 and $1000 per child per month), adequate childcare, healthcare for employee’s families - rather than having government do it through directly paid child tax credits or some form of single payer or national healthcare program. 

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.

Will rising wages and benefits lead to higher inflation? It is a valid question. Households making under the 90th percentile have been losing ground for almost half a century, while incomes above that amount have increased on a regular basis.

The source of inequality, aside from abandoning the 91% top marginal tax rate, is granting raises at an equal percentage rather than by an equal amount. When the 91% rate was repealed, incomes were fairly equal, so it was not an issue. 

The federal government plays an outsized role in how salaries are determined through percentage based cost of living adjustments to government workers, beneficiaries, government contractors. The government can change this with the stroke of a pen.  The private sector will follow suit with a higher minimum wage, adequate child tax credits (as described below) and paying individuals in training from ESL to community college the minimum wage to purse their studies.

From here on in, adjust for cost of living on a per dollar an hour rather than on a percentage basis (or dollars per month or week for federal beneficiaries). Calculate the dollar amount based on inflation at the median income level. No one gets more dollars an hour raise, no one gets less dollars per hour in increases. Increase the minimum wage as above and consider decreasing high end salaries paid to government employees and contractors. Even without decreases, simply equalizing raises will soon reduce inequality. Why is this necessary?

Prices chaise the median dollar. The median dollar of income is actually at the 90th percentile, rather than the 77th percentile (which is about where the median is). This strategy will reduce inflation in both the long and short terms as prices adjust to decreases in higher salaried income. Let me repeat this - prices chase income dollars, not income earners. 

Taxing High Wages, Dividends and Interest

Personal income taxes would be paid on all income distributed as wages, interest or dividends over $105,000. These payments could also be made through employers as a surtax rather than as a personal income tax. Personal or subtraction value added surtaxes will be collected  with a beginning rate of 6.5%, with a top rate of 52% at the $840,000 distribution level. If subtraction VAT surtaxes top out at 26% at the $420,000 level, then personal income taxes kick in at the $525,000 level at 6.5%, topping out at 26% for income above $945,000.

High income individuals will be tempted to use corporations to avoid these taxes, but that corporation would then pay all invoice and subtraction VAT payments (which would distribute tax benefits). 

There is one wrinkle to using employer payment and prepayment bonds to pay high income tax obligations, the taxation of capital gains. No investor wants their employer to have visibility in this area. Meanwhile, taxing capital gains with self-reporting is too easy to game and too often results in underpayment - which is a reason that a wealthy tax would never be successful. 

Collection of capital gains taxes (and using dividends to avoid paying one - or capital gains to avoid the other) is 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.

An asset value added tax is the last step in taking the IRS off of life support and letting it die, provided that states collect and enforce non-compliance of credit invoice and subtraction value added taxes. Surtax payments and prepayments would be collected by the Bureau of the Public Debt, with the Securities and Exchange Commission and the Commodity Futures Trading Commission receiving and enforcing payment of an asset VAT.

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 compromise between 23.8% and 28.8%, rather than going back and forth and adding such gimmicks as a payroll tax to fund healthcare reform. A 26% rate is a reasonable compromise.

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! Nothing is more conservative than that notion.

The Results for Main Street, U.S. Innovation and Supply Chains

Allowing heirs to transfer inherited shares to employees will diminish the effect of Wall Street and strengthen Main Street. These firms will flatten wage structures while rewarding real innovation, invention and results. Indeed, their example will change the economy because it will attract the most creative people. This will give a giant boost to U.S. Innovation. Employee-owned firms will shorten supply chains while extending the benefits of such ownership to their foreign subsidiaries and suppliers so that workers up and down the line are rewarded with the same standard of living. Employee-owned firms are uniquely placed to spur new economy innovations, such as the transformation of the food supply and transportation infrastructure that we need to survive.

Some or all of surtax and asset VAT revenue 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, particularly that portion of the debt held by high yield mutual funds.  

Using higher taxes to reduce the debt makes much more sense than borrowing the same money that would have been paid in taxes in order to fund speculation. Employers and individuals can be given the option to purchase tax prepayment bonds, which could be marketable as a hedge - but without the fees that Wall Street charges to make such arrangements.

The question must be asked, who really pays higher taxes and better benefits. Most CEOs and business owners look at all benefits and taxes paid as a personal cost. If the tax or tax expenditure was removed, the savings would go to increased profits - not to employees. There are three kinds of profit - normal profits paid to shareholders at a high enough rate to attract needed investment, profits directed toward future costs (this assumes that debt is not used to build out physical investment plans) and excess profit paid to executives - some of which end up as political contributions for those who do their bidding.

The Republican Party must decide who it works for. The CEO/Donor class or the American people? If this exercise is being used as a way to justify retaining lower taxes on investors and executives, then we have our answer. The Presidency of Donald Trump was a test of that question and the likely reaction of the public to this will be loud and clear (which will be addressed in the attachment).

How do these proposals square with conservatism?  They do so absolutely. They will

• Give incentives to people who wish to improve their lives. 
• Reduce the prevalence of abortion by increasing the well being of families and by channeling this funding to workers in their wages, 
• End the role of the IRS as paymaster - indeed they may end the IRS itself with the end of income tax payments by families,
• Allow for the end of benefits paid by governments through direct aid with no strings attached,
• Spur real economic growth on Main Street, rather than enriching Wall Street, and
• Bring our debt under control.

Last I checked, these were the essence of conservatism.

Transition Tax Team Comment 1

Submission to the Transition Team and to Secretary-Designate Bessent

WM Republican Tax Teams Comment on American Manufacturing, Main Street, U.S. Innovation and Global Competitiveness, October 11, 2024

Keeping Up with the World

President Trump is correct that the old neo-liberal agenda of free trade has not helped American manufacturing and the American worker. Starting a tariff war is not the answer, however. We must simply comply with the trade regime that holds in the rest of the world by enacting a credit invoice value added (aka goods and services) tax.

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 the Subtraction VAT described in our second set of proposals and the 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.

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.

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 how a CI-VAT works. For the Fair Tax to ever pass, rather than being a talking point for fundraising, it must work the same way..

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

Saving American Manufacturing and Global Competitiveness

Consumption taxes could have a big impact on workers, industry and consumers. Enacting an CI-VAT is far superior to a tariff. The more government costs are loaded onto an CI-VAT the better for global competitiveness.

If the employer portion of Old Age and Survivors Insurance, as well as all of disability and hospital insurance are decoupled from income and credited equally and personal retirement accounts are not used,  there is no reason not to load them onto an CI-VAT. This tax is zero rated at export and fully burdens imports.  

Seen another way, to not put as much taxation into CI-VAT as possible is to enact an unconstitutional export tax. Adopting a CI-VAT is superior to its weak sister, the Destination Based Cash Flow Tax that was contemplated for inclusion in the TCJA. It would have run afoul of WTO rules on taxing corporate income. I-VAT, which taxes both labor and profit, does not. 

The second tax applicable to trade is a Subtraction VAT or S-VAT. This tax is designed to benefit the families of workers through direct subsidies, such as an enlarged child tax credit, or indirect subsidies used by employers to provide health insurance or tuition reimbursement, even including direct medical care and elementary school tuition. As such, S-VAT cannot be border adjustable. Doing so would take away needed family benefits. As such, it is really part of compensation.  While we could run all compensation through the public sector.

The S-VAT could have a huge impact on long term trade policy, probably much more than trade treaties, if one of the deductions from the tax is purchase of employer voting stock (in equal dollar amounts for each worker).  Over a fairly short period of time, much of American industry, if not employee-owned outright  (and there are other policies to accelerate this, like ESOP conversion) will give workers enough of a share to greatly impact wages, management hiring and compensation and dealing with overseas subsidiaries and the supply chain – as well as impacting certain legal provisions that limit the fiduciary impact of management decision to improving short-term profitability (at least that is the excuse managers give for not privileging job retention).  

Employee-owners will find it in their own interest to give their overseas subsidiaries and their supply chain’s employees the same deal that they get as far as employee-ownership plus an equivalent standard of living.  The same pay is not necessary, currency markets will adjust once worker standards of living rise.  Attachment Three further discusses employee ownership.

Over time, ownership will change the economies of the nations we trade with, as working in employee-owned companies will become the market preference and force other firms to adopt similar policies (in much the same way that, even without a tax benefit for purchasing stock, employee-owned companies that become more democratic or even more socialistic, will force all other employers to adopt similar measures to compete for the best workers and professionals).

In the long run, trade will no longer be an issue.  Internal company dynamics will replace the need for trade agreements as capitalists lose the ability to pit the interest of one nation’s workers against the others.  This approach is also the most effective way to deal with the advance of robotics.  If the workers own the robots, wages are swapped for profits with the profits going where they will enhance consumption without such devices as a guaranteed income.

Dealing with the National Debt - Less than full faith and credit

Any downgrades we have had - and there have been two - did not come because the Democrats are spending out of control. It is because Republicans refuse to compromise until the last minute, with a significant portion of leadership not wanting to compromise at all. This unwillingness cost Mr. McCarthy his Speakership and likely drove John Boehner out of Congress. 

Downgrades came for the same reason - brinkmanship on the debt limit in an attempt to force temporary tax cuts to be made permanent. The irresponsible strategy and the end goal alarm the bond markets because they indicate that one major party has no commitment to fiscal responsibility - play politics instead in fear of Grover Norquist - who no longer has skin in the game. Donald Trump took all of the radical oxygen away from the Republican fringe.

I am going to assume that leadership, especially among members of the Freedom Caucus, as well as their staffs are truly ignorant of how the national debt actually works. In short, it is the reason capitalism can exist at all. This is why, when the debt was paid off and the national bank was closed by Andrew Jackson, the economy collapsed. 

Historic perspectives

In the 1960s, the debt from World War II was quickly being paid down. By the end of the decade, there was no federal debt to leverage other liquid investments. This eventually led to tax cuts, but President Reagan overshot the mark and then codified it in the 1986 tax reform. Presidents Bush and Clinton found the growing deficits unsustainable and adjusted tax reform at the margins. Doing so reduced the debt while fueling economic growth. 

The Clinton cuts to capital gains taxes put too much money into the hands of speculators, which led to the tech boom and bust. It had nothing to do with technology and everything to do with IPOs. Even then, as budget balance was a real possibility, Alan Greenspan sounded the alarm about abolishing the debt. Many thought that this was to preserve the ability to maintain a fractional reserve currency, but the real motivation was to continue to provide the leverage on which capitalism depends.

Federal Debt Ownership

According to the Treasury Bulletin, the national debt is owned by the Federal Reserve System and its member banks (about a third), long term investment, insurance and retirement funds - both public and private - as well as Savings Bonds (another third). Using figures from the 2019 Federal Reserve Survey of Consumer Finance, I estimate that the top 10% of households own around 54% of these funds, with the bottom 90% owning the remainder (although the bottom three quintiles own essentially nothing - nor do they owe it - as will be described below.

The last third is owned by mutual and bond funds, as well as offshore investors. The top 10% of households own 77% of these funds. If the majority continues to dance on the edge of default, these are the investments that are at risk. The top 1% own the same percentages as of what the top 10% hold. This means that from the second to the tenth percentages own 25% of deposits retirement and mutual funds backed by Treasuries. 

The top 1% hold one quarter of debt assets held through deposits and long-term investment funds and half of what is held by mutual and bond funds. There are better ways to increase interest rates for these borrowers than messing with the Full Faith and Credit of the United States, which is essentially what the Freedom Caucus led assault on the status quo is doing.

Let us add that of the debt held overseas, roughly two thirds are held by foreign governments who, by doing so, facilitate international capitalism - especially the import of consumer goods from Japan and China. Messing with these funds put WalMart shopping at risk, as well as the entire chain. Much of the remainder of foreign bond holdings are in the Caymans, Ireland, Switzerland and Luxembourg. In other words, they are held in tax shelters for very wealthy Republican donors.

These investors know exactly where their debt assets are being held. It seems as if members of the Freedom Caucus do not. Unless there is a plot to destroy capitalism that I have not yet heard about, we suggest that the debt limit be abolished and the 2018 tax cuts allowed to expire on schedule. This will restore the confidence of both rating agencies and investors at home and abroad.

Continuing on the current path, where a major portion of the Republican Party acts against the interests of investors and the nation at large and sustains unsustainable tax cuts could have drastic consequences. The entire economy could collapse again, but this time for real. If the Federal Reserve loses its international leverage because the debt has become worthless, there will be no bailouts for questionable investments in mortgage backed securities - investments that have shifted from owner-occupied housing to single-family rentals. The bill to ban hedge fund ownership of these properties will reduce risk overall, but will not save the nation from the risk of losing its good credit.

Who Owes the Debt?

Debt obligation is a function of income tax paid (FICA tax paid to create assets held in trust by the government, not debt obligation). The current factor is 19 dollars of debt owed for every dollar paid in tax. 

Ownership of Social Security assets is realized when households are in the bottom quintiles who, at that time (because only 20% have income beside Social Security), own almost all FICA trust fund assets. The bottom quintiles hold more than their obligation.

The next three quintiles owe more than they own until we get to the top 0.1%. Because half of their income is earned through asset ownership taxed at preferred rates and their high share of ownership of debt, they break even. They own what they owe. In other words, when interest rates go up due to downgrades, their wealth expands in terms of debt owned compared to debt owed. This should guide how the debt should be reduced responsibly.

If we do not start paying our debts (which enactment of a CI-VAT will help us do) or default on the debt, our economy will be ruined. There is nothing conservative about that.