Trade Modernization

WM Trade: American Trade Enforcement Priorities, February 25, 2025

This Subcommittee will have more impact than any other in the tax reform process, given that the President has essentially proposed dismantling the income tax system and replacing it with much higher tariffs.  The difference between high tariffs and reliance on a credit invoice value added tax is that a tariff is more onerous for the majority of families. A subsidy to such families to soften the blow would be necessary. Absent comprehensive tax reform, such a subsidy would put the government in the position of universal paymaster. This was tried during the pandemic recovery period and is the reason why enhanced child tax credits were allowed to die. The Fair Tax proposal has the same flaw.

Tariffs are also used as a form of industrial policy. This is hardly conservative unless one equates conservatism with crony capitalism. The current campaign finance system already reeks of pay to play arrangements. Reliance on tariffs would magnify this - as would a VAT which exempted certain industries. Again, this is industrial policy. 

The Center for Fiscal Equity proposal for tax reform includes both a broad based VAT (which would not invite retaliation - which is a concept that the President should be briefed on) and a subtraction VAT (also known as a net business receipts tax) that can be used to distribute social benefits, such as paid leave, childcare and an expanded child tax credit. 

When workers are paid on a longer-term basis as either employees or contractors, they cannot be considered individual entrepreneurs. What was a condition of service becomes a rule to be followed - and unless a worker is free to refuse work and sell the same services elsewhere - the worker’s family is dependent on the employer. Expanding wages and the child tax credit gives employees a freer hand in negotiating the terms of work and compensation. Anything less is a polite form of bondage.

Health care spending by employers could also be an offset to a subtraction VAT, but unless it is a universal right of employment and retirement that must be satisfied by employers, some portion of a public option under healthcare reform, a single payer system and/or Medicaid and Medicare would be funded by a credit invoice VAT (or the general tariff President Trump seems to favor).

To keep rates low, absent huge cuts in defense spending, some form of progressive income taxation is needed. This can be collected on an individual basis (with most employers writing the check - with the government overseeing the reconciliation process) or a tax collected by employers (a surtax on the subtraction VAT) for income, interest and dividends paid to workers and investors at various distribution levels - but without these individuals having to file tax forms. 

Such a surtax could take the form of a tax prepayment bond - which would create a tradable asset that the employer could use to shed debt to the United States in bankruptcy - or trade to raise cash without damaging the Treasury. Adjustments would be made by the employer at individual tax year payments, if necessary.

This surtax would exempt capital gains taxation. This could be individually filed (which defeats the purpose of reform), filed by employers (which raises privacy concerns) or collected at the transaction level at a single rate, but as an asset value added tax. The purchaser would pay the statutory rate as part of the sales price, with the seller (or their broker) remitting the tax absent tax paid when buying the property. To prevent international stock exchange shopping, the rate should be negotiated on a multi-national basis.

For purposes of budget deficit reduction, this tax is the portion of the balloon which gets bigger - as the current shortfalls in revenue were caused by rate cuts in this area going back to the second Bush Administration - although the health care tax currently paid by high income individuals should be eliminated and transferred to either the subtraction VAT, credit invoice VAT or tariff revenue. Doing so allows for a higher rate - as well as reducing the rate of short term capital gains to the long term rate.

Collection at the transaction level stops the rewarding of failure, which is how the current system works where losses are claimed or created to offset profit. A transaction based tax also cuts any attempt to enact a wealth tax off at its knees. 

Attachment: Trade Policy Video

Attachment: Tax Reform Videos included

Health Modernization

WM Health:  Modernizing American Health Care: Creating Healthy Options and Better Incentives,  February 11, 2025

The healthiest option is for employee-owned companies to train and hire their own doctors, as well as providing their own grocery supply chain without subsidies from the kind of food companies that the new Secretary of Health and Human Services is now targeting. We applaud this effort.

Until employee-owned firms expand their scope, this movement is too slow for immediate benefits. This leaves us with health care reform - the main options being single payer systems such as Medicaid for All and the expanded Public Option that was considered but rejected more than fifteen years ago. 

Poverty is the biggest cause of bad health. As we have stated before, the best avenues out of poverty for families is a higher child tax credit. The current credit, which is temporary, should be doubled or tripled as part of the next round of tax reform. With a higher minimum wage (which should be paid for those underserved by the education system to meet their opportunity costs for engaging in remedial education instead of low wage work, welfare or illegal activity), people will be able to afford better food choices.

Adding family sick leave assures that people can get care for their children during normal work hours. This saves society money in the short and long terms. Because marginal firms may not be able to afford this benefit, it should be provided as a subsidy to them as part of the enactment of an employer paid subtraction VAT.

Attachment: Single Payer

Attachment: Tax Reform Videos included

IRS Modernization

 WM Oversight: IRS Return on Investment and the Need for Modernization, February 11, 2025

Please see the first attachment for the latest version of our tax reform proposals, beginning with how the proposed rates are synergistic. Note that we propose ending corporate income taxes and reporting of business income on personal income taxes. We replace these with consumer paid goods and services and employer paid subtraction value added taxes. 

The income tax for individuals with wage, dividend and salary income under $100,000 would be eliminated. A surtax on employer paid subtraction value added taxes would be paid by employers, but filing of individual income tax would not occur until $500,000 of salary, interest paid and dividend income. Spousal income would not be included in this levy.

We propose ending the capital gains tax on short and long term income and full repeal of the inheritance (death) tax with an asset value added tax. There are two debates in tax policy: how we tax salaries and how we tax assets (returns, gains and inheritances). Shoving too much into the Personal Income Tax mainly benefits the wealthy because it subsidizes losses by allowing investors to not pay tax on higher salaries with malice aforethought. TAX TRANSACTIONS, NOT PEOPLE!

Ending the machinery of self-reporting of asset returns  also puts an end to the Quixotic campaign to enact a wealth tax. To replace revenue loss due to the ending of the personal income tax (for all but the wealthiest workers and celebrities), enact a Goods and Services Tax. A GST is inescapable. Those escapees who are of most concern are not waiters or those who receive refundable tax subsidies. It is those who use tax loopholes and borrowing against their paper wealth to avoid paying taxes. 

For example, if an unnamed billionaire or billionaires borrow against their wealth to go into space, creating such assets would be taxable under a GST or an asset VAT. When the Masters of the Universe on Wall Street borrow against their assets to avoid taxation, having to pay a consumption tax on their spending ends the tax advantage of gaming the system. 

This also applies to inheritors.  No “Death Tax” is necessary beyond marking the sale of inherited assets to market value (with sales to qualified ESOPs tax free). Those who inherit large cash fortunes will pay the GST when they spend the money or Asset VAT when they invest it. No special estate tax is required and no life insurance policy or retirement account inheritance rules will be of any use in tax avoidance.

Tax avoidance is a myth sold by insurance and investment brokers. In reality, explicit and implicit value added taxes are already in force. Individuals and firms that collect retail sales taxes receive a rebate for taxes paid in their federal income taxes.  This is an intergovernmental VAT. Tax withheld by employers for the income and payroll taxes of their labor force is an implicit VAT. A goods and services tax simply makes these taxes visible.

Should the tax reform proposed here pass, there is no need for an IRS to exist, save to do data matching integrity. States and the Customs Service would collect credit invoice taxes, states would collect subtraction VAT, the SEC would collect the asset VAT and the Bureau of the Public Debt would collect income taxes or sell tax-prepayment bonds. See the second attachment for details on this.

Until tax reform occurs, IRS Statistics on Income tax tables  should be adjusted for inflation to get a better idea of the distribution of income. Between $50,000 and $100,000, there should be five groups. Between $100,000 and $200,000, there should at least be four so that the border between the fourth and fifth quintiles can be more adequately expressed. Every tax wonk in the nation will appreciate this.

Attachment: Tax Reform Videos included

Attachment: Tax Administration Video

DOGE Derangement Syndrome

What Elon Musk is trying to do has been done before by the Grace Commission, Reform'88, Reinventing Government chaired by Gore, the Obama Fiscal Commission and Bush's task forces on tax reform, personnel policy and Social Security.

Elon needs expert staff. People who understand regulatory policy (Neil Kerwin or any of his former students at American), a general counsel who vets bad ideas before they see the light of day, an administrator who knows how to work with agencies and the GAO to get the required data - it is easier than he thinks, a tax policy expert or thought leader (I would help if Trump quits shooting from the hip) to look at the congressional budget process and committee organization, a political sponsor - ideally the Vice President.

Elon is a rookie and it shows. This town chews up rookies and sends them home in the first year of every administration. Long term reform needs to be quiet

Social Services and Solvency: Long Term Unemployment Insurance

CORE COMMENTS:

The general approach to reform social services is to provide a form of guaranteed income, but not through a general subsidy for all households. We do not propose free money for all households - which is the gist of basic income proposals. Our approach addresses individual needs, but uses similar tools. 

Until Congress increases the minimum wage, and as importantly, abandons percentage based cost of living adjustments for federal direct and contract employees in favor of a specific dollar amount, the country will face deepening poverty for some and high inflation for others. Prices  chase the wage given to the 90th percentile - which is where the median dollar of income is paid. 

The reforms below will prevent the boom-bust cycle which we seem to be trapped in of late. They will also provide resilience against the next pandemic.

1. An increase in the minimum wage to at least $11 per hour (if not more to account for pandemic inflation), with a $12 wage for a shorter work week.  This distributes the burden of higher wages for less work with employees and employers.
2. Increase the Child Tax Credit to levels passed by the House, with increases to at least twice that in fairly short order.
3. Replace the current menu of social programs with long term unemployment insurance at below minimum wage levels, which would be supplemented with additional funding for participation in basic education (especially for ex-offenders), employment training, psychiatric or addiction rehabilitation programs. Old Age, Survivors and Disability Insurance would start with this amount as a minimum, with higher benefit levels based on employment history. Dependent payments would be made through the child tax credit once it has been increased to current survivor benefit levels. 
4. Long term unemployment insurance would be awarded on a no fault basis, ending the need for eligibility investigations beyond verification of identity and for punitive disciplinary systems by employers designed to avoid paying benefits. This payment, which would be indexed for inflation, would be $10 per hour for a 28 hour week, would be tax free and funded by a national goods and services tax. States could enact higher benefit levels funded by a local GST.
5. Most, if not all, anti-poverty programs would be discontinued, although programs to increase rental housing supplies would be expanded.

Taken together, these reforms will remove the punitive features from anti-poverty programs, especially those which require an excess of red tape to participate -  the earned income tax credit and supplemental security income. 

WM Work and Welfare: Time’s Running Out: Prosecuting Fraudsters for Stealing Billions in Unemployment Benefits from American Workers, February 06, 2025

The pandemic era unemployment insurance payments were essentially a basic income grant, along with stimulus payments for each household. Both of these put money in the system when needed to prevent a general economic depression for the second time since the turn of the century. These payments allowed workers to be more selective in accepting employment, which in the recent case gave them bargaining power to seek higher wages. 

While there are many examples of people abusing pandemic era policies, even fraudulently obtained benefits helped move the economy out of the disaster zone. Only benefits to those with higher incomes, which enabled further speculation, had a bad effect. Too many people had enough to waste their money buying cryptocurrencies and investing in exchange traded funds which hide such investments, as well as mortgage backed securities funding questionable properties (especially those owned by cabinet members Ross and Mnuchin - which were also backstopped by the Federal Reserve).

The title of this hearing is unfortunate, as those unemployment benefits that were questionable did not come at the expense of other beneficiaries or employers. They were debt funded. The creation of debt led to the expansion of mutual fund instruments. This expansion is responsible for the continuing boom in the speculative economy. The place to moderate this speculation is not by going after the poor, but in increasing tax rates on capital gains to wealthier taxpayers.

The last administration attempted to do so, but was stopped by two Senators who later became Independents who caucused with the Majority and then declined to seek a second term. 

Recent inflationary pressure comes from leaving that part of the 2018 tax cuts in place. These cuts are due to expire at the end of this year. We urge the committee to let them. Instead, focus on increasing the income of low-income families. Doing so will take direct action by this subcommittee. Letting the speculative economy experience a mild contraction takes no effort at all - although some reforms, such as the repeal of exemptions in favor of higher child tax credits should be preserved (or expanded - as suggested below).

(from June)

Social services in the United States need a major overhaul.  The categorical grant approach reinforced a provincial view of federalism; one which created regional economies, especially in the South, with a barely hidden racist intent. The result of these policies has been to keep the region in a state of sustained poverty. Alabama Wealthy is not wealthy in the larger economy. This wound was self-inflicted.

HBUD: Medicare and Social Security: Examining Solvency and Impacts to the Federal Budget, June 13, 2024

There are two ways to define solvency: budgetary and adequacy. Solvency is willingness to raise income taxes to honor Social Security Trust Fund obligations as they come due and to continue to use personal income and consumption or payroll taxes to provide adequate funding for retirees.

The solvency of the entire debt is tied to the same willingness to tax personal income. Until the 16th Amendment, a large national debt backing a stable currency was not possible. This arrangement is why the Dollar is the global currency. It will remain so as long as the debt and currency are backed by the ability and willingness to tax incomes.

This is why, when the Freedom Caucus flirts with insolvency, the Bond Rating of the debt goes down. This also threatens the welfare of American consumers in the global market.

The second way to see solvency is in the adequacy of benefits. The current system leaves most seniors and the disabled barely solvent, which requires them to use food stamps, energy assistance, assisted housing and homestead exemptions for property taxes. This inadequacy threatens state and local finance as well.

Most seniors run out of their savings or simply have not built them up in the first place. Leaving payments low is a cruel joke, because savings is not neglected because of indolence or overspending during our working years, but because incomes have been inadequate. Inflation follows the median dollar, not the median income. Percentage based COLAs, rather than equal dollar ones, magnify inequality. Most families cannot keep up.

Increased saving requires relatively safe investment options; those relatively free of speculative junk. ETFs are not free of junk. They merely hide it until it rots. MBS, crypto, under regulated commodity markets, as well as new technology - such as AI - are the usual suspects.

Pensions are safer, especially when they are not required to be "fully funded." Such a requirement ruined these instruments, forcing workers into defined contribution plans. Such plans are, by their very nature, inadequate for most workers. They can also hide junk. 

Encouraging the return of pensions by reforming solvency requirements is an essential step. Encouraging the expansion of Employee Stock Ownership Programs is another. Please see the attachment regarding asset value added taxes as a replacement to capital gains taxes, the death tax and to prevent any kind of wealth tax.

Finance: Work and Social Security Disability Benefits: Addressing Challenges and Creating Opportunities, June 18, 2024

Returning to work from disability also has a psychic cost. Participation in psychiatric rehabilitation programs on a longer-term basis than Medicaid Eligibility, as well as educational benefits, will mitigate these fears and, in the post-pandemic world, get people used to leaving home again on a regular basis. 

WM Work and Welfare: Reforming Unemployment Insurance to Support American Workers and Businesses, June 04, 2024

By basing benefits on long term unemployment insurance, the period of precarity applicants face while applying for benefits is ended. This experience colors both the desire to return to work and the need to justify continued benefits.

WM Social Security: The Social Security Trust Funds in 2024 and Beyond, June 04, 2024

The fund is sound by realistic, rather than conservative scenarios. The program, as is, needs few changes to retain solvency. The proposed Social Security 2100 Act offers moderate improvements. Most families need more than this. 

Medicare solvency must be discussed within the larger context of health care reform. Our proposals in this area have been provided to you are attached.

Attachment: Social Security Fundamentals, April 26, 2023

Attachment: Asset Value Added Taxes Video

Attachment: From the Budget Committee Comments (PB proposals are in boldface):

Extend ACA premium support permanently, extend low cost care in states that have not expanded Medicaid

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.  The public option should also 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. 

Extends Medicare Solvency: Strengthen Medicare by increasing NIIT (ACA-SM) and limiting pass through income reforms

As above, taxes to support Medicare should be broad based, funded either by an employer paid subtraction VAT or a border adjustable goods and services tax (credit invoice VAT). This would allow for the repeal of the ACA-SM surtax on higher income individuals enacted as part of the Affordable Care Act. Tax increases on higher income individuals should be dedicated toward fully funding net interest, eventually reducing the national debt, funding veterans healthcare and overseas military and ocean deployments. 

State governments were under financial pressure as a result of the pandemic, especially in the area of healthcare costs, most especially for seniors in nursing homes who are “dual eligibles.” The heart of President Reagan’s Federalism Proposal was the transfer of state Medicaid expenses to the federal government, largely to fund baby boomers who would become dual eligible with time. Time is now up, or will be shortly. 

Welfare has been reformed, allowing state and federal governments to save money - which was part of the New Federalism bargain that was not accepted at the time. We will address this part shortly, but the irony is that federal money was reduced without the second part of the trade-off. Finish the process and create Medicare Part E for low income disabled and retirees.

The way to fully fund healthcare is through an employer-paid subtraction value added tax.