Paycheck Returned - Open Items

WM Tax:  Your Paycheck, Returned: How the Working Families Tax Cuts Delivered for Americans, May 20, 2026

Most working families have not noticed much change from the new law. Rather, it prevented harm from occurring because certain benefits would have ceased. Additional benefits enacted as part of the law will have only been visible to the extent that IRS withholding schedules changed - and even then, the change was not large. Many families will only notice the current tax cuts when they file their taxes almost one year from now.

What families are noticing is the degree to which price increases occurred due to the attacks on Iran by the U.S. and Israel, as well as sanctions on Russia as a result of their aggression against Ukraine. Largely due to our own energy independence, these events have little impact on energy availability in this country, but are an artifact of the global price structure of energy markets. 

Due to climate change, what we are seeing now is nothing compared to what must occur to transition from gasoline powered and individually powered electric vehicles to tethered electric vehicles with centralized computer control and the option of system owned vehicles for individual usage - all powered by small nuclear reactors. We are not there yet, but we have to get there, either before or after the dislocation in the South and Southwest that climate change will cause.

Actual inflation is not caused by either price cuts, the increase in lower wage workers to meet higher prices or the very necessary increase in both the federal minimum wage and any additional permanent (and refundable) child tax credit. These proposals are being floated - but they need to be agreed to - as well as increasing funding for supplemental nutrition assistance (SNAP).  

Systemic inflation is also not an effect of monetary policies by the Federal Reserve Open Market Committee - although the Fed’s market interventions have largely prevented large financial disruption caused by the pandemic and upcoming market shocks due to speculation on energy futures, in cryptocurrency and in the housing, commercial real estate and consumer credit securitization markets.

Real inflation comes from how both the federal government, its contractors and private sector employers adjust wages due to the cost of living. Because this has occurred at a fixed PERCENTAGE rather than as FIXED DOLLAR basis, people receiving only the federal minimum wage, SNAP and TANF benefits  are plunged into poverty.  

Working and retired households essentially keep up with inflation - but do not benefit from productivity growth (although they have benefited from technology improvement). The top 10% of households have largely absorbed these gains - both in terms of productivity and automatic adjustments. Prices chase the median dollar, not the median income. That dollar is at the 90th percentile - and this level is growing at leaps and bounds. It is reflected in the prices of housing and automobiles, vacations and sports tickets and any luxury item - from yachts to wedding rings. Please see the first attachment, which discusses how FEDERAL SPENDING drives this form of inflation - and how the federal government can begin to reverse it - largely due not to the fact of government spending but in how it drives the distribution of wages.

Tariffs may have some small effect, but in absence of a consumption tax regime - especially a federal credit invoice value added tax on ALL commercial transactions, they provide a necessary rebalancing of the price effects of most of the developed world relying on these taxes while refunding them at the border - while our consumer based economy neither levies such a tax nor refunds it for exporters.

The Ways and Means Committee can help fix this by setting tariffs for each nation based on what they refund to their exporters AND giving a rebate to our exporters for payroll taxes that employers pay to Social Security on behalf of their employees. While enacting a VAT to replace employer paid retirement and disability insurance payments - and crediting beneficiaries equally rather than as a function of their wage level is the desired endgame, providing these two forms of TAX RELIEF to American employers should be the next step in tax reform.

Most families should not have to file taxes at all. A broad based consumption tax will take up the slack from ending income tax payments for all but the top 10% of households - especially if the child tax credit is increased and transferred from individual income taxes to a subtraction value added (net business receipts) tax paid by employers. Employers do most of the work in collecting income taxation of wages.

Shifting from personal income tax collection to a value added tax will solve the very real equity problem of having separate tax rates on wages, interest and dividends (as financial institutions would pay any taxes on interest paid, rather than having their depositors and investors do so). If surtaxes were levied at the employer/investment level for high income payouts, no family (save sole proprietors) need ever file a tax form again - with the only reason for individual filing being to pay capital gains taxes (or using the federal tax system to subsidize losses).

Regularizing the taxation of tariffs to balance them with value added tax policies by our trading partners is the work of the Trade Subcommittee. There is still work to be done by the Tax Subcommittee. While the Center for Fiscal Equity has a list of long-term reforms that will take more bipartisanship to make than is present at this time, there are two URGENT ACTION ITEMS which should be enacted as soon as possible. (Our long term solutions are detailed in the attachments.)

FIRST, extend the tax exemption for the sale of privately owned stock to broad based Employee Stock Ownership Programs or cooperatives on the sale of all financial and real property assets to such firms. If an ESOP retiree sells his private dwelling or business property into an ESOP trust, either directly or through his or her estate, tax policy should support that - as well as the sell back of any voting or preferred shares by such employees.

More importantly, investors in publicly traded shares should also be able to take advantage of such sales. They are currently at a DISADVANTAGE, merely due to their form of ownership. This also hurts employees who would benefit from more direct employee ownership of their workplaces - and begin to bring back the concept of the career rather than current practice of job hopping to increase wage levels (while current employees are stuck in the same positions). This is an easy fix to a long-term inequity in how we tax capital gains. Additionally, this exclusion will also be carried over to a shift to ASSET VALUE ADDED TAXES as part of comprehensive tax reform.

SECOND, firms who collect state retail sales taxes can only deduct this income from their federal income tax filings. For federal excise taxes and any newly created FAIR TAX, this deduction should be a CREDIT paid in full. Any state sales tax paid - either for business income or through itemizing local taxes - should also be converted to a 100% CREDIT for any tuition payments or contributions for education (and wages paid for pursuing education) for undergraduate, secondary, remedial, vocational or English as a Second Language provided by both PUBLIC and PRIVATE schools. 

Creditable tuition and contributions would be either provided to student families or to employee/taxpayer contributions through such programs as the United Way or Combined Federal Campaign. At the University level, this benefit would be offset by making sales of any contributed liquid or real asset taxable at market value for any sale from the endowment to the private market (unless the sale is made to a qualifying ESOP or COOP).

President Bush called for the development of an ownership economy. These changes make good on those promises.

Attachment - Lower Costs for the American People

Attachment - Consumption Taxes

Attachment - Asset Value Added Tax