I read that the Obama camp is scrambling for solutions to the financial crisis. Here is a general framework that makes sense in it's simplicity, and the purity of it's objectives. The foundation of the plan will stimulate consumer spending into perpetuity by permanently eliminating the payroll and self-employment taxes, without borrowing money in the name of America's yet to be born children. It will make American individuals and small businesses more competitive in the global market, and spur entrepreneurship at the grass roots level. It will spread entitlement costs over the largest pool of U.S. residents, while eliminating the problem of 1 in 6 Americans being uninsured for health costs. Those are Americans who are now forced to pay for health care for others through taxation, but risk losing their assets and lives if serious illness should strike. It will also minimize the points of tax collection, and ensure tax compliance by collecting entitlement taxes from those entities who are most able to afford them, while eliminating the regressive nature of the current system. It will mitigate the problems which come from outsourcing, by recapturing the lost payroll taxes which are avoided by large businesses who make their money by selling to American consumers, while declining to hire them. The toughest part will be getting the politicians to represent their constituents for a change, rather than the monied special interests who have navigated government policy to bring us to where we are today.
Tax Concentration of Wealth to pay for America's Entitlements, while Eliminating the Payroll and Self-Employment Tax.
The underlying principle is that capital from any source, foreign or domestic, which grows from U.S. consumer spending, must provide benefit to American consumers. This means create a tax on U.S. and foreign entities based upon global assets and U.S. based revenue. This will be a tax that applies to entities at the top of the economic food chain. The keys are:
A. It taxes “unnatural persons”, the aggregate of individual capital, regardless of where it comes from, on economic power derived from United States consumer spending. Global assets, and U.S. revenue, not net income, derived from spending by consumers within the United States will determine which entities will be subject to the tax.
B. It taxes only the largest entities, such as Exxon Mobile and Wal-mart; entities who grow during good times and bad because of revenue, capitalization, market share, and economies of scale, while making smaller firms and individuals more competitive. It also assures that those firms most likely to outsource and receive bailouts are obligated to U.S. citizens.
Tax the U.S. based revenue, not net income, as a priority tax; similar to the payroll and self-employment tax on labor. Leave their foreign income alone when calculating the tax. The tax will be built into prices at the top of the economic food chain. The revenue for the tax will come from U.S. consumer spending. The source of the revenue will come from the largest possible pool of individuals, comprising citizens, and documented as well as undocumented aliens. Wealthy people will contribute more because they spend more, not by increasing the rate or income thresholds as the current system would demand.
The tax will be a graduated tax, based upon an asset/revenue mix. The largest entities with the largest U.S. revenue will pay the highest rate. The tax dollars required will be determined by the cost of American entitlement paid by government, projected out for the following fiscal year. The tax rates will be determined by asset and revenue thresholds set by analysis of the entire economic basket of entities in the U.S., and calculated to strike a balance between the rate of tax, and the number of entities who will be responsible to pay the tax.
This approach will minimize the number of collection points because all but the largest entities will be exempt. It will simplify collection and ensure compliance. It will give growing firms and individuals a competitive advantage, and offset their lack of economies of scale. It will foster natural growth in the economy, mitigating monopoly and oligopoly power.
C. Use existing corporate health insurance systems to administer the delivery of payments to health care providers. This will foster reduction of health care costs by efficiencies developed by the health insurance companies, because the revenue will come from government, but their profit will be derived by controlling expenses.
D. Eliminate the payroll and self-employment taxes. This will stimulate consumer spending, and eliminate the two most regressive taxes in America. It will make individuals and small firms more competitive with foreign counterparts in developing economies who have lower entitlement and living costs. It will spur entrepreneurship by eliminating the largest cause of small business failure, the payroll tax. Our competitive advantages will stem from our higher education and productivity levels, and improved social safety nets and Social Security system, funded by the largest possible pool of residents in the U.S. It will eliminate the need for medicaid by providing health care, but not retirement benefits for undocumented aliens. This will satisfy demands for the labor pool, while encouraging assimilation, and reducing the cost of emergency room treatments. Additionally, it will substantially reduce state and local taxes because government employees will no longer require separate health care systems.
A. Compel banks who receive bail-out funding to reduce interest rates in excess of 6% on all owner occupied dwellings to 6%. Do nothing for investment and speculative properties. This will mitigate losses on the underlying mortgages of owner occupied homes by enabling many distressed homeowners to make payments and continue to live in their homes. It will provide an adequate spread between government funds rates and mortgage rates to fund operations and the potential for profits. The residual problem will be smaller in scope and magnitude. Many homeowners who stay in their homes for the term of the mortgage will eventually have equity in the home which is equal to or greater than the underlying mortgage. Those cases will solve themselves.
For other situations, the first priority should be to keep the homeowner in the home. Do not foster an environment for predatory real estate speculation from the write downs. For owner occupied properties still in default at the 6% rate that are worth less than the mortgage, amount, provide relief to the bank to the extent that the mortgage amount is in excess of market value when the relief is passed on to the homeowner. For cases where the home owner is able to purchase a less expensive home, and whose motivation to sell is other than financial, transfer the difference between the sales price and the mortgage to the new mortgage as a priority claim. These actions will help realign home prices with a reasonable multiple of earnings. In a properly functioning market, median home prices should be priced appropriately for median family incomes. As for the speculators and investors of non-owner occupied homes and commercial properties; the banks and property owners can take the traditional route, and absorb the losses.
B. Compel all banks to reduce rates on unsecured lending to 12% at a maximum, and reduce fees for late charges and over credit limits to reasonable levels to be determined at the Federal level.
C. Repeal the bankruptcy law changes of 2005.
These steps are are good for the American middle class, and in keeping with the principles upon which this country was founded. Government should represent the best interests of the majority of individuals. For too long, the monied interests have controlled policy.
“We hold these truths to be self-evident, that all men are created equal, that they are endowed by their Creator with certain unalienable Rights, that among these are Life, Liberty and the pursuit of Happiness. — That to secure these rights, Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it, and to institute new Government, laying its foundation on such principles and organizing its powers in such form, as to them shall seem most likely to effect their Safety and Happiness. Prudence, indeed, will dictate that Governments long established should not be changed for light and transient causes; and accordingly all experience hath shewn that mankind are more disposed to suffer, while evils are sufferable than to right themselves by abolishing the forms to which they are accustomed. But when a long train of abuses and usurpations, pursuing invariably the same Object evinces a design to reduce them under absolute Despotism, it is their right, it is their duty, to throw off such Government, and to provide new Guards for their future security.”
The time to return to these founding principles is now.