Creating Fair Taxation

Correct me if I'm wrong.

What I'm gathering by my first pass through this is that those families that earn 50k and less pay no taxes. They are mandated to invest 15.3% into retirement funds that can be passed to heirs.

Those earning above 50k pay a flat tax and additional(continuing) 15.3% to cover the transition to privatization.

I need clarification on the 30k minimum income. It sounds like redistribution.

While I like the simplicity most of this proposal provides, I'm concerned that it still redistributes wealth and responsibility of fixing the current debt and entitlement issues upon those earning above 50k.

 

That is correct as the person is 100% vested in all contributions and all proceeds from their mandated private investment accounts under my Social Security plan. In short a person that dies at age 60 where the family would have seen zero would receive all of the funds from the deceased investment account. If the person does retire then they would elect a lifetime guaranteed income probably based upon an annuity type plan that could be based upon just interest payments leaving all of the accumulated assets to their heirs or based upon a lifetime income that also uses the principle. This basically of depends upon how much money is in the investment account at retirement. If they have a huge amount of assets at retirement they could even be authorized to make a large cash distribution as well. It all depends on how much is in the account.

The proceeds at death for the heirs can be addressed in a couple of ways but I have my preference. I would use those funds to augment the retirement accounts of the heirs up to a point and then the excess would be distributed as a 'cash' payment to the heirs. There would be a sliding scale on this based upon the age and current investment account status of the heir.

Yes, everyone earning above $50,000/yr (based upon a household of four) would pay a flat tax on all income above that exemption level. The tax rate is based upon the authorized expenditures so it can vary from year to year. If the government spends more the rate goes up and if the government spends less the rate is lowered. This is a funding measure and not a spending measure.

Yes, the 15.3% tax applies to every income earner with no cap. This includes those that traditionally paid nothing because their income was "unearned income" that is abolished by my tax proposal. All income is income regardless of source or the entity (individual or enterprise) receiving the income is subject to the same taxation.

Yes, the minimum income level of $30,000/yr can result in "redistribution" but it will be a relatively insignificant case for three reasons.

First and foremost is that even a lifetime minimum wage income earner can be expected to have well over $50,000/yr in personal income from their private (mandatory) investment portfolio. The entire privatization plan was based upon ensuring that a minimum wage income earner would always have more than enough income when they retire after a 45 year working career. This is a significant difference when compared to previous 'Republican' privatization plans that only worked for middle income earners leaving low income earners in poverty.

Next is that while my proposal has no minimum retirement age requirements (so long as the person has enough assets to retire) the $30,000/yr safety net only kicks in at age 70 so there is a maximum retirement age. The extra five years above the "45 year working career" dramatically increase the size of the private investment account.

Finally the $30,000/yr is achieve with a combination of "private assets" plus a "government subsidy" that dramatically reduces the government's obligations when compare to today's Social Security welfare program. For example a person might have enough in accumulated assets to provide $27,000/yr so the government subsidy is only $3000/yr. and that's only about 1/4th of the average Social Security annual benefit today.

Welfare assistance is always a form of "redistribution" but it is required for the safety net and it would be substantially less, almost non-existant, under my proposal.

It is impossible to have a modern society with zero redistribution of wealth but my proposal reduces it to the minimum level possible based upon wealth accumulation established by the labor of the person.

Logic dictates that the only people that can fund government are those that have enough income to do so. The Republican belief that the poor can balance the budget is unquestionably the most illogical proposition I've ever heard. Once again, because you might have missed it, we already know that 47%-48% have a zero or negative income tax so I don't really change who's paying the taxes that fund government. Yes, I established the "exemption" that replaces all deductions and tax credits at $50,000/yr for a household of four because that's the median household income so it's easy to calculate.

Based upon existing tax information I've basically drawn a line where those making more than the median income have demonstrated they have enough income to fund the government and those below median income have demonstrated they don't have enough income to the fund government. It fundamentally establishes the tax code based upon reality and I think reality takes precedent over political agendas and ideologies that don't work. It is pragmatic and that's what I believe we really need to address regardless of our different political ideologies or agendas.

 

IMO, the principles of liberty exceed the idea of what someone is entitled to. I could never be on board with any plan that involves forced redistribution. I also disagree with government defining poverty.

It makes no sense for a country to decide that an 18 year olds life is worth defending freedom, but we put a gun to the head of one person to subsidize another. I disagree that society has to have this to flourish. IMO, our current socialist structure is continuing to devour liberty while still heading for a brick wall.

The federal government should stay to its constitutional duties and allow the states to practice socialism on balanced budgets.

 

Shiva - Let me spell out this broad strokes scenario and you tell me if it is plausible or not... You put your tax plan into place with your steep tax trendline and it results in a net decrease in capital investment, especially in Partnerships and S Corporations by which the wealthy earn a disproportionate share of their income. This is offset by some increases in capital spending on small businesses by the lower income percentiles, but overall, there is a substantial decrease in investment. Simultaneously, consumption demand is increasing and a whole bunch of money is getting dumped into the stock market from your Social Security privatization... this results in massive capital gains for wealthy stockholders. All is good, right? Well, not so much. You rightly point out that money pumped into the Stock Market has a minimal direct effect on the real economy, but what you don't take into account are the secondary effects. For every stock that is purchased another is sold, and if that stock is sold in a rapidly rising market, odds are that it is sold with a capital gain... so the wealthy stockholders sell out to the Social Security privatization plan...what then do they do with the proceeds? Well, we've already increased consumption demand and decreased investment supply... so what is a wealthy investor to do in such an inflationary environment? They're going to start moving into hard assets to hedge against risk... oil, copper, gold, you name it - commodity prices are going to start booming and this is only going to exacerbate the inflationary situation and require even more hedging. You see where this is going, right? Putting your Social Security money into the Stock Market is a sucker's bet.... it's a dirty little secret, but lower-income investors typically get slaughtered - especially in an inflationary cycle.

 

You're arguments are against civilization itself. Throughout the recorded history of civilization poverty has always been addressed by a redistribution of wealth overwhelmingly funded by government. Civilization cannot exist if poverty is ignored by government.

I'm a libertarian so obviously liberty is very important to me but I also understand that the "Liberty of the Person" must be constrained to a degree in a civilized society.

John Paine, in his often cited statement "Government, even in its best state, is but a necessary evil; in its worst state, an intolerable one" in fact points this out. An over-infringement upon the Right of Liberty by government creates an "intolerable" situation but the lack of government where the Right of Liberty is not infringed upon at all also creates an "intolerable" situation which is why government is a "necessary evil" that does infringe upon our Right of Liberty.

I don't disagree with the proposition that providing for the welfare of the people should be a "state" responsibility and not a "federal" responsibility. The problem is that no state was assuming this responsibility. If they did then there would be no poverty in the state requiring welfare assistance. Even when the states attempt to do this we see the "right-wing" screaming bloody murder. Seattle, not even a state but instead a city, has passed a law that will incrementally raise the minimum wage to $15/hr, and the "right-wing" has been having a conniption fit over it. The increase in the minimum wage for Seattle will certainly reduce poverty and reduce government spending to mitigate the effects of poverty so it's illogical for a "small government" fiscal conservative to oppose it but they do.

We've seen limited cases where a state did step up and meet it's responsibilities. When Mitt Romney was governor of Massachusetts he helped implement "Romneycare" that provided the model for providing health care and insurance to the people of the state. How many other states followed Massachusetts in meeting this responsibility of the state? Romney was also the first government to issue an executive order that allowed same-sex marriage. How many other states followed Massachusetts' lead in this civil rights issue?

When we've seen the federal government step in it was because the states were NOT fulfilling their responsibilities to the people of the United States. The failures of state government created intolerable situations for the American people because government was not fulfilling it's roles and responsibilities.

I also find the "Constitutional" arguments from the "right-wing" to be completely dishonest. If we're "Constitutionalists" then there should be no restrictions on immigration for peaceful purposes such as employment or to be with one's family. There is no enumerated power granted to the federal government to restrict immigration in the US Constitution and many of the founders, including James Madison, George Washington, and Thomas Jefferson explicitly opposed any immigration restrictions. When it comes to elections of members of the House and Senate the Constitution expressly states that they are to be selected (elected) by the "people" and the "people" includes both citizens and non-citizens living in the United States. The "right-wing" doesn't support the US Constitution anymore than the "left-wing" in American politics today and, in truth, the "right-wing" arguably supports the US Constitution less.

Returning to the issue of the "Right of Liberty" as I've noted "government in it's best state" must by necessity impose infringements upon our Freedom to Exercise that Right of Liberty in a civilized society and for me "in it's best state" it does so to the least extent possible to meet the necessities established by compelling argument. Mitigating the effects of poverty is a necessity for a civilized nation and government has the primary role in addressing it. Obviously reducing poverty must be the primary goal because that reduces the necessity to mitigate the effects of poverty. It creates the "least possible" infringement upon our Right of Liberty.

In point of fact if all employers volunarily provided adequate compensation to their employees then there would be no "working poor" in America. That would be the ideal in the "libertarian" world but obviously that's not the case. Of course there would still be poverty because not everyone is capable of working. Some are too young, some are disabled, some are in temporary situations that prevent current employment, and some are too old to work for a living and often poverty is related to these individuals.

This is the broad picture of course and spending to mitigate the effects of poverty and spending to provide national defense are not addressed by my proposal per se because it's only a revenue (tax) measure and not a spending measure. Spending is a completely different matter and the authorizations for spending are created by Congress.

As a fiscal conservative I merely provide for the funding because it's fiscally irresponsible to not collect enough tax revenue to fund the authorized expenditures.

 

First of all let me once again express my appreciation for your comments on this thread. I do seriously like to address them. Also please remember that sometimes we stray from the primary issue I address which is simply taxation to fund government although I do address how that taxation can be fair for everyone from the lowest income earner to those making hundreds of millions dollars every year. No proposal is perfect but we have to make the best possible proposal which is what I really attempt to accomplish.

If we check we'll find that the "partnerships" and "S-corporations" (that are not publically traded) that are owned by the wealthy investors are overwhelmingly investment companies that don't produce anything. Bain Capital, where Mitt Romney was a primary stockholder, never provided one product but instead provided a limited management service to corporations that it purchased. It didn't even provide any capital investment into the corporations it acquired controlling interest in. The sole purpose of Bain Capital was to squeeze every dollar possible out of an existing corporation by any means possible and then get the hell out. In a very real sense, as with all investment enterprises, it was parasitic relationship. Of note, just like in biology, not all parasitic relationships are bad but when we address the partnerships and S-corporations of the wealthy most typically are.

So you can worry about these "partnerships" and "S-corporations" owned by the wealthy but must remember that they don't typically produce anything or contribute to the economy. Their primary purpose is take wealth from the economy that is created by labor and funnel that wealth into the pockets of the wealthy that don't really need it. These types of investments are actually bad for the economy because they reduce consumption without producing anything of value for the economy.

Yes, overall there can be an overall reduction in investing but as I addressed above there is investing that helps the economy, such as purchasing stock offerings from corporations that provide capitalization of the enterprise, and there is investing that is purely parasitic that merely funnels the wealth created by labor into the pockets of the wealthy (e.g. Bain Capital). There will be no shortage of investment capital in the "good investments" that fuel capitalism but there will be a reduction in the "parasitic investments" that merely take from the economy negatively affecting it. We can use another biological analogy by referencing cholesterol where there is goof cholesterol (HDL) and bad cholesterol (LDL) and any reduction in investments would relate to lowering the LDL cholesterol level.

There are no "capital gains" in my tax proposal because all income is income regardless of source. The "Capital Gains" definition is fundamentally abolished by my tax proposal.

The increased consumption provides real economic growth. It creates demands for goods and services that expand the economy. It creates value in enterprise where profits are used to expand the enterprise increasing the worth of the enterprise. The consumption creates jobs where more wealth is created and spent on consumption further expanding the economy.

Your concern over the investment capital provided by privatization is unwarranted. It will create perhaps $500 billion to $1 trillion per year in additional investment income but that is nothing compared to the overall economy. We have roughly a $17 trillion economy and even if that represented an average 20% return on investment (an over-estimate) our economy would be worth $85 trillion (an under-estimate) and the total annual investment from privatization would only be equal to 1.2% of of the total of an ever expanding economy and, as noted, much of this investment doesn't do anything for the economy anyway. We can also note that the investments aren't even limited to US investments. Foreign investments often offer much higher rates of return and while perhaps slightly more risky (that can be mitigated by diversification) they are a good investment choice for younger people (addressed by age-adjustment in the investment portfolio).

Starting with your last point first in reviewing possible investments for privatization I looked at mutual funds. Based upon 10-yr return on investments for mutual funds there is a broad range from as high as 20% to as low as about 5%. The high returns were typically based upon higher risk investment (often foreign investments) while the lower returns were based upon guarenteed or virtually no risk investments. All investment experts agree that a person should invest in higher risk investments when you to build initial capital and lower, more secure, investments when they grow older. That's why I included "age-adjusted investments" in my privatization proposal. I also included "diversification" which mitigates the risk factors so there's literally no real risk when a person invests in higher risk investments. An investment failure does not negatively affect the overall performance of the investment portfolio when a person is young. All investment experts agree that "diversification" is a necessary component for investments along with "age-adjustment" to ensure the maximum possible asset accumulation over time.

Long term, over the working lifetime of the employee of 45 years, all diversified and age-adjusted investments will pay off. You know where the small investor fails? It's when they start thinking sort term as opposed to long term. Because the investment accounts will be created by the long term investment experts the failures of short-term thinking should be eliminated. Taking the two worst "stock" investment crisis in American history, the 1929 stock market crash and the 2008 recession, those that didn't panic and bailout over a short term crisis all made tremendous increases in their personal wealth as the recovery occurred. It was the "short-term" speculators that generally lost their shirt.

There is only one cause for inflation. When the money supply (either species or fiat) increase is greater than the expansion of the economy (goods and services provided) then inflation occurs. This has absolutely nothing to do with investing. Inflation is good for banking interests which is why the Federal Reserve engages in inflationary monetary policies. Always remember that the primary interest of the Federal Reserve is the banks and not the people. This has absolutely nothing to do with investing. The Federal Reserve could end inflation tomorrow if it wanted to but it won't. Sorry but my proposal does not address the inflationary policies of the Federal Reserve but I'm more than willing to address it in another thread. It can easily be stopped if we want it to.

In addressing the potential move into hard assets like commodities always remember this is about preserving wealth and not increasing wealth. I could purchase a million board feet of lumber (or a 1000 ounces of gold) and it will always be worth about the same related to other commodities. It doesn't matter what the "currency" does because a commodity always retains a relative value to other commodities. For example an ounce of gold, which is real money because it's a commodity, is still worth about the same relative to other commodities that it was 100 years ago. It didn't fundamentally go up in value and it didn't go down to any significant degree. In point of fact the gold supply actually increased with the corresponding increase in the economy because about 1/2 of all the gold ever recovered from nature has occurred since 1950. A person that invested in gold 100 years ago would have basically the same wealth that then had when they purchased it although it would be worth a lot more "currency" because the value of currency has declined by 97% because so much fiat currency has been created by the Federal Reserve.

While there can be short term fluxuations in commodity prices due to investments ultmately they always return to market value based upon demand (consumption) relative to other commodities. We recently saw gold soar to over $1800/oz based upon investments in gold but it's re-adjusted it's value based upon demand as a commodity to about $1200/oz today. Always remember that the reason gold is worth so much is because it has more uses than any other metal and is also in short supply. Gold's value is based upon its value as a commodity and that makes it worth a lot of money and not because people invest in it. Oil, lumber, gold, silver, copper, and even "pork bellys" all have value as commodities relative to other commodities and that is what drives their long-term value (price) and not speculative short term investments in these commodities.

Ultimately what is good for the economy is consumption. It builds the economy from the ground up and inherently provides the means (funding) for producing the goods and services that are in demand because of consumption. If a corporation sells more goods/services it will profit and with a part of that profit it will expand making the corporation (and each share of stock) more valuable. This isn't "speculative value" based upon stock trading that in many cases has nothing to do with corporate performance or value per se but instead this reflects the "real value" of the corporation. It is the "real value" of the corporation that's important to the economy and not the "speculative value" established by market trading in the stock that merely reflects a change of ownership.

In a real sense the enterpise has a "commodity value" but unlike other commodity investments like ounces of gold, barrels of oil, or board feet of lumber the enterprise can actually grow over time based upon consumption (sales of goods/services) and re-investment of the profits generated by consumption. I don't think investors overlook this fact. As long as they believe the corporation will grow and increase in "commodity value" they're going to invest in the corporation. Long term it's the increasing "commodity value" of the enterprise that increases the value to the owner and that is what the investor is really seeking.

 

I'd like to mirror your sentiments, Shiva - I'm enjoying this thread myself... I do feel sometimes I'm shortchanging you in my responses to your posts (if only time was unlimited *L*) and I'd like to apologize for any times I miss a response to any of your points. All that being said, and at the risk of endangering our mutual admiration society, I do take exception of your classification of investment firms as "parasitic"... maybe this is another philosophical difference, but I'd view them more as wolves... they pick off the weak and infirm members of the herd. Now wolves may not be too popular with the herd, but they do keep it healthy over the long run. It's the same with firms like Bain... they buy up poorly run and inefficient firms, turn them around and get them running as they should and in so doing they make the economy as a whole more healthy.

Where it comes to the stock market, I respect your confidence in it's growth ability over the long term.... however, I think your confidence shouldn't be boundless. Dividend income and the options market aside, you're only going to realize capital gains income by selling stock at higher prices than what you paid for them and this is completely dependent on having more money entering the market than is leaving it and that's just not going to happen if you tax the wealthy too much or you have too much inflation. Sure, you've got your Social Security privatization plan, but I think you'd find that akin to blowing air into a balloon that has a hole in the top.

On the Federal Reserve, it's true they can raise rates to fight inflation... and if the problem is extreme enough, they can do what Volcker did and directly limit M1, but I don't think you're going to like the results... it's going to slam the brakes on the economy and very likely give you an early-80's style massive recession, with the key difference being that back then Reagan took his foot off the gas pedal and flattened the tax curve from 0.330 in 1980 to 0.278 by 1983.... your Fed would be slamming on the brakes while your tax curve would still be solidly on the gas pedal - going from 0.248 to (by my estimate) 0.370. That's a recipe for a recession that never ends.

Bottom line, I agree with you that the economy does need to trade off some investment for more consumption... the economy will be stronger from raising taxes on the wealthy. My only problem is that you go too far - your tax curve is too steep and your balanced budget rule is too stringent. I know this is beyond the scope of this thread, but I just don't see how you square the circle without cutting the budget by about 1/3.

 

we need to do away with all taxes, and all govt "services' that can't be funded by lotteries and voluntary payment for services. Stop having kids that you can't afford to raise properly and in 3 generations, there won't be any more poor people. Employers have no choice but to pay whatever (scarce) employees demand to be paid for their labor. When you have excess numbers of workers bidding down the price of labor, of course employers pay less, and of course, many people end up in poverty (and are unable to get out of said poverty).

 

This is actually a serious thread on taxation but perhaps you missed that point.

 

As I noted some parasites are beneficial but most are not.

Investment firms like Bain Capital are not in the business of turning corporations into "profitable" enterprises. Investment firms like Bain Capital are in the business of profiting from corporations that they acquired controlling interest in. In some rare cases that might have resutled in turning the corporation around on paper but generally left the corporation deep in debt. Other times Bain profited by selling off the assets of the corporation often leaving lenders to absorb losses when the corporation went bankrupt or, in some cases, by outsourcing the work to foreign countries.

Regardless of the details the point remains that investment firms are not the least bit concerned about the investments they make so long as the investment firm profits. If they can take a perfectly good corporation and profit by driving it into bankruptcy they will in a heatbeat. If they can invest in a commodity and artificially drive the price up and "sell out at the top" they will do that leaving other investors to take the loss when the prices crash.

The bottom line being the investment companies don't benefit the economy at all. They benefit the investors in the investment company as that is their sole purpose. If their actions do benefit the economy it's accidental because that's never the purpose of the investment company. Profit for the investment company is the sole motive behind all of their actions and they couldn't care less about who takes a loss if they profit from the loss.

The long term increase in the value of stock is based upon the expansion of the corporation resulting from re-investment of profits. Real "money" is always commodities, not currency, and we produce more commodities based upon consumption. There will always be enough "money" because the workers always produce more wealth over time driven by consumption. There is a false belief held by many that in order to provide capital for investment the Federal Reserve needs to create more currency (that creates inflation) but that "theory" is based upon the false assumption that a "dollar" can only be spent once. If the dollar could only be spent once then you would require an ever increasing money supply to fund purchases including stock purchases but that isn't the case. The dollar that purchases stock today can purchase bread tomorrow and the day after that it can be used to purchase stock again.

Four points.

First of all tax rates don't cause the boom and bust cycles. Irnonically when we've seen tax increases it typically preceeds increases in economic growth and tax cuts preceed economic stagnation and recessions. There are really other factors at play but it is an ironic coincidence that indicates it's not the tax rates that cause boom and bust cycles.

Next is that the Federal Reserve does more to damage the economy that it does to help it. Let me provide a simple statistic. Because of increases in the money supply the value of dollars (i.e..purchasing power) held in savings accounts has declined by 97% over time. This is literally the theft of labor because savings represent the "stored labor" of the person. Who ended up with this "money" (stored labor) is the question you should ask. It's simple, the banks ended up with it because they were holding the "money" (stored labor) in trust for the person.

Third is that the historic "value of money" as represented by interest rates is between 4% and 5% and anytime the Federal Reserve artifically lowers the interest rates below this amount it is the "theft of money" from those that have their assets tied to the "dollar" (e.g. savings, T-bills, or bonds) based upon interest rates. Once agian who's benefiting from the theft? In this case it's overwhelmingly the banks followed by the Federal government.

Finally the economy doesn't belong to the government, it doesn't belong to the Federal Reserve, it belongs to the American people and except for providing "protections" (that historically the government doesn't do very well because the primary cause of recessions is inadequate government regulation) it should keep it's hands off because it does more damage historically than good. In point of fact the 1929 Stock Market crash and the 2008 Recession were both caused by a lack of banking regulation and the blame can be directly placed on the US government and the Federal Reserve in both cases.

Once again a few points.

My plan only addresses revenue and not spending. The tax burden is driven by the spending authorizations and not by my tax proposal.

Spending authorizations that create the tax burden can and should be addressed. Want to reduce welfare spending? Reduce poverty. Want to reduce military spending? Stop playing world cop. Want to reduce law enforcement spending? End the War on Drugs. Want to reduce border security and illegal immigration problems? End the quota system and allow open immigration for peaceful purposes. Wa-La - with just these measures the authorized expenditures could probably be reduced by a 1/3rd.

My privatization plan for Social Security would completely eliminate Medicare and virtually all of the "tax and spend" provisions for Social Security at the end of 45 years resulting in about a 1/3rd reduction in government spending authorizations. Yes, it take 45 years because Social Security relates to the working lifetime of the person and I didn't establish that. I can only deal with it but it does reduce the size of government (spending) by roughly 1/3rd and does so pragmatically.

So we could reduce the size of government, and the related spending authorizations, by up to 2/3rds starting today but it will take 45 years to finally achieve that reduction and we could do so pragmatically.

But there is one final issue that's even more important. We don't have any right to impose higher taxes on future generations by creating a debt that they have to pay for. Every dollar of debt we create forces a tax obligation upon future generations. So when you suggest not paying for current authorized expenditures you're not proposing that the tax should not be collected to pay for the expenditures but instead you're proposing that your children should be taxed to pay for that spending we do today.

You talk about the possibility of taxation negatively affecting the economy today but how is the future increase in taxation on our children to pay for our spending going to negatively affect their economy? If our government spending, and the resulting tax burden, harms our economy then that's our problem to deal with and we shouldn't shove that problem and responsibility off onto our children backs by increasing their tax burden to pay off the debt we create.

 

Here's my take on the whole misallocation of capital - I've got the sweetspot of the Tax Curve trendline slope to be around 0.300 or so. In the late 70's it was around 0.330 and you saw massive inflation, in the late 80's it got down to 0.210 and you saw the inefficient utilization of capital in leveraged buyouts and all of the excesses of the time that you speak of. I know what you're thinking - they're still going on today and they are - the trendline is still only around 0.250, so you're still seeing that inefficiency. But my basic idea is that there's a point of diminishing returns where it comes to tax reform and the further you get away from that Goldilocks point, the more inefficiencies start creeping into the system.

I don't think anyone assumes a dollar can only be spent once - the multiplier effect is a generally accepted principle in all of the Fed's calculations.

I think if you go back and look at the history, you'll see that boom and bust cycles were a lot more prevalent before the Federal Reserve was established in 1913. I'm not saying the Fed is perfect - far from it - but history has shown it has had a moderating effect on the violent up's and down's that the economy experienced in the 19th Century and before. as I see it, the main problem with Fed policy arises from it's dual mandate to both stabilize the currency and reduce unemployment. Those are both laudable goals for long-term economic stability, but what about when they start to contradict each other? Or how about the situation today when they reinforce each other and lock everything up? What do you do then?

Yeah, yeah, I realize that's beyond the scope of what you outlined... but if you want to cross over from Ivory Tower theorizing into concrete policy making a little rubber has to meet the road. I've sat down with your numbers and I've tried to make them work with the FY12 Budget, and the only way I could do it was to cut your income tax exemption down to 40K and your privatization plan for Social Security by 90%. I still don't like how the flat tax hits the Middle Class - that's a little too much Mondale-nomics for me, but it can be done. Maybe you can come up with a better solution, I don't know... but until you try, we're just sitting down to another serving of pie-in-the-sky.

 

Once again inflation is not caused by taxation. Inflation is caused by increases in the money supply and I've not addressed that per se but I will point out one thing that would prevent inflation. All that is required is for the United States government, the state governments, and the Federal Reserve to follow the statutory laws and the US Constitution. Below are several citation of the law and the Constitution that I will refer to in my summary addressing the problem of and a resolution to the problem.

https://www.law.cornell.edu/uscode/text/31/5103

https://www.law.cornell.edu/uscode/text/31/5112

https://www.law.cornell.edu/uscode/text/12/411

https://www.law.cornell.edu/uscode/text/31/5119

http://constitution.findlaw.com/article1.html

Before proceeding we need to dispell the myth that the US economy instable prior to the existance of the Federal Reserves inteventionist monetary policies as what has happened since the creation of the Federal Reserve. While I've been unable to find a source for the economy as a whole we do have history tracking the stock market that reflects a microcosm of the economy predominately for the wealthy that own corporations but not so much for the average person that doesn't.


http://economyandmarkets.com/economy/u-s-economy-from-1776-to-2014/

As we can see from the graph there was a small downturn in the stock markets during the American Revolution and then two more downturns between about 1840-1860 but overall there was consistant growth with only minor deviations reflecting a "boom and bust" cycle and we had constant growth. As we can also see from the graph the economic downturn (bust) of the Great Depression was far worse than anything seen during the 19th Century and the 2008 Recession, not shown, was also far worse that any "bust" cycle in the 19th Century.

The most signficant fact related to these pre-Federal Reserve cycles was that the average person had lost nothing when the economy recovery took place because there was no inflation. In point of fact over the 100 years of economic growth in the United States between 1800 and 1900 the average American was far better off because the "costs of goods" created during the Industrial Revolution in the United States dramatically dropped to less than half based upon the "inflation calculator" cited below. The average American was benefiting from the improvements in production that lowered the costs of goods and service.

This is dramatically different if we compare the value of "money" based upon inflation between 1913-2013.

http://www.westegg.com/inflation/

During the early 20th and into the 21st Century when the Federal Reserve was placed in charge, unlike the 19th Century, Americans were not benefiting from technology and innovation that should have been reducing the costs of goods and services but instead we saw the prices rise by astounding 2,347%. The Federal Reserve, tasked with providing a stable monetary system, obviously failed miserably in accomplishing that since it's inception.

Now let's address the laws and Constitution of the United States.

Article I Section 8 Clause 4 delegates the authority to Congress "To coin Money, regulate the Value thereof." We need to understand that "coining" is a manufacturing process of creating certified tokens. Congress cannot create money but can make coins from "money" and the actual money is the metal from which the coin is manufactured. Congress is also delegated with the responsibility to "regulate the Value thereof" of the coins it produces but many misundertand this clause. We use different metals including gold, silver, copper and more recently platinum in our coinage (reference Title 31 › Subtitle IV › Chapter 51 › Subchapter II › § 5112) and "regulate the value thereof" relates to creating a relatively equal value based upon the different "money" (metal) being used in the coinage. "Denominations" are assigned to the different "metals" representing their value to each other. Last addressed in the Gold Bullion Coin Act of 1985 Congress established that one ounce of gold, a $50 American Gold Eagle, was worth 50-times the value of one ounce of silver, a American Silver Eagle dollar. Ironically Congress was comprised of a bunch of idiots that couldn't add in 1985 because a $10 American Gold Eagle contains 1/4th ounce of gold so five $10 Gold Eagles equal to $50) have 1.25 ounces of gold but a $50 Gold Eagle only has 1 ounce of gold content.

As noted in U.S. Code › Title 31 › Subtitle IV › Chapter 51 › Subchapter I › § 5103 "United States coins (American Eagle coins) and currency (Federal Reserve note)" are both legal tender in the United States. A Federal Reserve note is a promissory note (that's why it's a note) and they are redeemable "on demand" in "lawful money" (American Eagle coins) according to U.S. Code › Title 12 › Chapter 3 › Subchapter XII › § 411. In short a a "$50" Federal Reserve note promises redemption in a $50 American gold Eagle coin. That is the promise but as we all know that law is not enforced. While the Federal government has exempted itself from redeeming Federal Reserve notes "on demand" in gold under the law (but did not exempt itself from redeeming Federal Reserve notes in silver or platinum American Eagle coins) the Federal Reserve is not exempted, and in fact is mandated, to redeem Federal Reserve notes in American Eagle coins. The law is not being enforced.

As U.S. Code › Title 31 › Subtitle IV › Chapter 51 › Subchapter II › § 5119 also stipulates the Secretary of the Treasury is tasked with the responsibility "to maintain the equal purchasing power of each kind of United States currency" and both "US (American Eagle) coins and currency (Federal Reserve notes)" are the legal tender of the United States but their purchasing power is no where near close to being the same. As of today a $50 American Eagle will purchase approximately 24-times as many goods when compared to a $50 Federal Reserve note. The Secretary of the Treasury is failing to comply with the law.

Finally, as noted, in Article I Section 10 of the US Constitution it establishes that the "States" can only use gold and silver as a form of payment for debts but the States refuse to comply with that Constitutional provision. They put forward that because the Federal government is not required to pay in gold or silver that the states are also exempted from this Constitutional requirement. This has never been adjudicated before the Supreme Court per se but in the "legal tender" case of Julliard v Greenman the Supreme Court did address this and states that the use of "legal tender currency" in no way affected the States' obligation to only use gold and silver under the Constitution as a means of payment for all debts. I'll omit providing the actual quotation from this decision on this but will provide the link and you can look it up. It's actually a well argued decision that changed my mind because prior to reading it I thought that "legal tender currency" was unconstitutional but the Supreme Court decision changed that opinion.

http://caselaw.lp.findlaw.com/scripts/getcase.pl?navby=case&court=US&vol=110&page=421

Also worthy of reading in all cases where a split decision exists is the lone dissent opinion of Justice Stephen J. Field as reading the dissent provides a better understanding of the Constitutional issues addressed.

http://johnwilkenson.com/files/Juilliard dissent.pdf

SUMMARY​

All of the above is used to show where we're at today. It exposes the myth of the boom and bust cycle of the 19th Century that weren't as bad as the boom and bust of the Federal Reserve era. It exposes the fact that the American people have been harmed, not helped, by Federal Reserve monetary policies. It exposes the fact that the Federal government, the State governments, and the Federal Reserve are not in compliance with the statutory laws and the Constitution of the United States.

So what should we do about it?

Simple, first and foremost we must enforce the laws and Constitution but there is a caveat to that. The Federal government does not have the "money" reserves (gold, silver, and platinum) to redeem the outstanding "promissory notes" as required by law. In order to meet this statutory requirement it must do what it last did in 1985 and "re-value" the coinage of the United States. Based upon the national debt, that is represented by promissory notes (i.e. Federal Reserve notes and Treasury certificates) it would require a "re-valuation" of about $5,000 = one-ounce of gold with lower denominations established by this Subordinate coinage would establish that a $2,500 gold coin would contain 1/2-oz of gold and a $1,000 gold coin would contain 1/5th-oz of gold. Silver and platinum coinage would be assigned denomination values based upon the relative market values to gold in compliance with the US Constitution.

Yes, this is higher than the current trading value of gold, silver, and platinum on the market but that merely reduced demand for redemption and that is not a problem and instead provides a buffer for compliance with the laws and Constitution. What it eventually achieves is an end to inflation that robs the American people of their labor that is stored in the "money" of the United States.

This does not prevent the Federal Reserve from intervening in the economy but does establish that it can only do so with "money" and not "fiat currency" so that the interventionism doesn't ultimately result in inflation that harms the American people.

 

As Pew Research found defining the middle class is somewhat difficult and in doing a state-by-state analysis they used 67%-200% of a state's median income.

http://finance.yahoo.com/news/much-earn-considered-middle-class-170000901.html

I'll not go into whether the 67%-200% is actually reflective of "middle class" because it's "close enough" and I won't try to do an analysis on a state-by-state basis it appears that we could use the approximate incomes of about $40,000 as the bottom and $110,000 as the top for rough calculation purposes. I'm probably a hair high on the low end and a hair low on the top end but it's a pretty good all-around foundation for calculation.

Obviously those households earning between $40,000 and $50,000 pay zero in federal income taxes under my proposal. Based upon just a general review of our tax codes today a family of four with this income would probably have a federal income tax obligation of somewhere between $1,000 to $2,000. Not a lot but they wouldn't have to pay anything nor have any withholding taken from the paychecks. In any case they're typically up to 4% better off under my proposal.

If we take the median income of $75,000 for the "middle class" under my proposal (based upon 2013 of 29% above the $50,000 exemption) they would pay $7,250 in federal income taxes. That might seem like a lot of dollars but it's really less than an effective tax rate of 10% on gross income and would probably be lower than what they would expect to pay today. I can only address this anecdotally but as a married filing jointly with no dependents when I had a $75,000 income my income tax obligation was pushing $13,000/yr in the past. In any case it's certainly affordable and doesn't diminish the lifestyle of the household.

Finally, in applying the same criteria to a household with $110,000 in income which is unquestionably upper middle class they would have a federal income tax obligation of $17,400 or an effective tax rate of 15.8% of gross income which is lower than the current average of 17% for household with an income of $90,000/yr (another source provided me with this information and I've also been in the $90,000/yr gross income range and can verify the 17% effective tax rate on gross income). Once again they can afford the tax burden without diminishing their existing lifestyle. I've had earnings around $110,000/yr and I lived like a "king" without even having to balance my check book because my income exceeded all of my expenditures on my lifestyle. We're talking about being able to afford limosines and Dom Perignon whenever the situation dictated. I was buying Absinthe at $250/bottle and that is a luxury lifestyle IMHO and that was under our current tax codes where I paid a higher effective tax rate than what my proposal creates.

All-in-all the lower middle class, middle class, and upper middle class are better off under my tax proposal than they currently are and I'm still balancing the US budget that our current tax codes don't do. I would state that your concerns about the effects of my tax proposal on the middle class are unfounded.

 

The only fair tax is one that taxes all economic activity the same, is unavoidable and not subject to political or economic influence. Only a universal transaction tax can do that. It has been estimated that a tax rate of 0.002% on all transactions would be sufficient to fund government at all levels, federal state and local, and pay off all their debts within a few years and pay for health care and pensions for everyone in the US. In other words we could replace all taxes and fees and health insurance with a tax of 20 cents on every $100 that changes hands. No income tax, no property tax, no health insurance premiums, no excise tax, no tolls, no taxes or fees for any government service. The tax would be collected electronically at the time of the transaction.

Any objections?

 

The fairest tax is one where each of us pays the the price of being a citizen of this nation. Each of us enjoys the same privileges of citizenship, so each of us ought to pay the same for that privilege.

 

Who gets to set that price?

 

One question. What would be the average federal tax rate on middle class people? What about on the wealthy? You don't provide any statistics for the overall tax rates on Americans from your policy.

- - - Updated - - -

Interesting argument. How much revenue would this tax generate for a year?

 

The exemption is based upon "median income" so the household with an income equal to or less than "median income" would pay zero personal income taxes. The "middle class" is more expansive and typically includes those within about 20% of median income so half would pay nothing while those above the median income would pay income taxes but only on income above the exemption.

Based upon 2013 authorized general expenditures, that are fully funded so there is no deficit, and a median income of $50,000 the tax rate would have been 29% above the exemption and the very wealthy would have been virtually paying that full 29% on gross income. An upper middle income household with $60,000/yr in income would have paid $2,900 (i.e. 29% of $10,000) in taxes or a 4.8% tax rate on gross income.

Three key points to remember:

1. There are no personal deductions or tax credits because they're replaced by the exemption.

2. Everyone is subjected to the identical tax rate above the exemption level which is why it's a fair tax proposal.

3. The authorized expenditures determine the tax rate so there is always a balanced budget.

 

It doesn't sound so bad. It would cut income taxes for the poor to zero, drastically reduce income taxes for the lower middle class to a fraction of its former amount, keep income taxes for the upper middle class about the same and raise taxes for the rich.

There are a few flaw with this idea.
First there is no tax for the poor, which will narrow the base that pays income tax reducing revenue. It cuts income taxes for the poor and middle class so much we are sure to get reduced income from the income tax. What budget items would you cut? Also, it makes the taxes of someone earning $300,000 and someone earning $10,000,000 a year virtually the same. The incomes of people who earns the latter has grown much more than that of the former.

Why don't we just have a simplified progressive income tax system instead?

What about this?
0-20,000: 0%
20,000-50,000: 5%
50,000-80,000: 10%
80,000-150,000: 15%
150,000-250,000: 25%
250,000-500,000: 30%
500,000-2 million: 40%
2 million on: 50%

 

It is a federal tax proposal, not a spending proposal, and it always fully funds the authorized expenditures 100% because the annual tax rate is adjusted as necessary based upon the authorized expenditures. The 2013 calculation of 29% would have generated over $600 billion in more revenue (i.e. the amount of the deficit) than our current tax codes with a maximum tax rate of 39.6%. Basically, by taxing all personal income above the exemption at the same rate it would have resulted in a 25% tax cut while generating more revenue for the federal government.

Once again, using the 2013 calculated tax rate of 29% (that funded 100% of the general expendatures) and a $50,000 exemption:

The $300,000 income household would pay $72,500 in federal income taxes equal to an effective tax rate of 24.2% on gross income.
The $10,000,000 income household would pay $2,885,500 in federal income taxes equal to an effective tax rate of 28.9% on gross income.

While the tax rate above the exemption is identical for everyone neither the "effective tax rate" or the "taxes paid" are the same for these two different households. It is a progressive tax without a progressive tax rate because progressive tax rates are corrupted by the politicians.

We cannot fix the past where investors were taxed at typically less than 1/2 the tax rates of workers (reflective of crony capitalism) but we can level the playing field so that everyone is taxed under the identical provisions which is what my proposal accomplishes.

People confuse "progressing income tax" which is what my proposal accomplishes with "progressive income tax rates" that are always politically corrupted (such as the one you propose). The tax rates you suggest are arbitrary, subject to the whims (and corruption) of the politicians, and are inherently unfair. They don't even ensure that federal revenues will equal expenditures so they could generate both deficits (under-taxation) or surpluses (over-taxation) of the American People.

Your proposal would also retain the current "tax deductions" and "tax credits" that are also inherently corrupted by the politicians.

For example why is mortgage interest (a financial expenditure for housing) deductable but rent (also an expenditure for housing) not deductable? Both households have to pay for housing, often spending the same amount, but one gets to deduct it and the other does not. Making matters worse many wealthy households are able to deduct more under the "mortgage" deduction alone on mansions than a significant percentage of Americans even earn in a year. I have no problem with the wealthy living in mansions but we shouldn't be subsidizing them with a tax deduction.

I've eliminated both the political corruption of "progressive tax rates" and the political corruption of "deductions & tax credits" from my proposal.

 

Let me be a bit more expansive.The cost of "being a citizen, enjoying the same privileges and immunities of citzenship, and having the identical rights that all people share in the United States" is ZERO.

It's everything else that the government spends money on that requires funding.

 

The government should stop spending money and see to governing.

 

So the federal government should not spend any money on national defense to protect the "rights of the people" or spend money on mitigating poverty that exists where the Rights of the Person to provide for their basic "support and comfort based upon their labor" is being violated by "crony capitalism" and the so-called "free market" in the United States?

We can have a law against committing murder and that is "governing" but without spending any money to enforce the law the governing means nothing.

The rights, privileges and immunities cost nothing but the defense of them and the mitigaiton of their violation can be very expensive.

 

I know a man who earns 100,000 dollars annually and pays close to zero taxes, because all his income is from dividends on special tax qualified stocks and bonds.

 

If our federal government only defended our shores, our federal taxes would be only a tiny fraction of what they are now.

Laws against murder and the police to enforce these laws are a state, not federal, issue.