This lonnnnng post was prompted by an email linking Michael Barone’s latest SF Examiner piece, which asks Republicans “Now what?” after assuming some strong gains in November. I have a few ideas on the “now what?” question, and I can’t think of a better place to post them than on this excellent blog.
First, I can’t thank you all enough for the excellent commentary and critiques on my recent “Swapping a VAT for failing income tax is Good Policy” post a week or so ago. I’ve commented on many of your ideas, and I think you’ve changed my mind on a thing or two, which you will notice below.
I wanted to follow up that post with another proposal that fixes the primary problem with going to consumption taxes, which is their impact on the working poor and middle class. One benefit of a consumption-based tax regime is that it captures money from every transaction, making every one a part of the solution to our fiscal mess. It is also far more stable than a highly skewed progressive system that only taxes the rich. (Social Security notwithstanding)
The most difficult political and policy problem preventing the adoption of a consumption based tax system is that it places a “burden” on the working poor and middle class. (burden being interpreted both in policy and political terms)
Simply put, in a consumption tax system, the lower end of the earning spectrum pays a much greater share of their income in taxes than the rich. Many will argue that this is “unfair.” Leaving that argument aside, it is fair to say that this problem MUST be resolved before any politician is going to risk moving the entire system away from income taxes.
I propose such a solution in this post, beginning with my answer to Barone’s “Now What?”
Now what? Here’s what! BREAK EVERYTHING!! (Just break it in slow motion)
The solutions proposed below are envisioned to be enacted as sweeping reform. I see them as design to re-set America’s fiscal and cultural course. Note that I don’t take credit for the ideas because others have actually been proposing them for decades. It’s just time some wrapped them up in a bow and integrated them as a unified, workable platform.
If I had the time to work on my now-shelved book on a 3rd Party, I would write a chapter or two for each of these ideas, laying out accurate numbers and analysis for why they are great ideas. Absent the time to do that, I decided to propose them here and get your great feedback again.
More and more polling data is showing that Americans across the political spectrum are looking for more than the run-of-the-mill pabulum spewing forth from our brain-dead, morally disgusting, and corrupt “ruling class.”
From Rasmussen link above – “Yet despite all the bad economic news, 67% of Political Class voters think the United States is generally heading in the right direction these days. Things look a lot different to Mainstream Americans. Among these voters, 84% say the country has gotten off on the wrong track.”
I see the next few years as a wonderful opportunity to propose bold, aggressive, and sweeping reforms. The insiders of both parties will pooh pooh such talk, and blather on about how important it is to change by increments.
I think the incremental strategy is an utter failure. It has literally created the mortgage mess, the tax code, the regulatory Rube Goldman-Sacks apparatus, and provides the foundation for every other serious problem we face today. It is time to scrap incrementalism, and boldly propose transitioning out of every bad policy and toward good ones. With that in mind, I propose the following agenda.
1. Constitutionally Cap Spending
Propose and promote a Federal Balanced Budget Amendment while passing Gramm_Rudman II in the interim. You may not get the Amendment, but you will be able to organize politically around it for 3 election cycles. Americans are appropriately worried that the ruling class is bankrupting America. Give them something to rally around that will have 60% approval ratings for the next 10 years.
This plank stems from a simple concept that Republicans refuse to tell their rank and file voters. If you are spending, you are taxing. Voting for tax cuts without cutting spending is a practice that must stop.
2. Individualize the ENTIRE Welfare State
Write comprehensive legislation that transitions Soc. Sec. and both Medicare and Medicaid into a system where every American over the age of 21 receives a a $15,000 yearly stipend indexed to inflation. Convert all health care and retirement systems to an open market of insurance offerings and savings accounts.Mandate that the first $5000 of this stipend go toward the purchase of these new health insurance, health savings, and retirement savings options. Over time, Medicare, Medicaid, and Social Security will no longer be necessary. After all, if you are going to mandate the purchase of insurance and save for retirement, what better way to do it than provide the money for it?
The benefits of the above proposal are numerous. First, the unsustainable, unfundable, and broken government medical system is replaced by an individually-driven dynamic market of new services. Second, America’s saving and investment rate will sky-rocket and savings from increased efficiencies will be monumental. Lastly, to receive these benefits, you must be an American citizen, which solves almost all of the cost issue of illegal immigration .
I call it “individualizing the welfare state” for a reason. It threads the needle of left and right dogma. Conservatives and libertarians can’t bring themselves to understand that Americans want a safety net, and the left can’t understand that the current net is in tatters, and utterly fails the people it is intended to help. The proposal above saves the “social welfare net” in way that is sustainable.
How do you pay for all this? First, we may need to increase revenues as we shed the failed or failing legacy systems. As we flush out the culture of these destructive programs, we will begin to see large cost savings in the out years.
If the legislation is proposed properly, it will layout a 10-20 year transition plan to the new system. Over time the money spent on Social Security, Medicare, and Medicaid (no longer necessary) will be spent far more wisely by actual people. Much of the existing private and public bureaucracies will die on the vine (a good thing), and the best aspects of that bureaucracy will serve to advise the millions seeking the best way to allocate their stipends. As for the tax system necessary to finance all this, see below.
3. Destroy the existing tax system. Phase out ALL Taxes based upon income (Corp, Personal, Soc. Sec. & Capital Gains) while phasing in a consumption tax-based system.
Before your heads explode, just remember that ALL income, FICA, investment gains, and corporate taxes are GONE when this is done.
For the foundation of this proposal, check out my earlier post on the swapping income taxes for a VAT. That post contains the premises on which I base my proposal, as well as some fantastic critiques. As I read through the critiques, I refined my ideas. Here is the new general outline.
Abolish all taxes on income and investment. Convert over to a full consumption tax system, taxing all services and new goods at the point of sale. Separate out Energy, Gasoline, and Financial instruments for special treatment.
A. Set a new Goods and Services Tax high enough to pull in about 50% of needed funds.
A broad “Goods and Service Tax” (GST) is far superior to our current insane tax code. The current code crawls up our butts to invade our privacy. It distorts corporate and individual spending and investment, and it is failing to collect enough money to finance our government. Just get rid of it whole and entire.
I chose GST because it is more inclusive and workable than the “The Fair Tax” or the complex VAT. As for the size of the tax, it may be as high as 20-25% on all goods or services. As you contemplate that negative aspect, realize that you are no longer paying income tax on any of your income. It’s a wash of sorts. For all of those folks who haven’t been paying any income tax as our Military, Medicare, and roads are financed, it’s time for you to pony up to the bar and take your medicine. There’s no free ride, or at least there shouldn’t be.
B. Put a BTU tax on energy set to take in 20-25% of the budget.
For starters, this satisfies greens and lefties who want to do something about carbon and green energy. Rather than create corrupt and worthless “cap and trade” schemes, just tax energy directly. This will allow investment to flow into energy reduction ideas that are far more likely to succeed than allowing Enrons and Goldmans to create instruments of financial ether that only serve to go from your energy bill to Wall Street rent-seekers.
Also, this tax will get us energy-glutton Americans to stop wasting energy by the bucket load, which we stupidly feel we have a right to do as some form of birth-right. We don’t.
C. Set the price of Gas at $5/gallon and have the Federal Government to pocket difference.
First off, I don’t have the budget or the staff to crunch the numbers, but this should get the remaining 20-25% or so needed to approach “revenue neutrality,” which is mostly a pipedream to pursue anyway. Any such proposal would be far more dynamic for any static scoring system.
The first effect of this consumption tax (again, phased-in) would be to crush demand for gasoline in America. Chinese and Indian growth is a factor, but America is the 800 lb. gorilla driving gas prices. Once you break the back of ever increasing demand here in the US, the price of oil won’t go over $50/bbl for quite a while. This likely give the Federal Government. a relatively stable source of income for a decent interval. Of course, it can be tweaked as necessary.
The side benefits of this policy are large. Again, 100s of new energy saving ideas will flow to the market without the stupidity of Cap & Trade schemes.
Another HUGE benefit from this policy is the impact it will have on Saudi Arabia, Sadrist trouble makers in Iraq, Mullahs in Iran, and Chavez & Putin. As the demand in the US drops and prices with it, our most serious enemies with oil reserves all take a massive economic hit, at least in the short term. No more financing terror. No more fomenting revolution in Central America, no more blackmailing the EU with energy shut offs. A $5.00 gas price saves America billions (possibly trillions) in defense spending.
As for negatives, please disabuse yourself of the nonsense that this will kill the US Auto industry. It’s already dead. Unions, bad management, and cheap gas are what killed the US auto industry. High gas tax countries build better cars, and have been for decades. Deal with it!
D. Set up a low transaction tax for ALL financial instruments, exempting NO ONE! Take 2-3% on the purchase and sale of every security transaction. This could be considered gravy, in terms of budget items.
I have no idea how much money this might bring in, but without a capital gains tax to deal with, and a growing nation of savers and investors, I’ll bet it out paces capital gains taxes quickly. Any thinking person can see that it is better policy from virtually every angle. Also, it shouldn’t be hard to calculate how much it brings in initially, again, accounting for the fact that it will be impossible to predict exactly what the number will be.
E. Tertiary taxes issues
Lastly, set up a low, equal tariff for ALL goods & Services coming in from overseas. Start phasing out “managed trade” and return to free trade.
If you have any ideas for other items, feel free to comment.
All of the above is proven from both a real (see 50 laboratories of democracy), and a philosophical perspective. My personal view is that it is simple, elegant, and brilliant policy, all proposed at one point in time or another by people much smarter than I am.
It is the culmination of decades of groping toward some workable plan for a better system that works in concert with American exceptionalism instead of against it. We need a tax and social system that serves a nation of self-governing people free to choose what they believe is best for them. The current tax and social system is written for a nation of morons continuously voting in the worst people, who in turn promote the worst policies for the worst reasons, all layered into an unworkable pile of chaos, easily gamed by the corrupt people who benefit from it.
What I outlined above contains something good for millions of individual Democrats and Republicans (you know, decent citizens). However, there is nothing above for the greedy, corrupt, and morally illiterate “ruling class” of the Party, Media, Corporate, NGO, and Entertainment idiocracies. Sadly, therefore, the first politician to actually propose a grand plan for a better way will be drummed out of their respective Democrat or Republican parties instantaneously.
I may be wrong, but I think we will need a third party to run on a platform similar to what is outlined above. I don’t think the Republicans have the will to propose bold ideas, and the Democrat leadership lacks the ability to look beyond their insipid class war rhetoric and ideology.
Sadly, both parties have gamed the system so that a rational, centrist, honest, and transparent 3rd party is nearly impossible to set up on a national basis. If there is any chance to prove the concepts, they lie in creating such a movement in a state or a city. Use the same principles and apply them to that locale. States approaching bankruptcy and destroyed by public unions (Illinois & California) are probably the best places to start.
But that’s another post, if not an entire book.