Economic Issues

Tax Reform? We're Having the Wrong Discussion

Congress and the President, amplified through the corrupt lens of the corporate media, are consumed with tax talk at the moment. They are calling it tax reform, but it is largely a tax cut aimed at enriching the already rich and throwing bread crumbs to the masses. 

What would real tax reform look like?  

In medicine, you study disease by first learning the normal function of the system - its physiology - and then you study the how and why of that system's dysfunction in a disease state - its pathophysiology. We should do the same with taxation which is an element of the nation's monetary system.

The monetary system is a tool of the sovereign. In the USA, the people are sovereign. The purpose of the monetary system is first and foremost the means by which the government  provisions itself to serve the purposes of the sovereign - "We the People." The public purpose.

Fair Taxation Proposals (founded on the acknowledgment of MMT mechanics through an interpretive filter of physiology and pathophysiology):

A fundamental insight of MMT is that in a sovereign monetary system, taxation is the regulatory control of inflation, rather than a means of financing spending. Similarly, bonds are not sold to borrow, but to absorb money already spent and held as excess reserves, thus controlling the interest rate. Federal spending creates money, federal taxation destroys money. Money is numbers on a spreadsheet. 

Taxation (1) shapes economic activity to control inflation, (2) imbues the currency with value, and (3) discourages deleterious and socially undesirable practices and activities. To satisfy purpose (1) taxation must be focused and sufficiently burdensome to impact non-government spending behavior and reduce economic leakages such as discretionary foreign purchases (energy, mineral resources, etc) and money hoarding. To satisfy the second purpose the tax base must be broad so the currency is needed across economic strata. State and local taxation largely fulfill that function, but these must be balanced against spending over time as these entities, like families and firms, are users rather than issuers of the currency. Purpose three deals with taxes that are by intent self-limiting or self-extinguishing and, if well implemented, should have little lasting economic impact.

The corporate tax structure has become a haven where wealthy investors shield their gains from taxation. Eliminate corporate income tax altogether and instead impute all corporate GAAP profits and losses directly to the shareholders as (pass-thru) regular income. Early-stage enterprises will impute their losses to be used as offsets, profitable enterprises will be incentivized to reinvest their profits to defer tax liabilities for their shareholders, or pay the profits out in dividends. Corporate executive compensation in shares will carry the tax burden of the shares with the reward. This will adversely impact the status of corporate personhood and encourage greater shareholder participation to improve corporate governance.  

Eliminate payroll taxes. Taxing a person for working is not only wrong-headed, it’s bad policy as it is a huge economic leakage that drains a vast amount of working money by preventing it from entering the real economy. The nation’s capacity to care for its people, its retirees, survivors and the disabled, is constrained by real resources (human resources, productive capacity, and raw materials), not by the dollar tokens that the US Government creates, embargoes and destroys as needed. Intelligent use of today’s resources insures the ready availability of needed resources in the future. Hoarding money today only impairs the creation and maturation of necessary future supply chains. A fool’s errand and an irretrievable loss.

Impose a highly progressive federal tax on unspent income and income disposed of off-shore. Phase-in tax at the median income. Formulate tax brackets scaled to the median income and indexed over time. Taxing unspent income encourages consumption (71% of the US economy) by the wealthy, adding to real economic activity. A great many man-hours of skilled labor are encompassed in the building and maintenance of an estate or yacht or aircraft. Their spending is workers’ income in the real economy. Their money hoarding and off-shoring are economic leakages which taxes should discourage by design. 

Impose strong progressive inheritance and gift tax structure to limit the economic leakage of large intergenerational wealth accumulations. Exempted limits indexed over time, set to some multiple of lifetime median income. For large fortunes, the rule should be: spend it, contribute it to society, or take it to the crematorium.

Federal spending to support society, business and trade, and economic stability:

    Universal single payer health care, relieve US business of massive costs not born by foreign competitors.

    Infrastructure spending (highway, bridge, rail, hospitals, schools, ports, airports, energy, water, waste disposal.)   $3T needed 

    Programs that augment future productive capacity and resource utilization (NASA, national institutes, and laboratories, public works)

    Federal Job Guarantee Program to maintain full employment and a readily employable buffer stock of workers for the private sector 

    Universal retirement and survivor and disability income (Social Security)

    Universal child care, PreK, K-12, Vocational/Technical education

    Performance-based public higher and graduate education

Limit Treasuries to 3-month zero interest issues and continue ZIRP policy indefinitely ???

Carbon externalities tax levied at the source and distributed per capita as dividend income to all citizens or legal residents of US.

Would appreciate feedback...

 

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