Noblesse Unobliging
The General Theory of Tax Reform
(Including two specific reforms – Part 5)
1 A Short History of our
Recent Political Past
Americans once fought a revolution based on the concept of “no taxation without representation”. The Boston Tea Party was never about tea but the symbolic lack of control the people had over their lives and destiny that led to the rebellion. Eleven score and eleven years later our political class has returned us back to the original roots of our existence, but not in a good way. Our tax code is a clear complex perversion of those very rights of democracy and justice once so hard won.
Now there is an undercurrent of disquiet across the land. Distrust of government is at an all time high. Americans sense they are having to work much harder to achieve the same middle class lifestyle that their parents took for granted. And while life goes on it is increasingly clear that the robust economic growth experienced by previous generations which worked to the benefit of the entire nation is over and that our economy is having much greater difficulty maintaining its status as the world’s strongest than it once did.
There is the widespread realization, reflected in polls and on the faces of your friends in conversations on street corners and in coffee shops across the land, that the nation has taken a wrong turn and is beginning to labor under the strain of our great responsibilities. Moreover, as there is no apparent hope, given our current leadership, that this state of affairs will improve, this disquiet is well founded.
The economic policy of the United States since the early 1980’s has been the most detrimental to the general long term interests of the nation in our history. Perhaps the landmark of the era, as it lay at the root of many of the most pressing problems we see before us today, was the 1981 reconciliation budget agreement. Due to it we created a situation that ensured annual budget deficits of between 150 billion to 300 billion dollars. This has remained constant but for the late ‘90’s and has caused us to pile up more debt in the last twenty five years ( $9 trillion ) than the accumulated debt of the nation’s first two centuries. At the same time, the debt has placed our day to day finances in such straightened circumstances that it has crippled our flexibility to deal with a wide range of other critical issues facing the nation.
Concomitantly, though not confined entirely to all the same explanations, we changed from being the world’s leading creditor to the world’s leading debtor nation, escalated the trend of increasing economic pressure on the middle class, dried up our nation’s capacity to save and invest in our future and made inevitable a growing disparity of wealth between rich and poor. There are many other collateral cause and effects to this, big and small, which are too detailed to go into here. Taken all in all, however, if persisted in, these tendencies reek of national economic decline.
But not immediately, not so’s, as they say, you can easily get your hands around it. This economy our political class has corrupted is like a large bucket with a small hole in it whose costs to the nation are only overwhelming cumulatively, by slow accretion. Our huge trade deficit for instance, might only account for a fraction of our GDP in any given year but when carried over many years the outflow accumulates to numbers of deadly significance.
After all, many segments of our economy, particularly in the upper reaches of the private sector are coping and competing quite well, yet at the core of the system, around the middle, the edges and certainly at the bottom there are large problems eating away at the edifice of our economic preeminence. This is the great crime of the century which our government has authored for us, an intricate who-done-it - devious by design, insidious in practice but yet too intricate for easy detection and simple solution - in which the focus of the plot keeps shifting like a dying carcass being moved by the perpetrators of the act from place to place but dying all the while, with less and less hope of unraveling the crime the longer the culprits go unidentified and unpunished.
The upshot of our government’s persistent mismanagement of our economy has not only led to a lessening of our own quality of life but has led to a structural outflow of our capital resources and debt overseas. One doesn’t have to subscribe to the old mercantilist school of economic thinking or be a student of the decline of great nations to recognize that such trends, particularly in a mature economy like ours, tend to increase gradually and imperceptibly over time until they have eventually grown irreversible. Without some plan by government to correct the problems it has created - and of course there is no such plan – our economy will only continue to slide inertially toward some unknown bottom somewhere. The turning tide of our power, called the American Century, at the millennium seems destined to coincide roughly with the final turning point downward in our history unless some energetic corrective actions are taken soon.
Yet all tax and economic proposals for the future offered by the two parties are either irrelevant, built on failure, hopelessly impractical or entirely counterproductive to the problems at hand. As an example of the type of intentionally banal contention made in Washington today (and then acted upon!) we have been told again and again with all apparent seriousness, and not a little self righteous Christian indignation, that it is welfare payments to the indigent which have been impeding the forward economic drive of the nation. As the payments in question have never represented more than 1% of the United States budget this is hardly plausible.
The suggestion that the cure for the chronic ills of the nation lay with milking the poor of what few resources they have, being greedier to the needier, is bizarre on its face. Yet we were told in 1980 that the root cause of all the economic problems of the nation was the profligacy of the “welfare queens” of the poor. The reason the middle class was struggling then and the wealthy were not getting as wealthy as fast as they preferred was because the poor people were hoarding all the money! Clever sots, those poor. What marvelous self control they’ve shown. To better deceive the rest of us as to their true hidden wealth, there was apparently some diabolical conspiracy among them to refrain from spending their money as extravagantly on themselves such as, say, the rich do. However astonishing it may sound we were faced with a problem that has never appeared before in the entire history of the world – our poorest people were actually acquiring too much wealth. Fortunately, their malicious plan was soon ferreted out by our wise and incorruptible leaders and the solution they proposed, ostensibly to aid the middle class, was to reward a massive tax break to the wealthy, the only people in the economy not under any particular economic duress. So instead of the “across the board” tax relief the politicians were promising the people they gave us an empty “across the top” tax cut which, surely only by coincidence, only helped themselves to our money. This same bait and switch scam has been repeated against the interests of the nation many times since.
The dishonest Bush “middle class” tax cut in 2000, for instance, actually has seen 75% of its benefits go the wealthiest 0.06% of Americans. This tax give away was granted by congress despite the fact that the wealthiest 1% of Americans already control more wealth than the poorest 50% of the people combined.
Self evidently, all attempts to soak the poor and middle incomes to enrich the wealthy are as intellectually vapid as they are almost unbelievably cruel, venal and divisive. There is much of hoary old class elitism and traitorous anti-democratic beliefs recrudescent in these policies and most of our current government’s economic thinking. But, we are piously informed, positive incentives (carrots) are all that is needed to incite the rich to work but negative incentives (sticks) are required to re-engender a flagging work ethic in an otherwise shiftless and congenitally lethargic poor and middle class.
The result of this is that we are experiencing systemic, government instituted prejudice and inequality not seen in this country since prior to the Great Depression. Since 1970 the top marginal income tax rate has been halved from 70% to 35% while the rest of society has seen hardly any tax relief at all to account for all the loss of services and governmental competence we used to both take pride and take for granted. Meanwhile corporate profits are the highest they’ve been since 1929 yet employees’ wages have stayed stagnant even as their benefits have been slashed and their pensions plundered. Executive pay that was 40 times what an average worker earned is now 367 times those same workers’ salaries. These expanding executive pay raises are not earned or justified according to any objective measure of excellence but are a proof of its absence and a function of the loosening political and moral control of our leaders. Politicians who have derided these excesses as obscene still cannot help themselves from continually cutting the taxes of these same overpaid executive parasites which allows them to double and triple dip from the national treasury at our expense.
In fact, every objective measure of competitive equality and societal excellence the US, which was solidly among the world leaders in nearly every comparable category as recently as the 1960’s – from health care, education, maternal and infant mortality and even the relative height of our population – now places us about fortieth among the developed nations of the world. This is an astonishing drop in our nation’s quality of life in just a half century. As good government was given its fair share of credit in making us number one back then (as it surely was when we were growing up) bad government has to be given the lion’s share of the blame for the precipitous decline since.
One obvious culprit is our tax code. It has become an ungovernable mess and any attempt at temporary marginal modification is only doomed to increase its complexity without fixing its problems. All of the tax proposals of the last twenty five years been completely disingenuous as by use of imaginary numbers and false logic they are clearly designed to achieve goals other than those expressed. Self-evidently there is something deeply sinister about a democratic government which smilingly tells its citizens one thing in order to achieve something entirely different.
But that, if you haven’t been paying attention, is actually the point. A corrupt and profligate political class actually seeks an increasingly complex and rapacious tax code to cast discredit on all taxes in order to cut their own. To keep this scam alive, they must keep the tax code as regressive and confiscatory as possible for the majority of Americans in order to keep the general sentiment for cutting taxes in play with the public. Then next election they run against big government by bizarrely criticizing the very government they have been in charge of for decades. They promise tax relief for the middle class, get elected and then proceed to cut taxes for themselves and leave taxes for everyone else as high as they can get away with. This is the same disastrous shell game they have been successfully running against the nation for the last 25 years.
2 The Unbearable Lightness of Money
While not entirely analogous to a mechanical pump our economy might best be thought of as a system of circulation. All of the most recent endeavors to reverse our negative economic trends have been characterized by the tendency to try to top feed the economy. This is like trying to aerate or revitalize a well by pouring buckets of water into it from above. Because of the density of its mass, which increases with the depth of the well or the size of an economy, the turbulence at the top will not penetrate very deeply into the body of the well.
In an economy this is due to the fact that the natural flow of money is always in the other direction. Upwards. Money rises from the bottom of an economy just as certainly and predictably as air bubbles rise in a glass of water or heat in a poorly insulated house will eventually accumulate in its attic. Without some system of circulation in a house, like an attic fan, one swelters at the top of the house while freezing on the ground floor. This is the situation which now pertains in our economy, too much of the nation’s available capital resources that have risen to the top of the system will never reenter the economy as investment.
It is not that there isn’t enough money in the economy, it is that the money is out of touch with the needs of the majority of the people, unavailable for priming the pump of the economy with true ground level investment to meet the actual needs of the population. We can’t get too far into political reform here, though that is at the heart of our problem, but only focus on the corrupt distribution of our resources through our tax code, which is the primary symptom of the corruption.
Self evidently an economy which doesn’t serve the interests of all Americans to provide a minimal level of well being, safety, security, health and education is badly broken. As the wealthiest country in the world there are ample resources to meet these national needs, it is the circulatory system of the economy, like blocked veins which keep enough blood from getting through to the heart in a human body, that is being slowly calcified by our politicians. This is exactly the same situation in 1929 that led to the stroke of the Great Depression. Some of the same symptoms that prevailed then are beginning to surface in our economy today.
So take a test. Which should we believe: 1) that a healthy nation is best judged as being only as good as its weakest citizens? or 2) that a healthy nation is better measured by how wealthy a few of its strongest citizens are? While the first option says a great deal about the ethics, cohesion, economic vitality and ultimate strength of a nation, the second says nothing. The wealthiest citizen may as well be a Martian as to the effect he has on the rest of society. For the record we have always thought of ourselves as only as good as our weakest citizens. This is quite literally the only possible way for a true democracy which considers the rights of each of its people equal to behave. The current political leadership has chosen to betray our entire history and choose the second option as their guide by making it their mission to pamper the already pampered, plucking the chickens of the poor and the middle class to feather the beds of the very, very well to do.
On the contrary, the mismanagement and then scapegoating of our welfare programs (and all other egalitarian systems necessary to good government) is merely another layer of symptoms of the disease of self-delusion and/or political prevarication which run rampant at the highest levels of government today. Because if we are talking about taxes to run a more efficient and fairer economy it stands to reason that we should first look to where the money is. In this economy, like all known economies in the entire history of the world, most of the money is bunched at or near the top of the economic scale. It would serve us to begin our search there, yet our political class consistently looks in the opposite direction for its funds.
Therefore, all current proposals to reform the tax system, such as a “flat” income tax, all supply side tax “cuts”, lowering of the capital gains tax, repeal of the alternative minimum tax, repeal of the estate tax, national sales tax, value added tax, user fees and other consumption taxes similar to these, should be tossed aside. Not only will these not raise the requisite funds to transform our tax code as promised, but each is progressively more regressive than the last and would only exacerbate each and every problem the country now faces. Put simply, for our government to give the wealthy among us their profits before they have even done anything to earn them is not only inimical to our democracy and a thorough corruption of their oaths of office, it is also very bad economics.
3 Pyramid Schemes
The issue of tax gathering has never been a mystery. It is the process of taking a small amount of goods from each to ensure the well being of all. When properly and fairly done through the economies of scale it creates, it can provide general prosperity for all without being a burden on any. This is really an investment in the unity of a nation in order to build it for the greater wealth and well being of all.
Clearly, the best, easiest, most moral and profitable way to invigorate an economy such as ours is through a fair tax reform which is either progressive or flat which includes as one of its primary functions aid to those most in need. Contrary to current mislogic, this is actually far more stimulative and healthful to an economy than tax relief to the wealthy or no taxes at all. This is because economic stimulation always energizes best from below from where, utilizing the natural reverse gravitational pull of money to money, the money returned to the people in this way will touch many hands and enrich many lives as it rises up through many strata of our economy back toward the top.
This is not the same thing as a gratuitous redistribution of wealth. Since money goes to money, from the start of the world every tribal chieftain worth his salt has acquired goods over and above everyone else in the tribe. This money is generally static and stays in possession of the chief as long as the chief is in possession of power. Therefore the likelihood that this wealth will “trickle down” in the parlance of our time, to the rest of the tribe is a concept as laughable as it is economically dishonest. For a nation to pretend not to notice this and refuse to redirect enough money back into national investment is to starve itself of its own future prosperity and ensure growing stagnancy.
To illustrate, take the instance of a great woolly mammoth slain by members of the tribe. Even if the chief didn’t slay the beast himself, by rights or fear or tradition, respect or even force of arms, as an honorarium, the chieftain and his elders will no doubt profit disproportionately from the tribes’ good fortune even if they had little to do with the arduous labor of the kill, probably not only receiving the best meat but generally the most as well. But if the chief should happen to accidentally stumble onto a kill of his own there is absolutely no reciprocal guarantee or even probability on his part that, unless he is particularly enlightened despot (rare enough in history), he will share his booty equally with all members of the tribe.
In fact, the larger the tribe and more jaded the chieftain the less likelihood that very much of his good fortune will trickle down due to the increasing disconnection of responsibility between top and bottom. He may reward cronies with a bit of his largess to increase their loyalty and his power but this is generally not to be confused with large minded generosity to all. In fact, in most economic circumstances, and certainly in ours today, as profits rise, costs tend to trickle down far sooner and more oppressively than benefits will climb, an eventuality which works to hasten the flow of goods and prosperity up rather than down.
Consider a simple graphic representation. Visualize two triangles. One representing wealth and the other population. Turn over the wealth triangle and superimpose it on the triangle which represents population. You will see that the greatest number of people have the least amount of wealth and the greatest level of wealth goes to the fewest number of people. Sooner or later, if left to its own devices or at least to the vices of its leaders, every economic system in the history of the world will grow to resemble this graph. To claim that this happens because in each instance the top end of the economic ladder is the exclusive domain of the hardest working or the most morally deserving or the most intelligent investors or most efficient and trustworthy handlers of money is self-serving and defies human experience. Every unregulated economy left to the unchecked devices of it leaders will slowly evolve into a slave economy.
This is due to power. Economics does not exist in a vacuum. Neither do “free” markets no matter how free they are. And money, however else it is defined, is an integral component of the acquisition and maintenance of power. Power is that which differentiates people one from another and may incorporate many factors – political and legal, psychological, social, control of information, military power or even undue religious influence – of which money is only one part. Still, it is money in combination with any one or more of these other elements which may constitute the pinnacle of these constituent hierarchies of power and whether money precedes power or power money, invariably they gravitate to one another. Money can then be used to increase power or power to increase opportunities to make money. Whatever the arrangement, once these forces are working in tandem, the pressure to economic differentiation increases tremendously. Moreover, when money and power are allied and unchecked over any extended period of time, as both by their natures work to increase themselves, they will invariably begin to oppress, as it is only by squeezing wealth and power from others that they may continue to augment the advantageous positions that they already possess.
The accumulation of power and money in too few hands is anathema to the proper working of a good democracy. This is why in a democracy, knowing this infallible principle, our founders tried to keep the interests of money and power separate. Our current crop of perfectly corrupt politicians have let this line blur to indistinguishibility and are doing everything they possibly can as middle men to join these forces together to victimize the rest of us. They have placed their offices for sale to the highest bidders and have become slaves to money which in turn enslaves us to them.
Not persuaded yet by references to an ancient tribal leader? Think anything has really changed? Let me give you three quick present day illustrations.
Consider a modern married couple with family, both of whom are wage earners who rent rather than own the house they live in. Where does their money go? Not earning enough over expenses to save they have no means whatsoever of holding onto it. As soon as they receive their paychecks their money is literally lifted from their hands to pay their bills and begins its short and ineluctable rise upward toward the top of the economic ladder.
So at the grocery store when they go to pay their bill, their money is automatically apportioned into smaller percentages strictly predetermined according to economic rank and social position and funneled upward. So, the farmer gets a slight amount for the production of the food stuffs the family buys, the check out person a tiny amount of his pay for serving them, the marketer and advertisers get a larger proportion than that, the agribusinesses get an even larger cut and the shareholders of the store, its bankers and its owners, who may control a number of stores, quite a little bit more than that. There are slight detours and diversions of capital and paybacks along the way to be sure. Even august Chairmen of the Boards have to eat, for instance, and may have someone shop at the very same grocery store on their behalf – the crucial difference being that they do not need to spend their entire week’s salary to feed their families.
But primarily the movement of money in our society is irrepressibly upwards and outwards and the shape of the distribution which results is pyramidal. The less regulated the system is the more like a funnel it becomes, sending more and more money into fewer and fewer hands. The general rule is that, just as the wider the plain a river drains the more water it carries, or the bigger and more prosperous the tribe the richer the chieftain, then the broader the base an owner’s or investor’s capital draws from the more money they accumulate. Put even more simply, as rivers run to the sea, money goes to money, small money always goes to large and is absorbed into it.
This also applies to public works improvements of government. So the availability of airline flights subsidized by the taxpayer in new runways, terminals or air traffic control technology may reward the normal citizen who occasionally flies with greater safety, esthetic enjoyment and perhaps even potential ticket reduction over time to allow them to eventually break even on their individual tax investment. But generally not. For a small taxpayer taxes are a benefit to the whole without necessarily eventuating in profit for the individual which, provided tax assessment is perceived to be fair, most Americans are willing to do as a quality of life issue.
On the other hand, such general improvements actually allow those in business who engage in interstate commerce and can negotiate frequent flyer deals, who can benefit from economies of scale, who can profit by increased efficiencies and who fly all the time, to actually earn money on a general expenditure of taxpayer money far beyond what they may personally have originally contributed in taxes to the construction or investment.
Finally, take the case of a municipality offering general tax abatements to a firm to build a factory in their community. A worker receives the right to give a fair day’s work for a fair day’s pay, vital for self-esteem, to be sure, but hardly a give away. But then the worker is also dunned for increased taxes against his or her wages which must go to pay for additional schools and sewers and roads and other improvements which normally a new company would have been partially assessed for. Under these types of agreements the management of the company becomes the sole great exempted beneficiary of this taxpayer largess, benefiting enormously from these tax breaks. Meanwhile the worker’s profits are suppressed by having to provide for the creation of the infrastructure which only the owners and managers of the plant can expect to actually profit from.
There are tax subsidies like this in a variety of forms, where individual poor and middle class citizens are called on to subsidize individuals and corporations far wealthier than they are, liberally littered throughout the entire body of our tax code that will never benefit the average taxpayer equal to their contribution. Yet from these same general expenditures of tax dollars while the worker and taxpayer are merely making do, owners and investors are making profits.
Therefore, as a general rule, every social or economic advancement in the society as a whole, however vague, including even such difficult advancements to assess as education, general health, or quality of life; as well as more solid national taxpayer investments for improvements such as highways, communications, miscellaneous infrastructure etc., even our space program, will, because money rises, always benefit those at the top of the economic structure who can capitalize on them much more than those at the bottom. Even government spending which may be preventative or remedial, like law enforcement or meat inspection or defense spending or preventative health care (all with negative benefits even more difficult to quantify) will still, by ensuring a climate of efficiency, prosperity and order necessary for economic growth to occur, in the long term invariably benefit those at the upper end of the economic spectrum much more than those at the other end.
The point being that those at the top of the economic scale, since they benefit more than anyone else in a safe, well educated, healthy and well run nation from government (taxpayer) expenditures, should not only be anxious to pay taxes to enhance the public good but be willing to pay more in taxes than others less fortunate. This affords each member of society the greatest return on the smallest investment they can make. It is profoundly ignorant and short sighted not to appreciate this. This is not only appropriate from a moral and patriotic point of view but from an economic one as well.
4 The Thieves of our Future
The question then remains why those with the most to gain from tax expenditures are always foremost in line to fight against them? The reason is that costs in taxes are quite immediate and specific whereas the benefits of such subtle and soft expenditures are often deferred and general. This leaves their immediate utility to a manager or owner concerned with a bottom line nebulous. After all, the sixty year old CEO of a corporation will never see the advantages of a Head Start Program which seeks to better prepare poor preschoolers for school. He will be long retired before any of the beneficiaries of an infant health care program reach the work place.
Another reason is that a program long in germination will have many of its benefits submerged. And even when its good results come apparent its parentage has often already been forgotten or its benefits too soon thereafter taken for granted, as if they were natural to society rather than created by good government. All of these positions are rational if short sighted. But in sum, it is a part of the very nature of our mortality, of business, of wealth and of power to prefer present benefits over future ones. It apparently takes a greater capacity of vision, innate honest and subtle instinctive intelligence than our current leaders possess to see any long term advantages beyond the short term costs.
This problem now begins to resemble an old song in which a man dying of thirst in the desert comes upon a jar of water next to a well with a note attached. The note instructs him not to drink the water but to first use some of it to prime the pump. His dilemma is this: if the note is wrong or he fails to succeed in priming the pump he will have less water for himself. On the other hand, if he succeeds in priming the pump he will have as much water as he can ever use, with plenty left over to fill his canteen and, even more importantly, enough to refill the jar of the next parched wayfarer who then may refill the jar for others.
The essential act of faith required by each passerby is similar to the problem each generation faces, whether to prime the pump of our economy for the next generation which comes after or to try to take it all for ourselves as if we could literally take it with us. It seems as if our present generation of improvident leadership has not only decided to drink the jar of water left by previous generations to quench their own thirst but to make it unusable for all succeeding generations by dismantling the pump and packing it out with them to sell for parts later. In so doing, they are betraying both our past and our future, first by squandering the savings and hard work and investment built into our system by the sustained genius and sacrifice of previous generations – which has made them the most insufferably rich and spoiled generation in world history – while with their current profligacy and misguided miserliness they seem determined to deny all future Americans the benefit of a birthright comparable to the one they received.
In this respect a nation is not so unlike a corporation which, when it begins to draw back in order to reduce its expenses also tends to constrict its sources of revenue. These tendencies quickly become mutually self-reinforcing and are difficult to reverse. I used to go to a busy bakery on Sundays which was always shorthanded, whether this was from trying to keep costs down or inability to find help on those days, I never knew. But predictably, within weeks, tired of waiting in line for service, the number of customers had steadily dwindled until the customer base had become appropriate to the level of service the store was willing or able to provide. But it did not stop there. There is a momentum to decline which once started is difficult to arrest, so business in that shop continued to fall until within just a few months the shop was out of business altogether.
Similarly, undemocratic greed and congenital mismanagement by our government in the present has already and will continue to create a slow impoverishment of our nation’s future. Everyday we are asked to expect less, to accept less and demand less of our elected officials who are daily becoming more blatantly and unrepentantly corrupt. Squeezing the investment possibilities at the bottom of the economy will eventually starve those at the top.
It is bad enough when our stock market refuses to reward anything but immediate profit, ignoring or even punishing all capital investment in our future, but when government too, outsources its responsibilities of office and abdicates its appropriate role as guarantor of the prosperity it has inherited from previous generations’ hard work, then all national long term indicators begin to contract together toward gathering debt, a coarsening society, social discord and inevitable decline. The theory that holds all taxes to be harmful to the prosperity of the country is as inane as it is dishonestly intended. One smells a considerable rat when one understands that the financial interests which have come to control our political class are the very same short sighted greed hogs least likely to have any interest in the long term future of the nation even when it would seem that such penury would work not only to the detriment of the nation but against their own long term interests and those of their children.
The corollary to Adam Smith’s famous “invisible hand” of economic prosperity is that when that hand is stayed by the greed or small mindedness or institutional corruption of too little investment it is economic regression rather than expansion which is sure to follow. In short, the selfishness, ungenerosity and incompetence of our two political parties punish and impoverish us all.
5 Tax Reform Fair and Simple
There are two basic tax reforms which, taken together, would provide an affirmative transformation of our tax code and represent the first step in a reversal of these destructive economic trends.
The first is a Total Wealth Tax or TWT. This would eliminate the income tax and replace it with an annual tax that incorporates all money in our economy, whether in circulation or not. Broadening the systemically unjust income tax to include an annual tax on net worth, excluding local real estate taxes, will enable the rate to be applied to a simple lump sum, a much easier computation for the vast majority of people.
Ask yourself why money held a year is exempted from further taxation from that point on, thus excusing the wealthiest among us from paying taxes on the major part of their true net worth, while everyone else who lives paycheck to paycheck, has their whole net worth taxed to its full extent every year. There is no reason, not economic, certainly not ethical and definitely not practical, for this exclusionary practice other than to keep the wealthy very wealthy and the rest of us in our place. It is an altogether subversive and odious practice in a democracy designed to ensure that a new version of an old anti-democratic nobility remains hovering over the rest of us like the sordid vestige of a bygone age. Our politicians bend and sway and design rituals to appease these accumulations money in our society the way pagans worship and bow down before the setting sun.
So these cultural and economic elitists have invented a law more like a superstition which they then pretend it is unwise to break and call it: “double taxation” as if this was a rational term. In fact, a tax levied on net worth is just single taxation once a year, just like every other tax. More precisely would be a tax on every dollar irrespective of whose possession it happens to be in or where it happened to be held. This is strictly fair and purely democratic, unlike the current income tax which is neither. Our present tax code purposely excludes a vast amount of money from annual taxation which ensures that the rest of us are locked into paying far higher rates than we should, only because of to whom this exempted money belongs.
According to our tax code, by paradigm, the wealthier you are the lighter the burden of taxes fall upon you. Each dollar a wealthy person owns, merely because he or she is privileged to be wealthy, is taxed on balance at a much lower percentage than a dollar in possession of any member of the middle class. This is precisely the opposite of how it should be.
To account for the vast unjust and unnecessary exemptions imbedded in the income tax, endless gyrations of mindless complexity are engineered into our tax code merely to assure that this huge block of capital, the source of a great deal of the injustice in our society, continues in the hands of the wealthy and powerful undisturbed by the indignity of taxation which is assessed against the rest of us without a second thought.
The second tax reform is a Transactional Tax which, like a sales tax on capital, would be levied on every money to money transaction in our economy. This includes everything from simple bank transactions, deposits and withdrawals, to corporate accounts and stock and bond trading, hedge funds, et al.
Therefore a Transactional Tax is essentially a consumption tax on money or a user fee on transactions where money is employed and not covered by sales taxes. Unlike consumption taxes or value added taxes which tax expenditures on real goods in the marketplace, this is like a metered counter which taxes the movement of money itself at certain easily marked check points (transactions) along the way. Its premise is that it is much more logical, democratic, fair and efficient to tax money itself than it is to try to tax the people who own it. It is infinitely easier to skim a little of the froth off the top of the economy where it has gathered than it is to squeeze extra dollars from the hard pressed taxpayers in the middle and lower incomes where excess does not exist.
A tax levied on money will necessarily be progressive in that those who have the most money will pay more taxes and those who have less money will pay less. Astonishingly, unforgivably, even this simple equation of elemental fairness has been betrayed by our politicians with the tax code as it is currently constructed today.
The thing these two tax reforms hold in common is that they tax money directly and as such both these taxes will fit as tight as bark on a tree and will allow much less space for manipulation, exemptions, exceptions and exclusions. Both these taxes will fall on money itself, rather than on the acquisition of things or services, before economic differentiation has been allowed to occur and prior to political power and financial persuasion being brought to bear to corrupt them. Current taxation occurs later, after such differentiation has already been set into the system and so works to support and expand the discrimination rather than allow it to diminish.
Consider the obvious problems of our current antiquated tax code. An income tax which focuses only on current individual earnings within a set time frame is an odd and unnecessary distinction to draw. New earned income is the basis of all personal savings and much of the new and spontaneous investment in the country. It is the most visible reward for our labors. It is where the real work of the economy takes place, where the tires of the economy truly hit the road. To brake or impede here, of all places, is surely the most self-defeating kind of tax that can be administered.
Using only current earnings to tax or most consumption taxes to tap into for our investment in the future is not unlike a large, dirty, inherently unfair thumb on the scales by the haves in our society against the have nots. Such taxes as they are currently applied will always be wrought with inconsistencies and will always be structurally unjust, penalizing those at the bottom end of the economic ladder, the young, the poor, the new families, those just starting out, or those with fewer economic and political weapons at their disposal, against all those with more established prosperity.
Of course, this is the fundamental unspoken purpose of why it is designed the way it is. Any additional income and consumption taxes cobbled onto this thoroughly corrupt foundation styled as “reforms” will only make the hill of reward and achievement in this country, already growing more and more challenging as the economy matures and becomes more corrupt, steeper and steeper to climb.
These two tax reforms implemented together are meant to be revenue neutral but even at that could represent substantial tax relief to the vast majority of Americans. They would deliver on the often promised, never delivered, middle class tax cut. It will be a flatter, fairer and simpler tax code which results, which is the trifecta of tax reform, often promised but never delivered on.
At what rates and percentages these rates would be assessed represent too wide a range of specific possibility to go into here. But in combination the flexibility and increased fairness they would provide for our society would help relieve the growing economic pressure on the majority of the population and by eliminating other regressive taxes, like the current insufferable income tax code, should create a new spur of creative energy in our society that will enrich us all.
As mentioned earlier the TWT would be much more fair and honest and as a single sum be easier to compute than the hated income tax which taxpayers have the heavy burden of figuring out themselves once a year. At the same time a transactional tax would be diffused over so wide an area and be so marginal as a percentage of all the transactions it is applied to that most people would probably find taxes raised in this way far less onerous than current measure of taxation. Both together would relieve anxiety and distrust and eliminate the low regard in which taxes in general are presently held.
6 No Taxation without Representation
Naturally, banks and financial institutions will howl at the thought of being made tax collectors of a Transactional Tax but their arguments are unjustified on two counts.
First nearly every business in the nation collects sales tax with much greater personal inconvenience to both buyer and seller (think of all those gluts of pennies in purses and pockets and all those annoyingly irregular prices) than would be the case with financial transactions. Second, large financial institutions to which we are referring are easily the most highly protected, unregulated and safely profitable in the nation. Banks, unlike any other industry in the country, are guaranteed solvency by the taxpayer. The taxpayer even pays their insurance to insure them from loss, much to the taxpayer’s great expense in recent decades, with very little asked of them in return. This makes them the recipients of both private profits and public protection. To do this one thing for their country in exchange hardly seems too much to ask.
As for concern that even a small tax would have a dampening effect on the very thinly regulated financial speculations at the upper end of our economy, to provide a little discipline and accountability in these markets might not be an altogether detrimental side effect. And if the most marginal of them were eliminated it might force this capital to find a more productive home for investment. Otherwise the majority of this money is lost to the economy.
It will be further argued that if financial speculation is at all impeded it will harm our economic vitality. Nonsense. If that were the case then the fees that every broker and middle man and financial institution takes would be far more detrimental to the continuing viability of these transactions than a smaller national tax which replaces other more destructive taxes. In fact, today banks and financial institutions have more and higher fees over a wider variety of services and transactions than they have ever had before without any noticeable diminution to either their number or their profitability.
In addition, the bulk of this money is neither savings nor investment. It is product of our prosperity not its basis. In itself it is productive of nothing. If a good portion of it is not earmarked for reinvestment it is lost money, the least productive capital in the land. In no way can these activities be thought of as important as agriculture, manufacturing or small business. On the contrary activities like currency speculation or oil trading, for instance, are nothing more than the equivalent of the gentleman who skips work and spends the day at the horse track gambling with his house payment. He may win or lose money but while it is tied up on the process of the betting it can’t be used to pay the bills. It is the heat in the attic of the economy.
A transactional tax, like a ceiling fan in the economy's attic, would go far in alleviating many of the savings and investment problems we face in our society today. Once this money is released back into the economy (through general – and genuine - supply side tax relief) it will utilize the natural, reverse gravity of money to begin immediately percolating upward, revitalizing our stagnating economy along the way by profiting everyone through whose hands it passes.
Finally, one ancillary consideration. If financial transactions are the heat in the attic, pressures of globalization might be compared to a potential hole in the roof. After all, the rationale used for all manner of tax deductions or subsidies or loopholes for businesses or billionaires in this country is that these extraordinary and entirely unjustifiable profits will be sunk back into our economy for the future benefit of us all. Yet if American business takes profits earned here and invests them overseas then that implicit agreement with the American taxpayer is broken. In effect, this means that the American taxpayer is subsidizing foreign workers and businesses to compete against us.
Because tax breaks for corporations and for capital, while they may superficially aid consumers in the short term with cheaper products from overseas, will hurt us in the long run as our incomes fail to increase and leave us more to the mercy of foreign suppliers with whom we gradually lose influence and with which we will eventually become unable to compete. They may then raise prices against us as they see fit. All of these tendencies are working to destroy American economic independence and render us a subsidiary economy subject to whims of others, not improvements designed to enhance and maintain our own economic preeminence.
Lastly, those who would argue against these reforms of our tax code must be held liable to exactly what they are arguing to protect.
As I say, the Transactional and Total Wealth Tax here proposed are not intended as an additional tax but a simple dollar to dollar replacement of as much of our existing tax code as we wish to replace. I think everyone must agree that no method of raising taxes could have ever been more poorly devised or haphazardly executed than the one we currently find ourselves laboring under.
Clearly, the current tax and economic policy in this country is not only ruinous and unfair, but foreign to our finest principles at the same time they contribute mightily to our anemic record of savings, the increasing divisions within society, the expanding lack of trust in our institutions and fuel growing discontent across the land. Tax structure in this country is by all accounts hopelessly flawed, obsolete in its collection, byzantine in it design, medieval in its intent, extraordinarily labor intensive in its execution, generally counterproductive, intrinsically unfair, unforgivably callous and fatally anti-democratic. It is the wheezing jalopy on the superhighway to our future, and clearly the worst of all possible tax codes. It does not and can not serve the nation well.
Consider it in its broad outlines. First our government must keep track of the financial history of every taxpayer and family and business in a nation of 300 million people. Then each taxpayer is given the responsibility of computing their annual liabilities according to complicated guidelines and sliding scales. Next, each individual, often on the basis of shoe boxes full of figures and receipts, on his or her honor, must pour over and analyze for applicability a thousand different exemptions, exceptions, depreciations, deductions and loopholes whose clauses and subclauses, written in accountants’ dense legalese larded over with political doublespeak, may be substantially changed from year to year with no logic and little notification. Finally, each person must figure, report and pay their own liabilities to the government by April 15th every year under fear of time consuming audit, threat of penalty, or even imprisonment.
The mistakes, omissions and miscalculations (intentional and otherwise) when these figures are turned into the Internal Revenue Service, whose employees loom in the public imagination like so many imperious teachers (or worse), grading their cowering students’ math papers – must be incalculable. Obvious incomprehensibilities, inconsistencies, injustices and inefficiencies are imbedded in the process at every turn.
The inducements to small and large fraud are obvious, turning even the most scrupulously honest among us into small time petty cheats and crooks, with laws and methods that invariably torture the inadvertent and minor transgressors while allowing the purposeful, intentional crooks loopholes large enough to drive semis through. And the preferential benefits accorded those who can either afford to hire specialists to use the complexities of the code to their advantage or bribe politicians to imbed preferences and exceptions for themselves into the tax code are obvious. Sometimes it seems less a tax code than a tax code for criminals.
Now consider that its provisions have been built up over decades according to evolving needs and changing theories of revenue by an increasingly craven group of politicians particularly prone to outside influences. They have infested the tax code with their own corruptions and allowed its countless anachronisms and anomalies and antagonisms and dishonesties to permeate into every corner of American life. They have purposely rendered it so complex that no one in the country can entirely grasp its contradictory implications or effectively amend it to adapt to changing national developments. For lack of a better terminology then to call this incoherent mess a tax code as if there had been a single logical theory behind it makes one think of farce as it has indeed become bad theater. Obviously no single reform is going to be able to reform such a mess but surely the nation deserves better effort from its elected leaders than this.
Therefore the first, single greatest appeal of a Total Wealth Tax would be the utter elimination of the current income tax. To reduce a confusion of categories for how money is assessed with a more easily determined single number determination of net worth would be a significant simplification. For its part, at the same time, the Transactional Tax would allow enough revenue to overhaul other outdated and unwieldy sections of the tax code.
And as most of the Trans Tax would be gathered and monitored electronically, through simple daily wire transfers and bank records, the process itself will be made must more seamless and direct, based on real money collected on the spot. This will allow for a steadier flow of revenues throughout the year, raising a higher and more predictable percentage of taxes intended, making all accounting procedures more dependable and all economic projections more accurate.
As there will be fewer ambiguities in the system due to these dual reforms, opportunities to cheat will be fewer and easier to thwart and trace and punish. Smaller cheats may be more clearly distinguished from large cheats. Loopholes so beloved by congress and special interests will tend to diminish dramatically. Simpler computations of these two taxes will be easier to deal with on every level. The numbers of tax specialists necessary (itself a virtual tax increase on millions of citizens with better things to do with their time and money) will decline, as more people will be able to figure their own taxes.
Theoretically a much more focused Internal Revenue Service will ensue and most people will never have the need of dealing with an IRS agent on a personal level ever again. The unambiguous benefit of relieving this constant point of contention between a people and its government is obvious.
Moreover, the problems facing the country now are so formidable that we must be prepared to put some real force behind our solutions. Saving Social Security, problems with providing health care for an aging population, education, globalization, the slow impoverishment of our middle class and our poor becoming poorer are problems which require more dynamic solution than any presently proposed in Washington.
Levying a tax primarily on new earnings or on consumption as we presently do is like trying to lift a heavy weight utilizing only the strength of our little finger or a fraction of a fraction of our true economic might. It is a simple matter of applied mechanics that less exertion will be required for the nation to move something large once the burden is better balanced and more equitably collected throughout the entire body of the economy. The weight of the crate of difficulties facing us will not grow any less with the institution of this two fold tax reform but it will seem to grow much lighter once we begin to bring even a small proportion of the real strength of our economy, neck, back, shoulders and legs, to bear upon them.
Therefore, a very large tax on new income may be replaced by a smaller, more fairly assessed across the board tax on all money in the economy. The money employed to do this will not be lost but on the contrary be employed as reinvestment in the future of our country by commitment to our greatest resource, the lives of our own people. There is no more stimulative use for our tax dollars than that. Once money is fed back to the base of the wealth pyramid of the economy these fungible funds can only begin to recirculate back toward the apex of the economic ladder, increasing in value as it rises and returning more to its previous owners than they had ever given up as taxes in the first place. Only in this way will we be able to revitalize and strengthen our economy from the bottom to top.
As the Trans Tax and the TWT bring money engaged in idle speculation off the top of the economic attic and puts money back into the hands of individuals and families much of the most severe economic stress and hardship felt by the modern family brought on by the pressures of globalization and our changing economy should begin to be alleviated. As money flows back into the real economy real savings, sales, disposable income and investment should dramatically increase.
Furthermore, a transactional tax will cede power away from politicians and give it back to the people, enabling us to determine our own economic future by empowering the population, not the politicians, to make decisions as to what we want our government to do in the future without all of the unnecessary, artificial and perhaps intentionally created economic duress we have been laboring under for decades under their control.
If taxation without representation was cause enough for revolt in 1776 then taxation from bad representation ought to be enough to stimulate reform eleven score and eleven years later.
Yet for all that is obviously wrong and unjust with this tax code it will take a mighty effort to reform it. Powerful interests and oligarchs who despise the freedom and fairness of democracy will unite to protect their interests that are built and based on its corruption.
For their part, our politicians have decided that as long as a few wealthy people at the top of our economy have capacious enough pockets in which they may comfortably reside they needn’t be bothered about the welfare of the rest of us. In general, it is safe to say that never has so much money been given to such a small number to do so much for so few and so little for so many as our political class does for us today.
Expressly so a few can lead lives of unprecedented luxury they have intentionally broken the social contract of democracy and their oaths of office to represent all Americans equally under the law. In order to deceive us our politicians and their handlers use the terminology of populism and equality to effect the policies of preference, of exclusion, elitism, self interest and naked greed.
By using the revered phrases and institutions of democracy to destroy the very institutions, ideals and principles we have put into their hands for safekeeping they have driven a wedge through the heart of our society. It is this ganglion of corruption at the heart of government that only comprehensive tax reform can begin to break down.
