America’s political gridlock has hobbled our nation’s economy. What we desperately need is an economic get well plan that will actually solve our nation’s economic problems not merely tiptoe around the edges.
Our economic problems are extensive. To resolve them our plan must be comprehensive. But in today’s divisive political climate and in the absence of effective leadership, no plan can succeed without the support of the American people.
Not until enough Americans understand and support the details of such a plan can it hope to withstand the attacks from the special interest groups who prefer the status quo of a sinking ship rather than working together to restore our nation’s economic future. To counter their anticipated assaults, the plan must be acceptable to the members the leaders of those groups purport to represent. For example:
Seniors: Our plan must appeal to seniors by not just protecting current benefits but by enhancing Social Security and Medicare benefits while stabilizing the long-term fiscal soundness of both programs for future generations.
Labor: Our plan must appeal to organized and unorganized workers by demonstrating how it will grow our economy; produce good-paying U.S. based jobs; improve pension and healthcare benefits, begin to close the income gap and offer affordable education designed to increase marketable skills.
Investors: Our plan must entice capital investors and entrepreneurs to set up or expand their operations in the U.S. by showing that our state and federal governments are committed to restoring America to the world’s friendliest business climate with the greatest profit potential and the least amount of risk.
Our plan must stress how the U.S. education system will be reengineered to continuously provide the world’s most skilled and most productive labor force; how the U.S. transportation system and the other components of our commerce supporting infrastructure will be upgraded and maintained as the world’s finest; and how our energy policies will ensure a reliable energy supply at stable and predictable prices.
Is such a plan even possible? Of course it is. Not only is it possible but it is a little disconcerting that we didn’t put forth a globally competitive plan when globalization was seriously contemplated back in the early 1970’s. But here we are. Instead of moving forward with real solutions our leaders took us to the brink of a self-imposed fiscal cliff and at the last possible moment agreed to an increase in taxes to fund our bloated government for an additional 5 days a year with the promise of another cliff in two months time – remarkable.
Where is America’s political leadership? Where are the statespersons- the men and woman who want to solve our fiscal problems and get Americans back to work? We need leadership that is committed to developing a unifying economic get well plan that crosses ideological lines and brings Americans together in the common cause of righting our floundering economic ship. Unfortunately, it appears that the leadership we need will not materialize unless and until the American people demand it.
In light of this need for a vision and real solutions, we present our plan for a unifying economic objective and the comprehensive set of policies designed to achieve it. But before presenting our economic objective, it may be useful to answer the following question. What is America’s current economic objective? Here’s a clue: We don’t have one – remarkable.
Economic Objective:
Continuously improve the standard of living of all U.S. citizens.
That’s it! That’s as complicated as our federal government’s economic objective needs to be. Given this simple yet powerful objective to guide our focus, what policies should our government enact to reach this objective?
Job Policy:
The most effective way for an individual to improve their standard of living as well as increase their sense of worth and well being is through a job. The best way for our economy to grow and generate jobs is through a vibrant private sector offering goods and services that people want at prices they can afford.
A private sector employer offers someone a job for the simple reason that the employer believes the company will generate more profits with the employee than without. Our job policy is therefore straightforward, easy to understand and consists of two parts.
1. Identify and then reduce or remove any restrictions that inhibit U.S. based private sector jobs.
2. Monitor global trends and continuously improve the conditions that will maximize the likelihood that the global private sector will want to hire American citizens to work in America.
Please review our Job Policy for more details.
Tax Policy:
In fiscal year 2010, the federal government received 91% of its revenue from Federal Income Taxes (51%) and Payroll Taxes (40%). It’s important to note that corporate income taxes accounted for only 9% of total federal revenue.
With its massive complexity and seemingly endless array of political preferences that manifest themselves as credits, deductions and other loopholes, the Federal Income Tax system causes individuals and businesses to engage in a wide array of sub-optimal economic transactions. The accumulation of these transactions has a chronic negative impact on our economic growth and each year Congress makes it worse.
As economically damaging as our federal income tax system is, our payroll tax system is even worse. With half its high cost added to the cost of U.S. labor – the business paid portion, the Payroll Tax system frequently drives businesses to seek less expensive labor solutions offshore.
With these two economically damaging tax systems in mind, there are only two words Congress should consider when addressing tax reform… Start Over.
Before summarizing our tax proposal, we recommend that you read our Jobs proposal because it explains how government imposed costs on U.S. businesses reduces U.S. based private sector jobs, slows down our economy and reduces our overall standard or living. Below we’ve excerpted some of the tax facts revealed in our Job proposal.
Fact 1:
Businesses do not pay taxes their customer’s do. Business taxes are always paid by the business’s customers. Businesses must increase their prices in order to cover all their costs including their taxes and any other government imposed cost of regulation.
Fact 2:
Business paid taxes are a regressive tax that disproportionately hurts the poor. Whereas the prices for goods and services do not change based on a person’s income, the lower a person’s income the greater the percentage of that income the poor must spend per purchase to cover the business tax. People who advocate for a progressive tax structure to protect the poor should advocate against any type of business tax and they should judiciously scrutinize the costs of any business regulations because those costs must always be passed along to the consumer.
Fact 3:
Business paid taxes are hidden. Because taxes and other government imposed costs are buried in the price of the goods and services they buy, consumers do not know how much of their purchase price is government imposed. Governments should not be permitted to hide their costs from their people.
Fact 4:
Business taxes cost jobs. The cost for business paid payroll taxes, health care premiums and pension plans add 30% to base labor costs and Congress is under pressure to increase that percentage each year. A thirty percent, and rising, labor premium is an unsustainable handicap for American based employers to overcome in a global market that continuously improves its production quality, process efficiency and the education of its labor force. Each new Job Burden makes it increasingly more difficult for U.S. based labor to compete for private sector jobs.
Fact 5:
Business paid taxes slow economic growth. The U.S. Job Burden makes the U.S. private sector less competitive in a global economy. This forces businesses to outsource or relocate, which reduces U.S. employment, which reduces the demand for goods and services which slows down the economy and increases the cost of government.
Fact 6:
There is rarely a valid economic or social reason to impose taxes on US labor or their employers; there is only a political reason which can be expressed in a four step logical progression. 1. Politicians can always justify the need for more tax money to spend. 2. But voters don’t want their taxes to increase. 3. Ah – Businesses have access to lots of money and they don’t vote and. 4. Voters don’t realize that they pay those costs through their purchases. We must break this cycle.
These facts lead us to one very important tax policy guideline: U.S. based labor should not be taxed – ever.
To follow this guideline, the Payroll Tax system would need to be eliminated. That is not to say that the programs the payroll tax system supports are not necessary – they are. What it states is that since these programs are necessary, they must be funded via some other mechanism. In a global economy we simply can no longer afford to pay for these programs through our jobs.
With our tax facts and tax guidelines in mind, the AUP tax plan divides Federal expenditures into two categories.
1. Safety Net costs and
2. All other federal government expenditures
It is with this in mind that our tax proposal replaces our economically harmful Income Tax and Payroll Tax systems with the more job friendly Safety Net Tax and Personal Income Tax Systems.
The key to sustaining the benefits from any proposed tax system is to restrict the politically motivated favors that invariably creep into any tax scheme. Ideally, any tax proposal should be accompanied by laws that require a citizen majority vote or a Congressional supermajority to approve any tax increases or national debt that exceeds certain GDP thresholds.
Safety Net Tax:
To cover the costs of our safety net, we propose a new tax aptly named the Safety Net Tax (SNT). The SNT is a national retail consumption sales tax that includes a refund, paid monthly, in advance, for the estimated amount of tax paid to purchase a minimum standard of living (MSOL) basket of goods and services.
The Safety Net Tax would be implemented over a three year period in a series of phases. Phase 1 would incorporate the senior entitlement programs of Social Security and Medicare. The SNT tax rate to cover the current business paid portions of those programs is estimated between 4% and 5%. The advance refund to every U.S. domiciled citizen to cover the SNT paid at the MSOL level would be an additional 1% to 1.5%. The total SNT rate for phase 1 is therefore estimated between 5% and 6.5%. Phase 1 is revenue neutral for Social security and Medicare and introduces the funding concept of pre-funding at birth for our senior safety net programs. The immediate benefit for jobs is that the cost of U.S. based labor would be reduced by over 7%.
To learn the details of the SNT including the other phases and how U.S. based labor costs can be reduced by 30% while increasing our overall standard of living for all Americans, please see the Safety Net Tax Plan. To learn about the American Birth Contribution plans, please see ABC-Plans.
Personal Income Tax System:
All other federal expenditures would be funded through the new Personal Income Tax System (PITS).
The formula to compute an individual’s PITS tax is:
Taxable Income – Standard Deduction = Adjusted Income
Adjusted Income X .000001 = Tax Rate
If Tax Rate > 20% then Tax Rate = 20%
Adjusted Income X Tax Rate = Tax Amount.
Amount Due = Tax Amount + Tax Penalties – Tax Prepayments
Taxable Income: The PITS treats all income except tips, other gifts and re sales of non-collectable, non-financial personal property as taxable income and all taxable income is treated the same. E.g. payment for work or services performed including wages, salary, bonus, commission, stock grants, profit sharing, other compensation in like or kind; Interest received; net short-term and net long-term capital gains; dividends; pensions; royalties, rents under contract and all net government transfer receipts.
Standard Deduction: Each year Congress provides the IRS with that year’s standard deduction amount as the greater of the national average minimum standard of living for the year (MSOL) or the income amount for those at the 20 percentile income level. This ensures that those whose income is at or below the 20 percentile are not subject to the PITS. If the MSOL is greater than the 20 percentile than the standard deduction is raised and fewer people become subject to the tax. The MSOL is currently estimated at $18,000. The 20 percentile income is $12,800. The standard deduction would therefore be $18,000. This would excuse from the PITS those with taxable income in the 33% income percentile and below. In other words, only those with taxable income in excess of $18,000 would be subject to the Personal Income Tax system.
MSOL: The minimum standard of living represents the national average amount an individual would need to survive who is an adult (over the age of 18) and is responsible for their housing and is raising 1.25 children under the age of 18. The MSOL includes taxes, housing, utilities, food & incidentals, clothes, work transportation, work and emergency communication and healthcare assuming ACHI.
Example 1: Taxable Income=$50,000
Adjusted Income = $50,000 - $18,000 = $32,000
Tax Rate = $32,000 X .000001 = 3.2%
Tax = $32,000 X 3.2% = $1,024
Effective Tax Rate= $1,024 / $50,000 = 2.048%
Safety Net Policy:
The Safety Net policy should eliminate and then prohibit burdening our jobs and businesses with the cost of our safety net programs. Instead, we should fund our safety net programs exclusively through the Safety Net Tax (SNT). We should consolidate and coordinate the safety net to efficiently ensure a Minimum Standard of Living (MSOL) for each U.S. citizen. The design of all safety net programs should always encourage and reward individuals who seek self-improvement, self-reliance and work for wages – not penalize them by making it more profitable not to work.
The following is a list of what the AUP considers part of the safety net and how our policy would eventually provide for funding by the Safety Net tax. Most of these programs are currently funded in part or in whole by our jobs and our employers. Our policies ensure these costs are removed from our jobs and our employers.
• Social Security: Funding replaced by ABC-Social Security
• Medicare: Funding replaced with ABC-Medicare
• Medicaid: Replaced with the American Catastrophic Health Insurance Plan (ACHI)
• PPACA: Replaced with ACHI
• All employer sponsored Healthcare: Replaced with ACHI
• VA-Healthcare: Replaced with ACHI
• All other government sponsored health plans: Replaced with ACHI
• Federal and State Unemployment: Replaced by ABC-Unemployment
• Employer sponsored Pensions: Replaced with ABC-Pensions
• All other poverty programs: Replaced with MSOL-Stipend
• Minimum Wage: Replaced with MSOL-Labor
• Education: Replaced with PPEPA
Senior Entitlement Policy:
Phase out the “pay-as-you-go” funding mechanism used for Social Security and Medicare and initiate “prefunding at birth” financing for all subsequent generations. See ABC-Social Security for more information.
Healthcare Policy:
Employer sponsored healthcare significantly increases the cost of U.S. based labor and costs Americans their jobs. Our policy will replace employer sponsored health insurance and all government sponsored healthcare programs, except Medicare, with the two-tiered private to public health coverage provided by the American Catastrophic Health Insurance plan. ACHI is a high-deductible health insurance plan in which the annual deductible amount is based on individual or household income. Once the deductible has been met, the ACHI plan funds all medically necessary care and is financed by the Safety Net Tax.
Energy Policy:
Achieve U.S. Energy Independence and U.S. energy price stability within ten years. Complete phase 1 of an economically viable global carbon reduction and renewable energy production program within 25 years.
Education Policy:
Introduce publicly funded and privately owned education networks in which the educator owned firms are compensated from public funds based on the achievement of the individual student as well as all students in a grade-class.
Expand the education grading levels from K through12 to birth through death and link the education system with child development and ACHI healthcare. Fund the education system from the Safety Net Tax and consequently reduce or eliminate the education portion of local property taxes.
We encouraged you to learn the details of our economic objective and each of our policy proposals by following their respective links. Until you and others get involved and demand that our federal government support a unifying economic plan, it will not happen. I hope you will take this opportunity to help America get well.
James W. Schneider
Executive Director
Americans United Party
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