William Nunnally, Engineer
Introduction
The US government (Senators, Representatives, and Presidents) have spent every citizen into a debt of about $80,000 and is constantly claiming to increase the tax burden on the rich. The tax-spend loop is a problem that the politicians in charge have no idea of how to solve or even ameliorate. Therefore, it will take an engineer, one who seeks to understand problems and solve them, to get the country out of the present mess. See the following solutions.
Investigating the excessive spending problem leads to the conclusion that the federal government is the main culprit in the excess in spending. The states are bound by balanced budget laws but the federal government is unbound. The federal government largesse also leads to massive federal agencies which require additional expenditures. So, the questions is: How to control taxation and expenditures? The key is to control how taxes are generated and who can determine expenditures.
The present fiscal scenario is federal politicians want to burnish their electoral image by sending federal funds to the states for more and more distribution of benefits to citizens for the purpose of getting elected. The desire to curry favor with citizens with tax monies is insatiable. State politicians are in control of their states taxing powers, but cowardly in terms of asking their own citizens for more tax money. It is easier to promote federal politicians who will bail them out of their overspending policies.
The first solution to the tax-spend problem is to mandate that the federal government will not fund states to provide citizens with a benefit. If a state wants to increase the benefits provided by the government, the citizens of that state must provide the tax income. In this solution, the only thing the federal government agencies can do is to set guidelines for citizen benefits by the states and require annual reports on which Congress can decide the fraction of federally acquired funding being returned to the states. The federal government can then allocate some fraction of federal tax garnered income to the state based on a number of citizens in the state. In this solution, the federal agencies can be downsized to provide only guidelines for state spending and required annual documentation which will further reduce the federal government expenditures.
The second solution is to mandate that the only federal tax on each citizen be limited to a consumption tax on a percentage, say 15%, of all purchases. The consumption tax does tax the rich at the same percentage as everyone else and since the rich spend more, they are taxed at the same percentage on a larger value. In addition, the consumption tax eliminates the majority of citizens interaction and subjugation by the Internal Revenue Service. The consumption tax can be made compassionate by taxing the basics of food, housing, medicine and education at a lower rate, say 5 %. The federal government would return the majority, say 90%, of the consumption tax garnered in each state to the states, withholding a portion to pay on the national debt or defense, etc.
The third solution is to give the federal government the power to progressively tax paper wealth in a Paper Wealth Property Tax (PWPT), The States currently access property taxes on the property located in each state. The federal government is the proper taxation entity for taxing paper wealth, including cash, precious metals and jewels and etc because the only way to avoid PWPT is to physically move all wealth out of the US. The progressive nature of the PWPT maximum is an annual tax that ranges from 1 % for a paper wealth of $1 Million to a 5% on a paper wealth of $10 Billion annually, independent of feast or famine. This definitely taxes the rich who can afford tax advisors and the wealth should be able to reduce their profits each year by the PWPT.
The fourth solution is to tax businesses and any entity that is the source of income for any person, citizen or non-citizen, with a progressive Income Source Tax (IST). Businesses and entities funding any person, citizen or non-citizen, would not pay tax on their net income, but essentially pay the progressive income tax of any person of which the business or entity is the funding source. For example, the IST for the person employed by the business and earning $100k annually would be 10 %. For the person earning $200k/year, the IST would be 20%, increasing to 40% for a person earning $400k/year and topping out at 50% for a person earning $500k/year. Note that this is approximately the present income tax rate for citizens making large salaries without loop holes and deductions. Note the IST is to be applied to all entities that are the source of income for all persons including present tax-exempt corporations, churches, charities, teams, congress, foundations and individuals. The IST also replaces the present death tax and anything transferred to another citizen or non-citizen. In this solution, businesses, organizations and individuals now essentially pay the federal taxes of those persons they source and have to interact with the IRS instead of citizens or non-citizens.
The fifth solution is replacement of the present retirement and health care programs like Social Security, Medicare, and Obama care and etc with American Wealth Accounts (AWAs) and American Health Accounts (AHAs) that transfer responsibility and the present funding stream to the individual citizen. AWAs and AHAs are structured to benefit the bottom income levels up with the objective of developing long term family wealth and family health based on the work ethic and not on government decisions and political biases.
In AWAs and AHAs, the government only sets up and enforces the public structure for retirement and health care, but cannot do anything to control the retirement and health care received by individual citizens. The major change is that the government pays each citizen for borrowing the current sums set aside for retirement (Social Security) and health care (Medicare). AWAs and AHAs are individually owned bank accounts, each with two sub-accounts: an eternal sub-account and a flexible sub-account. All present retirement(Social Security) and health care (Medicare) deductions are deposited in the respective eternal accounts of each citizen. The eternal fund account has a set maximum value, for example 1 M$, that is adjusted by congress on 1 January of each year. The eternal sub-account funds are used to purchase special government bonds that pay several percent, say 3%, over the cost of living with the percentage updated on 1 January of each year. The interest paid on funds deposited in the eternal accounts by state and federal governments serve as retirement and health care funding. The eternal sub-account funds remain in the family and are distributed to heir upon the owner’s death and payment of retirement and health care debts. After the eternal sib-account reaches the maximum value, each citizen is own their own for additional retirement and health care savings. Thus, federal and state governments will now pay working Americans for the funds they borrow to run the government through funding AWA and AHA bonds. The bottom line: every citizen can transfer all their present social security and Medicare deductions, with accumulated interest in their eternal sub-accounts, to heirs at death which grows family wealth and health over generations.
The flexible sub-accounts of AWAs and AHAs collect the bond interest paid and can be used as determined by the account owner. The flexible funds can be transferred to the eternal accounts or used as necessary in times of job loss, health problems, education needs or retirement funding. Also, in case the citizen needs additional capital for health expenses or emergencies the AWAs or AHAs bond interest payments can serve as a resource to fund monthly payments to cover an expense in excess of that available. Note that debts in place at the time of death would be paid over time with the external fund interest before the eternal funds are distributed to heirs.
The AWA and AHA approach have many advantages for lower income citizens. Every new citizen, born or naturalized, is granted an AWA and AHA account. The welfare of children is enhanced because parents are required to deposit some fraction of their income in each child’s set of accounts. Thus, each young citizen will have some sort of education fund at the proper time.
The AWA and AHA system also provide for social security and pension citizens to opt in via agreements to pay back previously received social security and health care payments using the interest on their eternal accounts before their eternal sub-accounts are distributed to heirs. The immediate question is how can the government initially fund the AWA and AHA eternal accounts of those citizens changing from social security and Medicare? This change in funding is a basic debt swap in which the government would fill the AWA and AHA eternal accounts to the level defined by previous social security and Medicare deductions, then borrow those funds from the AWA and AHA account to pay off the owners of existing government bonds. The total indebtedness would remain the same, but now all bond owners are US citizens rather than foreign entities.
In summary, the states would be funded by physical property taxes, a large share of the consumption taxes generated in each state and a share of the federal Income Source Taxes (ISTs). The federal government would be funded by Paper Wealth Property Taxes (PWPT) and Income Source Taxes (ISTs) with some fraction of the Consumption taxes used to fund debt payment and defense as deemed necessary by Congress. The federal government no longer collects retirement and healthcare taxes and pays interest to citizens for their loan of retirement and Medicare funds in AWAs and AHAs. Individual citizens pay and control their own retirement and health care taxes while only paying the consumption taxes that everyone pays without having to deal at all with the Internal Revenue Services.