HOW TO MAKE CAREER TAX AND SPEND POLITICOS DROOL
(….just bring up the Buffet Rule)
Everyone in Washington is hyping the idea that the best way to fix our financial situation is to tax the super-rich.
The President, his GOP contender next November, Mitt Romney, and almost every member of Congress, has shown signs of supporting that idea in one form or another. Even fiscal zealots such as Congressmen Ryan, and Paul, seem inclined to it. In short, if you want to know how to make career tax and spend politicos drool….just bring up the Buffet Rule!
The sad thing of course is that so-called rule will hardly generate any kind of significant increase in revenues, and even worse, will do nothing to address any of the real issues involved. The only people who even made a serious effort to focus on ways and means to put our financial house in order were Mr. Bowles, and former Senator Simpson. Unfortunately their common sense proposals to get things back on track were just politely received; then, much like with any PhD thesis, respectfully shelved….to gather dust with all the other government sponsored studies and reports we tax payers have paid for.
Frankly, we shouldn’t be surprised by all that because it is an election year, and all the contenders vying for political office are only focused on what will best help them win such offices. And one of the best ways to clobber political opponents is to pander to single-issue demographics. And the most inflammatory ploy is to play the class-warfare card for all it’s worth.
The President is doing it with absolute abandon, harping on how the “middle class” is overburdened with taxation, while the “richest of the upper class” aren’t paying their fair share. Meanwhile, others play the same game by taking pot-shots at the “lower-class” and their dependency on obese “entitlements”. But no matter which end of the political spectrum is involved, it still boils down to just plain taxation by…..misrepresentation, with none of them proposing any real remedies to fix things for the middle class….or anyone else for that matter.
The two keys to any restoration of our national financial health are:
a) Replacing the current tax code in its entirety, and,
b) Activating a long range matrix to help grow our GDP over the next twenty years to a level at least double if not three times what it is today.
To accomplish that our first objective should be about replacing, not just revising, the current tax code. A tax code which over the past half century has become a kudzu plant tangle of exclusions, deductions, exemptions, etc., etc., to the point where no one, not even the IRS can make sense of it. It has become a national disgrace, and should be quietly shredded, bagged, and tossed into the nearest dumpster like yesterday’s trash.
So, instead of the usual band-aid tinkering we use whenever everyone starts hollering for reform, let’s replace it, with a –Flat Tax On Gross Income From All Sources- for both individual and business taxpayers, with only very few allowable deductions. To maintain a progressive structure, each category might have 4-5 income brackets. The intent of that being to broaden the tax base, increase the level of revenues, while making it more equitable for all. In addition to that, the collection process for such a new tax system should be made in synch with the Fiscal Year, with all taxpayers filing quarterly, instead of at the end of the year as we do now. In effect a pay-as-we-go process. Doing that would provide the government with better cash flow throughout the year, thus reducing its need to borrow (as it does now to fill in the gaps).
With a more effective and rational tax code in place, we can then focus on the best ways and means to set up spending plans tied to our annual GDP rate of growth, one of its features being to limit spending to a pre-determined percentage of GDP. Currently this hovers between 7 ½ and 8 percent of GDP.
And from those gross revenues, mandate that the first item of “expense” must be a 5% set aside. A set aside that would be applied towards: a) Reducing our national debt load, and b) rebuilding our bullion reserves, as collateral against that debt. The net available revenues remaining after that 5% set aside…. would be the budget cap for any given fiscal year. And those funds would be allocated –proportionately- between the three branches of our government. The allocation of that set aside would be at 80% for debt service, and 20% towards rebuilding our bullion reserves.
While the initial years could be very lean and austere, as our GDP grew, that would soon change. Even with a relatively anemic rate of growth, such an approach would steadily and progressively increase over time. The spreadsheet in annex shows us what might be accomplished even with such a slow rate of growth. It is spread over a period of twenty years, in four year increments (to coincide with Presidential Administrations, so we taxpayers can see who should get the credit or blame for either failure or success).
Of course the odds that any of our politicos will have the smarts to consider such an approach are about as good as playing the Lottery! Instead, they’ll probably just continue to drool and slobber like so many Boxers or Bull Dogs at the prospect of “soaking the rich.”
Food stamps….anyone?
CENTURION
NOTES:
1) Even at the anemic growth rates shown above our GDP almost doubles over that time.
2) If the tax code is completely reformed into the –Flat Tax – system suggested, the overall tax base would be broadened, and become more equitable across the board. Nevertheless if the overall tax level is based on 8% of GDP general revenues grow at an acceptable level with it.
3) Applying the 5% Set Aside from Gross General Revenues provides a programmed system to:
a) Progressively reduce the current National Debt
b) Progressively increases our collateral bullion reserves
c) Without too austere spending controls, what’s left of the General Revenues after the 5% set aside are the net available funds for budget allocations. In effect it provides a spending cap FY to FY, but, since that is tied to GDP growth, it also allows for FY to FY increases as well.
4) With this process our National Debt drops steadily. From a starting level of +/- 16 T or +/- 61% of GDP, dropping down to +/- 13.6 T or +/- 28% GDP.
5) Getting a precise starting figure for what our collateral bullion holdings are, is difficult, to say the least. The best figure obtained to date seems to be somewhere short of 1 Trillion (at current market rates). This has been used as the starting point for these projections. Regardless, the combination of steady, cumulative debt reduction and concurrent accrual of bullion reserves would help revalue the dollar over the same time.
6) To enhance the buildup of our bullion reserves the Treasury should be authorized to offer the following deal to all domestic gold and silver producers. That is:
a) Require such producers to sell half of their annual output to the Treasury at a 50% discount from the market spot price for these metals.
b) In exchange for selling half of their annual production at that discount rate, the proceeds of those sales to the Treasury will be –TAX EXEMPT-
c) The producers benefit from having a long term – Tax Exempt – return for half of their production, while selling the balance at regular market rates, a profit incentive that should be hard to refuse.
d) The Treasury benefits because it accrues bullion at a discounted rate, but can value it at actual market rates.
7) What these projections show us is that, while we’re currently not in the best of financial shape, modest GDP growth rates like these would still allow us to bring our debt load back down to acceptable levels, while still able to maintain sufficient budget needs as we do so. 8) The additional benefit of this approach is that it reduces the Treasury’s need to borrow. further limiting the frequency and need to raise our debt ceiling.
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