WIKKI-WHACKY- SEQUESTERIA
(…with lots of guano from fiscal dingbats under the Capitol dome)

The way things are working in Washington right now, our good old USA seems to be rapidly headed towards becoming just another banana republic.

From any perspective, the political end games both the Democrats and the Republicans keep playing against each other…while our financial condition continues to go from bad to worse…is as disgusting as anything yet seen in those hallowed halls of Congressional venality. Meanwhile, the rest of the world just shakes its head wondering if Uncle Sam has finally succumbed…to senility.

For the past four years, and counting, neither the President nor any member of Congress has offered anything useful to resolve this issue; or, proposed anything constructive to put in place to fix it…leaving us all hanging by our thumbs…wondering how long we might have to bear it all.

So, here we still are, as their self- imposed wiki-whacky-sequesteria takes hold to  supposedly cut spending…mostly in the wrong way and in the wrong places…and now we just might have to put up new signage around the Capitol building warning visiting tax          payers : “CAUTION…LOTS OF GUANO FROM FISCAL DINGATS UNDER THE CAPITOL DOME”.

Short of grabbing up pitchforks and torches, surrounding that imposing structure of theirs, and refusing to let anyone from coming into or leaving it…until Congress quits its infantile political games…and gets to work to do what needs doing…the situation won’t change. If we could afford it, the alternative might be to demand a massive recall election for all of them…but even that would probably not shake things up enough to fix things for us.

What’s so frustrating about it all is that this is not rocket science. It only requires some common sense financial management, and, more importantly, proper and honest accounting practices concerning the government’s revenue sources, and how these are spent. As it is now, if we, either as individuals or business enterprises, mismanaged our finances and engaged in the Mickey-Mouse accounting practices they use to cover that up, we would all be enjoying long-term residency in a Club Fed facility, sharing our meals with Mr. Madoff.

So at the risk of sounding like a broken record, here, again, are the key elements that just might fix things for us to get our country back on the right track towards financial stability and prosperity. Here goes:

1)     FOR THE REVENUE PART OF THE PROBLEM:

– to broaden the tax base on an equitable basis, let’s replace the existing tax code with a – FLAT TAX ON GROSS INCOME FROM ALL SOURCES SYSTEM – and, to keep things progressive, provide 5-6 tax brackets for both individual and business tax payers. As a starting point for debate about these, here are some proposed tax rates for that purpose:                                                                                                      

For Individuals                                           For Businesses                                                                                           

0 -50,000………………..4%                          under 100,000………….6%                                                                 1,000-100,000…………6%                          101,000-500,000…………8%                                                                      101,000-250,000………8%                          501,000-5,000,000………10%                                                                    251,000-1,000,000…….10%                         5,000,000-10,000,000…,,,12%                                                      1,000,000-5,000,000….12%                         10,000,000-100,000,000…14% 

5,000,000+/yr……… 14%                         100,000,000+/yr………..16%

Keep in mind that these percentages are based on GROSS not NET incomes, and with limited exclusions, exemptions, deductions, etc. and that taxes on capital gains and dividends would be eliminated.

– To make tax collections and revenues in synch with the government’s Fiscal Year, taxes would be paid quarterly. In effect a pay-as-we-go system, the net effect of that being to improve the government’s cash flow condition, thus, reducing the borrowing needs by the Treasury to fill cash flow gaps, and thereby, reduce the need to keep raising our debt ceiling.

2)    FOR THE SPENDING PART OF THE PROBLEM:                                   

– Mandate that the first item of expense against any Fiscal Year’s general revenues will be a 5% set-aside, to be applied towards a regular and continuing reduction of our national debt, plus, to further increase our bullion reserves as collateral against that debt. Of that set-aside, 85% would be applied to debt reductions, and 15% applied towards increasing those bullion reserves.

– The remaining 95% of those FY revenues would the available budget for that year. – These available general revenues would be allocated – proportionately- between our three Branches of government, as follows:                                                                                 *

78%…to the Executive Branch                                                                                                                   * 12%…to the Judicial Branch                                                                                                                       * 10%…to the Legislative Branch                                                                                 

These percentages are plus/minus, based mainly on their respective functional requirements, and could be adjusted as needed or appropriate, and of the three branches, the Legislative should probably have the least share, on that basis alone.   

– Each branch, in turn, would allocate its share of the available revenues in the same proportionate manner to all of its sub-budgetary units, each, according to their percentage of the branch’s global requirement.                                                                                   

– Every budgetary unit, from the Presidency on down, would be required to present its spending requirements under three major categories;

*Fixed/Direct Unit operating costs/expenses                                                                           *Funded program costs/expenses                                                                                                            * Unfunded program obligations

Such an approach would provide we tax payers with a clearer and more transparent display of how and where our tax revenues are being applied, and where, it might be necessary or justified to either increase revenues, or shift allocations where needed.

These are the general outlines of a way to restructure both our tax and spending systems. One which would progressively reduce our national debt, and limit our spending to what is actually available…Fiscal Year to Fiscal year. But, since all of that would be tied to the progressive growth rate of our GDP, no matter how anemic, we could also anticipate modest but steady annual increases in available revenues for our needs.

 For anyone who would like to see what the results of such an approach might do for us over the next 20 years, the  following annexes, previously shown in Issue No. 41, Jul 2012, should be of interest. Keep in mind these were done by someone who has to take his boots off to count to twenty, as he did a stubby pencil exercise with a pocket calculator. Even so, it does show some interesting possible results.

The only thing one might say to anyone who finds them too drastic or even ineffective is this…are any of these ideas any worse than what we have right now?

CENTURION

ANNEX I  – Twenty year projections with relatively anemic GDP growth

 […….025%……….]            […… .03%………..]            [……..035%………..]

    annual growth                   annual growth                    annual growth  

FY     FY    FY    FY           FY    FY    FY    FY           FY    FY    FY    FY                                                                                       13      14      15      16            17      18      19      20            21     22      23     24

GDP :             26     26.6   27.2   27.8        28.6   29.3   30.1   31            32     33.1   34.2   35.3                                                                                                                                                       (trillions)                                                                                                                                                                  TAX REVS:   2.0    2.12   2.17   2.22        2.28   2.34   2.40   2.48        2.56   2.64   2.73   2.82 (trillions)                                                                                                                                        (8%/GDP)                                                                                                                                                                 SET ASIDE:(100) (106) (108)  (111)       (114)  (117)  (120) (124)      (128)  (132)  (136) (141) (billions)                                                                                                                                               (5%/REVS)                                                                                                                                                        NET REVS: 1.90   2.01   2.06   2.10         2.16   2.22   2.28   2.35       2.43    2.50   2.59   2.67                                                                                                                                            (trillions)                                                                                                                                                     ——————————————————————————————————————–

Dbt.Svc     :    80   84.8   86.4  88.8          91.2   93.6    96    99.2        102.4 105.6 108.8 112.8                                                                                                                                              (billions)                                                                                                                                                 (80%/St.As.)                                                                                                                                                                         Dbt Reduc. : 15.9 15.8   15.7  15.6           15.5   15.4   15.3  15.2          15.1    15.0  14.8   14.7                                                                                                                                                                           (trillions)                                                                                                                                               Dbt as                                                                                                                                                         %/GDP      : 61% 59%  57%  56%         54%   52%   50%  49%       47%   45%  43%  41%

——————————————————————————————————————– To Bullion                                                                                                                                                      Reserves   :  20    21.2   21.6   22.2         22.8    23.4     24   24.8       25.6   26.4   27.2   28.2                                                                                                                                         (billions)                                                                                                                                                        (20%/St.As)                                                                                                                                                                                            

Mkt Val    :   40  42.4   43.2  44.4           45.6   46.8     48    49.6       51.2   52.8   54.6   56.4                                                                                                                                            (billions)                                                                                         

Tot. Cumul.                                                                                                                                       Collat. Val:  1.0  1.04   1.08   1.13           1.17    1.22    1.27  1.31         1.37  1.42   1.47    1.53                                                                                                                                                       (trillions).

                                                                                               ….cont’d

ANNEX I …..cont’d

    […….04%……….]                […… .045%………..]           

    annual growth                        annual growth                       

  FY     FY    FY    FY              FY    FY    FY    FY                                                                                                    

  25      26      27     28                29     30     31       32

GDP :               36.7  38.1   39.2  40.7              42.5  44.4  46.3   48.3                                                                                                                                                       (trillions)                                                                                                                                                                  TAX REVS:    2.93  3.04   3.13   3.25              3.40  3.55  3.70  3.86                                                                                                                                           (trillions)                                                                                                                                        (8%/GDP)                                                                                                                                                                 SET ASIDE: (146) (152) (156) (162)              (170) (177) (185) (193)                                                                                                                                               (billions)                                                                                                                                               (5%/REVS)                                                                                                                                                        NET REVS:   2.7    2.8     2.9    3.0                 3.2    3.3     3.5     3.6                                                                                                                                           (trillions)                                                                                                                                                     ——————————————————————————————————————–

Dbt.Svc     : (116.8) (121.6) (124.8) (129.6)   (136) (141.6) (148) (154.4)                                                                                                                                            (billions)                                                                                                                                                 (80%/St.As.)                                                                                                                                                                         Dbt Reduc. :14.58   14.46   14.33    14.20      14.07 13.92   13.78   13.62                                                                                                                                                                           (trillions)                                                                                                                                               Dbt as                                                                                                                                                         %/GDP      : 39%   37%     36%     35%        33%  31%    29%     28%

——————————————————————————————————————- To Bullion                                                                                                                                                      Reserves   :  29.2   30.4      31.2      33.4          34     35.4      37      38.6                                                                                                                                        (billions)                                                                                                                                                        (20%/St.As)                                                                                                                                                                                            

Mkt Val    :  58.4   60.8       62.4     66.8          68     70.8     74       77.2                                                                                                                                         (billions)                                                                                         

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 increase 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. If we adjusted the set-aside allocation to 85% for debt reduction, and only 15% for increasing our bullion reserves, the rate of debt reduction would accelerate, and be even lower by the end of 20 years.                                                                                                                                 

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 gently 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.