A FIVE PERCENT SOLUTION

OUTLINE FOR RESTORING OUR NATION’S FINANCIAL HEALTH

W. R. TAYLOR

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FOREWORD

It’s quite apparent that our national leadership not only isn’t facing up to the realities of our economic and financial condition; but, also, it doesn’t have the political will to do so.

In part this is due to the fact that it is an ever more entrenched class of career politicians who’s personal and political interests conflict with doing what’s right and necessary for the good of the country as a whole. In that regard neither of our two political parties is blameless, because they enjoy what amounts to a duopoly with the only difference between them being – method- rather than –substance-

And to that end both continue to apply ideological rhetoric to enhance and justify themselves for continuing in office and to maintain their holds on the political levers of power, rather than presenting common sense proposals to fix these problems. One of the more egregious aspects of that is their blatant promotion of class conflict instead of unity of purpose for the benefit of all.

If this seems a harsh assessment of that political class it’s because, based on their record to date, and most recently their non-performance about the national debt ceiling, supports such a viewpoint.

It seems, therefore, that the only way out of our condition is for we, the taxpaying voters (the only ones who count), to come up with ideas of our own to resolve these issues, and, to strongly clamor for these to be considered.

The following outline is one such effort by one taxpaying voter to come up with a rational and common sense approach to these matters. Its objectives are simple:

1) To apply a set aside system that will progressively reduce our debt level, and concurrently, increase our bullion reserves as collateral against that debt.

2) To provide a means to restrict deficit spending while allowing progressive annual budget increases.

The effect of these measures is tied directly to the annual growth rate of our economy. As that rate increases, or accelerates, so will the net results outlined here. If that happens, it may take less than twenty years to re-establish ourselves on a sound economic and financial basis. Combined with other measures, such as reforming the tax code, and streamlining the Social Security and Medicare programs, we could very well realize such an accelerated improvement both as to our financial condition and unemployment levels.

While the initial few years using this approach may force us to accept a very austere time for everyone, once put in motion, such an approach will remove the nagging uncertainties of our present condition, and that most of all, may do more to restore confidence and speed us on our way to recovery.

None of these measures are particularly difficult to implement, and there are no doubt a number of improvements that can be made to them. Anyone who cares to do so is encouraged to add their two cents worth. Perhaps that way we ordinary citizens can produce a worthwhile and workable economic and financial blueprint for our country. Something our political careerists evidently are unable to do.

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THE FIVE PERCENT SOLUTION:

The rationale behind this idea is based on the fundamental principle of business and enterprise, which is….the first item of expense before any other consideration must be….profit or savings. Failure to abide by that principle inevitably leads to bankruptcy. This is where our country’s financial condition is today, because, for all practical purposes, the USA is bankrupt.

So, this 5% set aside proposal is aimed at restoring some semblance of financial health, by applying it as an ongoing process, Fiscal Year after Fiscal Year, on a permanent basis. And given our present situation, the state of our economy, etc., show a projection of what this proposed process will produce during the first five years as mostly just a stabilizing situation(through FY 2016) .The second five year period, 2017-2021 would begin to accelerate the positive impacts of that process. By the third five year period 2022-2026, the full affects of it should have our financial situation back to a near “black” or positive situation, with the last five year period (2027-2031) getting the full benefit from this effort.

The 5% set aside is split between increasing our bullion assets so their value offsets the National Debt, and, progressively paying down the Debt as well. In effect we will be “collateralizing” that debt. Concurrently, the ripple effect of that will be to restore some value to the Dollar. In turn the restored value of that Dollar will encourage foreign capital inflows, not as loans, but as “investments”. In effect it will be OPM (other people’s money) that will be used to revitalize our infrastructure, develop various industries, etc., all of which will create a higher level of employment. And as for any borrowing needs, that will maintain relatively low lenders’ interest rates for those, because of renewed confidence in our steadily improving debt condition.

For this purpose 2% of that set aside will be applied to the purchase of half of all domestic gold, silver producers annual output, at half the open market spot price for these metals. For producers who agree to sell that output to the Treasury at that discounted price the proceeds of such transactions will be tax-exempt. Thus, the Treasury will be able to rebuild our bullion reserves at below market rates, and do so on a continuing basis for as long as it is deemed necessary. Ideally, those reserves should be near or at 50% of whatever debt level we may have. .The remaining 3% of the set aside, meanwhile, will be steadily applied against our National Debt.

Our present General Revenue level is approximately $2 Trillion/yr. Given the condition of the economy, it is not likely there will be any significant increase in that level until at least 2016. Nevertheless, this approach reduces our debt level by some $60 Billion/yr. during this period of time. At that rate by 2016 we will have paid down some $240-300Billion against our debt. While nothing to brag about it will still be of some consequence because, combined with a concurrent increase in bullion reserves, it achieves our objectives of stabilization.

By 2016 we should see much stronger economic activity, generating greater General Revenue volumes.

WHAT THE 5% SET ASIDE ACCOMPLISHES OVER TWENTY YEARS

FY:

12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31

GR (Trillions):

2.00 2.05 2.10 2.19 2.24 2.31 2.38 2.45 2.52 2.60 2.69 2.79 2.88 2.99 3.10 3.22 3.35 3.48 3.62 3.77

ND (Billions):

60 61.5 63 65.8 67.4 69.3 71.5 73.6 75.8 78.1 80,9 83.1 86.6 89.9 93 96.7 100.6 104.7 108.9 113.3

BR: (Billions)

40 41 42 43.8 44.9 46.3 47.7 49.1 50.6 52 53.9 55.8 57.7 59.9 62 64.5 67 69.8 72.6 75.5

NAR: (Trillions)

1.90 1.94 1.99 2.08 2.12 2.19 2.26 2.32 2.39 2.47 2.55 2.65 2.73 2.84 2.94 3.05 3.18 3.30 3.43 3.58

NOTES:

1) GR(Gross Revenues) projected by modest increase as follows:
a) FY 12-16 at 2.5%/pa
b) FY 17-21 at 3%/pa
c) FY 22-26 at 3.5%/pa
d) FY 27-31 at 4%/pa

2) NAR (Net Available Revenues) increase every year reaching 2Trillion by 4th FY. Thus annual budget increases are available, but restricts spending within those limits.

3) ND(National Debt Reduction) is progressively reduced as follows:
a) By FY 16 – reduced by 317Billion
b) By FY 21 – reduced by 686Billion
c) By FY 26 – reduced by 1.1Trillion
d) By FY 31 – reduced by 2,5Trillion

Total reduction of National Debt over twenty years goes from present 16Trillion down to 14.5Trillion (plus/minus)

4) BR(Bullion Reserves) grow as follows:
a) By FY 16 – increased by 211Billion
b) By FY 21 – increased by 457Billion
c) By FY 26 – increased by 746Billion
d) By FY 31 – increased by 1.09Trillion

Total increase of Bullion assets/collateral grows from current 464Billion to almost 1.5Trillion (plus/minus)

5) The national debt reduction is accomplished with only 3% of the set aside, and the Bullion Reserves are increased with only 2% of the set aside.

6) All of this is tied directly to growth rate of the economy. Should it accelerate beyond these modest increases the time frame for all of this will be shortened. Nevertheless these projections are made on the slowest economic growth rate for this period.

ANNEX I

INCREASING OUR GOLD AND SILVER BULLION RESERVES

GENERAL:

Recent developments in both prospecting and extraction technologies here in America makes it more feasible for us to consider a pro-active effort to increase our reserves in these metals as collateral assets against our national debt load. In addition, new discoveries of apparently “elephant” gold strikes in both Montana and Nevada add to that capability. And to all that the new technologies are being applied to revive a number of supposedly played out silver and some gold mine properties. Thus the US is in a strong position to engage in an aggressive buying program of these metals

The following general terms should be applied by the Treasury to initiate a gold and silver bullion acquisition program:

1) Domestic gold and silver producers will be given incentives to sell a minimum of half of their annual production to the Treasury at a 50% discount from current market prices.

2) In exchange for participating in such a program, the proceeds from those sales to the Treasury will be tax-exempt.

Domestic producers will thus have the benefit of long term production contracts, and even at discounted rates, because of the tax-exemption of those Treasury sales, and regardless of the up and down changes in market prices, their operations will remain highly profitable.

The Treasury will benefit by acquiring gold and silver bullion reserves at well below market prices, while being able to value those reserves at whatever the going market rate might be. Thus these accumulating reserves will be a very strong asset/collateral against our debt load, more than offsetting any paper loss of revenue because of the tax-exempt feature of those sales.

Lastly, the mining industry in general will be energized, with the collateral benefits of higher employment rates in that industry (mostly high paying jobs) will further help revive our economy.

A win-win program requiring no upfront budgets beyond its share of the 5% set aside.

ANNEX II

REVISION OF THE TAX CODE:

The present tax code should be entirely replaced with a new one.

The new code should be based on FLAT TAX ON GROSS INCOME (from all sources), for both individuals and business entities.

There would be few allowable deductions. For individuals….personal, charitable, and mortgage interests only. For businesses….generally accepted business expenses, and charitable or gift contributions,

There should only be one tax rate for each category. As a starting point, and keeping in mind we’re talking about GROSS income from all sources here, these rates might be:

9% for individual taxpayers 11% for business taxpayers

Thus all taxpayers in each category would be paying the same rate regardless of their income or revenue levels. Every ten years Congress might review these tax rates and adjust them up or down, depending on circumstances and needs.

And instead of annual filings, the tax year would be aligned with the government’s FY schedule, and tax collection would be put on a quarterly basis for everyone. Besides simplifying the process, and reducing costs for everyone, there would be a number of advantages for both taxpayers and the government with this approach.

Taxpayers would benefit from a “pay as you go” process. Depending on income and receipts, some quarters would be less, others slightly more.

The main benefit of such a system for the government, besides reducing its costs of collection, would be having a steadier quarter to quarter CASH FLOW, thereby reducing its need to borrow. Overall it would have stronger revenues from such a tax system than it does now. Tax evasions would be reduced, if not eliminated, since Gross Income is difficult to conceal.

The following is a sample of what a quarterly filing form under this system might look like:

GROSS INCOME:

Wages: Interest: Dividends: Capital Gains: Asset Sales: Windfall: Other:

GROSS TOTAL THIS QUARTER: ALLOWABLE DEDUCTIONS: NET TAXABLE INCOME: x applicable tax rate (9%) (11%):

TAX DUE:

Of course this is just a sample format, but as can be seen the complexities of calculating what taxes are due would be greatly reduced. Every taxpayer would know exactly what their situation might be, tax wise, quarter to quarter.

Lastly, such a flat tax on gross income would replace things like, capital gains, etc., further cutting administrative and collection costs

ANNEX III

STREAMLINING THE SOCIAL SECURITY AND MEDICARE PROGRAMS

Both of these programs are funded from payroll taxes, plus premiums paid by retirees.

Our politicians keep yammering about how they are overloading the budget, and becoming more and more “unsustainable.” The only reason for that is because both the revenue inflows from these programs are currently co-mingled with the General Revenues, and thus misappropriated from their intended purpose.

Social Security currently generates some $925 Billion in payroll tax revenues, but only expends some $465 Billion, leaving it with a $425 Billion surplus.

Medicare currently generates some $435 Billion from both payroll tax revenues and premiums paid by retirees from their benefits. It expends some $465 Billion, leaving it with a $30 Billion deficit. It is this deficit that is paid for out of the General Revenue budgets.

Since both programs are inter-connected we should consider merging them into one single program instead. Besides the administrative streamlining resulting from that, and thus lower costs involved, combining both would create a fully funded entity with some $1.3Trillion in annual revenues, versus a combined $930 Billion in expenditures. That would leave it with a $370 Billion annual surplus, enough to maintain both programs right through this century. If a strong effort were made to further eliminate waste and fraud from them, tightening up on qualifications, coverage provided, etc. with neither of these having an impact on any annual budgets, that would eliminate any spurious claims of “un-sustainability”.

Lastly, with such a streamlining effort, instead of two separate payroll tax contributions, these could be replaced with a single payroll tax around 8-9%.

The savings that would probably result from such a merging would further reduce budgetary pressures.

Frankly, I consider this just a stop-gap measure. The real answer is to convert Social Security into a true National Pension Trust Fund, totally sequestered from the government’s general revenues. In effect converting this program into a mandatory savings program, rather than continuing with its current Ponzi-like income redistribution form.

Medicare could be phased out by two bits of enabling legislation. One, to allow the establishment of NFP – Chartered Medical Clinics, for primary care services in every neighborhood and rural area of the country, with reciprocal membership, thereby allowing anyone to move from one place to another or one job to another, without losing access to such medical services. The other, allowing purchase of individual private insurance policies to cover either catastrophic or hospitalization needs, from any licensed insurance entity in or outside any state of residence (just like any other kind of insurance).

SUMMARY:

The collective impact of these measures would restore our national economic health in a relatively short time period. While I’ve used a twenty year projection, the odds are that if these measures were put in place, particularly with this kind of a revised tax code, the inherent strength of our economic machinery would probably achieve much better results in perhaps half that time, perhaps even less.