Deprecated: Function get_magic_quotes_gpc() is deprecated in /var/www/html/fr/freeliberal.com/textpattern/lib/constants.php on line 136
Free Liberal: Coordinating towards higher values

Free Liberal

Coordinating towards higher values

The Fair Tax is Fine . . . If You Like Government

by Michael Bindner

By now, everyone knows the standard objections to the Fair Tax. The Bush Tax Reform Commission dealt with most of them, from the fact that the numbers don't add up if you remove government sending to the objection that it would shift the tax burden away from the wealthiest to the middle class. While I agree with these objections, I have a bigger problem with it. The Fair Tax, if enacted, eliminates all tax incentives to private action and therefore requires that all public priorities be expressed in direct spending. If more home ownership is desired and there is no tax benefit for home mortgage interest, all that is left is public subsidies for buyers (which we have anyway, but at a smaller scale). Some would say - that's the point! However, the expressions of interest for such spending are not generated merely by the elites, but also by the rank and file voters or they would not be law.

I prefer an expanded business income tax, with wages no longer deductible, and an end to the taxation of wages for all but the wealthiest wage earners. In essence, I would turn the business income tax from a profits tax to a hidden Value Added Tax. There would still be a residual income tax on the wealthy for the basic reason that not having one will kill the ability to repay the debt without slowing the economy (since taxing savers will not decrease consumption - the main driver of growth and the necessary first condition for business investment since no one will invest in an enterprise without customers).

The reason for a separate tax for high income earners and heirs (taxing heirs when they liquidate assets rather than estates) is that if such a surtax were included within a business income tax it would violate the privacy of the high income earners. Better to have a separate tax which would sunset when the federal, social security and international debt is repayed from its proceeds.

The business income tax could have credits and deductions for public purposes.

The chief among these would be a dependent credit paid to the employee for each child and non-working spouse or dependent parent. This credit would be $500 per individual dependent per month. For the average wage earner with the average family, there would likely be no economic impact. Wealthier workers with no kids might have a lower take home income while poorer workers with large families would have larger incomes which they would likely spend.

Another credit would be established for home mortgage interest (which the employer would keep if it provided home financing at no interest to the employee and which would be capped, with any subsidy paid to wealthier employees over that cap considered income for personal income tax purposes).

Material and consulting costs would be excluded, although an independent consultant or temp working for more than 500 hours in a year on-site would be considered an employee for tax purposes.

Health care insurance or directly provided health care would be deductible. The medicare, disability and survivors insurance of non-retirees would be included in the tax and any offsetting benefits in these areas would be deductible from it.

Social Security retirement would be privatized, with half of this money going into voting employer stock (if applicable) with provisions that employees in occupational professions can vote as a class for designated board members (rather than a unitary board). The other half of the money would go into a fund of all similar companies who would hold eachothers shares so that when one of these fails the employee-shareholders are made whole. Retirees would continue to vote their employer shares but surviving spouses and dependent heirs would have any employer shares converted into non-voting insurance fund shares. The distribution of employer shares would be equal, regardless of salary level, while insurance fund shares would be a percentage of the base wage.

Firms that are not employee-owned for the benefit of all employees could offer comparable pension systems or continue to pay into a diminished Social Security system. Public employees would no longer pay into Social Security, but would instead pay into a public pension system much like the old Civil Service Retirement System. FERS employees would be made whole in the old system (which would certainly remove the opposition of most public employee unions to Social Security reform). Military retirement would change, however, with military members receiving funds to purchase shares in their new employers at separation with accrural begining immediately. Federal employees or retirees who shift to the private sector can also transfer their retirement funds in a similar fashion.

Finally, at both the federal and especially the state level, education and training costs, as well as social welfare costs (including mental healthcare provided in lieu of corrections) for less than functionally literate employees, trainees and dependents, whether directly incurred or paid to a third party for the coverage of an employee sponsored group (like the Catholic Church).

In plain language, employees could designate who would provide social welfare and education services on their behalf - either the state or their Church or another private but accredited source. Note that charitable institutions would buy into the diversified retirement fund of the firms which they serve or whose employees pay into their funds. In this way, almost all the social welfare costs of government could be removed from the public sector, as well as all income transfer programs.

The other option to fund education is to make all education spending totally private and have a really high dependent child tax credit (high enough to fund not only living expenses, but also all education costs). Of course, this totally abandons any payer sovereignty over education spending, which I don't think is acceptable.

The increase in employee ownership will largely do away with any need for government workplace safety or consumer product regulation, especially if multinational employee-owned firms adopt similar systems overseas (which will also lead to more democracy worldwide and less of a need for military spending).

How is this better than the FAIR Tax? Simply put, it vastly limits the need for any (and eventually all) direct public expenditure.

Michael Bindner is a regular contributor to The Free Liberal.



Deprecated: Function get_magic_quotes_gpc() is deprecated in /var/www/html/fr/freeliberal.com/textpattern/lib/constants.php on line 136