OK, here’s a practical solution.

OK, it’s about time we had some practical solutions that might actually work to the present problem. 

This may be about when I start sounding crazy like the Mogambo Guru but I’m willing to take the risk. 

I think we need some serious stimulus at the grassroots, Main Street, including all the back-streets and back alleys.

Let’s start by abolishing all income taxes, for everybody, rich and poor.  Then let’s move on to wiping out the social security tax, both the employer and employee halves, AND the Medicare tax, and also all the Medicare premiums. 

While we’re at it, let’s get rid of all federal excise taxes, death taxes, and etc. Let’s completely wipe the federal taxation slate clean.

Suddenly, people who were not able to pay mortgages would have extra money, anywhere from 15% to 35% of their income.  More mortgage payments made on time equals less foreclosures equals less toxic mortgage debt. Households have much less financial stress — everybody in effect that pays taxes gets a pretty substantial raise.  Businesses save lots of money on their employment costs. It’s a good deal all around.

OK, my readers may be asking, what does the federal government do for money?

Well, it’s quite simple.  It really is, it is so simple, the answer is staring us all in the face.  But we are so trained by our political handlers to not see reality, but instead to only “see” the manufactured reality they craft for us, we can’t see the proverbial forest for the trees.

We spend all of our tax discussion time yacking about details, like income or sales tax rates. But there is a 900 pound gorilla in that conversation salon. 

Everybody studiously ignores him. 

The gorilla has a name — “The Political Definition of Taxable Items/Incomes”.  The fact of US taxation is that the definition of what is “taxable income” is extremely politicized, and thus far, the ordinary person has had the short end of that stick.

Because of this, our entire federal tax system is seen as fundamentally unfair by most people. Tax evasion is wide-spread, the government never collects all that it is owed, and every year it runs a deficit.

The costs of compliance are high.  Transaction and opportunity costs are everywhere to be found in our tax system.

Therefore, since we are in a box that is increasingly stifling us, perhaps we should consider jumping completely outside of that politically manipulated box and open our eyes to see the beautiful trees that compose the forest before us.

Let’s think about a tax that —

  • is levied at a flat rate, yet is ultimately progressive in its revenue (that is, the rich pay more, the poor pay less),
  • is universal, so that cheating isn’t possible, and the government always collects all of its money,
  • is not a hassle for people, and thus has very low compliance/transaction costs.
  • returns enough money to the government so that the budget can be balanced, social security made solvent, and the national debt paid off in say 10 years or less.

Impossible?  Au contaire, dear reader, it is simplicity personified.

I propose a flat tax on the movement of money and credit of .0025% (one-quarter of one percent).

So if you take $100 from your savings account, and put it in your checking account, ka-ching goes the government’s cash register, and you pay 25 cents to the government.

On the other hand, if in a given day the Federal Reserve extends $30 billion in credit to banks, then those banks pay $75 million to the government, .0025% of that transaction.  When they pay that back to the Federal Reserve, ka-ching goes the government cash register again and the Federal Reserve pays $75 million to the Treasury.

Make it totally universal, and it is always paid by the recipient of the money/credit.  It would be collected automatically by the payment clearing systems, so no annual ritual of filing a tax return.

How much money would this raise?  Well, that’s an interesting question. Each year the Committee on Payment and Settlement Systems of the Bank for International Settlements issues a report, “Statistics on payment and settlement systems in selected countries”, commonly known as the Red Book.  The March 2008 report gives the statistics for the most recent year available, 2006.

I added ‘em all up, and come up with $3,168,144,420,000,000. That’s 3.168 Quadrillion Dollars.

“Compare this” with 2006 personal income of about $10.9 trillion and corporate profits of about $1.6 trillion, and we see plainly that our present tax system is based on charging high rates on what amounts to a fairly small slice of the American economic pie (when compared to the total value of transactions/payments in a given year).

Expand the taxable base, and we can lower the rates to almost nothing. . . like say the .0025% (one quarter of one percent) I propose here.

Times .0025% equals $7,920,361,050,000, or 7.920 Trillion Dollars.

In 2006, the federal government spent $2.655 trillion for everything, including social security.

$7.920 trillion minus $2.655 trillion equals $5.265 trillion left over the first year to pay on the national debt.  Or we could take say a trillion dollars and invest it in needed improvements to our energy infrastructures to meet the looming challenges of peak oil.  Add in free universal health care (about $1.5 trillion in health care expenditures in 2006), thereby abolishing another punitive expense — health insurance premiums.

OK, if .0025% is yielding too much money. . . .

. . . we could lower the tax rate to .00125% (1/8th of 1 percent).

That would yield $3,960,180,525,000 — 3.960 trillion, which after paying all federal expenses that year would leave $1.305 left over to pay on the national debt, fund energy infrastructure upgrades, and increase support for health care for people without insurance.

This is a sensible, do-able plan.  Below are the details of the various payment systems that add up to my $3.168 quadrillion figure.  Check my math and my assumptions.

Note that this is only an approximate figure, as the actual total may be higher than this since a given payment may go through more than one payment system.  Demand deposits, for example, which include items like my little credit union account and also the payroll account of General Motors, will churn several times during the year.

http://www.bis.org/publ/cpss82.pdf

 

$18,111,000,000,000

Credit transfers

$13,499,000,000,000

direct debits

$1,023,700,000,000

debit card pymts

$1,944,900,000,000

credit card

$578,000,000,000

ATM cash withdrawals

$627,000,000,000

Value of 2006 demand deposits

$11,018,620,000,000

Annual total of avg daily credit extended by fed reserve

$41,730,000,000,000

checks

$967,213,100,000,000

fedwire/chips

$12,362,900,000,000

Automated clearing houses

$13,976,400,000,000

Fed reserve clearings

$21,789,900,000,000

value of NYSE transactions, 2006

$8,969,900,000,000

NASDAQ 2006

$174,900,000,000,000

Val of contracts/transactions cleared, National Securities Clearing Corp

$940,200,000,000,000

Val of contracts/transactions cleared, Fixed Income Clearing Corp

$864,100,000,000,000

Val of contracts/transactions cleared, Gov Securities Division

$76,100,000,000,000

Mortgage Backed Securities Division

   

$3,168,144,420,000,000

approx value of payments processed in US in 2006

   

$7,920,361,050,000

tax yield at .0025% (1/4 of 1 percent)

$3,960,180,525,000

tax yield at .00125 % (1/8 of 1 percent

   

$2,655,400,000,000

US gov 2006 expenditures include social security

$5,264,961,050,000

available for retiring debt @ .0025% tax

$1,304,780,525,000

available for retiring debt @ .00125% tax

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3 Responses to OK, here’s a practical solution.

  1. peacearena says:

    Bob, glad to see you blogging, and offering much needed info and tips for this critical time. I see you joined Blog Oklahoma. You also may want to join Blog News Network to have your feed included there.

    By the way, when I registered, the login info message got filtered into my spam folder. It might be the .net domain — I’ve had trouble with that before. But I suspect that it’s because your header shows the sender being “frodo.syminet.com” which is apparently your host. I would ask them to make your outgoing mail show “bobwaldrop.net” instead. If they won’t, I’d switch hosts.

  2. Pingback: A Better Taxation Plan « Veiled Glory

  3. Pingback: BobWaldrop.net » Blog Archive » Can this be true? Social Security Can Be Saved!

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