A comprehensive plan that integrates tax reform, welfare reform, universal health insurance, economic incentive and good governance.
Comprehensive Tax Reform
The first step is to divide the budget into two parts.
Operational Budget of the United States:
This part pays for the interest on the debt, defense, infrastructure, other operational needs and constitutional obligations of the government.
Welfare Budget of the United States:
This part pays for all welfare payments to individuals. A strict separation would be maintained between the two budgets.
Operational Budget and Value Added Tax
The Operational Budget would be paid for by a Value-Added Tax (VAT) that applies without exception to all business economic activity except wages. A 15% VAT could pay for all operational expenditures. This tax would apply to imports and be rebated on exports and thus be a “border adjustment” tax that is WTO compliant.
Because a Value-Added Tax has a propensity to creep upward, revenue from the VAT would be strictly prohibited from paying for any non-operational expenditures, specifically welfare. This VAT would be itemized on the receipt of all purchases so that everyone would be constantly aware of the tax. If the rate becomes too high a new congress could be elected.
Capital Gains and Estates
Capital gains upon sale of assets would be taxed at the VAT rate on the profit. However, the basis would be adjusted to adjust for inflation.
Transfer at death or by gift would be considered a sale of assets by the deceased or grantor. The recipient would receive the stepped-up basis. A large amount, such as $20 million, could be transferred by an individual tax free. This amount would be adjusted for inflation. This would provide an incentive for an individual to provide for future generations.
Distributions from businesses to shareholders would be tax free as the VAT has already been paid.
Welfare Budget and Social Security Tax
The Welfare Budget would be paid for by a Social Security tax on all wages and benefits paid to or in behalf of individuals by their employers or the government without exception. This tax could be as high or low as the electorate decides. It doesn’t matter how liberal or conservative a plan is if the math works. This Social Security tax would replace all current Social Security taxes and personal income taxes.
Initially, the tax rate would need to be set at around 40 percent of income. This tax would be made progressive by providing an individual tax credit. If this tax credit were set at $5,000 per individual the system would be progressive, starting at an effective negative rate and increasing to an effective 40 percent rate for higher income workers. The 40 percent rate may seem high but when offset with the $5,000 individual credit and the elimination of the current Social Security tax and Medicare tax of 15.3 percent, and the current income tax, most would receive a tax reduction.
Aside from the individual tax credit there would be no other deductions or so called tax expenditures.
This Social Security Tax would be itemized on wages and welfare payments so that everyone would be constantly aware of the tax. If the rate becomes too high a new congress could be elected.
Guaranteed Basic Employment (GBE)
Rather than a guaranteed basic income everyone would be provided with Guaranteed Basic Employment.
The process would work as follows:
Upon unemployment or underemployment an individual would apply for GBE at his local office. Upon application, the individual would receive a wage set equal to the lowest enlisted wage in the military. Currently this is about $20,000 per year or $10.00 per hour.
The individual would work as assigned by the local office. He would only be paid for the hours worked. Thus, he could hold another job and supplement his income with the GBE income.
However, during the first several days of employment the worker would take a series of tests to determine his educational and skill levels and to evaluate his health and to determine if the individual was in any way handicapped or disabled. This process would somewhat resemble the induction process into the military.
Upon completion of the testing, the employee information would be entered in a national database to match him up with potential employers. There are already apps for that. Until the individual is hired by a private employer the individual would work at the local level providing service to the community. Some jobs would more challenging than others but all would be worthwhile. In theory, there would be no trash in any gutter, sidewalk or empty lot nor there be any graffiti on any building, bridge or boxcar. The jobs, while not degrading, would be designed so that there is an incentive to be employed in the private sector.
The GBE would replace almost all other welfare programs. Thus, a single parent would need to enroll to receive benefits. A couple with two children would have a household income of $40,000. The 40 percent Social Security tax on that income would be $16,000. The tax credit for the four individuals in the household would be $20,000. Thus, the household effective tax rate would be minus 10 percent.
The program is entirely voluntary, no one is required to enroll.
For the truly disabled, GBE would be provided to match their abilities. These individuals also would be entered into the national jobs database to provide opportunity to transfer to private employment if possible.
For individuals who are totally or severely handicapped a true welfare program would be provided including institutionalization or hospitalization if appropriate.
If this progressive system of taxation and employment were enacted there would be no welfare trap or cliff. Everyone would have an incentive to better their condition. If well designed, the GBE program, could potentially add to the GDP and lessen the net welfare burden. If this happens the tax rate could be reduced.
Under this plan everyone has a guaranteed household income, therefore universal medical insurance can be addressed.
Universal Medical Insurance
The $5,000 individual Social Security tax credit would be paid to everyone in monthly installments provided the individual is enrolled in a basic health insurance plan as defined by law.
The plan would have a low deductible of $20 per visit and an annual deductible of $1,000 per year. That deductible is equal to two hours of labor or five percent of annual GBE income. The plan may have an annual cap on benefits to limit costs. The annual cap would be adjusted to limit the cost of the program and encourage individuals to buy catastrophic coverage above the pool cap. The cap would also provide incentives for congress to address health care costs.
If an individual’s insurance provider did not provide proof of basic medical insurance the individual tax credit would be paid to an unsubsidized national health insurance pool that would provide the insurance.
National and state private insurance companies would be allowed to compete with the pool if they provided coverage at least as good as the government pool. They could compete by providing lower premiums, a higher coverage cap, or simply better service resulting in better outcomes.
Health care expenditures in other OECD countries are less than $5,000 per capita. The $5,000 credit should take care of all health care, provided other reforms are enacted to control costs.
The end goal is universal, cost effective health care.
Summary note:
Note to this point the reforms all reward work, savings and provide medical security. Thus incentivized, the welfare need and therefore the Social Security tax rate could possibly decline over time
Immigration Reform and Border Wall
We should be proud of the United States. Visiting our country as tourists, students, guest workers and prospective citizens should be easy. This helps spread our culture and helps our balance of trade. Countries that interact with one another are more likely to cooperate and less likely to go to war.
Therefore, the default position for tourist and student visas should be that they are approved unless derogatory information is discovered within a certain limited time.
Temporary work visas should also be granted in a similar manner to guest workers if sponsored by employers or employer’s groups and suitable workers are not available to the employer using the information in the GBE database.
Finally, undocumented non-citizens currently in the country would be given provisional work visas pending final determination of their status.
Border Wall – A foot high and a thousand miles deep
Biometric identification will soon be ubiquitous. Biometric identification, along with stiff penalties for employing or doing business with anyone with an expired visa or no documentation, would make it almost impossible for an individual whose visa has expired or is in the country without documentation to exist. The border wall would only need to be a foot high because biometrically it would be a thousand miles deep.
Personal Freedom
In this age of biometric identification there is no personal privacy. Therefore, the personal freedoms guaranteed by the Bill of Rights and other parts of the Constitution must be protected.
Future problem solving: Condorcet Voting Method
A Condorcet method is any election method that elects the candidate that would win by majority rule, in all pairings, against the other candidates.
See https://en.wikipedia.org/wiki/Condorcet_method
When voting, each voter ranks the candidates in order of preference.
The Condorcet Winner is a consensus candidate. A vote is not thrown away by ranking a third-party candidate over a mainstream candidate.
A Congress of Condorcet winners will lead to more diversity and at the same time less division, more conversation, and more responsible legislation.