Part 5 Section III in the Series
Taxation, like a budget, requires balance. A tax system should generate adequate funding to fulfill a government’s social contract with its citizens without impeding the citizenry’s ability to flourish.
With this in mind, we will take a three pronged approach to taxation. Taxes on individual income shall only be assessed after the individual reaches the flourishing level (thrice the National Self-Sufficiency Standard aka National Minimum Wage). As mentioned in Money for Living, the National Minimum Wage equates to a Survival income level, double that equates to a Comfort income level, and three times the National Minimum Wage equates to a Flourishing income level. Income above the Flourishing level is considered Wealth income.
The first prong in the taxation system is a Wealth Income Tax. A tax rate of 50% will be levied on all income (includes capital gains/excludes income earned in foreign nations) in excess of thrice the National Minimum Wage. According to various reports, between 5% and 8% of the U.S. adult population have annual gross incomes over $100K and based on World Bank data, 30% of all U.S. income is held by the top 10% of United States Citizens. With total U.S. individual income in 2018 at $17.5 trillion, the Wealth Income Tax would generate approximately $1.5 trillion (($17.5 trillion x 30% = $5.25 trillion – $3 trillion (27 million citizens (10% of 270 million adult population) x flourishing income of $113,643 = $3.06 trillion) x 50%)) in tax revenue. It is anticipated that over time, given various factors included in this Framework, the percentage of the population with income at the wealth level will remain about 10% but the percent of all income held by this group would lessen to 20%.
The United States Tax Code at present allows for numerous deductions that create tax loop holes the wealthy tend to exploit. There would be only one allowable deduction under the Wealth Income Tax; the income equivalent to thrice the National Minimum Wage.
Customer Transaction Tax is the next prong in the system. Under the current U.S. taxation system, transaction taxes are mainly represented by sales tax which is paid almost exclusively by the end-user (Sales tax is a consumption tax, and is generally charged on the sale of products from retailers to individual consumers.). The Customer Transaction Tax would apply to every good or service exchange from seller to buyer. The seller would charge the tax, the buyer (customer) would pay the tax and the seller would remit the tax to the government tax collection department. It is recommended that this tax be collected on a monthly basis for government planning and cash flow purposes. The proposed Customer Transaction Tax is 6%.
For a simple example of how this would be applied in the production of a product, we’ll examine the manufacturing and sale of a wooden table (this assumes that all equipment needed to manufacture the table has already been purchased). The 1st transaction would be the purchase of wood at $25 + 6%; the 2nd transaction would be the purchase of stain, sanding paper, and fasteners at $35 + 6%; the 3rd transaction would be the sale of the finished table at $500 + 6% to the customer. The total Customer Transaction Tax collected during the process of making and selling the table would be $33.60 ($1.50 + $2.10 + $30.00). Down the road when the customer who bought the table new sells it used to a Thrift Shop for say $100, the Thrift Shop would pay a 6% tax and when the Thrift Shop sold the table to a new customer for $250, the customer would pay a 6% tax. The Thrift Shop transactions of purchasing and selling the table generate another $21.00 in tax revenue. This transaction process would continue to occur with the wooden table until it was taken apart and reintroduced to the economy as a raw material; then, the transaction process would begin anew. The Customer Transaction Tax works well with the Circular Economy model and Modern Monetary Theory.
To allow for neighbor to neighbor exchanges without the need to collect and submit taxes, bartering of goods or services (a dozen eggs for a tub of butter or used shovel for a used hammer, and so on) with a market value of less than the equivalent of one hour of labor at the National Minimum Wage would be exempt from the Customer Transaction Tax.
If we consider a Nation’s Gross Domestic Product at $22 trillion, a single transaction tax on that amount in one year would produce $1,320,000,000,000 in tax revenue. As annual GDP represents the market value of the final goods and services produced in one year, we could guesstimate that the total transaction value is likely at least triple given that multiple transactions of goods and services take place each year. A conservative estimate of annual tax revenue generated by the Customer Transaction Tax in a $22 trillion GDP economy would be $4 trillion.
The final prong in the taxation system is the Commercial Land Use Tax. The reason tax is levied exclusively on the use of commercial land is twofold; 1) commercial land is where the majority of revenue is generated and 2) aside from the military, commercial operations produce the greatest amount of pollution. Previously, we hypothesized that 15% of all land (includes water bodies) would be allocated to Commercial Use. The total land within the United States’ territory is listed at 9.8 million square kilometers (2,421,632,724 acres or 979,999,994 hectares); 15% of that land totals 363,244,909 acres or 146,999,999 hectares. The proposed Commercial Land Use Tax is 50% of the annualized National Minimum Wage per hectare. If we use $37,881 as the minimum wage, the Commercial Use Tax on one hectare (2.47105381 acres) would be $18,940; generating a total potential tax revenue for all Commercially Zoned Land of just under $2.8 trillion.
This three prong tax system would generate approximately $8.3 trillion. In a $22 trillion GDP economy, that equates to 38% of GDP. In 2016 the United States total government spending (federal, state, and local) as a percent of GDP was 36%. As a comparison, according to Our World in Data in 2011 Denmark had ratio of total government spending to GDP of 57%, Finland 54%, Sweden 49%, Norway 46%, and the U.S 43%.
If our target for Total Government Spending is 50% of GDP, it is recommended that only the Customer Transaction Tax percent be adjusted to address budget deficits and surpluses as this tax is broadly applied, reflects a small percent of each purchase, and can produce a marked difference in revenue collection over a short period of time.
It’s time to examine how the budget pie should be sliced. Our budget will focus on the sovereign needs of the Nation as the needs of Foreign Nations can best be addressed through a Global Governance Consortium.
In 2019, according to usgovernmentspending data, total government U.S. spending will equate to $7.63 trillion; that’s 35% of a $22 trillion GDP.
By breaking down the $7.63T and including funds allocated to the United Nations and NATO (less than 0.5% is UN), we are able to compare spending between our budget and the current U.S. budget. What we are able to extrapolate from this comparison is:
- The U.S. is spending an enormous amount (more than 1,260% of proposed spending) on its own defense and security as well as on the defense and security of NATO members. (the proposed 1.5% of GDP for defense is based on the average percent of GDP spent by Finland, Norway, Denmark and Sweden; another 0.5% of GDP is proposed for global governance membership)
- The U.S. is spending (dollar value) 73% less on Pensions and Welfare (the proposed 25% of GDP for the Guaranteed Basic Income is predicated on using the National Self Sufficiency Standard as the GBI factor – a GDP of $22T supports a GBI of $29,605 versus $37,881 indicated by the National SSS (which was calculated without the mitigating factors of Homesteads and Market Price Regulations); it is recommended to hold the GBI budget to 25% of GDP and allow the actual GBI amount to fluctuate with the value of goods and services produced in the Nation as the economic health of the Nation should be linked to the economic health of its Citizens)
- The U.S. is spending (dollar value) 22% less on Education and 33% less on Healthcare (the proposed 6% of GDP for education is based on the average percent of GDP spent by Finland, Norway, Germany and Slovenia who have free college; the proposed 10% of GDP for healthcare is based on Norway’s 9.7% of GDP for free healthcare)
The message this gives the United States is – if you want to take proper care of your Citizens, you must extricate yourself from current wars, refrain from becoming involved in new wars, stop subsidizing the defense needs of foreign allies, and close your overseas military bases.
This entire framework functions off of two fulcrums; the National Self-Sufficiency Standard (minimum wage) and the Gross Domestic Product (GDP). Fluctuations in either affect the whole – essentially, they have a symbiotic relationship. There are numerous forces that can have a significant impact on the value of these fulcrums – one of the major ones is the National Debt.
The United States National Debt to GDP ratio for 2019 is estimated to be 121%; this ratio represents Total Government Debt (public and intragovernmental) of $25.80T and GDP of $21.28T. Purchasers of a Nation’s debt look closely at this ratio when making investment decisions. The higher the ratio, the more pause it gives potential investors and, when they do invest, it is usually at a higher cost to the seller of the debt. This condition can create a debt crisis. Interest payments on the debt are also a concern. It is forecast that by 2025, the interest only annual debt payment will rise to $733 Billion. If GDP in 2025 remained at $22T, our proposed budget would show a deficit of $210 Billion for that year. On the plus side, Foreign Nations owe the United States a net difference of about $3 Trillion (14% of the total U.S. debt). A renegotiation or mutual debt forgiveness may be able to bring the total U.S. debt down to $22.8T; unfortunately that still results in a debt to GDP ratio of 107% (over the World Bank tipping point of 77%). What this means for the U.S. is that it needs a National Debt reduction plan or better stated, a debt redirection plan and its GDP needs to increase.
During the transition to a greener and more citizen well-being focused economy, it will be critical to manage the industry phase-out/phase-in process from a GDP impact perspective. In the United States, many of the industries forecast to be most affected (real estate, finance and insurance, healthcare, and manufacturing) represent a significant percent of total GDP (38% in 2018). Additionally, many National economies currently rely heavily on fossil fuels. Over 60% of the energy needed to sustain the U.S. economy comes from fossil fuels. This means the transition to renewable energy sources must be implemented at a measured pace in order to avert economic shocks caused by energy flow disruptions. An eye to how phase-in industries and products can increase the GDP value of those they replace, particularly as they relate to local export partners (for the U.S. that would be Canada and Mexico), is vital to ecosystem sustainability as well as short and long term prosperity. Also of key importance is the reduction of imports from distant trade partners (China, Japan, and Germany are the major distant partners for the U.S.) through internal production and a source shift to more local trading partners.
Some encouraging words to conclude this section…
“When one door closes another door opens.” – Alexander Graham Bell
“If opportunity doesn’t knock, build a door.” – Milton Berle
Next – a brief summation.