On December 11, 2012, Bruce Bartlett writes in The New York Times:
On December 3, the Government Accountability Office released new estimates of the federal government’s long-term budget outlook. They show that our real long-term problem is quite different from the one constantly portrayed by congressional Republicans.
As the table shows, spending is not out of control. Entitlement programs like Social Security and Medicare are rising gently as the baby-boom generation retires. All other spending, including that for the military and domestic discretionary programs, falls – with the notable exception of interest on the debt. Interest rises sharply as the deficit rises, principally because the G.A.O. assumes that revenue will not be permitted to rise above its historical average – as Republicans continually insist.
As interest on the national debt is the principal driver of long-term spending and deficits, the ONLY way to alleviate the debt and thus the interest to create a growth economy that generates significantly more revenue to the treasury to pay down the national debt and eliminate it entirely.
Our history has been to engage in deficit financing and ever-growing national debt to prop up the economy in the name of JOB CREATION. The national debt that appears to be never-ending will never be paid down to elimination under current Democratic and Republican leadership. The system must be reformed to eliminate deficits and reward growth. At present, further borrowing, even at 0 percent interest, will ONLY work if new OWNERS of the productive capital asset growth are created. Bruce Bartlett does not address this scenario.
What is required is to focus on OWNERSHIP CREATION with respect to the formation of new non-human productive capital assets as a means of realizing economic growth and enriching EVERY child, woman and man through capital ownership. As tectonic shifts in the technologies of production march on jobs will be destroyed and degraded due to the injection of human-intelligent machines, superautomation, robotics, digital computerized operations, etc. in the processes that produce our products and services.
To avoid the meltdown of the American economy, we need to reform the tax system to encourage both production and consumption. For example:
• Make dividends tax deductible at the corporate level, but fully taxable at the individual level unless used to make debt service payments on a loan used for capital acquisition.
• Treat all income the same, whether from wages, dividends, or inflation-indexed capital gains.
• Eliminate virtually all personal deductions, tax credits, and so on, but give each person an exemption large enough to meet ordinary living expenses, including education and healthcare.
• Impose a single rate tax on all income above this exemption, no exceptions.
• Allow a limited tax deferral, say up to $1 million over a lifetime, on income used to make debt service payments on dividend-paying capital assets.
We also need to change how we finance economic growth, i.e., shift from financing using past reductions in consumption (savings), to using future increases in production (earnings). Businesses can then expand by issuing new shares or other means of sharing ownership, which people could purchase by monetizing the present value of the shares they are buying, i.e., buy a share in a business on credit, and pay for it out of the future earnings attributable to the share itself.
The following is a Letter to The Washington Post from my colleague at the Center for Economic and Social Justice (www.cesj.org) that I think is pertinent to this thread discussion:
Letters
The Washington Post.
1150 15th Street NW.
Washington, DC 20071.
Letters@washpost.com
Dear Sirs:
George Will raises important issues in “Bewitched by Obama” (The Washington Post, 12/06/12, A19), but misses the point, compromising fatally on principle. The goal is not deficit reduction, but elimination. Obama is not responsible for the deficit, nor the size of it. The system encourages deficits and penalizes growth. Republicans offer a stopgap. Democrats offer more debt.
A way to balance the budget and pay down the debt is to implement “Capital Homesteading.” According to the Coalition for Capital Homesteading (http://capitalhomestead.org/), the Federal Reserve should stop monetizing government debt, and start funding private sector growth — but only if everyone shares in that growth as owners of the new capital.
To encourage financing in ways that create new owners, dividends should be tax-deductible at the corporate level, but treated as ordinary income at the individual level, along with all other forms of income, including inflation-indexed capital gains. All personal taxes (including FICA) should be merged into a single rate levied on all income above a meaningful exemption large enough to cover ordinary living expenses, including education and healthcare, possibly $100,000 for a family of four.
Most important of all, everyone should have a “Capital Homestead Account,” a “Super IRA,” in which dividend-paying shares can be acquired on credit on a tax-deferred basis, repaid using the dividends on the shares, which can thereafter be used for consumption.
Yours,
Michael D. Greaney, CPA, MBA.
Director of Research.
Center for Economic and Social Justice.
http://just3rdway.blogspot.com/
http://economix.blogs.nytimes.com/2012/12/11/the-real-long-term-budget-challenge/
