American Manifesto Part Eight: Income Taxes Section One

American Manifesto Part Eight: Income Taxes Section One

Changing the income tax code and the incentive to not work.

The American Income tax system has become an over-politicized governmental mechanism of behavioral modification.  It has distanced itself from marginal effectiveness at connecting with originally intended effects.  Like a longtime junkie trying to get a quality high from the millionth hit of the same narcotic, incentives need to be rotated out or removed to retain or renew their economic potency. 

Laws upon laws and counter reactions to sidestep loopholes have made tax compliance into a game of chess funneling the coffers of lawyers, accountants and government officials to appease political bases.  The federal income tax system should be a revenue collection mechanism, not a mutated puppet string. 

We have capital gains taxes, the alternative minimum tax, self-employment tax, and tiered progressive income tax rates to hack out increased percentages of earnings.  We create credits.  The earned income tax credit is functionally a negative income tax in another form of welfare, except the credit does not take away expenses or social benefits to correspond with its net cost as a “tax.” 

We live in a country where everybody wants to believe we are getting a deal in order to stop bitching and start bragging.  We are skeptical and cynical and demand percentage discounts or justification to our free-market selves that we are winning the purchase war.  We are in economic combat for the ninety-nine cent value menu, the gas pump “drive across the street” pennies, the grocery store discount cards, the car-lot haggle down.  We want to be proud red-bloodied American consumers.  This includes our taxes.  In the background corporate giants devour us like krill with loopholes in the tax code as we scurry for the pennies on the floor.

We want that rebate check.  We do not focus on the how or why.  We want to feel that our tax rebate is somehow free money from the government.  In reality it is an interest-free loan we just gave to our government.  We are happy for being screwed.  We focus on what we still owe or are due rather than what we paid.

We are myopic on a macro-level.  Forty to fifty percent of our earnings go to some form of tax.  Instead of asking, “What do I get for this?” we treat the dollars as if they were never ours.  When our governmental systems are subpar, we expect nothing better.  When the car, the meal or the dress we buy is ineffective we bitch like hell?

We wage political war to enact legislation to favor one party’s constituency.  Swings in legislative seats counteract ways of collecting money.  The common thread is each side tries to take resources from the people who predominately elect the other party or mitigate the extraction from their own. 

We spend countless hours paying elected officials to debate how to fund government.  That game is probably inevitable.  I often question the practicality of social engineering entwined into revenue collection.  In so many cases the pomp and circumstances our legislators use to present the value in their pet legislation often results in a whimper and an hodge-podge of unforeseen consequences and counter reactions to sidestep the trumpeted intent of the law. 

Overall it is probably better to have less potential deductions to manipulate, because the results usually are commensurate with a hand grenade rather than a sniper shot at achieving the stated public good.  Keep it simple given the current two-party system. 

We must start with two basic questions.  Where is the wealth?  Who makes stuff?  The global economy has participated in exponential consolidation.  This consolidation is cannibalizing free markets in an orgy of deregulated density of profit.  The blood of every economy is circular exchange.  We are clotted.

Who grows our food: ADM, Cargill, Dole, Monsanto, Tyson.  Who process our food: Coca Cola, Pepsi Co., Kraft, Nestle.  Who processes oil, Shell, BP, Chevron, Exxon-Mobil.  Who owns our hospitals?  Who owns our prisons?  Who makes our chemicals?  Who owns the television stations, the radio, and print media?  Who owns Congress?  The answer in every case is the short-term profit of a stock price.  We must regulate these highly-consolidated industries to promote long-term sustainability in mutual benefit to industry and the American people through our tax system. 

The quest for profit has destroyed the domestic manufacturing capacity of our country requiring taxpayers to incur exponentially higher social benefit costs to support the poor and the middle class.  Higher unemployment and underemployment has been traded for pennies on earnings-per-share statistics.  This is rampant as an unpaid externality to the profit collected for business conducted in America.  The constant pressure and fixation on publically-traded profits myopically ignores the macro level impacts to our health care, housing, public safety, environmental, education, and economic standards in America.  Innumerous dollars exit these processes never to be recycled.  They are lodged like cholesterol build up in massive trusts and offshore bank accounts.

We have criminalized drugs as a dysfunctional jobs program full of violence.  Follow the money.  We have taken away the jobs for low-IQ America to be self-sufficient.  We have mega-wealthy billionaires capable of moving funds around the globe more top heavy than ever.  How do we change this?  Where are moderate to low-IQ Americans going to work to achieve self-sufficiency?

We have previously discussed health care, education, and debt.  The number one way to assist the core issue is to change our tax policy to incentivize domestic manufacturing combined with a universal health care system that assists employers rather than penalizes them for hiring full-time employees.  If we solve the health care issue, we can solve the greatest hurdle to domestic manufacturing. 

Some ideas: change the welfare system to integrate requirements in base manufacturing training and production process in targeted state programs for the individuals physically capable of work to continue to receive those funds.  Do much of this online or in a laboratory of laptops at designated facilities like local schools and libraries.

This is a huge labor force that creates a dividing line to help recreate a textile industry in the United States.  Target higher import tariffs by industry.  Build Early Steps program centers and subsidized child care connected to elementary schools to allow low-income parents to participate in the training.

Create a federally subsidized website for an Overstock.com-type web portal for goods manufactured and assembled or grown completely in America by Americans.  This will allow small American manufacturers to have a substantial web presence with subsidized advertising capabilities which trends in a mutually beneficial direction with the American people.  Goods created this way could have a standard label or branding that says something like AmericanMade.gov certified. 

We can do the same thing with small family farms with federally subsidized distribution facilities for farms under a revenue threshold on their tax returns to help them grow.  Communicate with consumers where to get local produce via the web.  This in combination with the elimination of the disproportionate corn and soybean subsidies towards a more diverse diet of fruits and vegetables will help healthier food go from local farms to supermarkets.  This will create more competition in a highly consolidated industry.  Most importantly this will lower long-term health care costs born by taxpayers by fighting obesity at the source.

Another major opportunity in need of overhaul is what constitutes a tax deductible 501c3 health and welfare organization.  We need to redefine and restrict what qualifies as a public good.  I believe that religion as a whole is not a public good.  Only the activities of helping the homeless, the hungry, the environment, those in need of counseling, medical care, education etc. that religious and secular non-profit organizations often provide are. 

Those are public goods that each charity over a certain revenue threshold filed on their 990 tax return should have to restrict tax-deductible donation dollars to program expenses only.  No administrative or fundraising expenses should qualify for tax-deductible contributions for the donor.  No more mega-churches or administrative offices built with tax-deductible dollars.  Allowing this free-for-all has led to the business of non-profits as tax shelters exacerbating the national deficit. 

A compromise to do this is to include a non-deductible box on the tax form provided to the donor commensurate with the administrative and fundraising cost percentages on the non-profit entities audited statement of functional expenses from the previous fiscal period.  The higher the qualifying public-good-related program-costs as a percentage of purpose the higher percentage of dollars actually deductible.  This can be best done with big data analysis.  This should be mandated for all 501c3 organizations with over a million dollars in revenue.  Require an independent audit, if not previously required, and adapt nonprofit disclosure accounting standards accordingly.

We do not need politicians to put kudos on resumes.  We do not need the revenue collection system as the primary mechanism to accomplish goals like saving our environment or encouraging people to take care of their offspring if the dollars are not linked to action.  The arrogance of legislators and presidents like to pretend tax legislation is a helping hand to address social change. 

Most of the time policies create nothing except advertisements to get someone elected and someone else un-elected.  A few hundred dollars shift to some fifth-grade teacher in Iowa who has the same house, the same job, but Congress is helping.  Homes, educations, surgeries, crimes: these are the asteroids our taxes must reduce to gravel size for us to handle.  The extra grand split billions of ways reduces the size of the hammer we swing at the big rocks and balloons our debt.  It is myopic.

Negative Income Taxes

American social aid benefit programs are contingent on minimal reported income.  The programs penalize low income individuals and families for each marginal dollar they earn by inching closer to the full denial of other public benefits to create a fiscal roadblock and fraud.

This drop off the cliff policy encourages a stagnation of self-earnings and a disincentive to educational advancement.  Negative income tax theory counteracts this inherent flaw in our taxation system by replacing the current welfare system with a guaranteed negative income tax benefit for each individual in America that supplements a person’s income by increasing adjusted gross income up to the threshold under which no one would pay income taxes on that level of income. 

This threshold would eliminate enrollment into a generational restraining system that encourages poverty by encouraging people to work up to a level they can support their families lifestyle on without having to face this intermediate gap of losing substantially all governmental assistance by simply getting a decent job.  

This type of tax system could work as a marginal tax rate that starts at a certain dollar threshold, intermixed with a fixed government payment that is the same for everyone below that threshold.  The payment has to be substantial, but not enough to live on.  It is not designed to be a sole source of income in perpetuity.  The payments alone can not support the person.  The negative tax payment has to be low enough to where people do not manipulate artificially lowering their earnings to keep it.  

The flat support could be $12,000.  It could be higher or lower.  What it needs to be is a math problem.  What should a standard room night in a mortgaged house costs for the average American family?  What should food costs be for someone avoiding famine?  What about healthcare and education?  How much of these costs are actually paid by a taxpayer on the bottom end?  The threshold has to help a working class American get to that summation in combination with minimum-wage-based employment.  Raising the minimum wage to reflect modern inflation would do wonders to assist this equation. 

Intelligence quotients and genetic capabilities determine far more of our potential than environment.  That is scientifically independent of race, religion, gender, and dependent on sperm and egg.  Some of us have math brains, language brains, athletic limbs, spatial perception and other do not.  

These distinctions fill society’s spaces.  Unfortunately some of us are limited to shit jobs in crap employment hell, because either our potential never had a place to bloom or that is our potential.  Raising the minimum wages and attaching it to an inflation index allows the full spectrum of our society both economic and human to function.  (Minimum wage employees often recycle nearly one-hundred percent of their earnings back into society, which on a macroeconomic level is one of the most efficient forms of governmental assistance.  All dollars are not equal.)  The myopic rich man who clings to terms of job creators and judges with, “Why don’t you do what I did;” reality is it is not in the rich man’s best interest for that “poor folk” to do what he did and he needs the consumer spending of all dem po-folk to keep the Dow up.

If we treat people fairly to allow an honest version of prosperity at each layer of the spectrum, while promoting human dignity and work ethic we will prosper.  If we fear and cling we all fail.  Reasonable minimum wages, health coverage, and equitable educational opportunities are integral components of that equation of success. 

This kind of negative income tax system reduces the incentive to suppress earnings on the bottom end.  The change in policy could allow our tax system to focus on the uncollected tax gap on the lower income brackets and eliminate some of the huge administrative costs on the American taxpayers of maintaining separate welfare, food stamps, and social security systems.  This way an Internal Revenue Service with investments in an information technology infrastructure can facilitate a single source take or leave it payment stream deposited through electronic funds transfers to a housing or grocery provider rather than that individual that are contingent on the individual’s earnings being reported to the IRS.  

We could end direct cash payments with direct digital-infrastructure alternatives.  Taxpayer assistance checks should not be deposited into video poker machines.  Do not allow any form of government assistance to be easily converted to cash.  We cannot stop fraud entirely, but limiting spending to a digital paradigm wherever possible is an amazing start.

If we also implement the universal healthcare system described earlier we can further this concept of eliminating the federal government’s role as a monitoring agency to restrict this sphere of social benefits previously contingent on remaining in poverty.  We can use our resources to be more realistic about what the federal government’s role should be in assisting the bottom end of the earners in this country from avoiding famine, homelessness, and over population into negative economic cycles.

Are we going to give people a realistic avenue to help themselves that limits absolute assistance or are we going to let the American taxpayers provide basically everything for a group of people and then pull the rug away when the poor reach up for a level of independence?  Can we end the political manipulation of the poorest voting block?

The greatest criticism of a tax system like this is that without an effective income monitoring system we could have a nation of people working and reporting income just enough to receive the maximum or a minimally reduced benefit.  At the same time this vulnerability narrows the inspection window in the tax-paying population for the IRS to monitor the cash resources of those individuals.  If the expenditures are all tracked digitally, we have a better audit trail to inspect fraud.  This addresses a problem we have now with the earned income credit, which is direct cash.  Because ultimately this form of negative income tax is like one big earned income credit that can only be spent on food and shelter through digital transfers.

If many of the prohibition-related industries like drugs, prostitution, and gambling are legalized many of the cash-based “illegal” trades that currently avoid IRS integration would be more difficult for tax-dodgers to participate in and avoid tax-system-integrated work.

We have a massive amount of fraud in every area of welfare and Medicaid.  The greatest welfare fraud is unreported non-W-2 cash income, illegal industry or not.  The reality is there will always be the opportunity for fraud regardless of what system we use.  We need to focus on what policies provide us with value for our tax dollars.  There is generally little value in spending a large portion of dollars on monitoring on a micro-level.  We should be able to develop macro-level budgeting based on math to provide realistic support, not unrealistic total-support entitlements.  The future of fraud detection and prevention is cross referencing big data with software.

A negative income tax system’s base benefit if it were set at a number such as $10,000 is not substantially above or in some cases is below the current level of benefits provided to many Americans.  The base benefit must be enough to bridge employment to a sustainable lifestyle, but must not be large enough to provide a disincentive to work all together.  It also must replace or severely restrict the current governmental benefit programs or otherwise it will only compound our problems.  We also could in its entirety restrict these funds to the acquisition of food or shelter with universal single-payer health care.

Usurping the Broken Limbs to See the Forest

I work as an auditor by profession on governmental and nonprofit audits.  One day I was in the office of an organization that provides day-habilitation activities for mentally handicapped adults.  The organization was getting audited by the Department of Labor for not paying high enough wage rates to these adults for some of the work the adults do.  

Some of the activities the adults can do include making and packaging wood surveyor stakes, shredding paper, sorting recycling materials and lawn care.  The organization computes how much a person with a normal range IQ would get paid to do the activity and then measures the time difference between how long the mentally handicapped adult takes to perform the task compared to the normal range IQ person.  

If the job is minimum wage and it takes sixty percent longer than you reduce the hourly rate you pay the person by sixty percent.  The facility is getting audited for using the wrong wage rate, but the D.O.L. has yet to tell the facility what the wage rate should be.  This went on for months.  

My client and the adults are caught in the middle of two arms of our federal government.  The department of labor is concerned that these adults get paid the correct manipulated wage, but Medicaid will cut their assistance for them earning more.  Taxpayers pay this organization to provide activities for people, which include the equivalent of supervised jobs which provide self-worth and self-value and a good to their community.  The other end of the government says, “Wait, do not do too much of that or I will not give you this other Medicaid money that the mentally handicapped adult actually uses to put a roof over his head and food in her mouth.”  

Does this sound familiar to you?  Isn’t this exactly what we do to America’s working poor?  We incentivize not working.  If we can not see the forest for the trees with the mentally handicapped, how can we help the average man or woman?  

Who gives a shit if a mentally handicapped adult earns two or four thousand dollars a year?  They can’t live on that.  Why even track it?  Is it relative to our nation’s Medicaid budget to obsess over this?  By the nature of being mentally handicapped there should be a baseline of assistance provided based on their medical needs and standard costs of living.  Math can determine this.  We should not penalize people who have been kicked down from their first breath in for reaching out for the smallest plank of self-sufficiency.  

For the poor in this country, we should say the same.  Earn up to a living.  You can have a house and food.  We will give you this bridge.  Until you are there it does not matter if you earn five grand or fifteen grand.  You get the same assistance.  This seems revolutionary, but when you pay people based on all the problems they do have and encourage them away from working society to solve their problems, the problems stay and society keeps people trapped.  This is a combination of letting a child struggle to learn and build muscle, while also teaching a man how to fish.

What we should do is ignore the actual reasons people have the problems they do when it comes to straight welfare.  Everybody is in the same boat.  Everybody has fucked up shit in their life.  Life is too problematic to track all the non-disability based exceptions.  You have to file a tax return to get pure financial assistance that is not based on a mental of physical disability.  In the new system we all know a person should not be able to live off the funds as our only income stream.  

If a person can not or will not find work and a person is able bodied then maybe there was no way of saving that person from them self anyway.  America has to move on to other people who can assist in their own self-sufficiency.  To think otherwise is to fool ourselves into acting as if we have unlimited resources.  If we pay additional funds to the lost cause we are taking resources from someone who is doing his or her best to obey rules designed with a combination of humanitarianism and pragmatism.  We should have universal healthcare, but not paychecks.

Politically we have gotten to where welfare and social security act as income streams to sustain a person rather than supplement a person temporarily as the programs were designed to do.  We need to emphasize what the true costs of these flawed thought processes are to the American people.  By spreading out this government assistance to more people who are actually working, maybe, just maybe we can find our middle class again.  We can create a systematic plan to revive American manufacturing so that people have a place to work.  We need to end feeling like a nation of the politically pandered to haves and the have-nots and fuck the people in the middle.  Sure it would be great to help everyone, give everybody cookies, but that is a socialist pipedream that does not reflect reality in a free capital market.

On a fundamental level, if we keep providing the same dollars in social assistance, than that amount of money will be spread over more people and move towards the tax-paying working poor rather than the off-the-grid America.  This new type of system would incentivize the integration of the people who sell drugs, who use having more and more kids as additional pay checks, who want to work, but are provided with a financial incentive to stay home or work outside a taxable system to shift into the tax-paying system, because no matter how much they either intentionally or unintentionally complicate their life to emulate a charity case, the system is not providing additional funding for non-health related problems.

We should also reduce home mail delivery like garbage collection to once or twice a week depending on mail volume by zip code.  Move postage sales to online aps. like a federal stamps.com.  Create eBook-based federal public libraries for all schools centered on educational and kids books, and adult non-fiction.  eBook fiction markets should stay privatized to not disrupt the industry.  Physical local libraries are a dying paradigm, but getting books to kids is more important than ever.  We can transition.

We need to invest in data pipelines and use cities like Lafayette Louisiana as centers of excellence on a state by state basis.  America cannot create the data transportation infrastructure to handle the explosion of data needs in modern business everywhere overnight, but what we can do is have each state select cities as Guinea pigs to foster tech companies and public high-speed data access via federal grant programs as a start.