In order to make America great again, we need to rethink our funding philosophy. Today, we place the burden of funding our government squarely on the backs of our businesses, our productivity. We have been doing this for over 100 years. It worked when the world was in ruin after World War II. With Japan flatten, most of Europe reduced to rubble and the rest of the world in chaos and disarray, the United States had a significant advantage. It took a long time for globalization to catch up with us, but it has.
In order to reverse the globalization trend, we must cast off the funding model of the 1900’s and deploy a new funding model. We recommend a three-tier funding process:
- Consumption/National Sales Tax: All products, domestic and import share the same burden.
- Import/Export Tax: Mechanism to ensure “fair” trade.
- Enterprise Entities: Insist that government businesses at least break even.
Consumption/National Sales Tax: The competition has learned it is better to have the job than nothing, after all “pigs get fat; hogs get slaughtered”. Most of the world has learned that one should not tax productivity, i.e. jobs but instead tax the consumption of goods…wealth. The tax is on goods consumed domestically mostly by consumers but there are many different variations. If goods are exported the tax in never collected. Thus goods imported into the United States are never taxed by the producing country but they gain the employment.
The United States has taken quite a different approach, we look at businesses not as a creator of employment but as a creator of wealth. As a result, we tax everything that we perceive creates wealth…we love taxing income. Never mind the pesky fact that by taxing business and income those costs get embedded into the cost of doing business and thus makes it more difficult to create wealth.
If the intent of the government is to make everyone poor or encourage businesses to go away, then we have devised the perfect taxing system. We have so perfected our ruinous system that we burden domestically produced product with a 30% disadvantage just from taxation and compliance alone.
A consumption tax would replace:
- Social Security (both employer and employee)
- Medicare (both employer and employee)
- Federal Unemployment Insurance
- Income Tax (both employer and employee)
- Alternative minimum tax (everything is taxed the same)
By placing the burden of funding the government on consumption, and not productivity both domestic and foreign competitors would share the burden.
Investment – The original “Fair Tax” had investments as exempt from the tax. This exemption was to encourage investment activity. This feature would make it impossible ever to pass from congress the funding revolution. Instead, this version of consumption tax would subject the “gains” to the tax at the same rate of goods and services. Losses, while would not be subject to a tax, would not be offset against gains. Each transaction would be evaluated independently. There is no reason for the State to reward poor decisions by allowing losses to be offset against gains. To recap, the gain would be subject to tax not the entire sale amount.
Short term gains, sales under two years would be tax at a 50% premium to encourage long-term investment. Stock transfers outside the US jurisdiction would be treated as a short-term sale.
Exemptions: Initial Public Offering (IPO) or new issuance of stock, as long the 100% of the funds would be used for business purposes and not compensation, the issuance would be exempt from tax. 401K saving, likewise, would also be exempt for taxation allowing retirement nest eggs to grow at a faster pace.
Education: Education is also consider a form of investment. We would recommend extending tax exempt status only to US citizens. All other students would be subject to tax. For an intuition to meet that exemption requirement, they would need to reduce tuition by 20% and only increase at a rate less than inflation as measured by the changed CPI-U for core items.
Exemption would not be granted to programs not able to place 80% students in their major earning a salary at least equal to one year of tuition.
Used Stuff: In the original version of the “Fair Tax” used stuff is exempt from additional tax given that the item was taxed when it was initially sold. While this may be philosophically true there is no reason to leave used Ferrari’s and used mansions to go untaxed.
Real Estate: New construction would be assessed the Consumption/National Sales tax either when title transferred in the case of buildings built for resale or upon the granting of the occupancy permit. In the case of used residential Real Estate, an exemption could be established to make homes affordable. Congress would periodically establish the exemption amount but somewhere around one million dollars may make sense given the inflated prices of some regions.
Personal Property: Most used personal property sells for a significant discount but in the case of high value items such as collector items, they sell at a premium. There is no reason to extend the exemption extended for donated used clothing, to a used Ferrari. Again, Congress would set the limit on used personal property, but one hundred thousand dollars would seem appropriate.
Import/Export Tax: Taxing imports and exports gives a country control over its boards as it relates to commerce. While the United States has an affinity to “Free Trade” and has relinquished authority over “Fair Trade” to nebulous foreign authorities such as the WTO.
Import Tax: In order to provide additional funding to the country, a 10% import tax would be imposed on all favored nations. This tax and its administration cannot be set aside by treaty, executive order or other actions. Only acts of congress should be able to modify tariff amounts in a stand-a-lone bill.
Additional tariffs may be imposed by the executive branch to correct, restrictive trade practices, currency manipulations, or other unfair trade practices.
Micro tariffs may be applied on a company level for those companies of patent violation, industrial espionage, or other inappropriate trade practices.
Export Tax: There would be no export tax on finished goods. However, the sale of raw materials or semi-manufactured goods would be subject to an export tax. The Consumption/National Sales Tax is used to fund many domestic programs include retirement, infrastructure, law enforcement etc. that exported raw and semi-manufactured materials would elude. So to encourage full conversion into finished goods and minimize the amount of resources redirected off-shore, an export tax should be imposed on items in the raw material and semi manufactured state. This export tax would mostly apply to commodities.
Enterprise Entitles – Enterprise entities are government enterprises that competed with private industry to deliver services. Many of these entities are run by the government because it was determined that private enterprise could not deliver that service because of size, complexity, required authority or other nuance. Such government run enterprises include TSA, US Post Office, and the port authority. These organizations need to run at break-even charging the benefactors appropriate rates or be exited. The country can no longer afford to run countries poorly.
This three prong approach would provide the best change to allow American to return to its golden age.
To learn more please feel free to write us at ResolutePrinciples@gmail.com