Fixing Everything: Government Spending, Taxes, Entitlements, Healthcare, Pensions, Immigration, Tort Reform, Crime…

© 2010 Nedland P Williams. All rights reserved.

No part of this book may be reproduced, stored in a retrieval system, or transmitted by any means without the written permission of the author.

First published by AuthorHouse 10/7/2010

ISBN: 978-1-4520-5181-9 (e)

ISBN: 978-1-4520-5179-6 (sc)

ISBN: 978-1-4520-5180-2 (hc)

Library of Congress Control Number: 2010913299

Printed in the United States of America

This book is printed on acid-free paper.

Because of the dynamic nature of the Internet, any Web addresses or links contained in this book may have changed since publication and may no longer be valid. The views expressed in this work are solely those of the author and do not necessarily reflect the views of the publisher, and the publisher hereby disclaims any responsibility for them.

Table of Contents

Overview

Author’s Opening Statement

The 10-25 Plan Overview

Delayed Introduction

10-25 Tax Plan

10-25 Tax Plan – Overview

Universal Free-Market Care Payments

(U-Care)

Flat Tax

Flat Tax - Details

Capital Gain, Dividend, Interest, Gift, and Estate Taxes

Pension and Medical Plan Conversions

The 10-25 Plan - Summary

Other Issues

Taxes - General

Tax Theory

State Taxes

Entitlements

Federal Spending, Deficits, and National Debt

Conversion Procedure and Costs

Other Solutions

Overview of Other Solutions

Healthcare - Group Self-Insurance

Tort and Other Reforms

Closing Chapter

Bibliography

Acknowledgements

End Notes

Overview

Author’s Opening Statement

We’re in serious trouble. However…

This book is a blueprint for those who want to slam the brakes on government spending, trash our awful tax code, and resolve the entitlement crisis without reneging on existing commitments. Heavy reliance will be placed on individual citizens taking personal responsibility. Proposed changes will also have favorable effects in other critical areas, specifically: pensions, crime, and immigration. In addition, a new form of healthcare organization will be presented that will cut costs in half, while improving quality, utilizing free market principals. Finally, litigation procedures will be tweaked to speed the conflict resolution process, dramatically reducing the direct and indirect cost of litigation or the threat thereof.

While it is easy to build consensus on the existence of problems, my task is to build consensus on solutions. Rather than rehash well known problems, this book presents and defends my proposed solutions. Powerful interests and legislators who benefit from the status quo will hate them. – What better recommendation!

These solutions are designed to positively affect YOU by addressing YOUR concerns. I will refer to the 10-25 Plan as our plan, because it will need your active support against entrenched interests. Many of you are frustrated by what’s been going on, but it’s not good enough just to be mad as hell, you will need a standard to follow into battle.

If you don’t know where you are going, any road will take you there.

- The Cheshire Cat[1]

Federal and state governments are running up outrageous debt, entitlement, and pension liabilities that threaten to overwhelm our economy. Social Security is in the red for the current year, and Medicare will be bankrupt soon. The Fed is monetizing federal debt, putting the dollar in jeopardy. High taxes are chasing investment offshore and with it, jobs. Health care is gobbling up private and government resources. Our courts are not resolving problems, they are creating them. And, worst of all, citizens wait for the government that created this mess, to fix things.

Rather than address these problems, politicians continue fighting partisan battles, oblivious to contrary empirical evidence on past failures of the very policies being proposed. Instead, we need fundamentally sound solutions. The free market and government will both have important roles, but we must avoid the rampant corrupting influences now infesting Washington.

Governments are instituted among Men, deriving their just powers from the consent of the governed, — That whenever any Form of Government becomes destructive of these ends, it is the Right of the People to alter or to abolish it…[2]

If we merely throw the bums out, we’ll just get new bums. While it is not yet time to abolish our government, it is definitely time to alter it. The primacy of citizens over the federal government must be reasserted, by limiting legislators’ ability to inflict further damage and incentivizing them to bring government spending under control.

Since overwhelming political support will be necessary to overcome legislative intransigence, this plan must appeal to all Americans, regardless of party or group affiliation. Tea Party dissatisfaction is just a start. Full consideration must also be given to the more than 50%, who voted for supportive government in 2008. While many of those voters now have buyer’s remorse, we should not expect those on the left to support reductions much beyond the spending levels which existed pre-bailout.

The basic requirement for understanding the politics of change is to recognize the world as it is. We must work with it on its terms if we are to change it to the world we would like it to be.

- Saul D. Alinsky, Rules for Radicals

The world as it is wants less government intrusion, but views libertarian or laissez-faire solutions as too far right. In order to create a middle-ground that satisfies both left and right, current safety-net agencies must be replaced by an equivalent support system; however, our proposal will eliminate politics, bureaucrats, and disincentives. The nanny state will disappear, as people assume control of their personal welfare. Individuals acting in their own best interest will infuse systemic flexibility and resilience.

While free market capitalism, uncontaminated by political interference, provides superior outcomes over alternative economic systems, participants experience widely differing outcomes.

[A]dequate security against severe privation, and the reduction of the avoidable cause of misdirected effort and consequent disappointment, will have to be one of the main goals of policy. But if these endeavors are to be successful and are not to destroy individual freedom, security must be provided outside the market and competition left to function unobstructed.[3]

Entitlements and Tax Deductions, intended to correct for such imbalances, account for 75% of direct government intervention in the economy, ignoring regulation for the moment. However, complexity and political manipulation have perverted what were purported to be honorable intentions. Socially desirable programs have morphed into political payoff programs. Such distortions can only be eliminated by bypassing the corrupting influence of government middlemen.[4]

Instead, direct cash payment will have major beneficial effects:

1. Expand personal freedom and individual liberty, maximizing recipient satisfaction

2. Drastically reduce political manipulation and distortion

3. Match spending increases to the economy’s growth rate

4. Fulfill commitments to seniors and those in need

5. Eliminate waste and fraud

To many readers, the thought of cash payments to every citizen is anathema. However, legislators regularly bribe interest groups and even other legislators to vote for awful programs [Obamacare/Cap and Trade]. Instead, let’s turn the tables and bribe citizens to vote to depoliticize the entire process. Belt tightening alone is a political loser. To implement this Plan over the objections of the political establishment and their powerful cronies, we need a BIG CARROT.

Please reserve judgment on direct payment until you’ve read the next chapter, which describes the entire 10-25 Plan.

While the 10-25 Plan can be fully implemented within three years, promises to seniors and those in need must be kept. To bridge from present commitments to a true pay as you go[5] future, we must overlay a migration plan that will last 30-35 years. This transition will be expensive [~$10 trillion]; but by acting now, we avoid the far larger $50-100 trillion expense currently projected.

Responsible fiscal policy combined with a stable monetary policy will not only limit debt growth, but should keep interest rates in check. In this highly unstable world, a stabilized dollar will provide safe-haven for international funding that will help cover transition costs for at least the first couple years, allowing the growth aspects of this plan to begin showing results.

Discretionary spending, the remaining 25% of legislated spending, will remain under full control of our legislators; however, if legislators are offered substantial incentive cash bonuses for meeting spending targets, they can be expected to implement self-enforced limits on such expenditures. Since current accounting methods have proved inadequate in monitoring the full range of their commitments, a change to generational accounting methods will hold legislators fully accountable.

Future growth in government will match growth in the economy, at a sustainable percentage,[6] which should reduce government induced market distortions and make government more efficiently responsive to the needs of citizens. Filters, through which most government spending now passes, will be removed.

Our founders believed that government should answer to the people and free individuals should take personal responsibility and initiative in the pursuit of their own happiness. To that end, the primary function of government is to provide a supportive framework within which individuals can maximize their own well-being. Sadly, over the past 100 years, politicians have eroded these basic concepts.

Politicians in both parties have expanded the role of government, while adding incredible complexity. If starting from scratch, would anyone design a tax code with 70,000 pages or suggest that basic support be supplied by 1,700 separate agencies? Inefficiency, disincentives, and political manipulation/corruption infect the entire system. Complexity invites systemic risk. Recent changes and future commitments put our entire system in jeopardy. We must scrap outdated and broken programs and start with a clean slate, while meeting prior commitments.

Simplify, simplify, simplify!

– Henry David Thoreau

Because of the power of special interests to block even minor adjustments, tremendous political momentum will be necessary for complete passage of this program. Momentum can only be achieved, if voters understand the plan and believe that they will be promoting concepts to dramatically improve their own lives. In today’s networked world, ideas can create a viral explosion. But, to generate tipping point enthusiasm, we cannot just nibble at the edges. We must fix everything.

Our program will be simple, efficient, transparent, and fair. Don’t you want to help fix everything?

Join the FIX IT Revolution!!

The 10-25 Plan Overview

All other things being equal, the simplest solution is the best.[7]

- Ockham’s Razor

[T]he more simple any thing is, the less likely to be disordered, and the easier repaired when disordered.

- Thomas Paine, Common Sense

The federal government is out of control. This Plan is a blueprint for total overhaul that will return control to citizens and put us on a path to recovery.

The 10-25 Plan sounds deceptively simple:

$10,000[8] will be distributed directly to every citizen over 21. All earned income and business profits will be taxed at a flat rate of 25%. Existing entitlement programs and tax deductions will be scraped, however, current commitments to seniors and those in need will be kept. Employers will file all tax forms on behalf of their employees.

Direct payment will bypass bureaucratic interference and will force everyone to assume personal responsibility for their own well-being, with these funds plus the fruits of their own endeavors. By removing discretion on both Entitlements and Taxes, 75% of current federal legislative purview will be depoliticized.

If angels were to govern men, neither external nor internal controls on government would be necessary. In framing a government which is to be administered by men over men, the great difficulty lies in this: you must first enable the government to control the governed; and in the next place oblige it to control itself.[9]

This $10,000 expedient will:

1. Constrain Future Government Spending

2. Replace our Impenetrable Tax Code

3. Eliminate Employee Tax Filings

4. Remove Disincentives when the Poor Earn Income

5. Reduce and Manage our Future Entitlement Crisis

6. Provide Every Citizen with a Buffer against Adversity

7. Fund Medical and Retirement Savings Accounts

8. Close Agencies Responsible for +60% of Federal Spending

9. Encourage Legal Immigration but Deter Illegal Immigration

10. Reduce Crime and Anti-Social Behavior

11. Excite Cross-Party Political Support

12. Restore Personal Responsibility

To build the political momentum necessary for change, this new system had to be simple to understand and simple to communicate. Politically, it is targeted center right, or dead center politically. We have had enough of the political pendulum swinging from far right to far left. With our population split 50/50, a compromise position had to be found, which limits government intrusion into our lives, while maintaining a reasonable level of safety net protection.

$10,000 in Annual Payments

While these payments maintain the existing practice of redistributing income, bypassing the bureaucrats will put an end to the nanny state. In addition, fixing the redistributed amount with a set dollar figure, to be adjusted only for inflation, stops the cancerous growth of this sector. Individual discretion on use of these funds will maximize personal satisfaction. For many, allocating these funds may be their first opportunity to assume personal financial responsibility.

The value judgments a man pronounces about another man’s satisfaction do not assert anything about this other man’s satisfaction. They only assert what condition of this other man better satisfies the man who pronounces the judgment. The reformers searching for the maximum of general satisfaction have told us merely what state of other people’s affairs would best suit themselves.[10]

Those who support central decision making will argue that direct payments will lead to chaos, but they ignore the spontaneous organization of market based decision making. When government gets involved, it interferes with the plans of several hundred million Americans on how to maximize benefits from the resources available to them.[11] Frequent changes in taxes, regulation, and subsidies bring chaos, not self-correcting market based interactions.

Monthly payments will be electronically distributed to every citizen over 21. For taxpayers, these payments will replace tax deductions;[12] for non-taxpayers, entitlement support.[13] Overhead costs will drop from 15% to below 1%. Government salaries and tax compliance costs[14] will be reduced by $200-$400 billion annually, while most of the $200-300 billion tax gap, in uncollected taxes will disappear.[15]

With the election of President Obama, 50% of the electorate has expressed its desire that government provide some level of income redistribution. Any fix to our current economic mess must accept that political reality.

Direct payment will provide more effective support for the poor, without the current mal-incentives. As currently structured, if the poor or those on Medicaid earn income, they can lose existing support, which can create extremely high hurdles in the form of excessive effective tax rates, blocking attempts to improve their situation. Under this program, they keep 75% of everything they earn, regardless of support from direct payment or the buyout. Converting previous support payments to a negative income tax[16] will provide a launching pad to escape poverty and the public support trap.

These payments will not represent new spending, but rather a fairer allocation of existing expenditures. The current combined cost of Entitlements and Tax Deductions is $2.4 trillion.[17] Direct payment will cost $2.1 trillion, leaving $0.3 trillion[18] in reserve to cover anticipated interest and inflation adjustment costs related to resolution of our entitlement commitments.

Universal Free Market Care[19] (U-Care) monthly payments will be distributed to three types of personal accounts: normal checking, Medical Savings, and Retirement Savings. Additional medical payments will cover citizens under 21. Recipients will determine how this money is spent, within type-appropriate guidelines.

Exceptions:

Exceptions must satisfy those expecting substantially more than $10,000 annually from Social Security, Medicare, Medicaid, and other support programs. Adjustments must also be made for legal immigrants and working citizens under the age of 21. Finally, even though the 10-25 Plan covers every citizen, there will be situations where a one-size-fits-all approach is not adequate and additional assistance is required.

Special Buyout Payments will Satisfy Current Entitlement Obligations

Entitlement promises must be kept. Therefore, while U-Care will be the sole social support system in our children’s future, we must overlay early stage U-Care payments with a second layer that will smooth transition from current support levels.

The monetary difference between current expectations and future U-Care distributions must be bridged. Current Social Security, Medicare, and Medicaid recipients will see no change in their total level of financial support, but they will have far more flexibility and control regarding their own care. Future retirees will see reductions based on years-to-retirement, balanced by increased take-home pay for their remaining work years, resulting from the disappearance of FICA taxes. There will also be other tax changes that will positively effect retirement investments.

Since it would not only be immoral but politically impossible to renege on promises to such a large voting block of our own citizens, the only possible course is to fulfill existing promises and yet stop making additional promises that we will be unable to fulfill.

Complete migration to the new approach will take approximately 30 years, the period for a generation passing. The next generation will have plenty of time to adapt their saving and spending patterns to the new support framework. Our current path is unsustainable. This new direction offers opportunities for additional economic growth that will translate into higher compensation levels during working years and higher investment returns. Even small changes in the national growth rate can become substantial, when compounded into the future.

The present value of buyout debt, recognized now, but paid out over the 30 year transition period in declining annual amounts, will be approximately $10 trillion. An outrageous amount, but since these payments satisfy commitments that had previously been projected at $50-100 trillion, $10 trillion should seem a bargain. And, being practical, this is close to the maximum amount of additional debt we can realistically accommodate, if we wish to keep issued debt below 100% of GDP.[20]

Prior projections of the entitlement liability often assumed a full 75 years of benefit payments and included a wide variety of assumptions that depended heavily on the personal and political biases of the estimator. Since our proposed buyout payments end after 30 years and subtract budgeted U-Care amounts, the $10 trillion current value figure is a better measure of the past extravagance of our politicians and reflects the actual amount we eventually need to cover with future borrowing, not including inflation adjustments and future deficits.

Special note: Entitlement liabilities are a zero-sum transaction for the US as a whole, since these are payments from government (financed by claims on citizens) to other citizens. $100 trillion in entitlement liabilities represents $100 trillion to be distributed to citizens, either directly or through service providers. On a national balance sheet, future liabilities will equal future asset allocations.

This comment is in no way intended to lessen concern over the future havoc these commitments will create for deficits, inflation, and credit markets; if unaddressed. It is mentioned here, to add perspective that is lacking in current discussions about these projected government liabilities, which assume that the offsetting assets just disappear.

The current cross generational payment system has been abused. It has been too easy for politicians to make future promises without considering the ramifications. Conversion to the proposed system will resolve that problem, by creating personal retirement and medical savings for every citizen. However, such a system will rely on each individual taking responsibility to save, if they want more than minimal support as they age.

The current generation has been promised support. To ensure a smooth transition to the new arrangement, this buyout is absolutely necessary. The next generation will assume full personal financial responsibility with some support from U-Care and the monthly forced savings in their Retirement account. It may take a full 30 years to recapture lost attitudes about saving and personal responsibility.

Monthly, current retirees will receive the cash value of the benefits they now receive. These payments will be fixed in real value, through monthly inflation adjustments. Each succeeding age cohort will see a slight reduction in initial inflation adjusted benefits, offset by increased take-home pay during working years. At the end of 30 years, buyout payments will have diminished completely for new retirees. However, those age 30 and under cohorts, who will receive no benefits, can expect far better future opportunities than would have existed if the US were to continue on its current path toward bankruptcy.

If we do not migrate from the current system to something sustainable soon, we will probably be forced to abruptly discontinue or drastically reduce payments, or face hyperinflation. By implementing a conversion process with a responsible plan, we increase the probability of smooth transition through the coming crisis period.

A united effort by citizens to bring government spending back into line with a fiscally sound plan, combined with an effort to stabilize our currency and reestablish a well functioning economy should induce our creditors to fund these efforts to meet existing entitlement commitments during the transition process.

Legal Immigrants and Working Citizens Under 21

Legal immigrants and working citizens under 21 will receive tax rebates up to the first $10,000 on taxes withheld.[21] Legal immigrants therefore have the opportunity to duplicate the tax profile of citizens and, in the process, develop a tax history, which we should use to accelerate progress toward citizenship for the productive.

Legal immigrants who have paid prior FICA taxes will be eligible for a buyout that mirrors the citizen buyout.

Illegal immigrants will not receive U-Care, tax rebates, or social services from the federal government. As Milton Friedman pointed out, You cannot have free immigration and a welfare system. Since we cannot seem to close our borders, we must disadvantage those here illegally. The use of federal tax dollars to support and encourage illegal residence makes no sense. However, humanitarian efforts funded by voluntary contributions will not be discouraged.

Such clear differentiation between legals and illegals should dramatically increase demand for an improved immigration process. The U.S. must accommodate that demand, since sound immigration policies will be integral to our future economic success. This is particularly true of entrepreneurs, those bringing investment capital, and those with technical training. Current students at our colleges and universities should all be given green cards on graduation, as should students in good standing who leave school for financial reasons or job opportunities.

Special Needs Cases

Exceptional cases may require additional assistance, both financial and non-financial. Since the federal government’s new role will be to provide efficient unbiased support for every citizen, exceptions to core federal programs cannot be allowed. With the federal government providing core personal financial support, local help can more effectively focus on those with special requirements.

Knowing the exact amount of financial support that will be received by each individual from the feds, charities and local government can be far more effective with their marginal financial help. With core financial support assured, and local emphasis reoriented toward non-financial support, successful outcomes will be far more likely.

In 2007, those in the bottom half of income distribution received slightly over $800 billion in federal assistance and services.[22] Under this program, they would have received slightly over $1 trillion in cash, a 25% increase. Direct payment is so much more efficient, we can provide this extra bump without any increase in total cost.

This in no way is passing the buck from the federal government to states. States will eventually be relieved of all Medicaid payments, their largest current cost, and many other social support costs will disappear. Each state is free to determine the amount of additional financial support they are willing to overlay on top of U-Care.

Reviewing the Benefits:

Government Spending

[I]f America gets its financial house in order; it might actually be able to reclaim some of the ground it’s lost through profligate spending in Washington. But as there is no possibility of that happening, events will likely overwhelm the States, no matter who its leader is.[23]

The commentary above reflects growing national sentiment that the U.S. has no possibility of getting its financial house in order. I would agree, unless we take radical steps. Nipping at the edges of the problem will not instill fiscal discipline.

Since 1970, federal spending has gone up by an inflation adjusted 221%. During the same period, the median household income has gone up by only 32%.[24] It is highly likely that government spending is the most significant factor keeping median income at such low levels. Restrictions on government spending and regulation will reduce the overhead burden on the private economy, opening opportunities for improvement by the average citizen.

Estimates for the 2010 deficit are around $1.6 trillion. We will need to finance this amount plus refinance maturing debt. To put these requirements in perspective, together our two largest creditors, China and Japan own $1.65 trillion of our debt, amassed over 20 years, and both are feeling over-exposed. In 2010, China’s trade surplus with the US is expected to be less than $200 billion. While Americans have increased their savings as a result of the recession, much of that will go to reduce outstanding personal or business debt. With 25 of 27 European countries having deficits of at least 3% of GDP[25] and looking for financing, who will be our lenders?

In addition, state and local borrowing has risen to an all-time high of 22% of US GDP.[26]

During the first year of conversion, we should have no deficit at all, thanks to a painless bookkeeping tax adjustment related to the disappearance of the capital gains and dividend taxes. It is also probable that decreasing the top marginal tax rate and dramatically reducing overhead will increase tax revenues dynamically, even though our model projects neutral revenue effect, using static calculations.

Conversion to U-Care ties future Entitlement spending (which is currently 60% of the budget) to GDP growth[27] and will facilitate division of entitlement liability projections into: (1) future budgeted expenses and (2) unfunded commitments[28]. Once we have an accurate estimation of the size of the unfunded problem, we can begin to manage our way out.

Closing government agencies

The IRS and 1,700 entitlement agencies will be replaced by only five agencies: U-Care Distribution, Buyout Distribution, U-Care/Buyout Adjustment, Tax Collection, and Audit.

These 1,700 agencies were each created to deal with specific problems. However, if an agency were to actually achieve its defining objective, there would be no reason for the agency’s continued existence. Such agencies therefore have a vested interest in expansion of the problem, rather than resolution.

Golden parachute arrangements

Golden parachute arrangements[29] will compensate government employees accepting early retirement or moving to the private sector. After the expected three year conversion period, the total number of government employees and independent contractors should be cut in half. These employees are not being let go, because of some individual failure on their part, but as part of re-engineering of government. It is therefore government’s responsibility to smooth their transition into the private sector.

Adjustments to spending targets

While adjusted spending relative to GDP will be kept at pre-bailout levels, direct payments will dramatically reduce government overhead, allowing more money to flow to intended recipients. Using prior accounting methods, the adjusted target for maximum federal spending will be 20% of GDP. However, the change in distribution method requires an accounting change. Under the new accounting rules the spending target will be 24%. [Initially, U-Care payments will be approximately 15% of GDP, with the remaining 9% from Interest and Discretionary expenses.]

Adjusted Spending: In the current budget, tax deductions are considered a reduction of revenues, not an expense. Under the new rules, which increase transparency, that portion of U-Care that replaces tax deductions will now be considered an expense [$~600 billion or -4% of GDP].

Example: Under the current system, a $40,000 income with zero taxes represents neither government expense nor tax revenue, whereas under 10-25, our new accounting methodology will show a $10,000 U-Care expense offset by $10,000 in increased tax revenues.

With no actual changes other than accounting method, both expenses and tax revenues will appear higher as a percent of GDP by an equal amount. The amount of the upward adjustment reflects money returned to tax payers through U-Care, in lieu of tax deductions.

Incentives for legislators

To incentivize legislators, substantial bonuses [a percentage of GDP equal to approximately $300,000-500,000 per legislator] will be provided for those years when generational spending guidelines are met for Discretionary Spending.

It will cost less that $250 million in annual bonuses, to put functioning limits on approximately $1.0 trillion in annual Discretionary Spending. These bonuses will also attract competition for legislative spots from highly qualified contenders for whom a legislative paycheck would be a financial handicap.

Interest expense

While Interest expense is based on both market interest rates and total national debt and is therefore out of legislative control, the practical limits on U-Care and voluntary limits of Discretionary Spending should slow core debt growth below growth in GDP. That will have the dual effect of keeping interest rates reasonable and keeping total interest cost roughly in proportion to the size of our economy.

Deficit targets

Since revenues will be roughly 25%[30] of GDP, it would appear that the budget will have a 1% surplus, but these are only targeted numbers, and we still have to work through many contingent liabilities resulting from the current financial crisis and subsequent government guarantees, whether explicit or implied.

Our goal is not to balance the budget, but limit growth in new debt commitments to a rate consistently below the economic growth rate, in order that total debt including remaining buyout liability will decline relative to the size of the economy. Since tax rates effect the rate of economic growth, as long as total spending is targeted at an acceptable percentage of the economy, the flat tax rate should be held as low as possible to target modest deficits. Targeting slight deficits should be modestly stimulative for the economy. However, this can only be attempted, if the percentage of spending can actually be capped and if credit markets can absorb the new debt at reasonable cost. – Without U-Care and significant incentives for legislators, fat chance!

Governments don’t reduce deficits by raising taxes on the people; governments reduce deficits by controlling spending and stimulating new wealth.

- President Ronald Reagan

Even though recent debt expansion and the coming entitlement commitments are appalling, beyond discontinuing stimulus/political payoffs/healthcare spending that has not yet been activated, we cannot rewrite the past. However, excessive government actions of the recent past may allow us to rewrite our future.

Junking the Tax Code and Eliminating Employee Tax Filing

The tax code has never really been about raising revenue as much as it is about punishing opponents, helping friends, or as President Obama says, instituting a system of fairness.[31]

The tax code is purposefully complex, intended to hide special provisions for the special friends of legislators. That has to stop. Just as entitlements have often been diverted to special interests, the tax code has provided a goodie-bag for the exceptionally well-off, in the form of tax reductions.

In theory, individual tax provisions should make our system work better, but there is too much money involved for the system not to be corrupted. And, since every tax deduction creates a market distortion, accumulation of so many exceptions has an overwhelmingly negative impact.

In addition to tremendous efficiencies, our combined entitlement/tax system will be absolutely fair. Any attempt to pervert the system will be blatantly obvious. Direct payment will insulate entitlements and tax deductions from further political manipulation and the system will be transparently fair.

The combination of U-Care and a 25% Flat Tax, means that the 70,000 page tax code can be replaced with a far simpler version, which should be permanently limited to no more than 10 pages. The tax process will be split into two separate functions: U-Care distribution and tax collection. This will save tremendous amounts in preparation cost and time, since accurate withholding by employers means no annual tax return filing for employees.[32]

The IRS says Americans spend 7.6 billion hours (about the number of hours North Carolinians work) and $193 billion on compliance with the baroque tax code.[33]

A flat 25% tax on gross salaries and net profits will simplify calculation, while collection solely from businesses limits contact/audit points. With collection complexity reduced and rates lowered, the multi-hundred billion dollar tax gap, reflecting taxes owed but not collected, should disappear. Tax preparation and avoidance services will no longer be necessary.

Some may complain that forcing businesses to do the withholding and tax filing will shield the public from the impact of taxes. However, because the single flat tax rate affects everyone, every income earner will know exactly what percentage is taken out, and because every dollar of earned income is taxed; awareness of tax policy will actually be heightened, and there will be tremendous political pressure to keep that single rate as low as possible.

In addition, many of those who currently pay no taxes will be sensitized to the tax rate. While the net effect of U-Care will leave extra money in their pockets, everyone will realize that from the first dollar they earn 25% will go for taxes. No longer will 50% of the population be able to vote for higher tax rates with impunity.

Financial controls will accurately account for money spent. If there are 200,000,001 citizens receiving $10,000 each, U-Care cost will be $2,000,000,010,000. A dollar over that figure will be obvious to auditors; a dollar under that figure should be quite obvious to the citizen who got shorted. Can you imagine anyone (or their surrogate) not making sure they receive their $10,000 in annual payments?

While the sheer size and dynamism of the population will always make accurate audits a daunting task; in comparison, auditing our current entitlement spending [60% of current federal spending] is an impossible nightmare.

Effective tax rates will be progressive but not confiscatory. The combination of U-Care and Flat Tax will be far more progressive than the current tax code. If one subtracts U-Care payments from taxes withheld; until income reaches $40,000 [$80,000 for couples], individuals effectively pay no taxes on income. Below those income levels, U-Care provides for the equivalent of a negative income tax.[34] For someone with no income, this tax is infinitely progressive.

After tax deductions, wealthy individuals and corporations currently average about 25%[35] on income and profits. By eliminating deductions altogether, existing effective tax rates can be maintained, even though the top nominal tax rate is reduced 37%. By reducing the tax rate on the last (marginal) corporate dollars invested, the incentive to generate incremental income is increased. In addition, it is more likely that some previously hidden income will be disclosed, further increasing the size of the tax base.

High tax rates penalize success. Our fastest growing, most profitable companies currently pay effective tax rates nearer the maximum 39.5% rate [not including state taxes], which is why some of our best companies have been forced to move to states with no or low income taxes [Texas] or overseas. Dropping the federal rate to 25% or below will help us retain and attract the world’s best companies and jobs to contribute to a rapidly expanding tax base.

When states recognize that lost revenues from lower corporate rates can be significantly offset by incremental taxes on income from new jobs or sales; we will finally have the effective combined tax policies necessary to improve global competitiveness. We will still lose companies whose primary concern is low cost labor, but are those the jobs we really want to keep?

Remove Disincentives on the Poor

The poor or chronically ill face extremely high effective tax rates, if they earn enough money to disqualify them from further support.

For example, with today’s internet technology, it is certainly possible for a housebound Medicaid patient to earn a living. However, if that individual receives $40,000-50,000 a year in Medicaid support, he could easily face effective tax rates in excess of 200%, if he loses those benefits by earning a modest starting income below $20,000. Without the ability to enter the workforce with a modest salary, he can never escape the benefit trap.

Similar hurdles are faced by those on food stamps or receiving assistance for housing. Not only are the financial penalties high for earning income in excess of some arbitrary amount, but they must also face the psychological barrier of losing government support that has been central to their dependent existence.

Welfare dependency creates huge disincentives to entering employment because few jobs at entry level can offer a competitive package of payments and support equivalent to the benefits system.[36]

Resolving the Entitlement Crisis

Current entitlement commitments have two components: (1) the portion that will be covered by normal budget expenditures and (2) the unfunded portion created by extravagant politicians. To have any hope of establishing fiscal discipline, we must recognize this extravagant portion for accounting purposes now. Otherwise, future annual budgets will be so gummed up with past commitments that fiscal discipline will break down. In addition, by recognizing the debt now, our creditors and citizens will have a more transparent view of the actual practices of future legislators.

Without any attempt to establish fiscal discipline, in the relatively near future bond vigilantes and the wolf pack[37] will either drive up interest rates or create the environment for a failed Treasury auction. If the Fed is not willing to monetize the debt at that point, federal spending will be forced to a screeching halt, with entitlements the biggest and most vulnerable spending category.

Alternatively, enactment of the 10-25 Plan will bode well for future US fiscal restraint. In a world full of PIIGS, US Treasury Notes will provide a comparative safe-haven for global capital. Current creditors will be comforted and future lenders will be more accommodating toward future debt requirements. This in no way guarantees that the enormous debt requirements can be financed, but it does significantly improve our chances.

U-Care payments will limit growth in future entitlement payments to an approximation of national economic growth. Subtracting the present value of all U-Care payments to retirees from the present value of all entitlement commitments over the same period, we arrive at a remaining buyout amount, representing political extravagance. Under our Plan, for practical purposes,[38] the extravagant portion of entitlement commitments will be paid out over 30 years. While provision for that future debt must continually be adjusted to reflect inflation, changes in population and life expectancy, and eventual conversion from contingent liability to higher cost Treasury bills; we will have isolated and identified the true extent of the problem, so it can be managed.

Buffer Adversity

In the 1930’s, the US moved to welfare capitalism, because there was a sense that laissez faire capitalism was no longer adequate within a modern state. Claims of social justice were used to justify each incremental new change. Special interest groups still use social justice as justification for distorting the system to favor themselves. Government involvement in the original programs encouraged government to reach further into other areas of social concern, to the point where salt may be banned from restaurants. Over the last 70 years, amalgams of such programs have become entitlements, with no consideration for economic consequences. Planners have stepped in to support failing companies with political clout, drawing resources away from the dynamic new growth sectors of the economy.

It’s time to re-evaluate where we want to go and how to get there. Empirical evidence shows that the free market offers the best route to economic success. Modest regulation may in some cases be appropriate. However, government planning or monopoly management of programs like healthcare is a recipe for soviet-style disaster. Our approach is to let markets decide which companies should fail, to be reorganized by better managers.

Instead of support for failing companies, U-Care will provide a buffer for the employees, so they can weather these transitions. Ready cash will buffer any sort of adversity, in the way the recipient feels is most appropriate. With such a buffer, we can let the free market create maximum efficiencies, while clearing government out of the way.

It would be nice to escape economic cycles, but there is no way to have growth without innovation, innovation without risk, or risk without economic cycles. Cycles and downturns are thus not the enemies of economic progress; the enemy of human development is bad economic policies.[39]

Any support programs eventually run up against the economy’s ability to sustain them going forward. We are further constrained by debt we have already incurred, which gives us little flexibility. Cash distribution provides maximum bang for the buck, and while entitlement support programs will no longer increase at previous rates, capping entitlement growth will repair the resilience and dynamism of the entire economy, to ready us for future challenges and periodic disruptions.

In the free market, those involved in any final market transaction are always winners, since both seller and buyer must be satisfied with the terms for any transaction to occur. However, competition also creates many losers who do not participate in the transaction, because the price they asked or offered was not competitive. Under a free market system, winners can never become complacent, since losers learn from their mistakes, and new opportunities to successfully compete are bound to develop. The free market is incredibly dynamic, and this financial buffer will provide the opportunity to regroup and try again.

[F]ree exchanges in society — known as the free market — create a delicate and even awe-inspiring mechanism of harmony, adjustment, and precision in allocating productive resources, deciding upon prices, and gently but swiftly guiding the economic system toward the greatest possible satisfaction of the desires of all consumers. In short, not only does the free market directly benefit all parties and leave them free and uncoerced; it also creates a mighty and efficient instrument of social order.[40]

Conversely, income dependent programs, such as Medicaid, Unemployment Benefits, and Food Stamps create barriers against future success; since support cutoff points deter smooth transition out of dependency. A fixed cash buffer against adversity will provide a cushion for temporary loss, permanent disability, or for economic downturns in the business cycle; without removing incentives to improve and adapt. With basic support assured, less emphasis needs to be placed on economically questionable programs like Minimum Wage, Unemployment Insurance, and Workers Compensation, which sometimes keep otherwise able workers out of the workforce. Since U-Care cannot be lost, at a 25% flat tax rate, incremental income will always result in a 75% improvement in disposable income (ignoring state taxes).

Fund Medical Savings and Retirement Accounts

40% of U-Care payments will automatically be deposited into savings accounts restricted to medical and retirement payments. Since these funds are coming from the federal government, it is reasonable that use be restricted to their intended purpose.

Current plans to force individuals to buy health insurance with their own money have no constitutional basis. Our plan should satisfy the General Welfare clause in the constitution, since no one will be forced to buy insurance. As part of the new tax code, payments equal for all rather than group specific and intended to improve general health of the citizenry should definitely qualify as general welfare.

While no one will be forced to purchase health coverage, those without coverage will be personably liable for costs incurred. Any funds saved by not buying coverage will be at risk, as will future U-Care payments. The risk of not having coverage will far outweigh any possible gain.

Closing Agencies Responsible for 60% of Federal Spending

Direct payment will make the 1,700 agencies currently providing entitlements redundant. In addition, the IRS, our largest single government agency, will disappear as many of its employees are reassigned to one of the five new agencies.

Since these changes represent a re-engineering of government and do not reflect negatively on the performance of those in the agencies that are closing, those leaving government will receive a substantial [2 year] golden parachute severance package upon departure.

Those that have provided necessary services may well find themselves doing similar jobs through local or state governments, not-for-profits, or for-profit organizations; as local organizations fill voids created by the federal contraction. The move to local control and funding should significantly reduce waste, while improving care for those truly in need.

Encourage Immigration, while Discouraging Illegal Immigration

Legal immigrants will have similar financial incentives to citizens, through tax credits on income, but will not receive guaranteed support. We have no interest in attracting immigrants for the wrong reasons.[41] The US must remain the land of opportunity.

Illegal immigrants will receive no such tax credit, and employers will not receive a tax deduction, since illegals will have no tax withholding records. Since businesses act as the tax collection point, and businesses, executives, and administrators involved in filing false tax reports expose themselves to heavy corporate and personal fines, including possible loss of U-Care; the hiring of illegal immigrants should disappear.

A significant percentage of immigrants come to the US because of the entrepreneurial environment, and their success creates multiple new jobs. Employable immigrants do not steal jobs from citizens, since their productive efforts expand employment opportunities generally. We want to encourage the best candidates to come, with minimal difficulty. Illegal immigrants currently form an important part of our workforce, and it is a travesty that our immigration laws have not kept pace with our employment needs, particularly when immigrants offer useful skills or assets. As Marco Rubio[42] put it, we should not be anti-illegal immigration, we should be pro legal immigration.[43]

However, if a local government feels encouragement and support for legal immigrants will help their competitive status in attracting new business to the area, such support should be provided, but only with local political support for the funding of such projects. Charitable support for medical or financial needs should come from individuals, not from government through its coercive power to tax, unless there is clear political support for such expenditures.

While it is easy to construct broad policy statements that may appear hard-hearted toward illegal immigrants, it is important that policy disincentivize illegal immigration. This does not preclude individuals and organizations from engaging in humanitarian efforts at the individual level with their own time and money.

Honorary Citizenship

Because citizenship creates a future financial burden on the existing body of citizens, provision might be made to confer honorary citizenship on some small portion of applicants for citizenship. We would be honoring their desire for citizenship, without the burden of U-Care payments on the citizenry. These applicants would not be expected to contribute economically to society, but would contribute to the general well being.

While this would create a group of second class citizens, such designation would only apply to non-productive individuals, not their family members. Without such designation, there might be permanent exclusion of such individuals from citizenship, because of solely economic considerations.

Reduce Crime and Bad Behavior

Current policies have lost the War on Drugs. Drug cartels threaten the Mexican government’s survival and are present in every major US city. Nor are current methods working to reduce domestic crime and bad behavior, with 2 million currently incarcerated and 5 million on parole.[44] We need a new approach.

U-Care will reduce the number of people who turn to crime out of hopelessness. More importantly, U-Care changes the risk/reward calculation for unacceptable behavior, since a citizen in good standing can expect more than $500,000[45] in U-Care over a lifetime. Participating in robbery or mob violence will put future U-Care at risk. Convicted felons will pay restitution and their own legal and incarceration costs. Gang and drug culture will lose its appeal, since arrest for drug use might convert U-Care to tax credits on earned income. Computer hackers will face an unacceptably high penalty, if caught. Children will be supported until 21, through U-Care support taken from absent biological parents. Everyone will become financially accountable for their actions.

There are those who are concerned that U-Care will fund stupid and possibly illegal choices by the recipients. However, by providing equal payment for all, government will no longer promote stupid economic choices, and we can stop U-Care, when choices are illegal. Friends and family will exert tremendous pressure, if an individual’s total support could fall back on them. We must allow those who make stupid choices to fail. Better a temporary failure or over indulgence than a long term lifestyle failure.

Those who do not have the capacity to make decisions for themselves will get help from relatives or charitable organizations more readily, when that individual has core financial needs met by U-Care.

Cross-Party Voter Support

Income redistribution and tax breaks have been used to buy political support by both parties. U-Care imposes political neutrality on 75% of federal spending, thereby limiting the possibility of political favors to Discretionary Spending, the remaining 25%. Currently, a relatively small number of influential individuals and groups receive favors by gaming the system, and even for them the process is expensive and time consuming, and many lobbying efforts are only conducted to defend against the opposition’s lobbying efforts. Since the bulk of the population will benefit by flattening the distribution, we can expect special interests to be heavily out-voted.

Without strong political support for these changes, those who benefit from the current system will try to kill or pervert this program. However, all income groups will benefit from this new system:

Tax Payers - For those currently making more than $40,000 per citizen, taxes will be far simpler, top marginal tax rates will be reduced, investment will be encouraged, and all will have more control over their own lives, without that nagging feeling that government is giving them a screwing or that others are getting a better deal. If citizens can be convinced that U-Care is intended to stop further political giveaways, this program should have their full support.

Non-tax Payers - For the approximately 50% of the population that did not pay taxes this year and who voted for more government in the last election, government support will still be provided, but in a form (cash) that is far more useful. Their lives can be more productive, since they won’t waste time applying for support through multiple programs and making sure that they are not left out. They will be free to earn as much as possible, without fear of lost benefits, as long as they remain citizens in good standing. Guaranteed minimum support of $10,000 per year per adult should be strongly supported.

Middle Class - The middle class, which is the largest political group, has members in each of the above income categories and has long been passed over. They have seen special handling for the poor, which often provides the poor with a better life-style than the middle class experiences. Politicians claim to tax the rich, but they regularly see favors for major contributors and special handling for lobbyists, many of whom are former politicians. With more opportunities in a vibrant economy and higher take-home pay, many will see dramatic improvement in their lives. This program cuts out the bull-poopie and treats everyone fairly.

Personal Responsibility

Personal responsibility is a real problem for those who want to collectivize society and take away our power to make our own decisions, transferring that power to third parties like themselves, who imagine themselves to be so much wiser and nobler than the rest of us.[46]

A significant portion of our population now depends on government hand-outs, and almost 50% don’t pay taxes. Under this program, all income will be taxed, making every income earner a stake-holder in effective tax policy. Also, by incorporating basic income into the tax code, we encourage individual initiative.

At minimum, everyone must allocate their own monthly basic income for expenses. Far better, any incentive to remain below an arbitrary income threshold (in order to continue to receive income related benefits) disappears. With little prospect of additional government funding or gu’ment jobs, and crime no longer a viable option, only the free market will offer opportunity for incremental income. As the young develop during an era emphasizing personal initiative and responsibility, society should become increasingly self-regulating and entrepreneurial.

Fairness

Distribution of $10,000 to every citizen is certainly fair, in that everyone receives an equal