Fix Your Country
Climate change presents grave risks to today’s and tomorrow’s children. The perils include drought, extreme storms, floods, a rise in sea level, intense heat, wildfires, pollution, desertification, the spread of disease, earthquakes, tsunamis, a rise in ocean acidity, the proliferation of insects, and mass extinctions. Anthropogenic global warming, associated with the human release of carbon into the atmosphere, is widely viewed as the primary cause of climate change. According to NASA, carbon dioxide in the atmosphere has increased by one third since 1950 and is now at its highest level in 650,000 years. Since 1880, the planet's average temperature has risen by 1.8 degrees, minimum levels of Arctic ice are declining by 12.8 percent per decade, 413 gigatonnes of ice sheets are melting annually, and the sea level may rise 8 feet by 2100. Recent estimates put 2100 climate damages at one quarter of global GDP. My co-authored research suggests we need a $70 per CO2 ton carbon tax rising at 1.5 percent per year. With proper redistribution across generations, eliminating the negative climate externality can produce a generational win-win, improving the welfare of all current and future generations by almost 5 percent.
Real Tax Reform
Our tax/transfer system generates far too little revenue and places most Americans -- rich and poor alike -- in extremely high effective marginal tax brackets, which dramatically reduce incentives to work and save. Real tax reform requires radical changes to what we tax and how we tax it. My plan calls for abolishing the personal income tax, the corporate income tax, and the estate and gift tax. I would also eliminate FICA (payroll) taxation below $40,000 in labor earnings. To replace these lost revenues, I would 1) eliminate the ceiling on the FICA tax, 2) implement a destination-based business cash flow tax, 3) implement a progressive personal consumption cash-flow tax (with deductions for charitable contributions and labor earnings up to a $500,000 maximum), 3) tax inheritances above $5 million, 4) implement tax on carbon emissions at $70 per ton growing at 1.5 percent per year. Coupled with proposed reforms of healthcare, Social Security and our welfare =system, all Americans would pay 30 percent -- no more and no less -- on additional labor earnings. For poor Americans, who are now facing far higher marginal taxes from working, my tax reform would eliminate what is, effectively, a poverty trap.
Purple Financial System
In 2008, our financial system failed colossally for two primary reasons -- leverage and opacity. The only part of the financial system that survived with no problem were the 100 percent equity-financed mutual funds. (These funds don’t include money market funds, which were leveraged through their promise to back their liabilities to the buck.) The Purple Financial Plans, which has been very strongly endorsed by a Who’s Who of top economists and former policymakers, requires that all financial intermediaries operate in one way and one way one -- as 100 percent, equity financed mutual funds. The assets held by these funds would be verified and disclosed, on a real time basis, by a single government agency -- The Federal Financial Authority. This reform, called Limited Purpose Banking (LPB), limits financial middle men to their job -- connecting lenders with borrowers and savers with investors. It ends Wall Street’s ability to play “heads we win, tails you lose” with taxpayers and continue to leave the financial system and real economy at tremendous risk. Under LPB, financial crises and their economic fallout will be a thing of the past.
Purple Social Security Plan
Social Security is beyond broke. It’s unfunded liability exceeds $34 trillion -- far larger than the $22 trillion in national debt. Fixing Social Security for real and for good and doing so yesterday is imperative. The Purple Social Security Plan pays all benefits owed under the current system, but permits no further benefits accrual. Instead, it sets up a modern Personal Account System in which workers contribute to their own accounts, with all contributions collectively invested in a global index fund of stocks, bonds, and real estate. Contributions, equal to 10 percent of labor income, are split 50-50 between spouses and legal partners and the government contributes on behalf of the poor, the disabled, and the unemployed. At retirement, account balances of each age cohort are gradually sold off and invested in TIPS (Treasury Inflation Indexed Bonds). These bonds are used to pay inflation-adjusted pensions. Payroll taxes are continued as long as necessary to pay off the current systems accrued benefits. Paying off Social Security’s accrued, rather than its projected liabilities will reduce its unfunded liability to zero.
Purple Healthcare Plan
Under the Purple Healthcare Plan all Americans annually receive a voucher to use to buy, in full, the Basic Plan from an insurance company. Vouchers cover expected costs. They are larger for those with pre-existing conditions. No insurer can turn anyone away regardless of who they are or where they live within a designated medical region. Congress decides what’s covered under the Basic Plan to keep total voucher costs at a fixed share of GDP. Taxes are used to finance the vouchers. This plan, to a large extent, is Medicare Part C for all.
Our country has been playing “take as you go” for decades on a massive scale. The game is simple. Each generation takes from its children and leaves them to take from their children. Some of this shows up in officially reported debt. But it’s mostly hidden in the form of unfunded liabilities. The Inform Act is a bipartisan bill, which I largely drafted and which has been endorsed by thousands of economists, including 20 U.S. economics Nobel Laureates. It would require the Congressional Budget Office, the General Accountability Office, and the Office of Management and Budget to do fiscal gap and generational accounting annually and for all major fiscal reforms proposed by Congress. Fiscal gap accounting puts all of the country’s obligations, including all its off-the-books obligations, on the books and compares them with the country’s projected tax and other receipts. It would bring an effective end to deficit accounting, which has no basis in economic theory. Instead, what we measure as our government’s deficit and, associated debt, is solely a figment of how we label government receipts and outlays, i.e., of the government’s choice of fiscal language, not its fundamentals. Fiscal gap and generational accounting is now being done on a systematic basis by the European Union and has spread around the world. It’s time for our government to make public, what it knows in private -- our country is dead broke. It’s fiscal gap is north of $200 trillion and represents a fiscal sword of Damocles for every young and future American.