To the Democrats, offer to abolish the Social Security tax on both sides of the equation, both business and personal. That means an individual making $30,000 a year gets an approximately $2000 pay raise immediately. Every working man and woman gets a pay increase in the form of no deductions for Social Security taxes from their wages.
So where do you get the money? You’re certainly not going to get the support of senior citizens or anyone else for that matter if you start messing around with the ability to pay Social Security benefits. So that means we have to find another revenue source.
And for that revenue source you need to turn to the tax that is the most efficient in economic terms: a consumption tax. But not one that looks like a sales tax. Rather, it should be a version of what almost every other country in the world uses, and that is a value-added tax, or VAT. I would modify it to look more like a business transfer tax (BTT).
Basically, with a BTT, a company pays tax on the revenue it receives net of what it pays for the services and products it is selling. Netflix pays on the revenue it receives after deducting the money it sends to television and movie producers for the rights to show their products. This is all transparent to the end user.
You can tinker around the margins to make this tax more politically acceptable. You can exempt groceries, but then you’re going to have to charge a higher rate on everything else. You can exempt nonprofits, but I wouldn’t: they pay Social Security tax on their employees now. But that may be the price of getting the deal done.
A BTT in the low teens (12-14%) will get you all the revenue that you need. You look the Republicans square in the eye and say I want to get 2% of GDP more tax revenue in the form of the BTT in return for the income flat tax on individuals. By the way, the BTT is legally deductible by US corporations under WTO rules when they ship products overseas – which is what every other country does to us, and why they have a tax advantage over us when shipping products to us. The BTT is going to be a huge boon to US producers. Talk about a cheap way to boost the economy – this is it.
Now, Republicans are going to push back and say, yeah, sure, you want to start this BTT at a low rate today, but the day will come when you want to raise that rate, just as every European and other country around the world has done. And you’re going to want to raise those income tax rates again. Why should we give an inch when you may take a mile in 10 years?
And your counter to that is to offer to sign a constitutional amendment that will require a balanced budget and a supermajority of 60% to raise taxes. In theory, everyone is for a balanced budget (well, almost everyone), and the political reality is that it takes 60% of the Senate to approve any major new tax revenue source anyway. You’re not giving up a lot. Enough Democrats will be willing to go along, because they’re going to get the extra revenue they need for the programs they desperately want, and they get a major boost to lower-income America in the form of no Social Security taxes.
Now, the hard part for Republicans is that they have to get 38 states to approve that constitutional amendment. But they’ll just need to fight it out in about five states (getting 33 more or less red states to approve it shouldn’t be too hard) in order to get what they really want: certainty about the future of taxes and the budget deficit in America. You also need to get everybody to hold hands and sign a pledge to not raise taxes under any circumstances for 10 years. Now, we all know that inside the room a pledge like that is only worth so much, but it’s at least a start.
Oh, and for a sweetener, offer to sign a bill to sunset every government regulation over the next 10 years. Do it in an orderly fashion. Maybe even something like eliminating 20% of government regulations across the board during your first term and not letting the absolute number of new regulations increase after that? If you want a new regulation, get rid of an old one. Force the various bureaucracies to clean out their attics and stop hoarding regulations that are way out of date.