And since I’m from the financial services industry, maybe include one little item to help the gig economy and the upcoming generation. Make retirement plans portable from one job to the next so that a young person has an actual opportunity to build a tax-deferred nest egg.
Be Radical, but Phase It in Slowly
Taken together, my proposals amount to a major shift in the tax and incentive structure of the United States. You won’t be able to implement them all overnight. I would start with the infrastructure project and the reduction of corporate taxes, because the former starts to stimulate the economy, the latter is more or less revenue-neutral, and both boost employment. If part of the compromise on the reduction of corporate taxes is some kind of lower-tax-rate amnesty on the $2 trillion sitting outside the United States, that provision could result in a nice one- or two-year revenue boost. If that tax rate was the 10% I proposed above, there would be $200 billion coming in, which would sure put a dent in the deficit during the following 12 months.
But lowering income taxes, introducing a VAT, and reducing the Social Security burden on businesses and individuals are measures that should probably be phased in over four years. It would take at least a year just for the various agencies involved to change their revenue models and infrastructure.
Set a time limit for balancing the budget. The Clinton/Gingrich budgets did not balance the budget the first year. It took time. Figure out how much actual infrastructure can be worked on to boost the economy in the first year, and then begin to project how those projects will affect growth and how long it will actually take to balance the budget. My back-of-the-napkin guess is that 4–5 years is reasonable. There is nothing like 5% nominal growth to speed the process, and holding spending to the level of inflation will bring the budget under control over time. It will work almost like magic. All you have to do is make sure that the total budget doesn’t rise faster than inflation. The economy can then take care of the rest.
The general objection to the introduction of a VAT in the US is the political impossibility of getting it done. It is only politically impossible if everyone doesn’t get something they want. What I have proposed is so politically delicious to all sides that it becomes possible.
Further, the lead article in this weekend’s Wall Street Journal opinion section is a full-throated endorsement of a VAT, quoting various conservative sources. There are numerous conservative economists who think a consumption-oriented tax is the smartest and most economically efficient way to produce government revenue.
Everyone agrees there are flaws in Obamacare. Depending on who the next president is, those flaws can be fixed and their budget implications can change. But the structure I propose above gives both sides more flexibility in getting the changes they want. Streamlining the healthcare system and giving states more flexibility will certainly help control costs. There have to be caps on how much those costs can rise. The American taxpayer is not a bottomless well.
For those under a certain age, the Social Security rules have to be changed. There needs to be a change in the law so that the age of retirement is automatically adjusted upward if the mortality tables show that lifespans are continuing to increase. (You would be exempt if you were within 15 years of retirement.) This would eliminate a political hot potato. When Roosevelt first proposed Social Security, the average person lived only to age 58, and benefits didn’t start until retirees were 65. Now the average person is living into his or her 80s, and the average lifespan of those with above-average income is in the high 80s. (Yes, there are differences in life expectancy depending on income.) Social Security needs to be means tested.
There are scores of other ways that savings can be found. There are over 100 agencies with their own very expensive bureaucracies that do some type of job training. If this were the private sector, the markets would be screaming for consolidation.