From: jim@netlink.cts.com (Jim Bowery)
Newsgroups: sci.econ,misc.taxes
Subject: Net Asset Tax White Paper (part 3 of 7)
Date: 15 Apr 92 20:35:01 GMT
Organization: NetLink Online Communications, San Diego CA

occurring in the westward expansion across the continent of North America.
 
Finally, the U. S. Constitution contains a provision for patents of
invention and copyright along with a prohibition on patents of
nobility.  In a very real sense, the "royalties" collected by
inventors for their inventions and artists for their creative works
are the basis for a new definition of "nobility" upon which the United
States culture is founded.  In the United States, nobility is in the
creative act rather than in the mere possession of land or titles
conferred by the authorities.  Just as the land of old world nobility
was protected from the normal contention of the marketplace, so the
"creative spark" of inventors, researchers and creative writers should
be protected.  
 
Indeed, given the need for inventors and artists to focus their
energies on creative rather than acquisitive disciplines, special
protections are far more necessary than they were for the old world
nobility, which possessed exceptional acquisitive capabilities.  For
this reason, patents of invention and copyrights, when possessed by
their creators, should be treated as vital possessions of their
creators for a limited time (17 years in the case of patents).
 
The particularly perverse trend toward government-financed technology
development has been attributed to a failure of the capital market to
address these critical needs.  However, the real problem with
technology competitiveness is simply that technologists have been
economically disenfranchised by a capital welfare system favoring
acquisition over creation.  The present reforms eliminate capital
welfare for acquisitors while restoring creativity to its
Constitutionally-mandated place of nobility. 
 
THE NET ASSET TAX
 
The existence of pervasive capital welfare discussed above provides
the basis for a system of taxation.
 
The principles of freedom upon which our country was founded provide
the basis for exemptions from taxation.
 
These insights yield the following proposal for a Net Asset Tax (NAT)
reform:
 
The government should tax net assets, in excess of levels typically
protected under personal bankruptcy, at a rate equal to the rate of
interest on the national debt, thereby eliminating other forms of
taxation.  Creator-owned intellectual property should be exempt.
 
The levels typically protected by personal bankruptcy can be
approximated by the median price of housing an individual added to the
median capitalization of a job in the economy.  Together, these
exemptions add up to between $50,000 and $100,000.  Additional but
smaller exemptions may be added to represent the lower levels of
bankruptcy protection typically extended to children within families.
 
The NAT is a self-adjusting system that seeks an equilibrium between
government debt levels, current tax rates and private wealth
distribution, without attempting to achieve an outright balanced
budget or direct intervention in the economy.
 
Under current (1992) asset distribution and government debt the NAT
would immediately generate between $1 trillion and $2 trillion in
revenue, thus totally displacing other forms of taxation and paying
down the national debt.  As asset distribution comes into equilibrium
and the national debt is paid down, tax rates will decrease as a
proportion of GDP growth.
 
MARKET DEMOCRACY
 
Under the NAT, government functions and regulation can be cut back as
capitalism becomes more functional.  This does not mean, however, that
government expenditures will necessarily decline.  
 
As government debt is paid down, the role of government declines and
capital productivity climbs, the rate of interest offered on
government debt will fall to unprecedented levels with respect to the
economic growth rate.  In this situation, it will become the
responsibility of the legislature to determine to what extent society
has reached a scientific optimum and increase its deficit spending
accordingly.  Although the legislature has this Constitutional
responsibility in any case, the NAT will make this clear as never
before.
 
One way of viewing public and private domain functions under the NAT
is that as optimum ways of doing business are discovered in a sector
and become "scientific" or common knowledge, investment risk
disappears and with it the merit of private investment. 
Theoretically, in such a mature sector, the government could invest
and compete with the private sector without any appreciable loss in
productivity.
 
As demonstrated in communist societies, not only is such a theoretic
optimum never fully achieved, but the bureaucracies that are supposed
to apply the scientific knowledge of a mature sector in order to
optimize and distribute its value invariably succumb to politics. 
Just as monopolistic corporate bureaucracies can become regressive in
a relatively mature sector, such as the U.S. automobile industry, so
will any attempt to subsume such sectors under government control
result in bureaucratic regression.
 
With the exception of basic functions of government and the pay down
of debt, the government budget should be dispersed to citizens as
cash, rather than being spent in government programs or even limited
in the form of vouchers.  This is "market democracy" in which the
citizens and their markets, rather than central planning and politics,
influence the selection of goods and services to be capitalized and
provided.
 
In fulfilling the moral mandates of a free society, such as education
and health care, government assistance feeding the market should be
restricted in ways that ensure the market is providing those goods and
services to the people who need them.  However, it is imperative that
the recipients of government assistance be allowed to choose from
multiple sources so as to suppress the monopolistic failures typical
of bureaucracies, whether corporate or government.  
 
In areas of such moral mandates, the need of the individual recipient,
as determined by a bidding process, should determine the amount of
restricted financing provided to the individual. This is in contrast
to the even distribution of unrestricted appropriations.
 
In essence, "market democracy" allows the people to direct their
portion of the government budget directly rather than going through a
political or bureaucratic process.  Market democracy synthesizes a
competitive market from public demand for goods and services.  This
motivates the risk of private capital in the provision of services and
cost containment.  It avoids not only the central planning fallacy of
communism, but also the political failures that have so plagued our
system of government in recent decades.
 
NAT ASSESSMENT
 
In general, all assets are subject to assessment in computing taxable
net assets.  Payment of taxes may be deferred with interest on the
unpaid balance equal to the taxation rate.  The unpaid balance is
counted as a liability in the calculation of net assets.  When one's
tax liability grows to the point that one has no net assets in excess
of bankruptcy protection levels, forced liquidation or transfer of
assets takes place to cover the tax liability.  The only privately
owned assets not assessed are the Constitutionally defined
intellectual property rights of patents of invention and copyright,
when owned by their creators.
 
In order to avoid creating a bias toward debt financing and to treat
economies of scale rationally, corporate assets should not be
subjected to double taxation.
 
As with current systems of taxation, there are practical limits to
assessment.  For example, in theory every agreement in which value is
exchanged is subject to taxation.  In reality, life is filled with
"quid pro quo's", including cash transactions, that are never reported
to the Internal Revenue Service, nor would it be practical to do so. 
The practical realities of tax assessment and auditing dictate that
large portions of any tax base be ignored, concentrating only on the
most visible and accessible aspects of the economy.  In the case of
the NAT, only assets whose existence is legally recorded in titles,
insurance documents, etc., or that are currently reported for capital
gains and losses would be individually assessed.  Since most
households own few major assets changing little from year to year, the
NAT would greatly simplify tax computation.
 
The actual value placed on an asset can be determined in a number of
ways, including self-assessment with mandatory and timely sale if an
offer to buy at the assessed price is made.  The present systems of
appraisal such as those already used in real estate taxation could
also be used.    In any case, the exact method of assessment is
secondary to the requirement that errors in the estimate remain
unbiased.  
 
Under no circumstances should there be an "assessment day" upon which
all assessments for the year depend.  What is assessed is NOT one's
possessions and liabilities on some arbitrary day, but rather the time
over which one owned various assets or held liabilities during the
prior year.
 
CURRENT ECONOMIC CONDITIONS AND RISK INVERSION
 
A fundamental problem with our economy at present is what might be
called "risk inversion" where households with high net worth
disproportionately invest in low risk instruments while households
with low net worth find their savings unwisely invested at high risk
by deregulated but relatively unskilled financial institutions.
 
New technologies and job-creating enterprises find it difficult to
obtain capital because they are caught in the horns of a dilemma:  The
wealthy, who have the business experience needed to manage the risks
of a new enterprise, have given their money to government or corporate
bureaucracies to manage while small savers find their savings accounts
squandered in speculative investments by institutions which are, in
reality, qualified to do little more than purchase Treasury paper,
which is what they should, in fact, be doing.
 
Even more perverse, the government finds itself stepping away from its
traditional low-risk investments in mature infrastructure in order to
perform functions for which it is particularly ill-suited, such as
technical innovation, while private sector businesses retreat from the
very technical risk it is most suited to manage.
 
The government then finds itself bailing out the failed investments of
insured, but deregulated, financial institutions, thus creating even
more government debt which is purchased by those most qualified to
capitalize business enterprise.
 
The current hue and cry for saving the "middle class" arises from the
failure of our deregulated financial institutions to focus on their
original purpose, which was the creation of affordable home ownership. 
Instead, they speculated in the creation of large amounts of
theoretically profitable commercial real estate as young families were
being crushed under the weight of sky-rocketing home mortgages and
declining real wages.
 
The "middle class" it is currently in vogue to worry about are those
people, primarily people born in the 1950's (middle to late baby
boomers), whose family stability and household net worth suffered
greatly as a result of these housing shortages combined with lowering
real incomes.  
 
Throughout the 1970's and 1980's these 50's babies were locked out of
homes in perpetual courtship behavior.  The relative unaffordability
of housing delayed the onset of nesting far longer than those born
before 1950.  Courtship behavior is notoriously consumptive and
exhausting.  Nesting behavior is investive and constructive.  Thus 60
million Americans born in the 1950's are now suffering from low equity
for their ages, and little hope for the future.
 
In reality, it is too late to do anything for the members of this
group since most of its females are now leaving their childbearing
years -- some desperately risking late pregnancies.  Most families
have already been irreversibly damaged, assuming they were formed at
all.  The best we can do now is attempt to rebuild the middle class
for future generations and try to allow those we have decimated to
build some equity for retirement with their productive years.4
 
Starting in the 1960's and early 1970s', in order to hoard assets that
would soon be in demand by the 50's boomers and to enjoy the resulting
capital gains, it was necessary for speculators to borrow large
amounts of money prior to the earning power of boomers reaching "buy
in" levels.  The boomers were then forced to borrow even more money at
higher real interest rates, while the speculators liquidated and moved
on to ownership of the corporations which were paying the boomers
lowered real wages and therefore enjoying higher profits and capital
gains because of the increased experience level and productivity of
the 50's boomers.
 
Centralization of the growing asset base, with values inflated by
debt, were the result.  Little was done in government policy to get
boomers into ownership of their own businesses during their years of
peak productivity.  This is because the profits on this huge influx of
highly productive man-hours could more easily be captured from
increasingly centralized and anti competitive corporations. 
Naturally, many boomers revolted against this trend and attempted
undercapitalized "self employment" instead of working long hours for a
large corporation that offered them little or no security.