Libertarian-Socialism — Taxes and Revenues
Tags: Politics, Socialism, Libertarian Socialism, Libertarianism, Tax Reform

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Taxes and Revenues

One of the greatest criticisms of socialism is the spendthrift mentality that sometimes infects the politicians, people and administrators of social programs. The feedback loops are temptations for each of the players in a program whose revenue stream is taxes. Social programs are expensive and must be administrated with an eye on the fiscal limits of an economy. Despite the possibility for corruption, America wants and needs a social safety net. Social Security and healthcare are only a portion of the social programs America’s people cry out for, but funding is a challenge.

America still has the money to do the right thing, but no longer enough to do EVERY thing. Looking at American debt problems, one can be excused for believing that cutting spending is the only answer. This enthusiasm for austerity should be kept in context, for it has been used for decades to drive tax cut upon tax cut for upper income tax brackets with a promise of energizing the economy. Instead of bringing the promised prosperity there has been a classic economic boom/bust cycle causing financial uncertainty and hollowing out of the middle class. Clearly, the very first thing to do is curtail the high income tax cuts since these have not delivered the promised economic trickle down benefits prognosticated. These tax cuts have led to oceans of red ink without any discernible assistance in job creation.

Cut, cut, cut the taxes is the mantra, but after decades of tax cuts the expected benefits have not materialized, certainly not for the greatest majority of Americans. For over 30 years, America fed the upper income brackets all the tax cuts they could handle, either borrowing the money or reducing social programs to pay for it. By now, it is clear this is not effective or responsible revenue policy given the current monetary situation.

In day-to-day expenditures, a huge portion of the budget resides in Social Security, Medicare and military spending. This is well documented and understood. It is much less understood that the over-collection of tax revenue that was supposed to be put in a trust to pay for Social Security in the future has been pirated and used to fund tax cuts for higher income brackets. Were the Social Security Trust Fund packed with the cash that has been over collected in the previous decades, the budgetary crisis would not be a crisis.

Neither the patriotic socialist nor the patriotic libertarian can ignore a crumbling infrastructure, failing schools, armies of homeless, and a growing list of problems caused by neglect in this nation. Obviously, a course change is in order. Investment in roads, healthcare, education, telecommunications, technology and a host of other infrastructure-related capital expenses can yield dividends that are impossible to calculate ahead of time. Investments like these implemented by both the Democrat president FDR and the Republican president Eisenhower brought forth the intangibles that made America the super power of the 20th century.

American citizens will have to force that type of investment today though, because politicians do not have the will to resist their wealthy and corporate masters. Any doubts Americans had of this should have been cleared up during the economic collapse of 2008. The bailout, Troubled Asset Relief Program (TARP) that followed strongly supported the troubled assets of banks as the name implies. As banks and foreign investors were being made whole, getting their principal amounts back dollar for dollar, average Americans were asked to grovel at the doorstep of the financial institutions. The same institutions that had required taxpayer money to stay afloat were then turning around and giving their benefactors the cold shoulder by denying loan modifications mandated by law.

Had there been any fairness at all in the system, then the credit card rates of Americans holding cards issued from TARP institutions should have been rolled back to rates equal to traditional usury laws. Usury laws, limiting interest rates on loans, were put in place many years ago to prevent loan sharking and extortion of money from people in difficult circumstances. In the late 20th century, banks were made exempt from usury laws, because they were considered responsible financial institutions and not loan sharks.

When it became clear that the banks were not responsible, this should have been the very first reaction, lifting the usury exemption for any financial institutions requiring TARP funds. Interestingly, no one in government offered it as an option. Many who sit around wringing their hands that the “too big to fail” are also too big to regulate never consider the “perks” that banks were handed in the late-20th century. Citizens need not continue to grant these benefits to banks.

Admittedly, usury law is an obscure sector of the credit world, which sets low single digit interest rates within law as the only LEGAL rate unless this usury exemption is granted. Of course, usury law seems quite archaic in today’s world of 20% and higher interest rates, but only because BankAmericard and MasterCharge changed the credit landscape so dramatically in the 1970s. When they issued generic plastic credit cards in quantity, the systemic structures necessary to facilitate today’s crisis were put in place.

As debt has grown in this country, banks have been able to generate quite a revenue stream from the interest rates on these large balances. Attempts to bring some regulation to how interest rates are indexed, brings violent opposition from the industry. Regulation is met with threats to call in all the debt of Middle America as a response. The lack of People Power in government means that one of the big sticks, usury law, has never even been considered as a regulatory sanction against banks.

Of course, regulating the banks and credit card debt are not public debt. The point here is that Wall Street gets what it wants from Congress, but Main Street is ignored. Social Security and Medicare/Medicaid are NOT profitable. Certainly, a case can be made that investments in these spaces are profitable over the extreme long view, like decades, but short-term profits will suffer. During the technological transition that has altered life so dramatically for the American worker; the comforting advice to the American worker from Wall Street has been that the American economy must change in the 21st century to compete. Now what has been good for the goose is now good for the gander says the patriotic socialist to the patriotic libertarian. Reining in the great casino of American banking is a requirement for a stable version of capitalism to continue in the 21st century.

Despite economic straits, libertarian-socialists know America must continue to spend for the future. The United States is still the largest economy in the world and the largest government budget in the world. America must invest in itself. Building weaponry for the military never creates infrastructure and funding tax cuts to upper income brackets cannot be subsidized any longer. The United States cannot afford to stop spending, but it must be smart spending. Before the day of reckoning comes, the United States must invest in infrastructure and social support, because these are the budget items that pay the big intangible dividends of the future. The unpredictable immeasurable dividends of investing in the right things are the game changers, when it seems like the game is lost.

Libertarian-Socialism understands that Americans supporting other Americans will cost money and lots of it. Libertarian-Socialism does not advocate profligate spending without check, though. The United States cannot ignore the debts as the nation makes these investments. America must deal with the debt before the creditors force it to do so. If the United States invests wisely now, it has a chance of being on the upturn economically when the fiscal day of reckoning comes. A stronger economy, publicly and privately, will give the United States the strength it needs to survive the economic hurricane on the horizon.

To invest in infrastructure and the citizenry over the longer term the United States must begin to pay down the debt. The interest rates on those debts are making debt service one of the largest items in the American budget. More importantly though, an audit of day-to-day outflows must be undertaken to stop the debt from growing so rapidly. America cannot pay down any debts without understanding current outflows of cash.

Without too much digging, it is clear that a lot of money goes to far-flung areas of the globe. The size of American military obligations around the world is mind-boggling. It will take years to draw down these expeditionary forces deployed across the world, but withdraw it must. America’s budgetary woes leave this nation no choice, but to draw down these foreign occupations. Until the nation does, it will continue to hemorrhage money at an incredible rate while doing nothing to build the American economy.

Additionally, post war veteran benefits are a poorly accounted future entitlement that will not be small. Libertarian-Socialists believe these military entitlements must be honored. The United States will be paying these promised entitlements for decades to come and the long-term cost has not been calculated. In short, there is a lot of debt and a lot of financial obligation baked into the future American budget, but very little unencumbered revenue to pay for it.

To start paying down the debt, the United States should institute a Value Added Tax (VAT). A VAT is essentially a national sales tax to create a new unencumbered revenue stream for the nation. A value added tax of a penny or two on each dollar will be a load on the economy, but at least it will be applied evenly on all citizens. Given the multi-trillion dollar economy, a two-cent VAT could yield a trillion dollars to be applied against the debt in a few years.

For the VAT to be effective and to prevent revenue diversion as happened with Social Security, America must mandate by law that it goes to pay down the national debt. A large portion of that debt is held in the Social Security Trust Fund. The Social Security Trust Fund should be at the top of the list of items to be paid off.

Once the United States has paid the debts down to something manageable or even to zero, Americans can then discuss income tax reform. With stable revenue streams and reduced debt income tax reform can be undertaken in a less hysterical environment and Americans can decide whether a VAT would be preferred over the current income tax.

There are many things to consider, such as whether the elimination of the mortgage interest deduction would destroy the housing market. This is just one of many big unknowns. Few have discussed how the 2017 tax reform led to a large increase in the standard deduction which closes down access to the mortgage interest deduction may negatively affect property values for those homes that are too inexpensive to have the interest get the borrower over the standard deduction. However, expensive homes may actually increase even further and faster in value as the large mortgages generate interest payments large enough to cover the standard deduction and open up other write-offs on the Schedule A. This appears to be another example of a two-tiered system where the wealthy continue to enjoy the benefits of a government protecting their interests, while the less wealthy are exploited as an unimportant constituency.

Libertarian-Socialism can support significant tax reform, but it must be real and concrete. Reform requires locking down an honest accounting of revenue outflows at the Treasury, facilitating alternative revenue streams and paying down the debt obligations. Before putting these items in place wholesale income tax reform seems unwise, hence the libertarian-socialist’s preference for a VAT before moving forward on changes to the existing revenue streams are contemplated.

Running a government and a nation for profit, as many extreme capitalists advocate, does not benefit the greatest number of citizens. No nation runs without taxing its citizens for revenue and that revenue can be applied to the greater good or for polishing the bottom line or a myriad other things. Nations as envisioned by the libertarian-socialist are to be run more like a family than a business. In a transparently run representative republic, the greater good is debated openly, such that together a nation can arrive at what the greater good represents. In America’s corporatist government, the greater good is defined by the bottom line of a narrow elite and their accountants, not by open and transparent debate.

A VAT will bring large amounts of money into government. It is almost guaranteed to work given the size of the American economy. Guaranteed to work, if the revenue is handled responsibly for the common good. In all things libertarian-socialist, responsible governance in conjunction with citizen engagement, are absolute requirements for true success.

The 21st century has seen a number of exotic funding vehicles to finance the wars in Iraq and Afghanistan. Something known as “off budget” suddenly became a possibility in the American legislature when considering the War on Terror. The 2008 financial crisis and the Federal Reserve’s qualitative easing program amounts to printing money as well. Common sense dictates that such profligate spending cannot continue indefinitely. The libertarian half of the patriotic libertarian-socialist understands there is a limitation even if one is the world’s reserve currency. However, the socialist half recognizes that important investments can be done “off budget”, if the society deems the effort worthy. The patriotic libertarian has come around to the national security implications of a citizenry unrepresented by the republic.

Libertarian-Socialism.org