Chapter 12: The Ameri-Share Tax Plan

A TAX TO KEEP AMERICA THE LAST BEST HOPE OF THE WORLD

Two inexorable economic forces—globalization and automation—combined with a politically driven policy of under-taxing the top 1% have conspired to endanger the American Dream for millions of Americans. Globalization and automation have dispossessed millions of Americans of a middle class standard of living by depressing their wages while under-taxing the top 1% has denied the government of the revenue needed to both make the public investments essential to saving the middle class and keeping the national debt to manageable levels. For the vast majority of American workers, their ability (and that of their children) to live the American Dream will depend increasingly on getting help from the government and providing that help will depend on the government getting more tax revenue.

A recent academic study, “The Fading American Dream: Trends in Absolute Income Mobility Since 1940,” authored by Raj Chetty, Maximilian Hell, Nathaniel Hendren, Robert Manduca, and Jimmy Narang, explains why millions of middle-class Americans are losing faith in their ability to live the American Dream. This study, which measured “absolute income mobility”—the fraction of children who earn more than their parents—since 1940, found the following:

“One of the defining features of the “American Dream” is the ideal that children have a higher standard of living than their parents. […]We find that rates of absolute mobility have fallen from approximately 90% for children born in 1940 to 50% for children born in the 1980s. Absolute income mobility has fallen across the entire income distribution, with the largest declines for families in the middle class. […]Absolute mobility fell in all 50 states, although the rate of decline varied, with the largest declines concentrated in states in the industrial Midwest, such as Michigan and Illinois. […] There have been two important trends that have affected the incomes of children born in the 1980s relative to those born in the 1940s and 1950s: lower Gross Domestic Product (GDP) growth rates and greater inequality in the distribution of growth. We find that most of the decline in absolute mobility is driven by the more unequal distribution of economic growth rather than the slowdown in aggregate growth rates. […]These findings show that higher growth rates alone are insufficient to restore absolute mobility to the levels experienced in mid-century America. […]We conclude that absolute mobility has declined sharply in America over the past half century primarily because of the growth in inequality. If one wants to revive the ‘American Dream’ of high rates of absolute mobility, one must have an interest in growth that is shared more broadly across the income distribution.”

Perceptions eventually catch up and overtake reality, and the new reality is that most Americans will not live as prosperous lives as their parents. From its beginning and even through economic downturns, most Americans have been confident and optimistic about theirs and America’s future. But, with over 40-plus years of more and more ordinary Americans not only failing to maintain their standard of living but falling behind, many of these Americans have lost hope that theirs and America’s future will be better. Mass pessimism and hopelessness are the makings of a troubled and dispirited middle class and all the social, political, economic, and financial ills that come with it.

For America to remain the last best hope of the world, it must be socially healthy, politically stable, economically prosperous, and financially secure. None of these things can be so without America having a vibrant and growing middle class. A declining middle class leads to increased social ills, dangerous political division, a demoralized and unproductive workforce, and a shrinking consumer and taxpaying base. Social ills and political division can prevent the government from enacting corrective policies, and a demoralized workforce and shrinking consumer and taxpaying base can stymie economic growth. Without economic growth, America will not be financially secure. America remaining the last best hope of the world, then, depends upon it having a vibrant and growing middle class.

To have a vibrant and growing middle class, ALL Americans, regardless of income, must have an opportunity to be all they can be, and ALL Americans must believe that if they work hard and play by the rules, they will be able to live the American Dream. For most Americans, the American Dream means a middle class standard of living, adequate health care, a decent retirement, and an opportunity for their children to get the education they will need to make it in a tough world. For these things to be so, the government must adopt policies that convert aspiration into reality and that will cost money. The Ameri-Share Tax is designed to advance policies that will (1) revitalize and grow the middle class, (2) do it in a way that encourages both economic growth and social equity, and (3) assure America’s financial security.

America’s financial security depends on it taxing enough to pay for what its government spends and to reduce its debt to GDP ratio over time to no more than 40%. Over the past 40 years, America has behaved financially like a spoiled child who wants Santa to come loaded with gifts at Christmas but ignores their promise to be good during the year. From 1981 to 2015, Americans ran run up the national debt to GDP ratio from 32% to 102% by spending and not taxing. Until America reverses its policy of undisciplined spending and borrowing, it will be financially insecure and in danger of not being able to cope with unanticipated national emergencies. To make America financially secure, it must be willing to tax at least 25% of GDP. So, to continue to be the greatest nation on Earth, America must be willing to tax itself enough to make necessary public investments and keep its financial house in order.

As a matter of patriotism, taxes must be the SHARED responsibility of all Americans. Taxes not only are the price of civilization, but they are the price of national greatness. Americans must come to believe that patriotism demands that each American should take pride in paying their taxes and feel shame for cheating on their taxes.

Americans will not equate paying taxes with patriotism unless they believe that their taxes are being spent wisely and are a shared responsibility of all. To be a shared responsibility, applicable to rich and poor alike, each American must be taxed according to their ability to pay, and no American should be taxed into poverty or robbed of realizing a reasonable return on their next hour of effort.

The Ameri-Share Tax would provide all Americans with a shared opportunity to pay for sustaining America as the greatest nation on Earth through a simple tax based on the ability to pay that encourages productivity and treats those with the same income the same.

For the Ameri-Share Tax to become a reality, it must be fair to all Americans, and most Americans must believe it to be fair. The existing personal income tax (1) leaves the middle class with stagnant and falling after-tax income, (2) fails to raise enough revenue to fund the cost of government and reduce the national debt to manageable levels, (3) misallocates investment, (4) unfairly taxes those with the same income dramatically different amounts, and (5) defies efficient compliance because of burdensome complexity. Tax reform done properly must reduce the stress on the middle class and renew its faith in the American Dream while simultaneously maximizing economic growth and reestablishing America’s financial security. Unless tax reform accomplishes all of these goals, it is hardly worth doing.

THE TASK AHEAD

Raising the overall level of taxes by about 6 or 7% of GDP is an ordeal, but a necessary one if America is simultaneously to advance the middle class and be financially strong.

Historically, total taxes have accounted for about 18% of GDP and government spending has run about 21-22% of GDP. Unfortunately, this deficit has led to a dangerous public debt to GDP ratio of about 75%, and in the interest of assuring America’s financial security, this ratio must eventually be cut to about 40% as recommended by Simpson-Bowles.

Known factors that will add political pressure to increase spending above the historical norm include: (1) making up for prior financial misdeeds by paying the public debt down to about 40% of GDP, (2) the aging of the population (which automatically increases the cost of Social Security and Medicare), (3) the need to provide access to adequate health care to millions of Americans for whom it has become increasingly unaffordable, and (4) the necessity of providing the growing number of children of the middle class with the post-secondary education essential to their becoming productive workers (all of which automatically increases the cost of federal subsidies for higher education). Unknown factors that might add political pressure to increase spending above the historical norm include: (1) unforeseen threats to national security, (2) economic downturns, and (3) natural catastrophes.

Since the factors that will dominate the politics of spending for the next generation cannot be predicted, spending levels are uncertain. With that caveat, however, the smart money is betting that the politics will increase spending from the historical norm of 22-23% of GDP to about 24-26% of GDP. No one votes more than old folks, and their bread and butter, Social Security and Medicare, are what soak up the money. Failing to spend what is necessary to (1) equip the children of the middle class to make them the best workforce on Earth will cut economic growth—would be as foolish as a farmer eating his seed corn and (2) provide affordable health care to the middle class would invite social and political discord.

If GDP grows faster than the factors that add to spending, then tax increases will be smaller, but if not, tax increases will be larger. Just as the factors that lead to political pressures to increase spending cannot be predicted, neither can economic growth rates. To the extent that the GDP growth rate trails the spending growth rate, taxpayers will have a steeper hill to climb in paying their taxes.

All factors considered, taxes will likely have to be increased around 5-7% of GDP above current levels if the middle class is to be strengthened and America’s financial security is to be assured—a daunting task.

THE AMERI-SHARE TAX: REPLACING MANY TAXES WITH ONE

Three major taxes—the personal income tax, social insurance taxes, and the corporate income tax—account for about 90% of tax revenue, and all tax income, individual and corporate. Using three separate taxes to tax income adds unnecessary complexity to taxation which could be avoided by replacing all of these taxes with a single, simplified personal income tax, the Ameri-Share Tax.

Although the estate tax taxes wealth and not income and raises little revenue, it is a nuisance that also adds great complexity to taxation. Eliminating the estate tax and raising the same revenue from the Ameri-Share Tax would simplify taxation. Except for the estate tax, America has no history of taxing wealth. Because most wealth is illiquid and difficult to value, taxing it is not practical. In taxing, income is where the money is, and, unlike wealth, it poses no problem of valuation or liquidity, and America already has a huge infrastructure in place to track and tax income, the IRS.

So, taxing income is the most practical way to raise revenue, and replacing all major taxes with a single, simple Ameri-Share Tax is the most efficient way to tax income.

Social Insurance Taxes

Social insurance taxes—the payroll tax—tax wage income from the first dollar to capped limits (except the smaller Medicare tax has no income cap on wage income and taxes a small percentage of investment income of the best-off). The payroll tax also taxes businesses on all full-time and part-time employees.

Social insurance taxes do three things: one of which is necessary; two of which do more harm than good; and all of which could be done differently and better.

First, social insurance taxes raise revenue necessary to pay for Social Security and Medicare. While this revenue is necessary to pay for social insurance, an equal amount of revenue could just as easily come from another source, the Ameri-Share Tax. Switching revenue sources would not require any change to either Social Security or Medicare in that income-based work credits could be credited to each beneficiary’s account on the same basis as done under existing social insurance taxes, and the benefit structure could be left as it is.

Second, social insurance taxes impose a crushing burden on millions of middle- and low-income workers. Every dollar earned by an $8.00 an hour low wage worker is taxed at a rate of 15.3% to pay for Social Security and Medicare, with the employee’s share and the employer’s share each being 7.65%. The $16,000 in annual wages of such a full-time, low-wage worker would be taxed at $2,448, evenly divided between the employee and employer. According to the Department of Human Health and Resources, the poverty level in 2013 for a family of two, a single mother and child, was $15,510. Social insurance taxes have the effect of shoving a single mother with a child (whose income is $16,000) from barely above poverty into poverty. For those who believe in family values and encouraging self-improvement, taxing a family into poverty puts them under intense stress and robs them of their ability to climb into the middle class. Today’s economy is shoving millions of Americans closer to poverty, and social insurance taxes are worsening the problem. Replacing the flat-rate, first-dollar social insurance taxes with a progressive Ameri-Share Tax would lighten the tax burden of millions of low-wage workers and offer them a slight ray of hope of betterment for their families and themselves.

Third, social insurance taxes discourage businesses from hiring additional workers and reduce the amount businesses can afford to pay their employees. Employers pay a 6.2% tax on all employee wages up to a cap and another 1.45% on all wages. For the $8.00 an hour single mother, this amounts to $1,224 in annual taxes. Ending social insurance taxes would enable employers simultaneously to pay higher wages and increase their working capital. In an economy in which unemployment is high, penalizing employers who hire additional employees through social insurance taxes only adds grief to the sorrow of scarce jobs.

Social insurance has become an integral part of America’s social contract, and as such, there is no reason why businesses, as opposed to all Americans, should pay for it. Paying for the social contract should be the SHARED responsibility of all Americans who have been financially blessed, not businesses, many of whom compete with global competitors unburdened by such a tax.

The Social Insurance Tax

The corporate income tax applies only to C-Corps and double taxes corporate income. Double taxation first hits C-Corps by taxing their profits, and second hits the owners of C-Corps by taxing both dividends and the capital gains on their shares. The income that is taxed as corporate profits to a business and as dividends to an individual emanates from the same stream of corporate income and is taxed at different rates in that C-Corp income is taxed at the corporate rate and dividends are taxed at the dividend rate.

From time to time the tax game has raised or lowered each of these rates resulting in growing or shrinking rate differentials. Rate differentials invite tax planning gamesmanship. Smart tax professionals can convert a high percentage of most types of corporate income to capital gains anytime capital gains rates get low enough relative to other rates to make the effort worthwhile.

Other than rewarding those taxpayers and their tax professionals who game the system, this sort of gamesmanship adds nothing to making businesses more efficient or permitting investment capital to find its most lucrative return, independent of taxes. Ending the opportunity to make profits by gaming the tax laws would encourage all businesses to devote their energy and resources to earning their profits based on market factors instead of exploiting tax preferences (loopholes). Profits based on market factors strengthen the economy while profits based on gaming the tax laws weaken it. Ending the corporate income tax would force businesses to abandon financial strategies based on exploiting tax loopholes in favor of concentrating on market fundamentals that would produce real growth.

To prevent a C-Corp from keeping excessive profits in the business in order to avoid distributing taxable dividends to shareholders, it would be necessary to impose an accumulated retained earnings tax. The sole purpose of this tax would be to deter C-Corps from engaging in tax gamesmanship by sheltering profits from being taxed as dividends. Assuming businesses distribute dividends in accordance with sound business practices and not in an effort to game the tax laws, the accumulated earnings tax would not raise revenue.

No longer being subject to the double taxation of corporate profits and being freed from the complexity of the corporate income tax should make American businesses more competitive in international commerce. Since dividends and capital gains would be taxed under the Ameri-Share Tax, ending the corporate income tax would not result in corporate profits escaping taxation, but it would greatly simplify taxation and get politics out of most of business.

The Estate Tax

When a wealthy person dies, there are two ways to tax the accumulated wealth comprising their estate, one burdensome and complex, and the other simple and efficient.

Presently wealth is taxed by the estate tax which taxes the estate of the deceased and not the beneficiaries of the estate. Alternatively, the beneficiaries of the estate could be taxed on the income they receive. Many states, in fact, have no estate tax but do have an inheritance tax that taxes beneficiaries on the income they receive from the deceased. The tax game has riddled the estate tax with so many tax preferences (loopholes) that it does little to raise revenue and primarily creates work for tax planners representing super-wealthy clients. Ending the estate tax and taxing inheritances as income under the Ameri-Share Tax would both (1) simplify the tax laws without losing any revenue and (2) be equitable in that those with high-income would pay a higher rate on their inheritances than those with low-income. To enable some wealth to pass to the middle class without an undue burden, the Ameri-Share Tax would exempt from taxation a certain amount (i.e.. $1 or $2 million) of inherited income to those beneficiaries whose income is below a certain threshold.

GETTING RID OF SUBSIDIES AND TAX PREFERENCES

For the last several generations, the government, responding to the demands of a myriad of special interest groups, has indulged America in a cancerous disease—the excessive subsidization of the wrong things for the wrong reasons. Subsidies come in two forms, tax preferences and appropriations that fund social safety net programs, including, among others, Social Security, Medicare, Medicaid, unemployment insurance, food stamps, and other similar programs. Tax preferences, labeled by experts as “Tax Expenditures,” spend taxpayer money just the same as social safety net programs spend taxpayer money, and both spend plenty of taxpayer money on upper-income (and in some cases filthy rich) Americans.

Nowhere does the proliferation of subsidies to the un-needy play out more than in the tax game through tax preferences. Although social safety net programs, such as Social Security and Medicare, subsidize to some extent the un-needy, the subsidies to the un-needy in those programs pale in comparison with those in tax preferences.

Nothing but raw politics of the worst kind justifies doling out taxpayer money to un-needy individual Americans. While identifying the needy can be difficult, identifying the un-needy is easy. No American with an income exceeding the median income of all working Americans should by any rational standard be considered needy enough to justify being granted a taxpayer subsidy unless there is a damn good reason.

While subsidization can be a valid tool for coping with serious social, educational, and economic problems, it should be regarded as an instrument of last resort, not as an opportunity for politicians to dispense favors. Unchecked subsidization has led to an overwhelming majority of politicians of all stripes using taxpayer money to buy their favorite things for their favorite people as a sure path to a successful career.

To give taxpayers confidence that taxpayer money will not be used to pay subsidies to the wrong people for the wrong things, the Ameri-Share Tax would end all subsidies to the un-needy relating to taxation and the social safety net.

Ending Tax Preferences

The Ameri-Share Tax would end almost all tax preferences, including rate differentials for dividends and capital gains and favorable treatment of various types of non-wage income, but permit two simplified credits, the first being a work credit and the second being an investment credit. The work credit is targeted to enable all below-average wage workers to share in economic prosperity and the investment credit is targeted to assure that the economy will have sufficient investment capital to promote growth. No special interest group will be favored under the tax laws over any other special interest group, and all income of all kinds will be taxed at the same rates for all taxpayers who earn the same income.

Under the Ameri-Share Tax, Congress would be forbidden to create any new tax preference of any kind unless such tax preference is approved by a two-thirds vote of both houses and approved by the President.

By the single act of ending of all special interest tax preferences, special interest politics would largely be taken out of the tax game, market forces would replace political forces in allocating investment capital, tax rates for the vast majority of taxpayers would be reduced, thousands of pages of tax regulations would be cut, tax evasion would be sharply curtailed, and compliance with the tax laws could be simplified so that almost everyone could figure their own taxes.

Ending Social Safety Net Subsidies for Those Who Do Not Need Them

The Ameri-Share Tax would end all subsidies under all social safety net programs to those who do not need them.

Under the Ameri-Share Tax, all federal agencies that administer any social safety net program would be required to provide the IRS and each beneficiary annually with a tax statement (known in the tax trade as a Form 1099) showing the amount of total benefits received and the amount of such benefits that were subsidized.

Subsidized benefits would include those benefits that exceeded the amount of (1) the contributions made by the beneficiary and the beneficiary’s employer or deemed made by either and (2) the accumulated interest earnings on such contributions and deemed contributions. Deemed contributions would include the contributions made on behalf of the beneficiary and the beneficiary’s employer to social insurance programs under the Ameri-Share Tax.

In the case of Social Security, the Department of Health and Human Services would be required to calculate the sum of (1) all contributions made by or on behalf of the beneficiary and the beneficiary’s employer for the beneficiary’s account and (2) the accumulated interest buildup on such contributions by applying an interest factor. This sum, as of any date, would be the cash value of what the beneficiary had paid into Social Security. The amount by which a beneficiary’s total benefits exceeded the cash value of the beneficiary’s contributions would be the subsidized amount of benefits.

In the case of Medicare, the Department of Health and Human Services would be required to calculate the sum of (1) all contributions (in the form of insurance premiums and taxes) made by or on behalf of the beneficiary and (2) the accumulated interest buildup on such contributions by applying an interest factor. This sum, as of any date, would be the cash value of what the beneficiary had paid into Medicare. The amount by which a beneficiary’s total benefits exceeded the cash value of the beneficiary’s contributions would be the subsidized amount of benefits.

In the case of all other social safety net programs, a similar procedure also would be required.

Under the Ameri-Share Tax, all taxpayers whose income exceeded the median income of all similarly situated working Americans as a result of receiving subsidized benefits under all social safety net programs would pay an Un-Needy Subsidy Tax. The rate on the Un-Needy Subsidy Tax would be 100%. Knowing that taxpayer financed social safety net subsidies are not going to the un-needy should give all taxpayers confidence that their tax dollars are not being wasted.

For Americans to treat paying taxes as a badge of patriotism and evading taxes as a betrayal of patriotism, Americans must believe that tax dollars are necessary to make government work. Ending the subsidization of the un-needy (in all forms) should build taxpayer confidence that their tax dollars are not being handed out to the wrong people for the wrong reasons.

Non-Profits & Charity

Tax-exempt non-profit corporations (often referred to as 501(c)(3) corporations because that is the section of the tax code that governs them) whose purposes include social welfare, health care, education, charity, and religion render invaluable and irreplaceable services to millions of Americans and would be able to continue to do so under the Ameri-Share Tax.

Under existing law, many types of non-profits enjoy an exemption from paying taxes on their profits and are not taxed on the donations made to them. Under the Ameri-Share Tax, however, only non-profits whose purpose is limited to social welfare, health care, education, charity, or religion would be entitled to an exemption from paying tax on profits and/or donations.

By ending all tax preferences, taxpayers would no longer be able to deduct from their taxes charitable donations made to these non-profits, but because these non-profits would not be required to pay taxes on donations or income, they should be able to continue to serve public interest.

The Rate Structure

In determining who pays what, the Ameri-Share Tax adopts a rate structure based on the following principles:

• No high-income American should be taxed at a rate so high that it deprives them of a reasonable incentive to earn the next dollar.
• No low-income American should be taxed to the extent that that their after-tax income is less than 125% of poverty.
• Tax rates for all income groups in between the highest and lowest should be based on the taxpayers’ ability to pay.
• The first and last dollar of income should be taxed at the same rate.
• Taxpayers who have the same income should be taxed the same amount.

To protect Americans living in and on the edge of poverty from taxation, the Ameri-Share Tax would replace the existing standard deduction with the Ameri-Share Exemption. The Ameri-Share Exemption would be based on the number of people comprising the family/household of the taxpayer and would consider family/household income levels based on the annual “Poverty Guidelines” published by the Department of Health and Human Resources.

Living in or near poverty is not a decent standard of living, and in America decency should prevail over poverty. Since there is no objective test for what constitutes a “decent standard of living,” the Ameri-Share Tax makes a reasonable (but arbitrary) determination that a minimal decent standard of living in today’s America should not be less than 125% of poverty. To make sure that no American is taxed into or near poverty, the Ameri-Share Exemption would exempt from all taxation taxpayers in families/households whose income is at or below the amounts shown the current, annual Poverty Guidelines. An example of the Poverty Guidelines for 2013 is shown below in Table XII-1.

 

Table XII-1 2013 Poverty Guidelines for the United States
Persons in Family/Household	Poverty Guidelines	Ameri-Share Exemption
1	$11,490	$14,363
2	$15,510	$19,388
3	$19,530	$24,413
4	$23,550	$29,438
5	$27,570	$34,463
6	$31,590	$39,488
7	$35,610	$44,513
8	$39,630	$49,538
Source: The Department of Health and Human Resources

As a taxpayer’s income rises above the poverty level, the Ameri-Share Exemption would be phased out. As an example, Table XII-2 shows (1) the Ameri-Share Exemption for a family/household of four, (2) the rate of phase-out as taxpayer income rises, and (3) the resulting taxable income of the taxpayer at various levels of income.

Table XII-2 Ameri-Share Exemption for a Family/Household of 4 Phase-Out
Total Income	Ameri-Share Exemption* (Adjusted)	Taxable Income
$29,438	$29,438	$0
$35,000	$26,657	$8,343
$40,000	$24,157	$15,843
$45,000	$21,657	$23,343
$50,000	$19,157	$30,843
$55,000	$16,657	$38,343
$60,000	$14,157	$45,843
$65,000	$11,657	$53,343
$70,000	$9,157	$60,843
$75,000	$6,657	$68,343
$80,000	$4,157	$75,843
$85,000	$1,657	$83,343
$90,000>	$0	$90,000
Notes: *The Ameri-Share Exemption for a family/household of 4 in 2013 would have been $29,438, or 125% of the poverty level of $23,550, and is adjusted downwardly by $.50 for every dollar of income above $29,438.

The Ameri-Share Exemption can be adjusted in two ways to make it more or less progressive. First, the 125% ratio of the Ameri-Share Exemption could be increased or decreased, with increases making it more progressive and decreases making it less progressive. Second, the phase-out rate of $.50 per every additional dollar of income could be increased or decreased, with increases making it less progressive and decreases making it more progressive. Once income exceeds the phase-out, or $90 thousand for a four-person household, all income from the first to the last dollar would be taxed at the same rate. So, unlike the existing personal income tax, the Ameri-Share Tax would tax all income at the same rate.

The rate structure (1) sets a tax rate for those with the highest income, (2) sets a threshold—the Ameri-Share Exemption—for exempting from taxation those with the lowest income, and (3) sets differing rates for taxpayers in all income groups in between based on each groups’ ability to pay. While multiple tax rates add complexity, they are necessary to assure that taxes are based on a taxpayer’s ability to pay. Table XII-3 shows an example of what the Ameri-Share Tax’s rate schedule might be, as follows:

Table XII-3 Rate Schedule for the Ameri-Share Tax
Tax Rates		Income Brackets*
		Starting Point	Ending Point
0.00%		$0	$29,438
25.00%		$29,439	$82,500
27.50%		$75,001	$109,094
30.00%		$100,001	$162,500
32.50%		$150,001	$269,232
35.00%		$250,001	$535,715
37.50%		$500,001	$800,001
40.00%		$750,001	$1,062,501
42.50%		$1,000,001	$2,647,060
45.00%		$2,500,001	$5,277,779
47.50%		$5,000,001	$10,526,317
50.00%		$10,000,001	N/A
Notes: *A taxpayer whose taxable income is subject to two brackets would pay taxes based on the lowest bracket. For example, a taxpayer whose taxable income is $80,000 would be subject to a 25% rate. The purpose of over-lapping brackets is to smooth the transition from a lower rate to a higher rate.

The final brackets and tax rates would depend upon the revenue needs of the time. In this respect, the annual amount of revenue needed is set each year when Congress and the President agree upon a budget which sets both the level of spending and revenue. Once the amount of revenue is set, income brackets and tax rates then would also be set.

If necessary, the income brackets can be adjusted in two ways, first to increase or decrease revenue, and second to increase or decrease progressivity. To raise revenue, the income thresholds for each bracket can be lowered and the brackets narrowed, and conversely, to lower revenue, the income thresholds for each bracket can be raised and the brackets widened. To increase progressivity, the income thresholds for the lower brackets, relative to the upper brackets, could be raised and widened, and conversely, to reduce progressivity, the income thresholds of the upper brackets, relative to the lower brackets, could be raised and widened. By adjusting the income brackets, the Ameri-Share Tax rate structure both (1) raises whatever revenue is required and (2) meets whatever progressivity standard is appropriate. From time to time, progressivity may be increased if the pre-tax income for taxpayers with very high-incomes increases faster than their after-tax income, and conversely, progressivity may be decreased if their after-tax income is growing faster than their pre-tax income.

The rate structure of the Ameri-Share Tax would be both simpler and easier to administer than the rate structure for the existing personal income tax.

A LIVING WAGE

While falling wages are bad for workers lacking extraordinary skills, it is not bad for everyone. For capitalists, low wages mean higher business profits, and for upscale consumers, low wages mean cheaper goods and services. One person’s loss can be another’s gain. Despite being displaced, these workers are Americans, and as Americans, they still aspire to the American Dream for themselves and their children. Having millions of displaced workers and their families demoralized because of their loss of faith that they will share in the American Dream hurts not just them but all Americans. An America plagued by social strife, torn by political division, economically hampered by a workforce that cannot compete with foreign workers, and challenged by a shrinking consumer and tax base can no longer be the world’s last best hope. To be great, America must ensure that the American Dream remains alive for all Americans, even those who have only ordinary job skills.

There are two ways to redress stagnating wages for middle- and low-income Americans—either business could be mandated to increase wages for all workers who lack extraordinary skills, or the government could provide wage subsidies. Neither is desirable, but elements of both are necessary if millions of Americans are to retain any hope for living the American Dream.

The Ameri-Share Tax has assumed that a living wage for families/households of a given number is 125% of the poverty guidelines, as determined from time to time by the Department of Health and Human Resources, see Table XII-1. Admittedly, what makes for a decent standard of living and a living wage to support it can be argued. Taking the argument from the general to the specific, Table XII-4 shows a monthly budget for two families, one, a single mom with one child, and the other, a family of four, based on the Ameri-Share Living Wage. Imagine that the wage earners in both families work at least 2,000 hours a year and live in some place like Peoria, Illinois. For those who argue that the Ameri-Share Living Wage is too generous, they are challenged to fill in the blanks in Table XII-4 and show the amount of the surplus.

Table XII-4 Budget Example
	Single Mom and One Child	Family of Four
Total Monthly Income	$19,388	$29,438
Monthly Expenses
Housing
Food and Clothing
Clothing
Car Payment/Insurance
Utilities/Phone/Cable
Child Care
Health Care
Recreation/Entertainment
Total Monthly Expenses
Taxes
Federal
State and Local
Savings
Surplus

Ultimately, politicians will decide what qualifies as a decent standard of living for full time workers working in low-skill jobs. As those politicians play God and decide what their standard of living should be, they should answer the following questions:

• Suppose a child in the household is autistic, who is to pay for taking care of the child?
• Suppose a child in the household is gifted, who is to pay for educating the child through college to its full potential?
• Suppose a wage earner in the household becomes infirm and cannot work for an extended period of time, how is the family to get by?
• Suppose the wage earner in the household becomes an unemployed displaced worker (along with many others in a flooded labor market) because of an international trade agreement, how is the family to get by?

These are just a few of the questions the God-playing politicians should answer as they balance the interests of high-end taxpayers and the working poor. How many of the risks of life should the working poor bear, and how much should the well-off pay in taxes to mitigate those risks? For those high-income taxpayers who bemoan the possibility of the government mitigating the personal misfortune of the poor, they should take inventory of the existing tax preferences that mitigate their own losses—those who live in glass houses ought not throw bricks.

In balancing these interests, the Ameri-Share Tax adopts the principle of that which best advances the American Dream for all, poor and rich alike, realizing that the American Dream for all will be in jeopardy if there is little or no economic growth.

Mandating a Living Wage

One way to raise the wages of workers with less than extraordinary skills is to mandate that businesses do so. Conventional capitalists argue that mandating a business to pay a living wage will increase the business’s cost of goods sold, raise the prices the business must charge, drive down their business’s EBITDA (in non-investment banking lingo, Earnings Before Interest, Taxes, Depreciation, and Amortization), cut its value, threaten the ability of the business to grow, and result in self-defeating job losses among their least productive employees. To a greater or lesser extent, all of this is true. Each case, however, turns on the facts peculiar to that case. In some instances, the increase may be so small that only an obsessive bean counter will notice, and in other instances it may force a business owner to cut jobs.

The capitalists who argue against a living wage never bother to say how their employees are going to live on less than a living wage. Just to enable many low-wage workers and their families to subsist, governments (federal, state, and local) have been forced to institute a number of subsidy programs to provide food (food stamps), health care (Medicaid), housing (low-income housing tax credits), transportation (subsidization of public transportation), and higher education (student loan subsidies) to mention only a few of such programs. In capitalistic terms, businesses whose business model relies on workers being paid less than a living wage live off of taxpayer subsidies to the extent that taxpayers subsidize a bare subsistence standard of living. Imagine a clever capitalist who owns a warehousing business that relies on a low skill workforce and locates his warehouse in a jurisdiction that has no minimum wage. The capitalist thrives from paying low wages, and, governments at all levels pay a substantial portion of the funds needed to feed, house, and provide medical care for their workers and their families.

Libertarian capitalists, unlike conventional capitalists, argue that individual freedom and self-fulfillment demand that capitalists are entitled to all the profits their greed commands and workers must accept the lowest wage that their desperation dictates. Libertarians make a moral argument oblivious to the economic implications—the individual freedom of a capitalist to make all the money they can trumps all other considerations. The economic implications of this argument, given the economic forces ignited by globalization and automation, would inevitably result in an America splintered into a few elegant, well-guarded gated communities and an ever-growing number of shanty-towns.

For capitalists in pursuit of profit, paying a less than living wage and letting taxpayers pay for their workers to subsist makes for a successful business model. For many communities, having one of their businesses add below living-wage workers (who cannot afford to pay the taxes that educate their children and provide fire and police protection and other local services) only burdens other taxpayers. If below living-wage workers can barely subsist, they will not be able to save for their own retirement leaving the quandary of what is to become of them when they get too old and infirm to work. Paying less than a living wage can be great for capitalists and certain consumers, but a raw deal for the taxpayers who have to foot the bill for government subsidies to make subsistence for low-wage workers possible.

Capitalists who argue that they cannot pay a living wage because it would force them to raise their prices fail to point out that labor is only one of the many types of the costs of doing business—such as rent, raw materials, utilities, taxes, and other costs—that determine the cost of goods sold. If any of these many costs go up, so too does the cost of goods sold, and so too do prices. Labor is only one of the costs of doing business and, as such, is subject to the same fluctuations as other costs. Sound business practice requires that businesses pay the unsubsidized cost of each of the various types of the cost of doing business and that if a business cannot pay such costs then its business model is not valid. Any business that depends on subsidies of any kind is always at peril of failing if the subsidies are withdrawn.

As to the libertarian capitalist moral argument that capitalistic greed and worker desperation should be left unfettered to sort out profits, wages, and prices, accepting this argument would result in destroying the middle class. The libertarian argument ignores that the American Dream is founded on the belief that there is more to life and more to being a good American than one’s money-making abilities. There is a reason that almost all adults outgrow their sophomoric infatuation with Ayn Rand.

In the interest of weaning businesses whose profits are attributable to paying below living wages from taxpayer subsidies, the Ameri-Share Tax would require that all businesses (subject to a small business exemption similar to the existing exemption from the minimum wage) to pay a living wage to all adult workers.

THE AMERI-SHARE WORK CREDIT

Mandating that businesses must pay adult workers a living wage addresses the lowest skill, lowest wage issue, but it does nothing to address the issue of stagnating wages for millions of low- to middle-income workers whose wages exceed a bare-living wage. Mandating any business to pay wages above a living wage would intrude into the right of the business to manage its personnel in an efficient manner. Only a business can determine the relative value of its employees and what their compensation should be. The government cannot substitute its judgment for that of a business in compensation matters without leading to politics replacing economics.

While government sponsored relief from stagnating wages cannot come from a mandated wage scale, it can come through the Ameri-Share Work Credit. This tax credit would grant all below average-wage and salaried workers (who work in the private economy) a tax credit if their wages and salaries grew slower than the average for all workers. The credit would be determined, as shown in Table XII-5:

Table XII-5
Ameri-Share Work Credit Schedule
Cohorts(1)	Average Hourly Wage(2)	Year over Year % Change(3)	Wage Shortfall % (4)	Hourly Wage Credit(5)
1	$27.02	3.22%
2	$27>$26	3.00%	0.22%	$0.02
3	$26>$25	3.11%	0.10%	$0.01
4	$25>$24	2.88%	0.34%	$0.03
5	$24>$23	3.04%	0.18%	$0.02
6	$23>$22	2.91%	0.30%	$0.03
7	$22>$21	2.82%	0.40%	$0.04
8	$21>$20	2.75%	0.46%	$0.05
9	$20>$19	2.27%	0.95%	$0.10
10	$19>$18	2.17%	1.05%	$0.10
11	$18>$17	2.06%	1.15%	$0.12
12	$17>$16	2.26%	0.95%	$0.10
13	$16>$15	2.00%	1.21%	$0.12
14	$15>$14	1.99%	1.23%	$0.12
15	$14>$13	2.10%	1.11%	$0.11
16	$13>$12	1.75%	1.47%	$0.15
17	$12>$11	1.69%	1.53%	$0.15
18	$11>$10	1.52%	1.69%	$0.17
19	$10>$9	1.49%	1.73%	$0.17
20	$9>$8	1.26%	1.96%	$0.20
21	$8>$7	1.16%	2.06%	$0.21
Notes:
(1) Each cohort comprises the workers whose wages fit within the “Hourly Wage” brackets.
(2) The Bureau of Labor Statistics reports that the average wage for all workers in 2012 was about $23.50.
(3) All year over year percentage wage increases for each cohort are fictional and presented only for purposes of illustration.
(4) The “Wage Shortfall” is the percentage of each dollar of wages by which the year over year increase in the average wage exceeds the increase in the hourly wage for each cohort.
(5) The Hourly Wage Credit is the product of the Wage Shortfall percentage multiplied by $1.00.

To determine the amount of a worker’s credit, the worker first would determine the cohort (as shown in column 1) into which they fall and second multiply the “hourly wage credit” (as shown in column 5) for their cohort times the number of hours they worked. For example, a worker earning $17.50 an hour whose “hourly wage credit” is $0.1153 and who worked for 2,100 hours would earn a work credit in the amount of $242.13 (2,100 x $.1153).

The Ameri-Share Work Credit would enable all below average wage workers to participate in the growth of America’s economy with no government meddling in setting wages. To qualify for a work credit, a taxpayer must work, and the amount of the work credit would depend on how many hours the taxpayer worked. The Ameri-Share Work Credit would provide millions of below average wage workers with a share of America’s economy and would offer them an incentive to work harder and longer.

The Ameri-Share Work Credit would contribute to worker productivity by incentivizing all below average wage workers to work more hours and to qualify themselves for jobs with higher wages. Above all, the Ameri-Share Work Credit would contribute to social and political stability by giving all low-wage Americans a belief that they too can share in America’s prosperity.

THE AMERI-SHARE INVESTMENT CREDIT

Americans’ standard of living depends on maximizing their consumption of goods and services not just for the current generation but for future generations. Consumption is what people eat, drink, and wear, where they live, how they transport and entertain themselves, what kind of health care they have, and all the other ways in which they spend their money that make-up their standard of living. Investment is how much current income is saved for the purpose of providing sufficient capital to maximize the production of goods and services from one period to the next. Each American decides for themselves how much of their income they will consume and how much they will save, and as with all decisions, Americans do not always get the balance right.

Two examples illustrate how investment/consumption decisions affect individual families. First, a family uses its current income to take a vacation (consumption) instead of saving it for their kids’ college (investment). While vacations are great for the here and now, they can come at the cost of the next generation’s future earning capacity. Second, a family uses its current income to purchase an extravagant house (an investment) instead of buying an affordable one. While living in an extravagant house can bring personal satisfaction, it comes at the cost of cutting consumption of other things that also bring personal satisfaction like food, clothes, and recreation. Striking the right balance between investment and consumption is tough for individuals, families, and governments, and it is at least as easy to get it wrong as it is to get it right.

To have the greatest possible standard of living that is sustainable into the indefinite future, the right balance must be struck between consumption and investment. Too much consumption leads to a shortage of investment capital which in turn leads to an inadequate capacity to produce goods and services in the future, and conversely, too much investment leads to too little current consumption which means a lower than necessary standard of living. To assure a proper balance between the two, economists use concepts like (1) the Golden Rule level of investment (based on the Solow-Swan economic growth model developed by the Nobel Prize winning economist, Robert Solow); (2) the Golden Rule savings rate; and (3) the marginal product of capital (MPK) to strike the proper balance. The Biblical term, “Golden Rule,” was coined by one economist to admonish each generation that in striking the balance between consumption and investment the current generation should treat future generations as they would want to be treated. In the spirit of the Golden Rule, the current generation should not consume so much that it is unable to invest enough to provide for maximum consumption by future generations.

Simply put, the Golden Rule level of investment is that amount of capital which supports a level of production consistent with maximizing consumption per worker; the Golden Rule savings rate is that rate of savings which provides sufficient investment capital to assure that consumption per worker will be maximized from one period to the next; and MPK is that point at which adding more capital will not increase production. Each of these concepts—the Golden Rule level of investment, the Golden Rule savings rate, and MPK—is expressed by complex mathematical formulas and can be quantified based on data inputs relating to, among other things, the nature of the capital employed in the production of goods and services, the depreciation of such capital, technological advances, and population changes. The accuracy and precision of the quantification of these concepts depends on the quality of the data inputs and the skill of the economists who apply them. Fortunately, America has plenty of expert economists in the private sector, academia, and the government who can offer useful advice on what is the proper balance between investment and consumption at any point in time.

MPK is an especially important concept because it marks the tipping point where adding more investment capital does not result in more production and therefore becomes self-defeating and wasteful. Stripped of economists’ jargon, two phrases sum up what happens first when the MPK point is crossed and second if there is an increase in investment thereafter.

• First, think of adding capital that crosses the MPK threshold as being the straw that breaks the camel’s back mindful that a camel with a broken back is not any good to a caravan.
• Second, think of adding capital after the MPK threshold has been crossed as carrying coals to Newcastle mindful that all coal brought to Newcastle was wasted.

Breaking the camel’s back and carrying coals to Newcastle both impoverish, not enrich, America because the added capital reduces consumption and results in waste.

Symptoms (but not necessarily causes) of over-investment include an economy with above-average and growing business profits coupled with falling consumption and either disinflation or deflation.

Symptoms (but not necessarily causes) of over-consumption include an economy with below-average and falling business profits coupled with increasing inflation.

Generally, increases in capital income tend to disproportionately increase investment while increases in labor income tend to disproportionately increase consumption. Since the relationship between capital and labor income is always changing, the balance between consumption and investment is always in flux. Not only do shifts in the relationship between capital and labor income affect the investment/consumption balance, but so too does tax policy. Two tax policies especially affect the investment/consumption balance. First, taxing capital and labor income at different rates tilts the balance in favor of the type of income taxed at the lowest rate. Second, making taxes less progressive tilts the balance in favor of investment while making them more progressive tilts it in favor of consumption. With the investment/consumption balance always in flux, tax policy either mitigates or exacerbates it. To mitigate an imbalance created by shifts in market income, tax policy can be changed as follows:

• First, if capital income increases relative to labor income, then tax rates can be made more progressive and/or capital income can be taxed at a higher rate; and
• Second, if labor income increases relative to capital income, then tax rates can be made less progressive and/or labor income can be taxed at a higher rate.

While ideally tax policy should work in tandem with the market to encourage a proper investment/consumption balance, in the real world of the tax game it does not. Politicians responding to selfish interest groups, not high-minded economists, set tax policy. All Americans should realize, however, that an investment/consumption imbalance slows growth and makes most Americans poorer.

For the last 30 plus years, capital income has grown faster than labor income, all income has concentrated at the top, and inflation has been relatively low, all of which strongly indicates that the balance has tilted in favor of investment over consumption. Also, for most of the last 40-plus years, capital income has been taxed at a lower rate than labor income and taxes have become less progressive. Given these long-term trends in both market income and tax policy, it is more likely that any investment/consumption imbalance tilts in favor of excessive investment. Any change in the tax laws should consider what should be done to assure a proper balance between investment and consumption and should be based on non-partisan expert advice.

If at some point a shortage of investment capital arises, the Ameri-Share Tax provides an investment tax credit—the Ameri-Share Investment Credit—to redress the shortage. The Ameri-Share Investment Credit is a tax credit available to any taxpayer who makes a qualifying investment and would be anywhere from five to ten percent of the amount of the qualifying investment. A qualifying investment (which could be in the form of either debt or equity) would be limited to an investment used to acquire an asset which must be used in a business to produce a product and which has not been used previously.

Since the Ameri-Share Investment Credit is intended to be a temporary measure aimed at redressing a particular problem, it becomes effective only if the President submits to Congress the terms of the credit, including its scope, its duration, and its size, and neither house of Congress rejects the proposal within 60 days of its submission. The President would be empowered to submit a proposed investment credit only if (1) the rate of GDP growth was less than one percent for two consecutive quarters, and (2) the President certifies (based on a finding by the Secretary of the Treasury) that the level of capital in the economy is less than the Golden Rule level of investment. The sole purpose of the Ameri-Share Investment Credit is to establish and maintain a proper balance between investment and consumption to promote maximum economic growth.

ASSURING AMERICA’S FINANCIAL SECURITY

For way too long America has taxed much less than it has spent resulting in a public debt to GDP ratio far exceeding 40%. As the public debt to GDP ratio has risen, America’s financial security has fallen. A low public debt to GDP ratio means that if confronted with a national emergency, America has plenty of borrowing capacity to address its problems, much like an individual who keeps a healthy line of credit on their credit card to cope with personal emergencies. To provide America with financial security by cutting the public debt to GDP ratio back to 40%, the Ameri-Share Tax would institute budgetary reforms to assure that it does.

Unlike almost all state and local governments, the federal government has largely disconnected taxing and spending. While almost all state and local governments are required by law, as a part of their annual budget process, to tax to pay for what they spend, the federal government has no such law. Under the Ameri-Share Tax, no annual budget could take effect unless the “Annual Financial Security Requirement” was satisfied. The Annual Financial Security Requirement would be the sum of two components, a “Current Spending Requirement” and a “National Debt Reduction Requirement.”

The Current Spending Requirement would set the amount of taxes necessary to pay the current cost of government spending as included in the annual budget. The National Debt Reduction Requirement would set the amount of taxes necessary to amortize over a 25-year period the reduction of the public debt to GDP ratio to 40%. The Secretary of the Treasury would be required to determine the amount needed to satisfy the Annual Financial Security Requirement (from non-partisan data gathered by the CBO) and certify such amount to Congress and the President.

Once the Annual Financial Security Requirement has been set, all income brackets would be reset to raise the required revenue. In resetting income brackets, the Ameri-Share Tax would mandate that brackets be reset with the goals of both (1) maximizing worker productivity and (2) striking the proper balance between private consumption and private investment. Subject only to not taxing (1) low-income taxpayers into poverty and (2) high-income taxpayers so much that it unreasonably deprives them of an incentive to earn their next dollar, all income brackets would be reset to promote maximizing economic growth.

No annual budget could take effect unless the budget included a level of tax revenue sufficient to satisfy the Annual Financial Security Requirement.

Unlike state and local governments, the federal government has responsibilities to address national emergencies arising, among other things, from war, depression, and natural disasters. When confronted with a national emergency, the federal government is expected to act notwithstanding the cost. So, to enable America to cope with a national emergency, the Ameri-Share Tax would include a safety valve that would temporarily suspend the application of the Annual Financial Security Requirement.

Referencing national emergencies is easy; defining them is tough. Realizing that all human endeavors are subject to mischief, the President should be given the power to declare a national emergency subject to the President’s declaration being overridden by a majority vote of both houses of Congress within 30 days of the declaration. Absent a national emergency, the Ameri-Share Tax would raise annual revenues sufficient to not only pay the current cost of government but to reduce over a 25-year period the debt to GDP ratio to 40%.

ADMINISTERING THE AMERI-SHARE TAX

In an economy as dynamic as the American economy, each year budgetary needs change and pre-tax income distribution shifts. As these changes occur, the Ameri-Share Tax requires updating to (1) adjust the total amount of revenue required to be raised and (2) reset income brackets to raise such revenue. If the budget increases, then more revenue will be needed, and if pre-tax income concentrates, then brackets will have to be reset to redress the concentration. This means that Congress frequently will likely be required to do two impolitic things, raise taxes and redistribute the tax burden.

In redistributing the tax burden through resetting income brackets, the Ameri-Share Tax mandates that the reset should be based solely on economic principles that promote worker productivity and growth, not political principles based on ideology and vote-getting. Since Congress does politics and not economics, someone other than Congress must administer the Ameri-Share Tax. Historically, there are many examples in which Congress has recognized that it is incapable of administering important and delicate matters that transcend politics. When faced with a compelling need that Congress knows that it is incapable of meeting, Congress has created independent regulatory commissions. Since there is a long and rich history of creating commissions, a way could be found if Congress has the will.

There are many examples of independent regulatory commissions which regulate complex economic, environmental, communication, and financial matters including, among others, the Environmental Protection Agency, the Securities & Exchange Commission, the Federal Trade Commission, the Federal Communications Commission, the Federal Reserve Board, and the Federal Deposit Insurance Corporation. To be effective, commissions must use non-partisan expertise to balance all interests and make decisions in the public interest. Congress does not abdicate its authority over the matters within the jurisdiction of these commissions because it can always enact statutes that either (1) override their actions or (2) if Congress becomes too displeased with commissions, kill them.

The Ameri-Share Tax would have Congress create an independent, non-partisan commission to administer it subject to Congress’ power to override its decisions. To be effective, the commission would have to be perceived by Congress and the public to be above partisan politics. To do that, the commission would have to have members whose patriotism and non-partisanship are beyond question, and it would have to have open and fair procedures and conduct its business with complete transparency. Without an independent commission that has the confidence of the public to administer the Ameri-Share Tax, it could not function effectively over time.

Advantages of the Ameri-Share Tax over Existing Taxes

The Ameri-Share Tax would revolutionize taxation, and revolutions come hard. Unless the Ameri-Share Tax would substantially improve America in general and its middle class in particular, getting it enacted would not be worth the effort. A point by point comparison between the Ameri-Share Tax and existing taxes will help Americans decide if enough of them believe their lives would be bettered enough to make it happen.

Compared to existing taxes, the Ameri-Share Tax would promote economic growth and increase jobs by:

• lowering the cost of business through eliminating the corporate income tax;
• lowering the cost of employment through ending social insurance taxes;
• lowering marginal tax rates for almost all taxpayers;
• employing a rate structure that encourages worker productivity and balances private consumption and investment;
• ending the practice of businesses making investment decisions based on exploiting tax preferences (loopholes) instead of applying free market principles; and
• lowering the cost of tax compliance to all taxpayers because of tax consolidation and ending all tax preferences.

Compared to existing taxes, the Ameri-Share Tax would advance the middle class by:

• INCREASING THEIR AFTER-TAX INCOME through increased progressivity in the rate structure; and
• providing below-average wage workers with a share in the wage growth in the economy.

Compared to existing taxes, the Ameri-Share Tax would treat all taxpayers fairly by:

• taxing all taxpayers who have the same income (regardless of source) the same amount;
• not rewarding taxpayers for their skill in procuring political favors by (2) ending all tax preferences (except for the work credit and investment credit) and (2) making it difficult to create new ones; and
• reducing cheating among many taxpayers through taking away the opportunity to commit fraud with respect to (1) tax preferences and (2) tax complexity.

Compared to existing taxes, the Ameri-Share Tax would depoliticize taxes by:

• ending all existing tax preferences which are the source of most mischief in taxation;
• requiring a two-thirds majority in Congress and the approval of the President to create any new tax preference; and
• transferring the authority to determine annual tax levels and income bracket resetting over to an independent non-partisan commission.

Simplifying Compliance

Compared to existing taxes, the Ameri-Share would simplify tax compliance by ending the corporate income tax, the estate tax, and social insurance taxes as well as all tax preferences under the personal income tax.

Cutting the Cost of Government

Compared to existing taxes, the Ameri-Share would cut the cost of government by:

• reducing the need for social safety net programs such as food stamps, Medicaid, and childcare through increasing the after-tax income of low wage workers; and
• reducing the cost of administering the tax laws through ending the corporate income tax, the estate tax, and social insurance taxes.

Cutting the Tax Gap

Compared to existing taxes, the Ameri-Share Tax would dramatically cut the approximately one-third of a trillion dollar annual tax gap because most lost revenue is attributable to fraud regarding (1) tax preferences and (2) tax complexity.

THE POTENTIAL FATAL FLAW

Despite the many advantages of the Ameri-Share Tax compared to existing taxes, the Ameri-Share Tax suffers from a potentially fatal flaw. While the Ameri-Share Tax would substantially better the lives of hundreds of millions of Americans, it would also cause both a few million (largely very high-income) Americans to pay substantially more in taxes and many highly-paid tax professionals who feed off of existing tax laws to look for real work. The flaw is not that a few million high-income taxpayers would have to pay more in taxes—somebody has to and who better than they. The flaw is that those few million know who they are; they know about how much more they would pay; and most importantly, they are the most adroit at playing the tax game. The millions of middle- and low-income taxpayers who would benefit the most from the Ameri-Share Tax do not know who they are, do not know how much they would benefit, and most importantly, barely know that a tax game exists much less have a clue as to how to play it.

Existing tax laws have artificially created a number of highly profitable industries whose well-being depends on the status quo. To mention just a few of these industries: much of the insurance industry is tax driven; much of the high end residential real estate market is tax driven; almost all of the tax-exempt bond market is tax driven; much of the commercial real estate market is tax driven; much of the leisure and hospitality industry is tax driven; many overseas corporate investments are tax driven; and almost all estate planning is tax driven. A vast army of tax professionals—highly paid tax lawyers and accountants, upscale real estate brokers, high-end insurance brokers who peddle life insurance used in estate planning and group health insurance coverage, an array of investment bankers, financial advisors, and other financial experts who service the municipal bond industry and corporate finance industry, and a host of very well-off estate planners—all earn very high-incomes by inventing tax driven deals and making them work.

Many (maybe almost all) wealthy taxpayers and high-end tax professionals will fight like hell to maintain what for them is a lucrative and comfortable status quo. These taxpayers and professionals know the stakes and know how to play the game. Almost all other taxpayers accept the status quo because they have become accustomed to it and/or they feel helpless to do anything about it.

So, in the tax game managed by Congress, a well-disciplined, well-armed, and well-financed army of a few million wealthy taxpayers, tax professionals, and lobbyists is opposed only by a hapless, undisciplined, and poorly-equipped mob of hundreds of millions of low- and middle-income taxpayers. For over a generation, this small, well-disciplined army has triumphed over the huge mob of ordinary taxpayers with each annual playing of the tax game, and in the absence of a seismic change, there is no reason to suppose that any future outcome will be different.

A LOOMING CRISIS AWAITING THE MIDDLE CLASS

Almost certainly the status quo in tax policy will (for the most part) remain intact until some calamitous event occurs that forces a rethinking of the fundamentals of taxation. In the meantime, the growing gulf in each of two disparities will continue to shrink and impoverish America’s most precious asset, its middle class, and eventually force a change in the status quo. The first disparity is the widening gap in how much more income and wealth are concentrating in the top 1% than in the bottom 90%, and the second disparity is the widening gap in America’s ongoing unwillingness to increase taxes to pay for what it spends.

The effect of the first disparity—the widening gap in the over-concentration of income and wealth in the top 1%—is the top 1% has a growing ability to pay much more in taxes without lowering their standard of living while the bottom 90% has a falling ability (in terms of their market income) to live the American Dream. For most present day Americans, the American Dream means that every fulltime, adult working American and their family should have a standard of living above poverty, adequate health care, a decent retirement, and access to the post-secondary education they need to realize their potential. Because of globalization and automation, the wages of most middle class workers are not nearly enough to enable them to live the American Dream without increasing help from taxpayer subsidized social insurance. It is a near certainty that for the foreseeable future, the cost of living the American Dream will rise faster than the market wages of almost all middle class workers. This disparity will continue to widen until the politicians decide to narrow it.

The effect of the second disparity—America’s continuing unwillingness to increase taxes—is making it much more difficult to increase spending on the social insurance programs that are essential to enable a growing number of middle class workers and their families to live the American Dream. This unwillingness has ignited an explosion in the national debt from less than 40% of GDP in 1980 to over 129% in 2021. The debt-to-GDP ratio measures how much more the national debt grows than the economy. A national debt with a rising debt-to-GDP ratio is not sustainable and jeopardizes America’s continued ability to borrow massive amounts of debt at cheap interest rates. If America were to lose its ability to increase its debt-to-GDP ratio without impairing its ability to borrow as much as it wants whenever it wants at cheap interest rates, then it would be forced to simultaneously increase taxes and/or cut spending. For America to stop increasing its debt-to-GDP ratio “cold turkey,” it would take a combined tax increase and/or cut in spending of about 6% to 7% of GDP. Given social insurance’s share of spending, any substantial cut in spending would hit social insurance hard. This disparity will continue to widen until America’s creditors force it to pay much higher interest rates on its debt unless it stops increasing (and begins reducing) its debt-to-GDP ratio.

With each passing year, the gaps in both the disparities in income and wealth and taxing and spending continue to widen. This seemingly inexorable widening makes the narrowing of these gaps many times more challenging when reality eventually compels it. America’s borrowing power, as things now stand, is not limited because of increases in its debt-to-GDP ratio, but in a changing world, current conditions do not prevail forever. As with unseen, subterranean forces that eventually force a volcanic eruption, an increasing debt-to-GDP ratio will eventually force America to put its financial house in order by getting control over its borrowing. When “eventually” finally arrives is anyone’s guess, it could be at any moment, but it could also be many years.

THE ARRIVAL OF “EVENTUALLY”

Most likely “eventually” will arrive as a result of some unanticipated calamity that forces America and many other nations to incur enormous amounts of debt to finance a recovery. Because America can issue new debt to pay for its outstanding debt, it will always have the ability to borrow unlimited amounts. However, if America’s creditors (1) find other debt more attractive than America’s debt, (2) become uneasy about the credit quality of America’s debt, (3) become fearful of inflation, and/or (4) lose much of their capital, they almost certainly will demand that America pay much higher interest rates. Right now, these risks seem remote, but in a world racked by two recent calamities—the Great Recession of 2008/2009 and the pandemic of 2020—the eruption of one or more unanticipated worldwide calamities poses an ever-present risk from which America is not immune. The world now lives under the constant danger that at any moment many countries could be confronted by a climate catastrophe, a financial debacle, another pandemic, a crisis arising from a cyber-attack or biological-attack, or some other unforeseen catastrophe that would wreak havoc on the global economy. It is a near certainty that one or more of these calamities will strike sometime in the next generation or so and will force America and other nations to borrow many trillions to recover. Given that current levels of public and private debt are at historic highs in the wake of the Great Recession and the pandemic, there is an increasing probability that the next calamity will spark a seismic spike in interest rates.

As of early 2021, interest rates are at or near historic lows with the interest rate on the benchmark 10-year treasury bond barely over one percentage point. For those who assume that continuing low interest rates are the new norm, they should check out the early 1980s when the interest rate on the benchmark 10-year treasury note soared above 10% and stayed there for more than a year. In the early 1980s when the national debt was about 40% of GDP, each one percentage point increase in the interest rate on the national debt only required a .4 of a percentage point increase in taxes to pay the additional debt service, but with the national debt at 129% of GDP, each one percentage point increase in the interest rate on the national debt would require a 1.29 percentage point increase in taxes to pay the additional debt service.

THE FALL OF THE SWORD OF DAMOCLES

Thanks to two generations of under-taxing, America now lives under a Damocles Sword in which the next calamity that strikes is likely to cause the sword to fall. A falling sword would mean an explosion of interest rates resulting in a huge tax increase just to pay the additional interest on the national debt. In today’s uncertain world, any number of calamities could strike at any time. Suppose, for example, that a group of cyber-terrorists successfully corrupts and disables the software used in all advanced economies by their governments, banking and financial institutions, debt and equity markets, public utilities, health care delivery systems, and transportation and communications companies. Immediately, the operation of business and governments would come to a sudden halt, and the entire world, including America, would be thrown into chaos. With businesses and governments incapacitated and commerce in free-fall, hundreds of millions or workers worldwide would be out of work, and they and their families would be confronted with a calamity on an unimaginable scale.

Recovering from such a calamity would cost trillions. Suddenly, governments, businesses, and individuals worldwide would be thrust into a mad scramble to borrow all they could from whomever had capital at a time when their creditworthiness was in peril. In the aftermath of such a calamity, trillions of wealth would evaporate as equity, debt, and real estate markets collapsed, and financial institutions, including banks, insurance and trust companies, and securities firms were drained of their capital reserves. Borrowing for recovery would take place in the worst of all worlds in which demand for loans would be at a historic high and the capital available for lending would be at a historic low. In such a world of scarce capital, those who had it could charge what the traffic would bear and insist on debtors, including America, putting their financial houses in order. For America, such a calamity would almost certainly mean that its creditors could force it to both pay much higher interest rates and raise taxes substantially as part of putting its financial house in order.

A NEW FINANCIAL REALITY BRINGS A NEW POLTICAL REALITY

With the falling of the Sword of Damocles, America would be dragged (kicking and screaming) into a new financial reality in which its creditors would almost certainly have the power to demand (as a condition of lending) that it simultaneously pay much higher interest rates on its debt and begin reducing its debt-to-GDP ratio. This new financial reality would pose a dual threat to maintaining (much less expanding) funding for the social insurance programs on which the standard of living of the middle class depends. First, paying much higher interest rates on the national debt would leave much less funding for social insurance, and second, reducing the debt-to-GDP ratio would force cuts in existing social insurance programs except to the extent offset by tax increases. The only escape from these downward pressures on cutting funding for social insurance would be an increase in taxes. This new financial reality in which interest rates on America’s debt would be forced up and its debt-to-GDP ratio would be forced down would leave politicians with a deadly choice—offend the top 1% with a huge tax increase; offend the middle class with a huge cut in the social insurance; or offend both by trying to split the baby.

In making this choice, the politicians would have to calculate the effects on their careers of each of the following choices:

Choice #1 – A huge increase in the taxes on the top 1% would not significantly affect their standard of living, but they would be mad as hell at having to pay a huge tax increase. [The top 1% has only a few (but highly disciplined) voters and has many huge political donors.]

Choice #2 – Any loss in social insurance benefits would drag the middle class’s standard of living down closer to the poverty threshold, and they would be mad as hell by the sting of a cut in their standard of living during a deep recession. [The middle class has many (but poorly disciplined) voters and only a few huge political donors.]

Choice #3 – Any tax increase or loss of social insurance benefits would leave the top 1% with less income and the middle class with less benefits, and both would be mad as hell because they were worse off than before.]

This new financial reality would bring with it a new political reality in which the old routine of “spend now, borrow now, and pay later” would be replaced by a new routine of “raise taxes now, cut spending now, and keep on doing it until interest rates start coming down.” Under the new political reality, politicians, on an ongoing basis, would have to decide whose social insurance is to be cut and whose taxes are to be raised. Since the middle class depends on social insurance for much of its standard of living, and the top 1% has most of the income and wealth available to be taxed, the new political reality would pit the interests of the middle class against that of the top 1%. For the last 40 years the median income of all Americans has been trending downward closer to the poverty threshold while the average income and wealth of the top 1% has soared many multiples above it. For most middle class families, even minor cuts in social insurance would be like putting an undernourished person on a diet of gruel while for families in the top 1%, substantial tax increases would be like depriving a glutton of their caviar. So, in the new political reality, politicians would routinely be forced to choose between holding taxes down for the top 1% or increasing spending on social insurance. This new political reality would continue until America convinces its creditors to reduce the interest rates on its debt and/or ease up on demanding that the debt-to-GDP ratio be contained.

THE PRESIDENT AS THE MIDDLE CLASS’S CHAMPION

The major players who will decide whether to side with the top 1% on low taxes or the middle class on increased spending on social insurance are the President and Congress, each of whom must approve of each decision. Deciding these matters in Congress is always a messy sausage-making process in which the President can be either a sideline player who passively accepts what Congress passes or the leading on-field player who dominates the process by mobilizing public opinion and convincing Congress that his or her policies are best for America. As between the President and Congress, the President is by far the better bet to champion the middle class’s interests.

The President and all members of Congress share at least one trait, they are all politicians. As such, they all respond to what their voters think. What the voters think depends on which politicians they believe; which politicians they believe depends on how convincing the politicians’ message is; and how convincing a message is depends on how it is framed. To be convincing, a message must be focused, direct, simple, and tailored to its targeted audience. Framing a taxing or spending issue to appeal to the middle class is challenging because the middle class is so diverse. It includes Americans from different political parties, ethnic groups, income levels, and educational, cultural, and religious backgrounds, as well as those who are employees or owners of small businesses. All members of the middle class, however, share in common the following interests regarding taxing and spending:

• The share of taxes paid by the middle class, relative to that of the top 1%, must go down.
• The social insurance programs on which the vast majority of the middle class depends for a substantial part of their standard of living must be preserved and expanded.

Even if a message is convincing, it cannot convince voters unless it is heard early and often by its targeted audience. The President is a single individual elected by the whole nation while Congress is populated by 535 politicians, each of whom has different (and often conflicting) views from the others and each of whom is consumed with cultivating their own career. Congress speaks with many divergent voices, but the President speaks with a single, clear voice. Almost every voter knows who the President is, but few voters know who their Senator or Representative is.

With 535 members and complicated legislative procedures for members to hide behind, it is easy for a few members of Congress to protect certain special interests, including those allied to the low-tax policies favored by the top 1%. The President, unlike individual members of Congress, represents the whole nation and is far less susceptible to the influence of special interest groups. For most voters, the President has more credibility than Congress because for them it is much easier to identify with and believe the sole elected leader of the nation than to identify with and believe a remote institution which speaks through a babel of divergent voices. If there is to be a comprehensive and coherent taxing and spending plan which is focused, direct, simple, and tailored to appeal to the middle class, only the President can frame it and ensure that it is heard, loudly, clearly, and often by the middle class.

The President’s message to the middle class in a time of crisis need be no more complicated than the following;

Now that America has been confronted with a worldwide calamity and the middle class is suffering unbearable hardships, its taxes must be cut and its Social Security, Medicare, Medicaid, and other social insurance programs must be protected at all costs.

As the largest and most powerful group of voters in the county, the middle class overwhelms all other interest groups when it is unified and mobilized. The President uniquely commands the power of the “bully pulpit,” and as such has the power to mobilize public opinion behind a single, compelling message. More than any other politician, the President has both the best opportunity and greatest incentive to seize leadership of the middle class and champion its interests. Almost a century ago, the Depression thrust America into a severe crisis that threatened the existence of the middle class. When confronted with the choice of protecting the middle class or preserving the status quo, FDR chose the middle class and Herbert Hoover deferred to the status quo. History has smiled upon FDR and frowned upon Herbert Hoover. When finally forced to choose between the top 1% and keeping their taxes low or the middle class and expanding their social insurance, the President should and almost certainly will side with the middle class.

CONCLUSION

While the Ameri-Share Tax is designed to be an efficient, fair, and pro-growth tax plan for any time, it is especially designed for an America confronted by the following trends:

• A growing concentration in income and wealth in the top 1%;
• A growing debt-to-GDP ratio; and
• A growing shortfall in the market income of the middle class relative to their cost of living.

Each of these trends weakens America economically, socially, and politically, and taken together, they threaten America’s continued greatness as the last best hope of the world. Sadly, America’s politicians lack the will to reverse these trends until a calamity so bad that it cannot be ignored forces them to act. So, in the absence of political will, serious consideration of the Ameri-Share Tax awaits the next calamity.

For 40-plus years the very wealthiest capitalists and those with extraordinary skills have been huge winners in an economy overwhelmed by globalization and automation while most of those in the middle class have been losers. At the same time, the after-tax income of those in the top 1% in income and wealth, relative to their pre-tax income, has grown while that of most in the middle class has shrunk. The marketplace determines whose pre-tax income grows, but politics determines whose after-tax income grows. Anyone whose after-tax income grows more than their pre-tax income is a winner in the politics of the tax game. The fact that those very few voters in the top 1% of income and wealth, compared with the many, many voters in the middle class, control the politics of the tax game leaves in doubt the one-person, one-vote principle.

As perennial winners in both the economy and the tax game, America’s wealthiest can easily afford the taxes essential to making the public investments that will revitalize and grow the middle class. No group has benefitted more from America’s bounty than its wealthiest, and as such, it is in their interest to PAYBACK America by paying higher taxes to make the public investments essential to ensuring America’s future. Imagine an America plagued by economic stagnation, and social and political unrest, a demoralized workforce, and a shrinking consuming and taxpaying base. This is what America will become if its middle class is left mired in stagnating and falling wages. Only public investments paid for by taxing the wealthiest can save America’s middle class. While noblesse oblige has become passé, pure self-interest alone should be enough to motivate the wealthiest to pay the taxes necessary to assure a healthy and prosperous middle class. A thriving middle class means economic growth which in turn increases the return on capital which in turn makes the wealthiest wealthier. So, the wealthy should regard a thriving middle class as its goose that lays golden eggs and treat it with the tenderest loving care to assure that the golden eggs keep on coming.

Ultimately, however, individual Americans are responsible for their own fate. If middle- and low-income Americans want to keep the American Dream alive for themselves and their families, then they will have to inform themselves, organize, and work for it. To be successful, middle- and low-income Americans must come together to advance a new deal on taxes for the middle class as a cause, and if they attract enough voters to their cause, then politicians will pay attention. If enough politicians get interested, more than one presidential candidate will likely adopt their cause. Presidential candidates, and even Presidents, can be counted on to gravitate to causes where the votes are, particularly if a cause has merit.

So, for middle class voters who want to share in the American Dream, they should follow the admonition found in Luke 4:23, “Physician heal thyself.” Take the time to learn what a better deal in taxes would be like, and then do something about it.

Finally, this book’s purpose is to tell middle class voters—like Joe and Sue Middleton—that there is a better tax deal for them if they are willing to learn about it and work for it. A better tax deal for the middle class would be good not only for them but for America.

To all middle class hardworking Americans, BEST OF LUCK, GO FOR IT!