Tuesday, January 16, 2018

First bowl of Tuesday Money

I have been traveling for the past few months, to Hawaii, Japan and now Vietnam.
Every day is a learning adventure!  Meanwhile, I am excited to be working
on a proposal to reform the US federal budget, called:
Tuesday Money
I submit that this idea is centrist and nonpartisan.
It contains wins for conservatives and liberals, for libertarians and greens, and for everyone else.
I expect most people will find things they like, as well as that they don't like.
I plan to analyze it here through a series of informal blog posts, leading towards
a more formal and thorough analysis paper, as well as materials for communicating
this content to a wider audience (e.g. diagrams and videos).    Let's get to it!

This proposal builds on top of the Carbon Tax + Dividend proposal offered by the conservative Climate Leadership council.   Their proposal has already been endorsed by major oil companies and other industrial giants.  Please review it before you dismiss Tuesday Money as politically unrealistic.

Briefly summarizing the Tuesday Money proposal:
  1. Universal Basic Income - every adult US citizen receives an equal amount of Tuesday Money, every week, as long as they reside in the U.S.  Each parent/guardian of a child also receives a smaller amount of money (possibly indexed by age of child).   This money is exempt from federal taxes.   No other conditions apply.    
  2. Carbon Excise Tax - Fuels are taxed at the point where they enter the economy, as proposed by Climate Leadership Council.
  3. Reform of individual Income and Payroll tax around a uniform withholding program.  We eliminate all deductions, exemptions, credits, and caps, other than the Tuesday Money.  Essentially this will be a flat fair tax on all individual income other than Tuesday Money.  Individuals will not be required to file tax returns, and the 1040 will be phased out.   Tax-deferred savings accounts (IRAs, 401Ks, etc.) are unchanged.    Business deductions will not be substantially changed, but we will seek to set corporate, dividend and cap-gains tax rates so that all income is taxed once at the same rate, regardless of whether it is paid in wages or dividends.   Business credits will be phased out.   
  4. Elimination of all federal means-tested benefits programs, such as food stamps, housing assistance, unemployment assistance, EITC, Medicaid, ACA premium subsidies.   [Edit 2018-08-13] Also elimination freezing of federal minimum wage requirements. 
  5. Elimination of all federal subsidies and loan guarantees for business, agriculture, education.
  6. Social Security benefits (retirement, survivor, disability), reduced by exactly the amount of Tuesday Money.  Thus there is 0 net impact on SS benefit recipients, in the short terrm.  For the long term, the SS program is formally redefined as on-budget, pay as you go.  Fiscal sustainability is ensured by removal of the payroll tax cap in point #3 above.  Eventually we expect the SS benefit to converge with the Tuesday Money benefit at the same amount. 
  7. No proposed changes to Medicare.
  8. All changes to be phased in over a number of years.
  9. Rates will be adjustable by congress for Tuesday Money payments, Carbon Excise Tax rates, and Flat Income Tax rates.   These 3 parameters would be the primary issues of debate in future years, with adjustment expected based on macro-economic conditions.    
  10. States are at liberty to replace the benefit programs of #4 and #5, and to tax the Tuesday Money flow if they so choose.   States of course may also impose minimum wage requirements, and provide various education and labor programs.  The main difference from today is that they will do so without federal mandates, and without direct federal funding.
  11. Departments not directly affected:  EPA, Interior, Defense, State, Treasury
The claimed benefits of this reform proposal are:

Benefit-A) Dramatically simplifies the role of the federal government in american life.  No more 1040s!  No more means-testing of benefits!  No more endless federal debates about "job creation"!  No more federal tax loopholes!  No more tricky federal block grant mandates to states!   No more lobbyist-induced federal subsidies for crony capitalism!  

Benefit-B) Ensures a suitably rapid reduction in US carbon emissions, driven by consumer choices, in a manner already deemed acceptable by oil companies, industry and mainstream conservatives.  (See www.clcouncil.org).  Stimulates green energy development without fedgov "picking winners" or imposing arbitrary standards and goals.

Benefit-C) Provides an economic safety net for all citizens simply, reliably, and efficiently, including long term fiscal sustainability of Social Security retirement benefits, as defined in point #6.

Benefit-D) Stimulates consumer demand and facilitates individually-directed development of skills and career path, appropriate to our modern age.  

Benefit-E) Allows key economic parameters to be adjusted transparently in light of macro-economic realities and changing political winds, without a need to redefine complex rules and beaureaucracies.

Benefit-F) Greater clarity about the limited mission of federal government, and greater transparency 
in all of its domestic operations (taxation, spending, and administration).

Some obvious losers under this proposal:
Loser-A)  The individual income tax preparation industry.  
Loser-B)  Fossil fuels industry.
Loser-C)  Subsidized agribusiness
Loser-D)  Lobbyists for tax loopholes and subsidies

But what will be the full economic impact on each american family?   As noted in point #9 of the summary above, the heart of the matter comes down to the consequences of these 3 numbers, each of which will be a perennial political football.

p1) TMR = Tuesday Money Rate paid weekly to all (resident) U.S. citizens.
p2) CTR =  Carbon Tax Rate, in dollars per ton
p3) FTR =  Flat income tax rate on all income (other than Tuesday Money)

These numbers are necessarily related, by an annual budget equation along the lines of:
Federal Surplus/Deficit = IncomeTax + CarbonTax - TuesdayMoney - OtherFedSpending  

IncomeTax = FTR * TotalTaxableIncome
CarbonTax = CTR * TotalCarbonReleased

Notice that TotalTaxableIncome is of course a function of the size of our economy.
If the TuesdayMoney plan leads to improved economic growth, then there will
be more of this income to tax, reducing our federal deficit.  If we attempt to take
such impact into account, it will be similar to what congress refers to as "dynamic 
scoring" in their budget analyses.  We might also analyze the expected impact on 
consumer prices, inflation, interest rates, money supply, and other economic variables.
For our purposes here, we will refer to all these factors together as "dynamic scoring"
of the plan's impacts.

With or without dynamic scoring, our 3 parameter numbers primarily determine how this budget approach compares with our current system, in terms of cash flows.   As a result, we might find that any particular family could be deemed a net winner or net loser, compared to today, in terms of the total federal tax dollars they pay, the consumer prices they pay, and the total federal benefits they receive.   (Note that  Carbon Excise Tax does not show up directly as a tax on consumers, but rather as higher prices for fuels and other products, including food).  

Thus it is natural for those at the lower end of the income scale to argue for higher TMR and higher FTR, while those at the higher end would prefer to see the opposite.   Likewise those who are heavily dependent on carbon fuels would prefer to see a lower CTR, while others would like to see CTR increased quickly.   But also keep in mind that we all share in the benefits #A-F enumerated above.  (Families who receive less assistance under the Tuesday Money plan than they do today might dispute point #C, saying they are getting less safety from the net).   

The key parameter numbers will be debated frequently, no doubt, and adjusted by each congress, through what is sure to be a bitter fight between partisans and classes, packed with hot insults.

However, I submit that such a straightforward tug of war will, in the long run, be a vast improvement over the "kludgeocracy" and acrimony that we are living with today.