Tuesday, September 8, 2020

Tuesday Money rules (2 of 3) Budget Reconciliation

Tuesday Money rules - Budget Reconciliation

Budget Reconciliation Rules - post 2 of 3 

Here we itemize broad budget policy concepts aimed at simplifying US federal management
of our national economy.  We define a system that operates transparently, using predictable
timelines and published parameters.  These policies are intended to complement the Tuesday
UBI benefit program, producing a total effect that is sustainably beneficial to the public.  

Reconciliation of Benefits

IV.5) Adjustment for other federal support benefits payments received. 

IV.5.P.1) Our first principle is that persons who in 2020 already receive federal benefits
of most kinds should not see their total federal benefits reduced by any of these

IV.5.P.2) Our second principle is that for the next   7   years, any person's transition to receiving UBI (and seeing some other benefits reduced) should be voluntary, at the time of their choosing.  

a) Persons already receiving certain other statutory federal benefits such as SSA retirement benefits may choose to keep those benefits or to switch to the UBI program. Since UBI will pay less than existing SSA retirement benefits for most people, we would not expect a large number of retirees to want to switch, or to be directly affected. 

b) For those over  40  but not yet retired, a new SSA supplementary benefit program option is defined 
for retirement under SSA rules to allow them to keep UBI as well as that SSA supplementary benefit into retirement. This combination will provide slightly more than the regular SSA benefit, which will also remain an option during the transition period.

c) The following benefits programs are not directly modeled in this proposal, and are presumed unchanged, by default: Disability benefits, Veterans benefits, HHS, HUD, TANF. 

i) It is assumed that all these program recipients will sign up for UBI as well as remain registered in their current benefits programs. 

ii) These other benefits could potentially be reduced for those who are also receiving UBI (which is most recipients). This step could be taken as a federal spending reduction measure, as discussed under Section IV below.  We expect that some but not all such means-tested benefits would eventually be discontinued as federal programs.  These topics naturally arouses human and political passions, and
we do not intend to resolve the issues in this model.  We merely describe a general presumed policy direction, in hopes of providing good contextual assumptions for our economic analysis.

d) Health care benefits and expenditures are not addressed in this model

Reconciliation of Offsets

2)  Each of the following actions can serve such an inflation-reducing offset to UBI. 
In our model both these elements may be quantified separately, without any assumption that these amounts should fully cancel each other. 

a) Collection of excise carbon fees, starting at a fee of $   per ton. 

i) Carbon fees increase consumer prices for carbon-intensive goods, but also progressively shrink the carbon-dependent share of the economy, while pulling money into the federal treasury (deflationary). 

ii) Carbon fees per-ton are expected to increase over time, but further details of that policy are not defined in this model. 

iii) The combination of carbon fees with UBI is often referred to as “Carbon Fee and Dividend”. 

b) Monetary policy adjustment by Federal Reserve, through interest rates and reserve requirements. 

i) The Tuesday Money stipends may be partly funded in terms of “Quantitative Easing for People”. 

ii) We expect this investment to lead to growth in both real GDP and productivity. 

iii) Depending on all the choice-parameters in this model, there could be net inflationary (or deflationary) pressure on the national economy. The Federal Reserve is expected to maintain its own policies of tightening and accommodating in order to mitigate such pressure. 

c) Refactoring of Social Security payment structure for workers age  40-60  

i) As described in subsection I.5 above, future SSA retirees will transition to receiving a supplementary payment in addition to UBI. This act lowers the long term cost of the SSA benefit program (which will no longer be funded using the separate payroll tax and trust fund), while increasing the retirees total monthly support. 

d) Reduction in federal spending on social assistance programs. 

i) Eliminate federal unemployment benefits and FUTA taxes. 

    If UBI is set less than Fed unemployment, then need a further plan here.

ii) Reduce or eliminate EITC and other low income tax credits. 

    This relates to UBI but also to the income tax refactoring in e below.

iii) Reduce federal spending on targeted and means-tested social assistance under HHS and HUD programs. 

e) Replace current personal Income Tax and FICA payroll tax systems with a unified, simple, fair, progressive income tax system.

f) Expect that this personal income tax system should not be re-written continuously hereafter.
Ordinary people should not need to think a lot about income tax.  Income tax experts will need to
adjust their career paths.  We prefer to neutralize personal income tax as a policy making tool
(other than through the rate parameters shown below), in favor of federal excise (e.g. Carbon fees)
and state discretion.

i) Below a threshold annual individual income of $  ?   (excluding UBI) there is no income or payroll tax collected.  Employers must still report all payments, but tax witholding and federal payroll tax payments will not be required for employees .  A married household is treated as two adults essentially, unless they choose to be jointly taxed as one entity with all thresholds doubled. 

  (1) This threshold completely eliminates federal tax payments and filing requirements for about 
  80%   of the adult population. 

ii) Above the minimum threshold (excluding UBI), all forms of personal income are taxed at the same marginal rate, including wages, business and rental income, interest, dividends, and capital gains. 
It is expected that most of these taxes are collected automatically.
It is further expected that costs and complexity of tax withholding and payroll taxes is
eliminated at the federal level for employers of workers with incomes below the tax
reporting threshold.  Above the reporting threshold, the administration is greatly simplified.

The marginal tax rate is progressive with income level, as follows: 
  (1) From   $88,000  to    $176,000   is flat-taxed at    15 %  
  (2) From   $176,000  to    $352,000   is flat-taxed at    16.5 %  
  Continue multiplying rate by  1.1   at each doubling of income, up to the maximum rate at level 10
  (10) For    $90,112,000  and up - flat taxed at   35.37%  

Policy regarding personal retirement accounts is unchanged, except that IRA contributions will
no longer be deductible (since the intended beneficiaries now pay no federal tax at all).  

iii) Eliminate FICA taxes and trust fund accounting gimmicks 
   Specifically to remove the regressive cap, the unnecessary distinction among kinds of income,
   and the antiquated need for reporting of separate "employer + employee" amounts.

iv) Eliminate mortgage interest deductions and most other personal tax deductions. 

v) Inheritance and wealth taxes are not addressed in this model. 

vi) Corporate income taxes are not fully addressed in this model, but note the leveling of rates for wages, dividends, business and rental income in ii) above.    We suggest that dividends paid to U.S.
persons are not taxable to the corporation (only to the recipient), but corporate profits retained for
re-investment are taxable at same rate as lowest personal bracket (1) above.   

For a more detailed treatment, please see:

The remaining rules are summarized in posts 2 and 3 of this series