Below we see INVESTOPEDIA ---guess what ---they always give a global Wall Street slant on financial policies. Here they are telling us VAT brings more equity======the global corporations that make a product pay no taxes---it is when that product is sold taxation starts. A global distribution corporation takes that product to a wholesaler or retailer----no taxation of global distributors unless they purchase those products and then resell. Taxation of that global distributor or global wholesaler is very small---it is when a product reaches the retailer---whether a chain store or a small business retailer that the tax rates grow larger......of course it is the point of purchase of a product by the CONSUMER where tax rates soar. The 99% of people spend almost all their income on consumption----wages and salaries are so low that very little can be saved. The rich spend a very small percentage of wealth on consumption and their physical assets are generally handed down from generation to generation......the 99% is constantly replacing more cheaply made products.
Value-Added Tax VAT is the OPPOSITE of FLAT TAX and it is what ONE WORLD ONE TAX is MOVING FORWARD.
Global Wall Street always uses Europe as a ploy to thinking this is socially progressive when in fact Europe may use VAT but also strongly taxes corporations in other ways when the US does not.
VAT IS A CONSUMPTION TAX
'In contrast to the current income tax, which levies more taxes on high-level earners than on low-income workers, a VAT would apply equally to every purchase'
REMEMBER ---THE TERM 'VALUE ADDED' HAS TWO STANCES------THE VALUE FOR RIGHT WING GLOBAL WALL STREET IS MINIMIZING COSTS FOR CORPORATIONS ERGO LOW OR NO TAXATION------THE VALUE ADDED FOR PUBLIC INTEREST IS QUALITY AND AFFORDABILITY WITH TAXES AND FEES AT A MINIMUM.
Value-Added Tax - VAT Share What is a 'Value-Added Tax - VAT'
A value-added tax (VAT) is a type of consumption tax that is placed on a product whenever value is added at a stage of production and at final sale. VAT is most often used in the European Union. The amount of VAT that the user pays is the cost of the product, less any of the costs of materials used in the product that have already been taxed.
For example, when a television is built by a company in Europe, the manufacturer is charged VAT on all of the supplies it purchases to produce the television. Once the television reaches the shelf, the consumer who purchases it must pay the applicable VAT.
BREAKING DOWN 'Value-Added Tax - VAT'
Value-added taxation is based on a taxpayer's consumption of goods rather than his income. More than 160 countries around the world use value-added taxation. In America, advocates claim that replacing the current income tax system with a federal VAT would increase government revenue, help fund essential social services and reduce the federal deficit. Critics disagree, arguing that a VAT places an increased economic burden on lower-income taxpayers.
Pros and Cons of Value-Added Taxation
On the plus side, a VAT would collect revenue on all goods sold in America, including online purchases. Despite efforts to close tax loopholes that allow Internet businesses to avoid charging taxes to customers in states where they do not have a brick-and-mortar business, unpaid taxes on online sales cost states billions in potential income that could fund schools, law enforcement and other services.
Proponents of a VAT suggest that replacing the current income tax system with a federal VAT would make it much more difficult to evade paying taxes. They claim it would also greatly simplify the complex federal tax code and increase the efficiency of the Internal Revenue Service.
Opponents, however, note many potential drawbacks of a VAT, including increased costs for business owners throughout the chain of production. A federal VAT could also create conflicts with state and local governments across the country, which charge their own sales taxes at rates set at the state and local levels.
Critics also note that consumers typically wind up paying higher prices with a VAT. While the VAT theoretically spreads the tax burden along every phase of manufacturing from raw goods to final product, in practice, increased costs are typically passed along to the consumer.
In contrast to the current income tax, which levies more taxes on high-level earners than on low-income workers, a VAT would apply equally to every purchase. This could significantly benefit taxpayers with high incomes, who typically spend far less than they earn and save a large portion of their income. Since low-income workers often live from paycheck to paycheck and spend their entire income every month, they would pay a much higher proportion of their income in taxes with a VAT system than wealthy earners.
If we want to know what tax policy global Wall Street pols CLINTON/BUSH/OBAMA now TRUMP are installing we simply look to the World Bank and see what tax policies are being installed in all Foreign Economic Zones overseas and here we see Kenya INSTALLING VAT. This is that ONE WORLD ONE TAX global CFOs wanted in the article yesterday but was supposedly to hard to implement. It is well on its way and the process MOVING FORWARD now is simply creating the global infrastructure that follows global labor pool to assignments all over the globe. Since global labor pool is impoverished and not earning much----their taxation occurs in payroll taxes.
We pay Federal and state sales taxes now----what VAT does is remove any taxation from global corporations and pushes increased consumption taxes regressively. Maryland and Baltimore have been installing VAT for several years they simply do not use the term VAT------because they PRETEND TO BE LEFT SOCIAL PROGRESSIVE ON TAXATION WHEN MARYLAND AND BALTIMORE IS VERY RIGHT WING REPRESSIVE WITH TAXATION POLICIES.
Below we see developing nations' citizens being given NO VOICE NO POWER in building their nations' or community economies because this ONE WORLD ONE GOVERNANCE structure is being installed by a global 1% controlling their nation. The United States is now being taken to developing world status and will have its US Constitution, US Rule of Law, Citizens Bill of Rights----all court and legal precedence for centuries ERASED and these policies installed. There is no way to change these global treaties inside individual Foreign Economic Zones--citizens have no power.
4 December 2015
Global Tax Alert
Zones Act, 2015
In the spirit of inspiring foreign direct investment and positioning Kenya as a
prominent business hub in the region, the President of Kenya assented to the Special Economic Zones Act, 2015
(SEZA or the Act) on 11 September 2015.
The Act which will come into operation on 15 December 2015 provides for the establishment of special economic zones (SEZs). Entities licensed under SEZA are entitled to various benefits among them exemption from value added tax,
income tax, custom and excise duties, stamp duty and work permit quotas.
By notice in the Gazette, the Cabinet Secretary (the Secretary) in charge of Industrialization is empowered to declare any area as a SEZ upon recommendation by the Special Economic Zones Authority (the Authority) and is also charged with the responsibility of implementation of the Act. Currently, Kenya has in place Export Processing Zones (EPZ) managed by the Export Processing Zone Authority under the Export Processing Zone Act (EPZA).
The main objective of an EPZ is to attract, promote or increase the manufacture of goods or provision of services for export only. This makes the SEZ as currently constituted a broader concept than EPZ. Given that EPZA has not been repealed, it is likely that the EPZs will remain applicable and implemented
alongside the SEZs. It will, however, be interesting to see if new licenses issued under EPZA.
Global Tax Alert
Upon a recommendation by the Authority, the Secretary
empowered to make regulations in respect of any matter
required to be prescribed under the Act. Such regulation
may include but is not limited to determination of the criteria
for designation and gazzetting of all SEZs, determination
of the application process, criteria, conditions, terms and
procedures for designation of SEZs and licensing under the
Act. The investment rules for SEZs, the fees to be levied
under the Act are also expected under the regulations.
To date, the regulations have not been gazetted.
Declaration of SEZs
The Secretary in charge of Industrialization shall, on
recommendation by the Authority, and in consultation with
the Secretary responsible for matters relating to finance
declare, by notice in the Gazette, any area as SEZ. Such
areas include but are not limited to regional headquarters,
business process outsourcing centers, management
consulting and advisory services and other associated
services. Such declaration will define the limits of the
zone and will remain in force until revoked by an order in
the Gazette by the Secretary and on recommendation by
Types of SEZs
The types of SEZs established under the Act will include,
among others: business service parks (e.g., regional
headquarters), free port zones, free trade zones, industrial
parks, information communication technology parks, science
and technology parks, agricultural zones, livestock zones
and tourist and recreation zones.
Establishment of the Authority
The Act establishes a body to be known as the Special
Economic Zones Authority (the Authority) which shall
be a body corporate with perpetual succession and a
common seal. The Authority shall be administered by a
board of directors whose chairperson is to be appointed by
the President. The Authority shall be responsible for the
establishment, operation and regulation of SEZs as well
as assist in implementing the policies and programs of the
Government with regard to SEZs.
Application for a SEZ License
A person intending to carry on business as SEZ developer,
operator or enterprise shall apply to the Authority for an
appropriate license. Such a license may be issued by the
Authority on recommendation of the Commissioner of
Customs and payment of the prescribed fee within 30 days
of receiving the application together with the relevant
To qualify for an SEZ license, the applicant must bel, in addition
to such other criteria and requirements as may be prescribed:
Be a company incorporated in Kenya for the purpose of
undertaking SEZ activities
Have financial capacity, technical and managerial capacity,
and associated track record of relevant development or
operational projects required for developing or operating
Own or lease land or premises within the special economic
zone as stipulated under the Special Economic Zones
(Land Use) Regulations to be enacted within 180 days of
the coming into force of the Act Benefits under the SEZA
Under the Act, all licensed special economic zone enterprises,
developers and operators shall be granted exemption from
all taxes and duties payable under all the domestic tax
legislations including the East African Community Customs
Management Act. The benefits apply on all special economic
However, the Finance Act 2015, which was assented to on
the same day as the SEZA appears to limit the tax incentives
by amending the Income Tax Act and the Value Added Tax
(VAT) as follows:
SEZ enterprises, developers and operators will be subjected
to reduced corporate rates of 10% for the first 10 years of
operation and 15% for the next 10 years
Dividends received by licensed SEZ enterprises, developers
and operators are exempt
Withholding tax on professional services and interest
(other than dividends) by a SEZ enterprise, developer and
operator to nonresidents to apply at 10%
The supply of taxable goods to special economic zones
enterprises, developers and operators licensed under the
SEZA are exempt from VAT
Global Tax Alert
In effect, the above amendments appear to be inconsistent
with SEZA which offers unlimited exemption on all taxes.
It would be paramount that the inconsistency is addressed
prior to the issuance of the licenses under the Act.
The licensed special economic zone enterprises, developers
and operators shall be entitled to work permits of up
to 20% of their full-time employees. However, on the
recommendation of the Authority additional work permits
may be obtained for specialized sectors.
Stamp duty on the execution of any instrument relating
to the business activities of special economic zone
enterprises, developers and operators
Provisions of the
Foreign Investments and Protection Act
relating to certificate for approved enterprise
Provisions of the
Payment of advertisement fees and business service permit
fees levied by the respective
County Governments’ finance
General liquor license and hotel liquor license under the
Alcoholic Drinks Control Act, 2010
Manufacturing license under the
License to trade in unwrought precious metal under the
Trading in Unwrought Precious Metals Act
Filming license under the
Films and Stages Plays Act
Rent or tenancy controls under the
Landlord and Tenant
(Shops, Hotels and Catering establishments) Act
Any other exemption as may be granted under the SEZA in
consultation with the Cabinet Secretary for that matter, by
notice in the Gazette Rights of SEZ Enterprises
Under the Act, a licensed SEZ enterprise shall enjoy
certain rights such as, profit and capital repatriation,
the full protection of its property rights against all risks
of nationalization or expropriation and industrial and
intellectual property among others.
The Secretary shall publish in the Kenya Gazette
all approved applications to establish a SEZ and within 180 days of the Act coming into force, publish regulations on the application, issuance, suspension, revocation and appeal process on licensing of SEZs.
As one of the flagship projects under the economic pillar of Kenya’s Vision 2030, the enactment of the Act reaffirms to investors that Kenya is still on the path towards achieving vision 2030. The Act creates a favorable environment for both global and local investors.
The right wing has for several decades been pressing for the need for the POOR TO PAY TAXES. Mind you the poor are impoverished to the point of barely being able to feed and shelter themselves already ----but the right wing needs them paying taxes. This is the same MEDIEVAL TAX MODEL where the rich pay no taxes while the poor have any wealth it can accumulate taken in taxes. It is not the left social Democrats who support TAX UNIFORMITY AND EQUITY for free markets and justice in taxation doing this---it is the right wing working for extreme wealth and extreme poverty.
Since Clinton era and moving US corporations overseas Americans have become long-term unemployed---pushed to social services and refugee status---now Obama restructured the US economy so new jobs created would be temporary-----part time-----volunteer---
AND YES OBAMA AND CLINTON NEO-LIBERALS COULD AND SHOULD HAVE DONE THE OPPOSITE ONLY THEY ARE FAR-RIGHT WING----NOT LEFT DEMOCRATS.
So the right wing is really mad because now over 50% of Americans don't earn enough to pay taxes as US tax laws stand and they are now MOVING FORWARD in more and more repressive taxation. Obama super-sized taxation on the poor---Trump will as well. The VAT is one such tax policy.
Santorum is Christian right wing saying that American poor are not yet third world poor so they can still pay taxes. Here we have that old world Catholic Opus Dei working for the global 1% wanting the most repressive of societal structures
Santorum Puts New Spotlight On Opus Dei
March 30, 201212:00 PM ET
Recent reports highlight GOP presidential hopeful Rick Santorum's connections with the Catholic group Opus Dei.
The GOP's Weird Obsession With Poor People Not Paying Enough Taxes
- Derek Thompson
- Jan 5, 2012
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Republicans complaining about the households not paying enough who also want to cut taxes overall are asking the poor to subsidize a tax cut for the rich
Here's a fresh quote from the latest non-Romney front-runner in the GOP presidential race. "This dividing of America [between] 99-1," Rick Santorum said this morning in New Hampshire, "It's anybody that makes money and pays taxes and everybody who doesn't. That's the 99-1."
Santorum (like Michele Bachmann before him) is picking a fight with the millions of Americans who make money and don't pay federal income taxes. For the last few years, this group has accounted for about half of the country. The statistic inspired a website, "We Are the 53 Percent," which called out the 47% (or more) of households who owed no federal income tax in 2010 and again in 2011, because tax credits and deductions wiped out their liability.
Since 2000, the poorest 40% of households have averaged a federal income tax rate below zero. The graph below shows federal income taxes since 1979, from the lowest quintile (on the bottom) to the top 1% (at the top). The big picture is that we have a progressive tax system where federal income tax rates have fallen slightly for every class of taxpayers for the last three decades:
FEDERAL INCOME TAX RATES
But federal income tax isn't the only tax out there. In fact, FIT accounts for only 40 percent of total government revenue. Another 40ish percent comes from payroll taxes, which all working families pay up to about $107,000. The rest comes from corporate income taxes and excise taxes on things like gas. When you add all of those taxes together, you get the overall tax burden that economists call the "effective tax rate." Here is the graph of effective federal taxes for the same groups as above (it's a similar story of gradually falling rates for every group, with some jumpiness at the top):
TOTAL EFFECTIVE FEDERAL TAX RATES
Three big points, here. First, the fact that all the lines in the second graph are above zero suggest that the vast majority of households that don't pay federal income taxes do pay federal taxes. (The few that don't might still owe local and state taxes.) Second, the reason most poor families don't pay federal income taxes is that Republicans and Democrats keep cutting their taxes. Third, just about everybody has shared in the tax cut parade of the last 30 years. We haven't shared equally, but we've all gotten a break.
According to Santorum's quote, the most important class division in America is between income tax payers and non-income tax payers. This is a weird fight to pick for the Republican party, and particularly for Santorum, whose tax scheme would probably increase the number of households who owe no federal income tax.*
More broadly, it's surreal for Republicans to complain about taxes being too low on the poor while they also propose tax cuts for the wealthiest Americans. Neither Santorum nor any other candidate has actually said, "I want to raise taxes on the poor to pay for tax cuts for the rich," in so many words. But there is no other way to interpret the dual claims that not enough people pay income taxes and also tax rates should be lower. If you want higher federal income taxes on the poor and lower tax revenue overall, you are asking for the poor to subsidize a tax cut for the rich. The math doesn't work out any other way.
If only Santorum were the only candidate harping on this perceived injustice. Michele Bachmann made it a talking point after she surged in the polls. Rick Perry, Newt Gingrich, and Herman Cain proposed tax plans that would let the rich keep as much as $500,000 more of their income while raising taxes on the middle class or leaving their rates where they are. Any income tax cut is going to benefit the rich more, since they have more income. But these plans are supply-side economics ad absurdum.
There is an easy, conservative argument to make about taxes -- and even about the 47 percent. Our code is a block of swiss cheese, with $1 in holes (tax expenditures) for every $2 in cheese (revenue). We can lower rates and raise revenue -- for my conservative friends, I will say: "moderately!" -- by exchanging lower tax rates for lower tax giveaways. Instead of this, some Republicans, having spent three decades demanding lower taxes every single election, are suddenly professing utter shock and disgust that these cuts have helped the poor avoid income taxes entirely. Having lamented that the poor don't pay enough taxes, they propose that the rich pay too much.
Debating tax policy is often a proxy for debating spending policy. It's not just that conservatives value lower taxes because they promote growth. It's also that they don't value government spending, because they consider it anti-growth. On the contrary, it's not just that liberals value a progressive tax system, but also that you need highly progressive tax system to raise money to pay for their programs.
So, the weirdest part about Republicans' fixation on poor people not giving Washington more of their money is that the GOP doesn't want Washington to have more money! Poor people paying nothing dovetails nicely with an overall strategy of starving government of revenue. This isn't about public policy, really. It's just some rotten apples in the GOP trying to make middle-class families indignant that somebody else is getting preferential treatment.
*It would lower marginal rates on earned and investment income, keep the biggest deductions, and triple the child exemption. Rates would go down, carve-outs for big families would go up. In fact, if Rick Santorum's raison d'etre were to be the candidate for zeroing out the federal income tax for as many people as possible, reducing rates and adding exceptions is exactly how he would start!
All of the tax policy MOVING FORWARD CLINTON/BUSH/OBAMA now Trump is reversing all tax burden from corporations and rich to the 99% of people bringing the poor into taxation loop because WE THE PEOPLE will become third world poor.
VAT is consumption tax and very repressive----payroll taxes under Obama became a privatized savings account killing our Federal Social Security. Payroll taxes taken from low-wage employees were an example of the poor actually paying taxes ------earned income credits and other tax policies have shielded the poor from these Federal taxes but now those shields are falling. Our immigrant workers of course never had those tax credit shields and pay plenty of taxes. So right wing global Wall Street simply means poor does not pay income taxes-----Obama's privatization of Social Security under myRA transitions payroll taxes to Wall Street and takes corporations out of a co-pay with payroll taxes.
VAT for consumption and privatized payroll taxes for savings accounts replacing Social Security taking corporate contributions out and increasing rate of contribution. Payroll taxes have been around 6% ----this myRA will move from worker's choice to mandatory and the payroll deduction rates are far higher.
We can be sure under CLINTON/BUSH/OBAMA corporations were not paying that payroll tax co-pay leaving our Social Security Trust underfunded according to law.
'But you also see the weight of the payroll tax ignored in more important ways. For instance, the tax reform debate often focuses on income tax rates, but for many low-income households the structure and generosity of those credits is far more important than the rates'.
Moving news forward.
Jul 25, 2011
Taxing The Poor: The Only Tax Increase Republicans Support
By Travis Waldron
Throughout the debate about raising the federal debt ceiling, Republicans have denied deal after deal because Democrats insist on adding new revenues to trillions of dollars in spending cuts. Republicans have opposed repealing oil and gas subsidies, removing a tax loophole for corporate jet owners, letting the Bush tax cuts expire, and all other forms of revenue Democrats have suggested. Raising taxes in a weak economy, they argue, is unthinkable — even if conservative patriarch Ronald Reagan did just that.
But there is one tax increase some Republicans seem to favor: raising taxes on the working poor, senior citizens, and other low-income Americans.
While they fight the expiration of the budget-busting Bush tax cuts, Republicans have continually cited a report that shows that 51 percent of Americans don’t pay income taxes, even admitting that middle- and lower-class Americans need to shoulder a larger burden in deficit reduction efforts.
Here is a sample of Republicans who have made that argument:
Sen. Orrin Hatch (R-UT): In a May 5 appearance on MSNBC, Hatch said, “The place where you’ve got to get revenues has to come from the middle class,” saying the poor needed to understand “that there’s a civic duty on the part of every one of us to help this government to, uh, to be better.” On the Senate floor July 7, Hatch said the poor “need to share some of the responsibility” for deficit reduction.
Sen. John Cornyn (R-TX): Cornyn also cited the report on the Senate floor July 7, when he said Congress needed to address tax reform to make the system “flatter, fairer, and simpler.” He then cited the report, saying, “51 percent — that is — a majority of American households — paid no income tax in 2009. Zero. Zip. Nada.”
Sen. Dan Coats (R-IN): Coats echoed the talking point last weekend, saying “everyone needs to have some skin in the game.”
He added: “I realize that some with low incomes and not much money are not paying much in taxes. Nonetheless, we all have a stake in this country and what needs to be done. I think it’s important that this burden not just fall on 50 percent of the people but falls on all of us in some form.”
House Majority Leader Eric Cantor (R-VA): Cantor was among the first Republicans to begin hitting this particular talking point, doing so in April on CNBC’s Squawk Box. “We also have a situation in this country where you’re nearing 50 percent of people who don’t even pay income taxes,” he said.Republicans, of course, ignore why most of the 51 percent do not pay income taxes and the myriad ways in which they are subject to other forms of taxation. The majority who do not pay federal income taxes simply do not make enough money to qualify for even the lowest tax bracket. But they do contribute through payroll, state, and sales taxes. Less than a quarter of Americans don’t contribute to federal tax receipts, and the majority of those are students, the elderly, or the unemployed.
Meanwhile, the richest Americans are paying less than they were a generation ago, leaving the United States with one of the largest income gaps in the industrialized world.
Below we see a good article assessing the effects of Obama's myRA. It was tied to payroll deductions as a method of requiring this deduction as with Social Security and it is privatized into Wall Street fodder. What this article makes clear is this-----there is no way to right off any part of these payroll deductions as with other Wall Street financial vehicles---it is a straight tax----and although the contributions start at $5 it has the capacity to go higher and higher well beyond that 7% contribution of today's Social Security payroll taxes. We see that sophisticated investors would not participate in myRA so it is being tooled as a 'savings account' for the poor. There will be negligible interest rates ----the accumulating assets in myRA will be so low over a lifetime that financial analysts do not see any value----it will be simply a mechanism to have the poor pay more taxes. Remember, the US Treasury is now $20 trillion in debt---a World Bank will seize these funds to cover bond debt tied to global corporate campus development.
'Wages have not been keeping up with even official inflation, the retail industry is in dismal shape, we have what is now more or less calcified structural unemployment with a real unemployment rate that is closer to 20% rather than below 7%, and the lower income and middle-class of the United States are in severe financial straits.
So it is unlikely that the dollars saved in this program will be significant for the federal government, and it is also highly unlikely that more sophisticated investors will choose to participate in it'.
'1) No Initial Tax Benefit.
There is no upfront deduction for opening the account. So the saver, unlike if they opened up an IRA, takes a hit on the front end by paying taxes in full'.
Who Most Benefits From MyRAs: Savers Or The US Treasury?
by Daniel R. Amerman, CFA
By executive order of the President of the United States, as announced in the State of the Union address, there is now a new type of tax-advantaged retirement account.
These are the MyRAs, the user-friendly "my retirement accounts" for small investors, that are presented as being one part of the campaign to help close the income and wealth disparity gap in the US. And one of the issues that is identified as being part of that gap is that the poor and middle class have relatively little money in retirement accounts when compared to the wealthy and the upper middle class.
So the United States Treasury is offering a no-fee and very convenient means for low income and middle class investors to build retirement wealth. And this article will explore, based upon what is now known about these new accounts, the advantages and disadvantages for investors.
We will also take a look at the potentially extraordinary advantages for the United States government when savers choose MyRA accounts. Which may raise the question about whether our seemingly benevolent government is truly attempting to help "close the income and wealth gap", or whether it is instead targeting what is generally the least financially-educated portion of society, for the direct financial benefit of the United States government.
MyRAs From A Saver's Perspective
MyRAs appear to be a new variant on Roth IRAs, which means that unlike a 401 or 403 plan or an IRA, there is no ability to deduct the retirement account contribution. Instead, taxes are paid to the government in full as they otherwise would be on income. The tax advantage comes on the back end, in retirement, with interest earnings and principal withdrawals being tax-free.
Now MyRAs are not invested in traditional mutual funds, but rather represent a direct investment with the United States Treasury for the purpose of purchasing what are effectively US Treasury bonds. It appears that yields would likely be similar to what federal employees currently get in their Thrift Savings Plan Government Securities Investment Fund program, which was 1.5% in 2012.
A MyRA is very convenient to open up, with an initial contribution of $25, subsequent minimum contributions of as little as $5, and an annual limit of $5500. Moreover, no financial advisor is needed; this is supposed to be a very simple and easy program for bringing a new kind of investor into retirement accounts.
Now let's take a closer look from a saver's perspective.
1) No Initial Tax Benefit.
There is no upfront deduction for opening the account. So the saver, unlike if they opened up an IRA, takes a hit on the front end by paying taxes in full.
2) Very Low Interest Rate.
There is an extraordinarily low interest rate paid with these accounts. As part of what is at this time a long-term program of keeping interest rates near zero in the short term, and also quite low over the medium and long term, US treasury bond yields are some of the lowest in history.
A 1.5% rate of return is negligible. Even when invested over the long term, it fails to compound anything like a traditional retirement account investment might do.
The graph below shows the difference in earnings from a retirement account invested at 1.5% over a 20 year period, versus a retirement account invested at 7%.
The "magic" that is supposed to build wealth in a retirement account over time just isn't there, given our current government-induced world of very low interest rates.
3) Steady Loss Of Purchasing Power.
The yield on short term government securities is less than even the official rate of inflation, let alone the costs we've all been seeing for actual spending when it comes to food, education, medical insurance costs, and the like.
The above graph combines our first three MyRA components to see how they work in combination.
Looking at $1,000 in income, and assuming a 30% marginal combined federal and state tax rate – because there is no tax deduction, the saver can only deposit $700, rather than the $1,000 they would be able to with an IRA or 401 plan.
The blue area shows how the balance in the account would climb over 20 years if invested at 1.5% – it wouldn't even make it back to the initial $1,000.
With our current monetary system, the purchasing power of the dollar will be dropping each year. There's nothing controversial about that – it's the stated goal of the Federal Reserve as well as other central banks around the world, each of whom have minimum inflation targets.
The graph uses a conservative example of a 5% rate of inflation, and even with that – the value of a $700 after-tax account contribution steadily declines to a value of $355 in after-inflation terms over 20 years.
So instead of building wealth it has the opposite effect – the wealth slowly bleeds away over time. And even if you use the official inflation figures from the last 10-15 years (about 2.4% over the last 15 years), the rate of inflation is still higher than the interest rates that appear likely to be paid in a MyRA. So the savings still decline in real purchasing power terms each year, even if the rate of decline is not as great as that shown in the graph.
4) Ending Tax Treatment Uncertain.
So what is being offered to the investor is a very low-yield account, with no upfront tax benefits, that is likely to steadily lose value over the years if government-manipulated interest rates stay where they are.
Given how deeply in debt the United States government is, and the extraordinary burdens of paying for state and government pension plans as well as Social Security as well as Medicare, the one thing we do know is that the United States is likely to be in even greater financial distress five, ten, fifteen years now than it is right now. And I think we should count on a pretty good chance of a comprehensive change in the tax code regarding retirement accounts.
MyRAs From A Governmental Perspective
Now, let's consider MyRAs from the perspective of the United States government.
1) Full Taxes On Income Collected.
The US government is running major deficits and it needs all the taxes it can get. This creates difficulties with IRA or 401 type plans because tax payers get tax deductions for making retirement account contributions.
With the new MyRAs being a modified form of Roth IRAs - there is no deduction, and thus the government collects all of its taxes this year.
2) New Long-Term Source Of Funding For Deficit.
The United States government is deeply in debt, with the over $17 trillion in outstanding US federal debt being approximately equal to 100% of the size the economy. It is also running a substantial deficit, currently officially projected at roughly $750 billion per year.
The US government badly needs funding for that debt. And MyRAs are intended to increase the number of people who are lending money to the United States government, so that it can go out and spend that money.
That's the crucial thing to keep in mind about what happens when someone makes a contribution to a MyRA or buys a savings bond – it's not like the government is taking your money and setting it aside like an investment firm or bank might do.
No, the whole point is that the government spends that money immediately, and there are no independent assets in the account at that point. The money has either gone to roll over bonds that must be redeemed, or it goes to funding new annual deficits.
The only asset in the account is a promise from the US government to pay the principal and interest at some future point in time.
3) No Interim Cash Payments Of Interest.
As covered in my recent article (linked below), "Could A Compound Interest Wildfire Threaten US Solvency", the US government currently does not pay any principal or interest on the debt out of its tax revenues, but rather it borrows all of the money to make interest payments, just as it borrows all of the money to roll over principal payments that come due, and it borrows additional money to fund federal government spending that cannot be supported from tax revenues.
And it is a burden for the government even at current very low interest rates to meet interest payments. Indeed, interest payments on US federal debt are more than half the size of the annual federal deficit at this point, as covered in that article. (And as also discussed, there is a lot of information value there when it comes to the likelihood of rates going up in MyRA accounts.)
The beauty of a MyRA from the federal government's perspective is that not only does it get a source of funds that can be spent here and now, but it doesn't have to make any cash interest payments until the retirement account is cashed out. Instead, as each interest payment comes due, the account balance rises instead of cash being paid out, so effectively the MyRA investor is locked into taking their earnings each year, and lending those to the government as well.
And if the cashing out doesn't happen for the next 20 years, that means the US government does not make any real (cash) interest payments during that time, but rather there's just the very low paper compounding of interest payments that occurs within the retirement account.
4) Interest Rate Below Rate Of Inflation.
One and a half percent is a very low interest rate for a deeply-indebted nation in a great deal of financial trouble.
It is indeed a negative rate on an inflation-adjusted basis even using official US government inflation statistics. And if we use something more in line with reality such as let's say the 4%, 5% or 6% range (as shown with our saver example), then we have a substantially negative inflation-adjusted rate of return.
Now how many of MyRAs' intended audience – who are acting without the benefit of a financial advisor and are making $5 contributions when they have the cash available –are likely to fully understand the term "negative inflation-adjusted rate of return" and its implications?
Some will – there are of course some very intelligent and well-educated people in lower income brackets in these times – but probably most won't, and that's likely one of the key reasons for why this program is set up the way it is.
5) Ending Tax Treatment & Value Of Dollar At Discretion Of The Government.
As a debtor who owes a fantastic amount of money and is running major deficits each year, while having ever-increasing financial problems with an aging Baby Boom who have been promised retirement benefits – the US government has enormous incentives to repay debts in dollars that are worth much less than they are today.
As the proportion of those collecting Social Security and Medicare rises each year when compared to those still in the workforce, the government will also be under heavy pressure to change the tax code in order to raise revenues. This could take the form of increasing tax rates, or it could take the form of changing the treatment of tax shelters – such as retirement accounts – or it could involve both.
MyRA contributors don't receive any financial benefits until they retire – whereas the government receives all of the benefits up until that time. And whether the rules will be the same as they currently are when it comes to cashing out retirement accounts in 2025 or 2035 – that will for the government in 2025 or 2035 to decide, depending on its financial situation at that time.
Understanding The Bigger Picture.
A MyRA is a textbook example of Financial Repression in progress.
Financial Repression is a widely-understood and accepted concept among professional economists, although the general public never seems to hear too much about it.
As explained in my article linked below, "Financial Repression, A Sheep Shearing Instruction Manual", Financial Repression is how the US repaid its World War II debts during the late 1940s, 1950s and 1960s, and the US government has returned to this policy in recent years.
It is a deliberate program whereby a deeply-indebted government pays lower interest rates on its debt than the rate of inflation, which reduces the real value of the amount of debt outstanding.
However, it requires a source of funds – from a preferably captive audience. Measures must be taken – and this is a core part of Financial Repression – to get as much money from the public as possible invested into bonds, in a program that works to the direct benefit of the government (and to the detriment of the saver).
Looked at from that perspective, MyRAs are instantly identifiable not as a means of closing the income gap, but as a means of increasing the flow of dollars from the poor and middle class to the federal government, for the direct financial benefit of the federal government.
Also, for those of you who attended the Overcoming Monetary & Political Risk workshops or have viewed the DVDs, this development with MyRAs is exactly in line with the principles that we discussed and what we said to anticipate.
As discussed, retirement account changes in the future are almost certain, and they will be presented in one way, which is as a benefit to the public or as a very subtle change, when in fact if we look at the bottom line, each change will strongly work to steer retirement wealth from individual investors to the federal government.
The Flaw With MyRAs
There seems to be one rather big problem with the federal government's plan to financially benefit from this supposedly great program for lower income and middle income savers. And that is that because of the changes in the economy and the financial system, this targeted group of people has very little to no money for making investments.
Wages have not been keeping up with even official inflation, the retail industry is in dismal shape, we have what is now more or less calcified structural unemployment with a real unemployment rate that is closer to 20% rather than below 7%, and the lower income and middle-class of the United States are in severe financial straits.
So it is unlikely that the dollars saved in this program will be significant for the federal government, and it is also highly unlikely that more sophisticated investors will choose to participate in it.
Nonetheless, there is enormous information value here for all of us when we see the attempt that is being made.
With the big picture being a deeply-indebted government that can't meet ongoing principal and interest payments without still more borrowing, setting up a wolf in sheep's clothing program where the purported purpose is to help people in the lower and middle class, but indeed the end result is something quite different indeed.
'Congressman José Serrano, a Democrat who represents some of the Bronx neighborhoods where the savings program is in place, has introduced a bill that would create a nationwide initiative. Serrano’s measure—the Financial Security Credit Act—would allow EITC families to put part of their refunds into accounts in which federal funds would supplement their savings in the same ratio, and up to the same limits, that the New York and pilot programs set'.
Here we see New York moving to state version of myRA and a global Wall Street Clinton neo-liberal is selling it as good for the poor-----here in Maryland Heather Mizeur pushed this taxing the poor more policy pretending to be left social Democrat-------------------------------these are far-right wing global Wall Street repressive tax policies folks
Poor, with Savings
November 19, 2013
New York is helping low-income families pay down debts and cover expenses. But don’t expect this program to go national.
Being poor is expensive. A winter heating bill that comes due before the paycheck arrives can compel a trip to a payday lender who charges 350 percent interest. It takes the entire paycheck to pay off that loan in a week—emptying out the bank account and requiring yet another visit to the lender. A child who is too sick to go to school for a week may need her single father to stay home with her, costing him a quarter of his monthly income. He’s overdue on the rent and the bills, so he’s responsible for late fees as well.
Even a few hundred dollars in a savings account could help low-income families weather such predictable but unavoidable crises—provided they have extra money to save. Their budgets are tight, and saving makes sense only if they’re not sacrificing food or child care in order to put money aside.
Anti-poverty advocates have long known there could be a relatively cheap, simple way to help people avoid such trade-offs if the government structured savings plans tailored to low-income families. Such plans have to strike the proper balance: They can’t require families to save so much that they’re not buying what they need but should be substantial enough to be useful. Experts have designed and studied many such programs; the most successful ones provide the beneficiaries with some seed money to start an account and boost the reward for saving by providing matching funds.
Over the years, not just liberals but conservatives such as Jack Kemp, Newt Gingrich, and Rick Santorum have endorsed creating government programs to help the poor save. With the poverty rate stuck at a ten-year high of 15 percent, finding new ways to move people toward financial stability becomes more and more urgent. What, then, could keep the idea from becoming national policy?
Poor families do get extra money once a year: tax time. Like many families, those with low incomes receive a refund when they file their taxes in April. If they work but make less than double the federal poverty line, which is $47,100 a year for a family of four, they can get back more than they paid in taxes—a sort of super refund known as the Earned Income Tax Credit, or EITC. The credit can bring them as much as $6,000, depending on how much money they made and how many children they have. An estimated 26 million households claimed the EITC this year, roughly 75 percent to 80 percent of the families that qualified. The EITC raises families’ incomes so much that it would have lifted five million people out of poverty in 2012 if it were accounted for when the official poverty rate was calculated.
For the most part, however, families don’t save this money. Some make the major purchases they’ve deferred. They buy clothes for their children, pay registration fees for their cars, and make trips to cheap warehouse stores to stock up on goods. For others, the money provides a way to climb out of the financial holes they’ve dug themselves into: the months of overdue bills and their late fees, the payday loans that need settling, the professional licensing fees that allow them to keep working. It’s a chance to settle accounts, but since the money is usually gone within a month or two, the cycle starts again until the next year’s refund arrives.
For decades, academics and activists have floated ideas about how to help families automatically save part of this windfall at tax time. Evidence suggests that starting a savings account with a lump sum of money makes it easier to continue saving throughout the year—partly because few people imagine that putting $50 or so away a month will ever add up to anything worth the hassle. New York City, under the Michael Bloomberg administration, began such a program in 2008. Families that qualified for EITC could ask that some of their refund—at least $100 at first, later changed to $200—be deposited into a savings account before they ever saw it. The program contributed 50 cents for every dollar each family saved for an entire year, up to $250 at first, later changed to $500, with funding coming from the Rockefeller and Ford foundations. If the families withdrew money from their accounts before the year was up, they wouldn’t receive the matching funds.
The city recruited workers at neighborhood tax-preparation sites, where accountants help low-income families file their taxes at no cost, to enroll people in the plan. Billy Garcia worked for three years at sites in the Bronx, in poor, mostly black and Latino neighborhoods like Mott Haven and Morrisania. “A lot of people would say, ‘I don’t want to participate because this money is already spent,’” Garcia says. “I understood that.”
A number of Garcia’s clients who had opted to open accounts returned to tell him their success stories. While some had saved money and used it for small purchases or to keep on top of bills, others had planned for things they wouldn’t be able to afford with their normal salaries. One woman wanted her kids to meet their grandparents in the Dominican Republic—she put away $1,000 for a whole year, which was matched by another $500, and saved an additional $1,000, also matched, in the following year. With $3,000 in savings, her family was able to make the trip.
A few families were not able to save the money for an entire year. “They would come to me, and they would be a little disappointed, as if I would be disappointed in them,” Garcia says. One client needed to wire money to Uruguay because of a family emergency. Garcia told him: “We did actually help you save that money, because you held it for six months. You can’t help the things that come up in life, but at least you had that money and it was there for you to use.”
In the program’s first three years, 2,600 filers participated, taking up every available spot. (Admissions to the program were limited by the amount of matching funds the foundations had donated.) Eighty percent of the families saved for the entire year and received matching funds—for a total of $2.3 million in savings and matching funds—and 70 percent continued to save after the year was up. “They were successfully saving money, even though on average they were making $18,000 a year, and this was when the economy was all falling apart, and they were living in a city like New York,” says Jonathan Mintz, commissioner of the New York City Department of Consumer Affairs, which runs the program through its Office of Financial Empowerment. “The odds were really against them.”
Impressed by the success of the New York effort, the Obama administration directed $5.7 million in federal funds to New York’s program, which helped build satellite programs in Newark, San Antonio, and Tulsa. The program was designed as a pilot study and will end in February 2014. While all the data and analyses aren’t in yet, these cities also had successes in the first year: Nearly 1,500 people saved and received matching funds, which totaled almost $1 million.
Congressman José Serrano, a Democrat who represents some of the Bronx neighborhoods where the savings program is in place, has introduced a bill that would create a nationwide initiative. Serrano’s measure—the Financial Security Credit Act—would allow EITC families to put part of their refunds into accounts in which federal funds would supplement their savings in the same ratio, and up to the same limits, that the New York and pilot programs set. The New America Foundation has estimated that the annual cost of the program would be roughly $4 billion.
Helping families save is nothing new for the government, but until now, federal programs have seldom targeted the poor. Parents get tax incentives to put aside money for their children’s college education, and employees receive tax deferrals on 401(k) retirement plans. The 401(k) benefit costs the government roughly $140 billion a year. Middle- and upper-income families receive tax breaks for long-term financial investments that help them build wealth, particularly the deduction on the interest they pay on home mortgages. Most of the money goes to households with incomes that put them in the top 20 percent.
Ron Haskins, a conservative who co-directs the Center on Children and Families and Budgeting for the Brookings Institution, says a lot of evidence has been built over the years that poor families can save money. No evidence, he warns, yet demonstrates that it helps them move out of poverty, but he thinks that these kinds of programs should be tried. “I like the provision,” he says. “Savings do produce great impacts, and a lot of middle-class people found that out because that’s how they got to be in the middle.”
Serrano’s bill, which has 24 Democratic co-sponsors, is sitting in the House Ways and Means Committee, where it has no chance of getting out. In the past, an inexpensive program that had already been tested could have been swept into a broader bill. With the House under Republican control, however, budget cutting is the order of the day, even though conservatives in Congress championed the idea of helping the poor save during the 1996 debates over welfare reform. At the time, many Republican lawmakers wanted to include an option for states to establish individual development accounts, which would help families set aside funds for big-ticket items like homes or small businesses. Thirty-three states have IDA programs for low-income families, but they’re small and have never received much federal assistance. None helps families put aside funds for routine financial emergencies.
Wisconsin Republican Paul Ryan, who heads the House delegation negotiating next year’s budget with the Senate, is a self-proclaimed apostle of former Congressman Kemp, who famously insisted that Republicans needed to concern themselves with the plight of the poor. As the House battled over how much money to cut from the food-stamp program this summer, Ryan said he was turning his attention to the issue of poverty. “We’ve got the 50th anniversary of the war on poverty coming up next year,” he said on MSNBC’s Morning Joe. “We don’t have much to show for it.” What he failed to mention is that the EITC—which President Ronald Reagan once called “the best anti-poverty, the best pro-family, the best job-creation measure to come out of Congress”—would likely be reduced if his budget prevailed.
Here we have Belarus with the same ONE WORLD ONE TAX policies with VAT and a privatized social security payroll tax. As our global Wall Street players pretend to be serving WE THE PEOPLE as Democrats or Republicans they are MOVING FORWARD US CITIES AS FOREIGN ECONOMIC ZONES.
contributions to the Social Protection
Fund (hereinafter, “social security
contributions”) according to the general
None of this looks like US left social Democratic NEW DEAL Social Security and the payments seniors have received for several decades----these global citizens will not see a penny of these private savings funds.
Doing business in Belarus
Investment legislation and main incentives
Free economic zone
Free economic zones (hereinafter, “FEZ”)
are territories with a special regime for
entrepreneurial activity and with special
incentives for business development, e.g.,
tax and customs benefits.
Belarus has six FEZs: Brest, Minsk, Gomel-
Raton, Vitebsk, Mogilev and Grodnoinvest.
Benefits are available for FEZ residents
registered on FEZ territory.
The candidate should submit a set of
documents to the FEZ Administration
and pay the state duty. One of the
requirements for registration is to prepare
a business plan for an investment project,
which should stipulate investment of at
least EUR1 million.
The preferential tax regime applies to FEZ
residents in the following cases:
Export or sale of outbound goods (work,
services) produced (performed) by
residents on FEZ territory
Sale of goods (work, services) on the
territory of Belarus, provided that the
goods are import-substituting in the list
determined by the Council of Ministers
and approved by the President; in this
case, the preferential tax regime is
effective until 1 January 2017
Sale of goods (work, services) produced
(performed) by residents on FEZ terri-
tory to other FEZ residents
Benefits for FEZ residents
The following key benefits exist:
Exemption from corporate profit tax
(hereinafter, “CPT”) for five years from
the date of first profit declaration.
Subsequently, tax is paid at a rate re-
duced by 50%, with a maximum rate of
12% (thus, in 2015, FEZ residents pay
9% CPT). Profit from uncovered activity
is subject to profit tax at the general
rate of 18%.
Exemption from real estate tax on
properties located on the territory of
the relevant FEZ, irrespective of the
way in which they are used, remains
unchanged for seven years following the
date of registration.
Exemption from land tax on land provid-
ed for construction during engineering
and construction, but for not for more
than five years from the registration
date (for FEZ residents registered after
1 January 2012). For FEZ residents
registered prior to 1 January 2012 the
benefit applies from 1 January 2017,
but for not more than five years.
VAT on sales in Belarus by FEZ resi-
dents of import-substituting domestic
goods (in accordance with the list of
import-substituting goods) produced in
a FEZ is paid at a rate of 10% (instead of
the 20% general VAT rate). This benefit
can be applied until 1 January 2017.
FEZ residents pay VAT, excise duties,
ecological tax, natural resource extraction
tax, land tax (or rental payment), state
duty, patent duties, offshore duty, license
and registration fees, stamp duty, customs
duties and fees, local taxes and levies and
contributions to the Social Protection
Fund (hereinafter, “social security
contributions”) according to the general
procedure. In addition, they act as tax
This is the same tax policy regression------it will replace our Federal Social Security and its SS Disability which will end under $20 trillion in national US Treasury debt. As with savings accounts for the poor----these disability accounts will be privatized and handed to global Wall Street and used as fodder----there is no expectation that people will be able to gain any benefit from these privatized deductions from wages as low as third world workers.
We are already hearing Trump tell us right wing Republicans will end Medicaid-----we already knew that during Obama and Affordable Care Act. So the idea of Medicaid blocking attempts to save is not a real issue----what these accounts do is replace SOCIAL SECURITY DISABILITY----and these global Wall Street players simply don't use those terms. Please don't follow these corporate non-profits like ARC-------they are not public interest.
'The sisters are developmentally disabled, and even a small nest egg could render them ineligible for government assistance such as Medicaid. That makes it tough for families to set aside money for loved ones who might need their help'.
Just say ----WE ARE ENDING FEDERAL SOCIAL SECURITY AND SS DISABILITY BUT the 99% will still be paying PAYROLL TAXES
I hear families having disabled testifying PLEASE DO NOT END SOCIAL SECURITY DISABILITY----I do not hear them saying OH, THESE SAVINGS ACCOUNTS ARE A BLESSING.
Congress Needs to Boost Disability Insurance Share of Payroll Tax by 2016
Traditional Step Would Avert Trust Fund Depletion, Benefit Cuts
July 31, 2014
Paul N. Van de Water
Policymakers need to replenish the Social Security Disability Insurance (DI) trust fund by late 2016, but that necessity comes as no surprise and poses no crisis. Although the DI trust fund is legally separate from the much larger Old-Age and Survivors Insurance (OASI) trust fund, both are integral parts of Social Security. Traditionally, lawmakers have divided the total payroll tax between OASI and DI according to the programs’ respective needs. Workers’ paychecks simply show a deduction for “Social Security tax,” and few know — or have reason to care — how that amount is apportioned.
When lawmakers last redirected some payroll tax revenue from OASI to DI in 1994, they expected that step to keep DI solvent until 2016 given anticipated economic and demographic trends. Despite fluctuations in the meantime, current projections still anticipate depletion of the trust fund in 2016 as forecast.
DI’s anticipated trust fund depletion does not indicate that the program is out of control or that it is “bankrupt;” if the trust fund were depleted and policymakers took no action, the program could still pay about 80 percent of benefits. But cutting benefits by one-fifth for an extremely vulnerable group of severely disabled Americans is unacceptable.
DI’s finances should ideally be addressed in the context of legislation to restore overall Social Security solvency. But even if policymakers make progress toward a well-rounded solvency package before late 2016, which seems unlikely, any changes in DI benefits or eligibility would surely phase in gradually and hence do little to fully replenish the DI fund by 2016. Consequently, policymakers would still need to reallocate payroll tax revenues between the two programs. There is nothing novel or controversial in such a step, and failing to take it would be irresponsible.
Payroll Tax Reallocation Is Nothing New
The current Social Security tax is 6.2 percent of wages up to $117,000 in 2014, paid by both employers and employees. Of this total, 5.3 percent of covered wages goes to the OASI trust fund, and 0.9 percent goes to the DI trust fund. This allocation reflects the decision of policymakers in 1994, when they last reallocated taxes between the programs.
Congress has reallocated payroll tax revenues many times in the past — and in both directions. This is a traditional and historically noncontroversial step.
- Using a narrow definition of “reallocation” — one in which the total payroll tax rate remained the same but the split between OASI and DI changed — there have been six such instances (in 1970, 1980, 1983, 1994, 1997, and 2000). Three of those changes shifted funds from OASI to DI, and three shifted funds from DI to OASI.
- Using a broader definition — one in which the total tax rate changed and the OASI and DI rates changed in opposite directions (one increasing and the other decreasing) — there were an additional five instances (in 1968, 1978, 1979, 1982, and 1984). Three of these shifted funds from OASI to DI, and two from DI to OASI.
As then-Congressman Jake Pickle stated in 1980 during consideration of legislation to reallocate payroll taxes between Social Security’s two programs, “[T]he bill we bring today is a deliberate step both to [ensure] the stability of the trust funds and to provide the Congress the time it will need to make any further changes necessary….Reallocation, the mechanism used in [H.R.] 7670, has been the traditional way of redistributing the [Old-Age, Survivors, and Disability Insurance, or OASDI] tax rates when there have been changes in the law and in the experience of programs and in order to keep all the programs on a more or less even reserve ratio.”
1983 Social Security Reforms Imposed a Financial Loss on DI That 1994 Reallocation Only Partially Offset
The last major reform of Social Security occurred in 1983. At the time, DI was in relatively strong financial shape, while OASI faced insolvency within a few months. The Social Security Amendments of 1983, while addressing the OASI shortfall, slightly raised DI’s cost and cut DI’s share of the payroll tax. That financial harm was only partly mitigated by the tax-rate reallocations enacted in 1994.
The 1983 amendments had many provisions intended chiefly to address the OASI shortfall — such as covering new federal employees, delaying cost-of-living adjustments, imposing income tax on a portion of Social Security benefits, accelerating a scheduled payroll tax increase, and so forth — but one of the most important was raising the full retirement age (FRA). The FRA climbed from 65 to 66 between 2000 and 2005 and will rise again from 66 to 67 between 2017 and 2022.
This change to the FRA worsened the DI trust fund. Disabled workers are reclassified as retired workers when they reach the FRA (without any change in their monthly benefit). Raising the FRA delayed this switch from disability to retirement benefits from age 65 to age 66 and ultimately to 67 and therefore increased DI’s costs even while lowering Social Security costs overall.
In addition, the 1983 amendments cut DI’s share of the payroll tax. Under the law in effect before the amendments, DI’s share of the payroll tax was 0.825 percent and was scheduled to rise to 1.1 percent by 1990. The 1983 law trimmed DI’s share to 0.5 percent in 1984 through 1987, with gradual increases in subsequent years, finally leveling off at 0.71 percent in 2000 and beyond. This reduction in the DI share allowed for a parallel increase in the OASI share to address its financial problems as the major reforms enacted in 1983 phased in.
Overall, according to the 1983 Trustees Report, the 1983 amendments reduced Social Security’s long-run deficit by 2.09 percent of taxable payroll — consisting of a 2.89 percent improvement in OASI and a 0.80 percent deterioration in DI.
After the amendments, both funds were projected to be solvent through about 2060, based on the economic and technical assumptions of the time. As it turned out, however, 1983-1985 were years when the share of workers receiving DI benefits was at a record low — the result of an overzealous Reagan Administration crackdown that encountered bipartisan resistance from governors, the courts, and Congress. DI enrollment and costs rose gradually from their 1983 trough, and DI’s share of the payroll tax turned out to be insufficient. By the early 1990s, the DI trust fund began to run into financial problems, prompting Congress to again adjust the allocation of payroll tax receipts. The 1994 reallocation boosted DI’s share but still held it (in the long run) to 0.9 percent, significantly below the rate that had been scheduled before the 1983 amendments. This is the rate that prevails today. (See Figure 1 and Appendix Table 1.)
The drafters of the 1983 amendments did not deliberately underfund DI. They used the best information available to them at the time. If DI’s tax rate had been 1.1 percent for the last two decades, as it would have been without the 1983 amendments, we would not face the need to replenish the fund today.
After the 1994 reallocations, the trustees estimated that the DI fund would become depleted in 2016, OASI in 2031, and the combined funds in 2030. In the 2014 report, the trustees put those dates at 2016, 2034, and 2033. Thus, despite the fluctuations over the past two decades, the projections made at the time of the last reallocation in 1994 have proven to be remarkably accurate, reinforcing the view that the DI shortfall is not a surprise or a reflection of a program that has somehow grown “out of control” in recent years. Indeed, most of the increase in DI spending is the result of demographic and other factors that are well understood.
Reallocation Would Postpone DI Trust Fund Depletion to 2033
Under the assumptions of the 2014 Trustees Report, the actuaries estimate that raising DI’s share (currently 0.9 percentage point) of the 6.2 percent payroll tax by 0.5 percentage points in 2015 and 2016, 0.4 percentage points in 2017, and declining amounts through 2024 would equalize the actuarial status of the two trust funds — putting them both on track to become depleted in 2033 (instead of 2016 for DI and 2034 for OASI). (See Figure 1.)
Since the disability and retirement programs are closely linked, it would be best to replenish the DI trust fund as part of a package that restores solvency to the Social Security program as a whole — that is, that extends the solvency of both trust funds well beyond 2033. That prospect seems highly unlikely to occur, however, between now and 2016.
In the absence of any changes, DI’s share of the payroll tax will be sufficient to cover only about 80 percent of the cost of current benefits starting in late 2016, according to the trustees. Without corrective action, DI benefits would thus have to be cut by about 20 percent across the board. Since benefits are modest (about $1,150 a month, on average) and beneficiaries have low incomes — one-fifth of DI beneficiaries live below the poverty level, and half have total family incomes below $30,000 a year — Congress must not allow that to happen.
To prevent that, policymakers need to reallocate payroll tax revenues, modestly increasing DI’s share. Some reallocation will clearly be required, even if policymakers can agree on a comprehensive solvency plan for Social Security, because any cuts in DI benefits would doubtless be phased in over time and are likely to be relatively modest. Thus reallocation, a step that policymakers have taken many times in the past, will be an essential part of any solution to address DI’s financial problems in 2016.
We want citizens to remember what happens to privatized 'savings accounts' as we saw with the bogus 'college savings accounts'----it was all lost to global Wall Street fraud and so too will be the privatized PAYROLL savings accounts for the poor and disabled.
All of these privatization policies were installed during Obama by Clinton global Wall Street players......Trump will simply MOVE FORWARD the dismantling of all developed nation public structures.
Trillions Disappear in Stock Market, but Where Did Money Go?
Published October 11, 2008
NEW YORK – Trillions in stock market value — gone. Trillions in retirement savings — gone. A huge chunk of the money you paid for your house, the money you're saving for college, the money your boss needs to make payroll — gone, gone, gone.
Whether you're a stock broker or Joe Six-pack, if you have a 401(k), a mutual fund or a college savings plan, tumbling stock markets and sagging home prices mean you've lost a whole lot of the money that was right there on your account statements just a few months ago.
But if you no longer have that money, who does? The fat cats on Wall Street? Some oil baron in Saudi Arabia? The government of China?
Or is it just — gone?
If you're looking to track down your missing money — figure out who has it now, maybe ask to have it back — you might be disappointed to learn that is was never really money in the first place.
Robert Shiller, an economist at Yale, puts it bluntly: The notion that you lose a pile of money whenever the stock market tanks is a "fallacy." He says the price of a stock has never been the same thing as money — it's simply the "best guess" of what the stock is worth.
"It's in people's minds," Shiller explains. "We're just recording a measure of what people think the stock market is worth. What the people who are willing to trade today — who are very, very few people — are actually trading at. So we're just extrapolating that and thinking, well, maybe that's what everyone thinks it's worth."
Shiller uses the example of an appraiser who values a house at $350,000, a week after saying it was worth $400,000.
"In a sense, $50,000 just disappeared when he said that," he said. "But it's all in the mind."
Though something, of course, is disappearing as markets and real estate values tumble. Even if a share of stock you own isn't a wad of bills in your wallet, even if the value of your home isn't something you can redeem at will, surely you can lose potential money — that is, the money that would be yours to spend if you sold your house or emptied out your mutual funds right now.
And if you're a few months away from retirement, or hoping to sell your house and buy a smaller one to help pay for your kid's college tuition, this "potential money" is something you're counting on to get by. For people who need cash and need it now, this is as real as money gets, whether or not it meets the technical definition of the word.
Still, you run into trouble when you think of that potential money as being the same thing as the cash in your purse or your checking account.
"That's a big mistake," says Dale Jorgenson, an economics professor at Harvard.
There's a key distinction here: While the money in your pocket is unlikely to just vanish into thin air, the money you could have had, if only you'd sold your house or drained your stock-heavy mutual funds a year ago, most certainly can.
"You can't enjoy the benefits of your 401(k) if it's disappeared," Jorgenson explains. "If you had it all in financial stocks and they've all gone down by 80 percent — sorry! That is a permanent loss because those folks aren't coming back. We're gonna have a huge shrinkage in the financial sector."
There was a time when nobody had to wonder what happened to the money they used to have. Until paper money was developed in China around the ninth century, money was something solid that had actual value — like a gold coin that was worth whatever that amount of gold was worth, according to Douglas Mudd, curator of the American Numismatic Association's Money Museum in Denver.
Back then, if the money you once had was suddenly gone, there was a simple reason — you spent it, someone stole it, you dropped it in a field somewhere, or maybe a tornado or some other disaster struck wherever you last put it down.
But these days, a lot of things that have monetary value can't be held in your hand.
If you choose, you can pour most of your money into stocks and track their value in real time on a computer screen, confident that you'll get good money for them when you decide to sell. And you won't be alone — staring at millions of computer screens are other investors who share your confidence that the value of their portfolios will hold up.
But that collective confidence, Jorgenson says, is gone. And when confidence is drained out of a financial system, a lot of investors will decide to sell at any price, and a big chunk of that money you thought your investments were worth simply goes away.
If you once thought your investment portfolio was as good as a suitcase full of twenties, you might suddenly suspect that it's not.
In the process, of course, you're losing wealth. But does that mean someone else must be gaining it? Does the world have some fixed amount of wealth that shifts between people, nations and institutions with the ebb and flow of the economy?
Jorgenson says no — the amount of wealth in the world "simply decreases in a situation like this." And he cautions against assuming that your investment losses mean a gain for someone else — like wealthy stock speculators who try to make money by betting that the market will drop.
"Those folks in general have been losing their shirts at a prodigious rate," he said. "They took a big risk and now they're suffering from the consequences."
"Of course, they had a great life, as long as it lasted."
It is so hard to even look at public media anymore----it is raging global Wall Street. Here the article sells the idea that NO CORPORATE TAX is good for workers of course----we all know job creation is going to fall----we all know global labor pool brought to US will create mass unemployment of US workers----so there is no plan to end corporate taxes to create jobs.
What this article does state is what will happen-----they are going to eliminate all taxation on wealth and corporations----ergo capital gains and dividends ----and have workers bear the corporate tax burden THROUGH LOWER WAGES. This is what higher taxation on 99% of people will look like----they will move WE THE PEOPLE from a developed world wage with LIVING WAGE being $15 an hour/$30,000 a year-----to $3-6 a day and call those wage losses HIGHER TAXES. This is the goal of ONE WORLD ONE TAX POLICY. Instead of earning $15 an hour 99% of people will earn $3-6 a day ----and those wage differences will pay for lost corporate and wealth taxation.
WE ARE SILENT AS GLOBAL WALL STREET CLINTON/BUSH/OBAMA KILL ALL THAT IS AMERICAN QUALITY OF LIFE---ALL THAT HAS AMERICA AS A DEVELOPED NATION----BRINGING US TO FOREIGN ECONOMIC ZONES IN DEVELOPING NATIONS. ALL OF MARYLAND POLS ARE CLINTON/BUSH/OBAMA----
'Larry Kotlikoff: I think, and economic theory confirms, that in economics in which capital is mobile, workers bear the corporate tax burden, not via higher prices, but via lower wages.
The Common Sense Tax would tax corporate profits as they are earned, but at the personal level. In the process, we could eliminate capital gains and dividend taxation and, as you say, end up with a more just and simpler tax code'.
This is a long article but please glance through---it gives the most current debate on tax reform
Why abolishing the corporate income tax is good for American workers
BY Laurence Kotlikoff February 17, 2014 at 10:36 AM EDT
Ending the corporate income tax may be the best way to make corporations, and not American workers, bear the tax burden that comes with corporate profits.
On Jan. 5, I published an op-ed in the New York Times titled “Abolish the Corporate Income Tax.”
The piece generated a large number of comments, many of which were indignant at the suggestion that we give the rich a huge handout at a time of terrible and growing economic inequality. Since the column explained why abolishing the corporate income tax would help workers, not the rich, and also advocated using our progressive personal income tax system to make up for any loss in revenue, I was surprised at the negative reaction, but not really.
We’re all so politicized and so short on time that all it took, in this case, was a five-word title (over which I had no control) for my critics to conclude that I was a) nuts, b) a pawn of the capitalist class, c) a right-winger and d) someone to be set straight — all before they even skimmed the contents of what I’d written.
After working out my frustration with Paul Solman on the tennis court to little avail, since his forehand is getting more vicious by the day, I raised with him the idea of answering some of the comments on his Making Sense page.
He generously agreed, not because he felt guilty about demolishing me yet again at tennis, but because he realizes I’m neither a, b, c, or d, and that our country desperately needs to have open non-partisan discussions of critical policy reforms. Accordingly, Paul proposed I answer the letters responding to my column that were published in the New York Times on Jan. 11.
I answer them below, but first, some background. My op-ed reported on a recent co-authored study showing that eliminating the corporate income tax and making up any resulting lost revenue with higher personal income taxes would produce major increases — north of 12 percent — in the real wages of today’s and tomorrow’s workers.
The intuition for this result is the well known (to economists) proposition that those who bear the economic burden of a tax aren’t necessarily those whom the government says have to pay — as in remit — the tax.
Take apple farmers who are now receiving 50 cents per apple and are suddenly told by the government to pay a 10-cent tax per apple sold. Now suppose the apple producers aren’t willing to produce any apples whatsoever unless they net exactly 50 cents per apple. In this case, they will react to the tax by cutting back on their supply of applies until they force the pre-tax price of an apple up to 60 cents.
With apple demanders paying 60 cents per apple, the suppliers will net the same 50-cent price per apple after handing the 10-cent-per-apple tax to the government. If the suppliers who “pay” the tax aren’t hurt by the tax, then who is?
The demanders bear the burden of every cent of tax collected, but they do so in the form of paying higher consumer prices. So even though the apple producers actually mail the government the tax proceeds, they aren’t really paying (being hurt by) the apple tax.
In the case of the U.S. corporate income tax, the ability of corporations to avoid the tax, not by producing fewer apples, but by producing abroad, means that workers in the United States will have fewer companies soliciting their services. This, in turn, will mean lower real wages than would otherwise be the case. Consequently, it’s the workers, not the rich owners of U.S. corporations, who end up being hurt by the corporate income tax. Hence, if the U.S. cuts its quite high corporate tax, indeed eliminates it, this can be a good thing for workers.
With this background, let me respond to these letters.
To the Editor: Re “Abolish the Corporate Income Tax,” by Laurence J. Kotlikoff (Op-Ed, Jan. 6):
For decades corporate income taxes have dropped without benefiting working and middle-class America. Chief executives now make 270 times more than the average American worker, whose real wages have fallen since their peak in the 1970s.
As most workers in America have seen their hours, wages and benefits shrink, corporate taxes have gone down, job creation and growth have gone down, and corporate profits and executive compensation have skyrocketed.
So why does Mr. Kotlikoff think that it will be different this time around? For whom does he think that it will be better? If the past predicts the future, it will not be the American workers or the middle class who benefit.
CARRIE GOLDWATER GOLKIN
New York, Jan. 7, 2014
Larry Kotlikoff: You are confusing the marginal and the average corporate income tax rates. The U.S. marginal corporate tax rate — the tax paid on an extra dollar of profits — is perhaps the highest of the developed world. In contrast, the average tax rate — the amount of total taxes actually collected divided by total profits — is quite low thanks, in part, to companies producing abroad to avoid the high marginal tax.
In the extreme, we could have a 100 percent marginal corporate income tax, which would drive out all corporations and, therefore, produce zero tax revenue.
So yes, Carrie, the average corporate tax rate is very low. But the marginal corporate tax rate in the U.S. is very high. The point of my op-ed was to draw the distinction between the marginal and average tax rates and point out that the main impact of our corporate tax today appears to be to discourage production within the U.S., not to collect revenues.
Turning to executive pay, I agree that it’s insane. I’d happily run any top Fortune 500 company for far, far less than the CEOs are earning. (See, for example, my offer to run Barclays. ) But I don’t think the main impact of cutting our corporate income tax will be to further enrich CEOs. I think the main impact will be, as it was in Ireland, to expand corporate production in the U.S. and, in the process, raise real wages.
As for CEO compensation, my hunch is that it reflects, in the main, back-scratching deals between CEOs and members of boards of directors. The CEOs appoint their buddies as directors, pay them handsomely to serve, hold board meetings in exotic retreats, and then invite them to vote on the CEOs’ compensation. Something’s very rotten with this system, and it needs to be fixed probably by having independently appointed board members determine CEO compensation.
To the Editor: Laurence J. Kotlikoff doesn’t mention some key facts.
First, the personal income tax would have an enormous loophole for the rich if we didn’t also have a corporate income tax. A corporation can hold on to its profits for years before paying them out as dividends. With no corporate income tax, rich people could create shell corporations to defer paying individual income taxes on much of their income indefinitely.
Second, even when corporate profits are paid out (as stock dividends), only a third are paid to individuals rather than to tax-exempt entities not subject to the personal income tax. If not for the corporate income tax, most corporate profits would never be taxed.
Third, the corporate income tax is ultimately borne by shareholders and is therefore a very progressive tax, which means that repealing it would result in a less progressive tax system. The Treasury Department concludes that 82 percent of the corporate tax is borne by the owners of stocks and business assets, who mostly have very high incomes.
ROBERT S. McINTYRE
Director, Citizens for Tax Justice
Washington, Jan. 6, 2014
Larry Kotlikoff: In my op-ed, I wrote,
Eliminating the corporate tax and raising income tax rates or lowering the corporate tax rate and eliminating its loopholes are not the only options. Elsewhere, I have proposed eliminating the corporate income tax, making shareholders pay income taxes on their companies’ profits as they accrue. This leaves companies with no tax reason to avoid operating in the United States but ensures that shareholders, not wage earners, make up for any revenue losses through higher personal tax payments.
The tax reform I proposed, called The Common Sense Tax, doesn’t let the rich avoid paying taxes on their worldwide corporate profits. Instead, it forces them to pay taxes annually and at the personal level on these profits as they are earned. And since taxes are paid by shareholders as they are earned, there is no need to worry, as you are doing, about having corporations shelter profits.
Again, their annual profits would be calculated and imputed to their shareholders for immediate personal taxation. And the shareholders would owe the same tax on their corporate profits regardless of how much corporate profits were either retained or paid out in dividends.
Finally, you write that “the corporate income tax is ultimately borne by shareholders and is therefore a very progressive tax, which means that repealing it would result in a less progressive tax system.”
To see the fallacy in your statement, let’s divide the world into U.S. workers, rich U.S. shareholders, rich foreign shareholders and foreign workers. If we raise the U.S. corporate income tax to 100 percent, all U.S. corporate production would move offshore. U.S. workers would suffer terribly, foreign workers would benefit greatly, U.S. shareholders would be hurt somewhat and so would foreign shareholders.
The key concern I have, and I believe you share, is about U.S. workers. As my study shows, inducing companies to produce in the U.S. by lowering the marginal U.S. corporate income tax will benefit American workers. And doing so by imputing corporate profits to shareholders for taxation at the personal level will preclude benefiting the rich.
To the Editor: Laurence J. Kotlikoff offers an example of how corporate tax reform is an issue that can unite Democrats and Republicans, as well as corporations and workers.
President Obama, Speaker John A. Boehner and leaders in both parties have called for reforming America’s corporate tax code to lower the world’s highest rate of 35 percent to a competitive level and to simplify the system. As the recent budget agreement between Senator Patty Murray, a Democrat, and Representative Paul D. Ryan, a Republican, shows, the country is hungry for bipartisan agreement, and there is no better opportunity than the simplification of the corporate tax code.
Labor and business, left and right, have come together before to reach deals that have boosted America’s economy and created jobs. Mr. Kotlikoff is right that jobs don’t come out of thin air. Now is the time for compromise that leads to sustainable economic growth, higher employment and creation of those jobs.
JAMES P. PINKERTON
Washington, Jan. 8, 2014
Mr. Pinkerton is a former domestic policy adviser to Presidents Ronald Reagan and George H. W. Bush. Ms. Kamarck is a former adviser to President Bill Clinton and a senior fellow at the Brookings Institution. They are co-leaders of the RATE Coalition (Reforming America’s Taxes Equitably).
Larry Kotlikoff: Thanks for your letter, with which I fully agree.
To the Editor: Laurence J. Kotlikoff rightly points out the economic benefits of eliminating the corporate income tax. Even though consumers ultimately pay these taxes through higher prices, political support for eliminating it would be difficult to come by, especially on the left.
However, if we eliminated special treatment of capital gains and dividends at the same time, we could garner wider support and realize a more just and simpler tax code.
San Francisco, Jan. 6, 2014
Larry Kotlikoff: I think, and economic theory confirms, that in economics in which capital is mobile, workers bear the corporate tax burden, not via higher prices, but via lower wages.
The Common Sense Tax would tax corporate profits as they are earned, but at the personal level. In the process, we could eliminate capital gains and dividend taxation and, as you say, end up with a more just and simpler tax code.
To the Editor: Eliminating the corporate income tax won’t help American workers because there’s no real-world evidence that lower corporate taxes lead to economic growth.
What would really help working families is having corporations once again pay their fair share of taxes, so that we can adequately finance new investments in education, medical research and infrastructure repair to grow the economy. That means closing offshore tax loopholes that reward corporations for hiding profits and shipping jobs overseas.
In the 1950s, corporate tax receipts represented about a third of federal revenue; now they make up only 10 percent. When corporate taxes decline, everyone else pays more to make up the difference, or loses valuable services and benefits. American workers win when corporate tax loopholes get closed.
Executive Director, Americans for Tax Fairness
Washington, Jan. 6, 2014
Larry Kotlikoff: I think we are talking past each other to a large extent. The Common Sense Tax does eliminate all loopholes by imputing to shareholders the global profits earned by their corporations as they make those profits. But by taxing global profits this way and not differentially taxing profits made in the U.S., corporations will have no incentive to produce abroad rather than in the U.S.
To the Editor: While Laurence J. Kotlikoff may characterize his proposal to eliminate corporate income tax as the product of a “nonpartisan research group,” the evidence suggests otherwise. The Tax Analysis Center, which sponsored his work, is a project of the National Center for Policy Analysis. That organization, at which Mr. Kotlikoff is a senior fellow, is a right-wing policy think tank that advocates ideas in furtherance of free market economic policies and that receives substantial financial support from foundations set up by the Koch brothers and the Sarah Scaife Foundation, among others.
Given these associations, Mr. Kotlikoff’s proposal, which sounds like the discredited trickle-down economic theories of the ’80s, can hardly be characterized as nonpartisan, nor, it seems, is he.
EVAN J. McGINLEY
Evanston, Ill., Jan. 8, 2014
Larry Kotlikoff: If you go to www.taxanalysiscenter.org you will find this statement:
The Tax Analysis Center is a project of the National Center for Policy Analysis, which is providing current funding for its work. The center uses models developed over two decades by Boston University economist Laurence Kotlikoff. Development of these models was funded directly or indirectly by Boston University, the National Institute of Aging, UCLA, Yale University, Boston University, Harvard University, the University of Pennsylvania, UC Berkeley, the University of Würzburg, the University of Ulm, the Organization for Economic Development and Cooperation, the World Bank, the International Monetary fund, the National Bureau of Economic Research, the Gaidar Institute, and others.
So, yes, the NCPA, is the current sponsor of some of my tax research, but that research is exploring models that have been developed over decades with the support of a large number of academic and multinational institutions.
I have very deep respect for the NCPA and its director, Dr. John Goodman, whom I’ve known for years. I also very deeply appreciate the NCPA’s support of my research and of The Tax Analysis Center.
I don’t know the specific donors to the NCPA, let alone those that are contributing to support The Tax Analysis Center. They could be the most right or left wing people in the world. That wouldn’t matter one iota to what I write, research, conclude or say.
Our country faces truly terrible economic, fiscal and financial problems. Their solution will not come from partisan analysts, but rather from apolitical experts who can look at the problems objectively and propose solutions, which both sides of the political aisle can embrace.
If you do your homework, you’ll find that I’m not someone on the extreme left or right and that I’ve spent my career doing one thing — good economics. Good economics, like good engineering, is neither left wing nor right wing. Unfortunately, many prominent economists are highly political and closely aligned with one of the two parties. Their often-extreme partisanship has discredited them and the economics profession.
Turning to the donors of the NCPA, I’m sure there are many with whom I strongly agree on specific policy issues and others with whom I strongly disagree on specific policy issues. But the NCPA is not supporting The Tax Analysis Center based on my agreement with its donors. NCPA realizes that the quality of tax analysis being done in Washington — by both parties — is substandard and has agreed to support academic-based, state-of-the-art tax analysis.
When I sought initial funding for The Tax Analysis Center, I approached a number of think tanks and charities, some of which would, from the composition of their donors, be viewed as very left wing and others as very right wing. The NCPA is the first supporter to date, but I’d be happy if you, Evan, were to consider donating as well.
When it comes to supporting truly impartial economic research, a dollar is a dollar and who held that dollar last makes no difference to me or to the work of The Tax Analysis Center.