The New Year’s Resolution concept should be expanded.
It’s a valid concept for us, our government and its politicians. In the business world, New Year’s Resolutions are called Strategic Plans. It sounds more sophisticated and important facilitating focus which increases the probability of realization.
Strategic plans formally identify areas needing improvement, develop a solution and strategy for implementation. Effective strategic plans are specific in need and solution. A legislator saying “Our financial relationship with China isn’t good” or “We need to improve the income tax system” may provide worthy goals but are too broad. It’s hard to develop a definitive, effective solution when need isn’t specific.
Chances of success are increased if the solution utilizes factors already available; a new outside the box approach. The following two items are worthy of consideration for inclusion in a legislator’s Strategic plan and meet the above criteria.
Chinese purchases of our goods and services should require payment with US Treasury Bonds instead of Chinese yuan. Why? The Chinese government centrally controls their currency. It isn’t backed by any asset of value and they don’t publish the amount of money in circulation. This enables them to artificially affect currency markets.
They hide governmental expenditures, sources and amounts of revenue received through tariffs, fees and taxes. Consequently, their currency is nothing more than numbers on a ledger. If they need more money, they add money to their ledger account. They don’t have to increase revenue or borrow money. They don’t have to worry about balancing debits and credits. When buying our goods and services, we receive nothing of value. They transfer numbers, at the current conversion rate, to our ledger account.
One might argue we should require them to pay us in actual Yuan, but they can print whatever they desire because no one knows their actual money supply. Consequently, the supply and demand factors determining currency values aren’t applicable.
China currently owns $1.1 trillion in treasury bonds and last year purchased $170 billion in U.S. goods and services providing significant opportunity to utilize this strategy every year.
The government must still pay back the bonds, with interest, to the U.S. company now possessing the bonds because they supplied the goods and services. But the money is in our country available to be spent or invested in our economy.
Why would China agree? We can provide motivation through leverage. Economically, we are their largest consumer and they the world’s largest importer of food. Our largest imports from China: consumer toys/games, electronic equipment, furniture, consumer apparel; hardly necessities. Their largest imports from us: transportation equipment, computer technology, chemicals, oil/gas and food. If push comes to shove, they need us more than we need them.
A domestic strategic plan item would be to eliminate income tax deductions for individuals. This eliminates the tax loopholes only some can utilize. The December 2017 tax law has made this logical and feasible.
One provision doubled the standard deduction — the deduction available to everyone without having to provide any record of eligible expense or deduction. The 2017 standard deduction was $6,350 for individuals, $12,700 for couples. In 2020, it will be $12,400 for individuals, $24,800 for couples.
According to the Joint Committee on Taxation, 54% of individuals itemized deductions in 2017; 12% in 2018; estimated to be 10% and 9% in 2019 and 2020, respectively. The reason? With the higher standard deduction fewer people have itemized deductions in excess of the standard deduction, simplifying the tax return of over 40% of taxpayers.
The main deduction pushing a taxpayer over the standard deduction, whether now or in the past, is the deduction for mortgage interest. To generate $24,800 in interest, requires a mortgage balance of $620,000 at 4% interest. Most family homes aren’t valued at $620,000 let alone carrying a balance of that amount. If most people can’t utilize a deduction, why not eliminate it.
Yes, there are other deductions such as property taxes, charitable, but most can’t pass the $24,800 standard deduction level without mortgage interest. Consequently, eliminating the lesser deductions make sense.
Getting something passed in our partisan legislative environment, requires both sides getting something they want. Democrats want more tax equity and the rich to pay more.
Eliminating all deductions except the standard deduction means it’s the same for everyone: rich, poor, middle. The standard deduction generates a greater tax reduction for those making less money. The rich would pay more because the standard deduction would reduce their taxable income by a smaller percentage.
Republicans want lower rates and simplification. With no other deductions, everyone’s tax liability at current rates would be higher because their taxable income would be higher. Consequently, tax rates could be lowered and generate the same amount of tax revenue. If determining your tax liability is income minus standard deduction simplification is achieved.
A positive by-product would be time and money saved on tax preparation. In 2017, Forbes magazine estimated $29.6 billion was spent on tax software and preparation fees to accountants and attorneys. Simplification would generate over $20 billion to spend as we see fit and benefit our economy.
Forbes also estimated we spent 6.1 billion hours trying to do our own taxes or maintaining the paperwork and records for our tax accountant. At just $20 per hour this amounts to over $120 billion in lost earning opportunity and productivity.
It’s our personal responsibility to encourage our legislators to adopt a New Year’s Strategic Plan that would benefit our country and its citizens. These are “out of the box” solutions, but sometimes they are the ones most “electable.”
It’s been said “our mind is like a steel trap.” But for some that might mean it’s closed and rusty. Our mind is like a parachute. It works best when open.
Bryan Whiting feels most of our issues are best solved by personal responsibility and an understanding of non-partisan economics rather than government intervention. Comments and column suggestions to: bwpersonalresponsibility@gmail.com
