Category Archives: Finance

Secure Society Tax

The wealthy are different

The rich don’t earn their income through work. They don’t get “paid”. Therefore they pay no payroll tax. And that’s what the Social Security tax is. Instead the wealthy earn their wealth through:

  • Dividend income
  • Bond income
  • Rental income
  • Venture debt income
  • Private equity income
  • Real estate income
  • P2P (peer to peer) income
  • CD interest income
  • Capital gains

All of which are taxed differently (or not taxed at all if you can finagle it.)

So, altering the Social Security taxation model is going to miss one HELLUVA LOT OF WEALTH. It would still work, to some degree. And the corporate inequality tax would contribute substantially. But probably not enough. How do we squeeze these filthy rich people of the funds that they’ve earned as capitalists climbing their wealth ladder made from the backs and bodies of us the worker?

Consumption tax? Not nearly enough. The rich don’t wear more sox, eat more food, drink more beer. And the expensive consuming they do do, maybe 2x to 10x of what the average cost to you and I would be, would contribute practically nothing in tax revenue for our SSI. Expensive cars, boats, homes, condos, planes? Eh, a drop in the bucket compared to what we need.

(We need to raise, oh let’s say $500billion per year to fund SSI. But that’s just a ass-pulled number. I’ll sit down here soon and determine just what we would need to fund this program.)

Still the problem exists — the rich don’t pay their share of their wealth — wealth built from the hard work of EVERY AMERICAN throughout the decades.

As funding sources for SSI here’s what we have:

  • Payroll taxes (SS and Medicare tax)
  • Corporate inequality tax
  • Paltry wealth-income taxes

What else could we tap?

  • Stock Market trading transaction tax?
  • Luxury consumption tax?
  • Luxury property tax?
  • Luxury travel tax?
  • ???

Our security has value

For the most part, in the United States, we live in security. We are secure from invasion. Secure from civil unrest. Secure from property seizure. We have systems in place to assist us in times of natural disaster and financial disaster. Fiduciary, physical and civil insurance infrastructures help protect our investments, our savings, our towns and cities. We have federal, state and local systems to protect us against fire and attack. We have transportation systems secured for safe travel and commerce.

Bottom line: we live in a pretty secure system, for which we all are grateful. If you own a car, rent a home, have a job and a kid or two — you should be thankful. And I bet you are.

But what if you own a building or ten of them? A couple of mansions, a yacht, a jet, a fleet of private vehicles. What if you have millions of dollars of investment in industry, technology, the trading markets? Are these not also protected by the country’s vast and comprehensive security system?

What if you are worth $500 million dollars. How much of that “worth” is actually tied up in the country’s protective infrastructure?

  • Need consistent and uninterrupted electricity?
  • Need pure water and a sewage system?
  • Need roads, bridges, traffic signals, emergency services?
  • Need airports, shipping ports?
  • Need a continuously operating communication system?
  • Need a fast and responsive medical system?
  • Need an education system for yourself, your kids and your employees?
  • Need a full featured legal system?

What if your entire wealth basis depended on every one of these (which it no doubt does)? How much would you have to pay to build all of this yourself in order to be worth that $500M?

As the country’s workers, we pay income tax. We pay sales and property tax. And we ARE the protection system. We ARE the cops, the firemen, the insurance adjusters, the nurses and doctors, the teachers, the soldiers. We ARE the country’s security network. And because we ARE this system — you, the wealthy of the nation, of the world, you need to pay up!

What we need is a Secure Society Tax. You like living in a secure society? Well, that security comes at a cost. The more you own, the more you have, the more you gather — ALL OF THAT NEEDS PROTECTION!

You can’t just live here and benefit from all of this amazing security systems that are the United States of America without coming to the realization that if it were NOT for US, the We the People, you would NOT be wealthy. So, pay up!

Secure Society Tax: 1% of net worth paid per year.

You don’t like paying for the great service and security you receive in the United States? Well then — move.


SSN – Social Security Net

Does it not seem obvious that when it comes to examining a UBI (universal basic income) that we already have a system for distribution of socially sourced funds?

The Social Security program was designed and implemented in 1935 (Roosevelt). It depends on payroll taxes collected through the FICA and SICA and deposited into two trust funds.

(See rejoinders to this theory here)

One of the curious aspects of the law is this: “All income over said amount is not taxed. In 2017, the maximum amount of taxable earnings was $127,200“.

Hmm, so the millionaires and billionaires who rake in the earnings through capitalism’s primary engine — the corporation populated stock market — don’t have to cough up more than any one “human” might be expected to contribute, year over year.

Whaaaaat? Not only don’t the wealthy of the world have to pay appropriately scaled income tax (to support the country as a whole), they don’t have to pay *proportionately* into the Social Safety Net that is there to provide for all the workers, that is, the wealthy’s wage-enslaved workers.  The workers on whom they built their multi-billion dollar empires. THAT doesn’t smell right!

If a society could rein in such income sources, I wonder if the Social Security System might not be the basic income platform the US, at least, could use to begin to create a UBI styled social safety net.

Imagine if instead of upping the age at which Social Security was endowed, we lowered it! What would happen if we lowered the age to get benefits to 50? Provided we could enforce expanded payments by the 1-5%’rs of the world. Could Social Security be lowered to 40 years of age? Might it need to be lowered to such an age in the coming automation onslaught?

I could see that those between the age of 20-40 could be the most active, the most productive, and energetic regarding productive forms of work that society would install a safety-net above that age. By the time anyone reached the age of forty — now you needed serious financial assistance to combat the robots taking your jobs.

I’ve only just started examining Social Security as THE form of a social safety network. But, stepping back and tilting one’s head to the side, Social Security sure as hell looks like the right system to hijack with regards to creating a basic income for all.

Social Security Income SSI

Imagine if the United States had the following policy in place RIGHT NOW.
Assumptions for SSI:

  • Humans live to 100 years of age (with adjustments over the generations).
  • Humans *can* begin receiving Social Security benefits at the age of 40.
  • The monthly income will be a factor of age and financial and economic data constructing a dynamic algorithm which will automatically adjust for inflation, population, and longevity. The point here is to build the algorithm such that Social Security Income determines how the system should work — NOT politicians.
  • The algorithm will scale from a minimum payment at age 40 to a maximum payment at age 100 or Average Longevity (AL).
  • Early benefit election will increase the SS and Medicare tax rate they must pay on actual income earned.

Impact of policy:

  • Some people will opt to begin receiving payment at the earliest possible – 40 years old.
  • This will tend to pull these people from the work force — FREEING UP jobs for the younger generation (20 – 40 years of age). This is how we combat the loss of jobs through automation.
  • Those that continue to work AND receive benefit can then support their dependents, children and grand children, who are not eligible, with their benefits. That is, at age 50, a parent could use the SSI to pay for higher education for their children.
  • Some people will opt to delay their SSI benefits out to whatever age they care to. When they begin to receive their payment, the algorithm will adjust their personal payments based on the age at which they began SSI benefits. This will provide the incentive to delay benefits as long as possible.
  • The end income for a working, benefit enabled 40 year old will still be greater than had they not elected for SSI benefits. But, the greater tax will help offset the extra outlay of the system such that it will behoove workers to still delay benefits for as long as possible.

Steps to accomplish this:

  • Use the EXISTING Social Security system to manage individual collection, accrual, and payment. No new system need be created. The Social Security system already has all the infrastructure, data (SSNs) and investment system to handle this.
  • Raise the ceiling limit for income to be taxed by Social Security. Instead of $127k, lift it to infinity, but scale it. 15.3% (12.4 Social Security, 2.9 Medicare) to $200k/year. Then half that to $500k/year. Then half of that, to $1m/yr. And so on and so forth
Income SS % Medicare % Total %
$0 – $200k 12.40% 2.90% 15.30%
$200k – $500k 6.20% 1.45% 7.65%
$500k – $1M 3.10% 0.73% 3.83%
$1M – $2M 1.55% 0.38% 1.93%
$2M-$10M 0.78% 0.19% 0.96%
$10M+ 0.39% 0.09% 0.48%
  • Include the Employee Inequality Tax the proceeds of which will join the Social Security Funds. This taxes corporations on the level of worker pay inequality.
  • Enact this policy as a gradual shift in Social Security behavior. Break down the changes, the tax increases, the lowering of the benefits eligibility age, over one to two generations.

 


UBI is not the solution

The idea of Universal Basic Income is like a band-aid on a sucking chest wound, it appears as though the situation is solved, but the underlying problem remains.

UBI tries to solve the problem of inequality but will fail at this. Why? Because the problem of inequality can only be solved by the equalization of wealth. Yes, giving cash — outright — to a select few individuals, or group does, generally, lift those people up out of the mire of poverty, or elevate them enough, give them a glimmer of hope so that the specter of impoverishment is pushed to the shadows.

But, give everybody the same allotment of cash and all you’ll do is inflate the currency and we’ll be back to Zimbabwe or the Weimar Republic. The elites will still be thousands of times more wealthy than the median population.

That’s the inequality that will not be cured. That’s why a full coverage UBI will fail.

But what can we do? Well, we could start with understanding why the wealthy are wealthy. If we figure that out, and universally distribute that — whatever it is — then perhaps the inequality will be reduced, eventually, to a socially acceptable level.

So, why are the wealthy wealthy? No doubt there are dozens of reasons we could cite, but the primary one is that they do not work for their income. As Warren Buffet famously said “If you don’t find a way to make money while you sleep, you will work until you die.”

Okay, so what can we do with that thought? Let’s see, if the wealthy let their wealth earn them money, and if this is predominately done with investments in the corporations, the means of production, the growth and expansion of productivity, then somehow we need to get that into the hands of everyone.

What about this: create a financial instrument which can be distributed — UBI style — to every citizen of the country. Let’s say we create an ETF, an exchange traded fund, which is comprised of the rolling top 10000 companies and utilities, include bonds and treasuries in the instrument – a smorgasbord of components that represent the country’s economy.

We take that EFT and we give shares of it away to every citizen, one share per month, for life. We make investors out of every single person in the country, invested in the country itself, its progress, its future.

Some people will turn around and sell their shares right away. That’s okay, let them. They can use that money like the common UBI that has been proposed.

Others will let their shares sit. Accrue. Gain value and multiply. When they need cash for emergencies or buying a house or car, they can sell them then.

We could label this ETF: USAA — United States of America for All.

This would give cash to those who need cash, but for most, I suspect, it would give them a sense of participating in the wealth growth of the nation. Their investment would be making them money – “while they slept.”

This let’s every citizen participate in the economy just like the elites on Wall Street. This distributes Wall Street level prosperity down to Main Street where it’s needed.

GO USAA!

~~~

Sure, this is not the whole solution — the wealthy still have thousands or millions of times more wealth than the median population. And there are solutions for that too — namely progressive taxation…

Employee Income Inequality Tax
https://anonymole.wordpress.com/2016/01/16/employee-income-inequality-tax/

Scaled Tax Schedule:
https://drive.google.com/open?id=1NOAMnmO8XQnUwZbUWDWETC8Bs9jPeTehOj1LGWyMi-4

Scaled Federal Tax Schedule
Individual Income %Tax $Tax $Net
10000 10 $1,000 $9,000
11000 10.1 $1,111 $9,889
15000 10.5 $1,575 $13,425
25000 11.5 $2,875 $22,125
50000 14 $7,000 $43,000
75000 16.5 $12,375 $62,625
90000 19 $17,100 $72,900
100000 20 $20,000 $80,000
200000 21 $42,000 $158,000
300000 22 $66,000 $234,000
500000 24 $120,000 $380,000
1000000 30 $300,000 $700,000
10000000 40 $4,000,000 $6,000,000
100000000 50 $50,000,000 $50,000,000
1000000000 60 $600,000,000 $400,000,000

Trading & gold mining: useless professions

To society gold mining is a useless profession.
The same is true for market traders.

What good is gold? It turns out gold is practically useless. A fraction is used in electronic circuits and an even smaller amount is used on the helmets of spacesuits or the surface of space telescopes. And it’s worn as a decoration, like beads of shell or glass ornaments for glamour and prestige. Other than that it’s pretty much useless.

Yet huge industries have been built, massive migrations of humans have traversed the lands and sailed the seas, all to converge on a location to shred the landscape, strip it of dignity, and tweeze out minute particles of Au. For what? Well, gold is money of course.

Only, it’s not. Gold has no real “value” to society. It’s only so called worth is that it’s rare, like gems, and as such coveted by humanity. You can’t eat or drink it, wear it (as clothing), use it to build structures or vehicles with, or make weapons or tools with. It’s, for all societal practical purposes — useless.

Yet still there are companies that dig for it. People who live for it. Television shows that exploit it. It’s a massive industry.

Hmm. Useless to society but huge investments of time and money and human effort put forth to pursue it. Kind of like market trading.

Market traders: day traders, high-frequency traders (and their algorithms), swing traders, proprietary trading shops, traders of every stripe, traders who don’t care a whit about the underlying trading vehicle, crude oil, or IBM, EURUSD, or VIX, or some derivative of any of these, these traders have no purpose.

Society does not need them. Just like society does not need gold miners. Both are useless professions.

Yet billions of dollars are spent to perfect the process and train the people. Billions of dollars that would be so much better spent for true societal needs. Worse still, thousands of the brightest minds and, like the gold miners — hardest working — people are lured into this emotionally empty and ultimately unfulfilling occupation.

Here’s a simple test to see if your job holds societal merit: if every trader or gold miner on the planet, today, chose to do some other society benefiting occupation, what would happen to the world? Would it stop? Would chaos ensue?

If every trader or gold miner quit today and did something else, something positive with their life, the world would instantly be a better place. Investors could still buy their stocks WITHOUT traders. Companies and farmers and produces could still trade commodities WITHOUT traders. Money would still exchange hands across borders through FX channels WITHOUT traders.

The system is setup to do all of this without the need for vampire like traders sucking drops of money like grains of gold from the machine that is the world market system.

Oh, but traders make it so much more efficient! No they don’t. That’s a rationalization for their existence which frankly just doesn’t work.

Just like gold miners have no real purpose in society, neither do market traders. They just don’t.


A call to periodic auction markets

Professor Budish,

I’ve read your papers on auction markets with increasing conviction that you have a fundamental understanding that when it comes to the exchange of value for value, between market participants, a human timescale might be a reasonable goal for all manner of exchanges.

I’ve long held that the speed at which equity, futures and even foreign exchange markets are executed is one which benefits no one but the exchange agents and society none at all. When it comes to trading anything, value for value, that such transfers need only ever occur at human conscious frequencies. I’m curious as to what your opinion of such a position might be.

When humans transact in any exchange, outside that of the financial markets, they do so at humans speeds. When you buy a car, it make take days or hours. When you buy a coffee, a minute perhaps. When you sell an item on eBay or Craigslist, hours to days. And even, when, as an investor, you move to purchase or sell shares in an ETF or equity, you do so with hourly, daily, if not weekly deliberation. Humans trade at human speeds.

Why so must we be told that the financial markets must transact at microsecond frequencies? Are not all of these transactions done for human purposes? What overarching body dictates that when it comes to Wall Street, that we must abandon our human heritage and be forced to do business at speeds which, frankly, only benefit Wall Street?

Your theories on auction technologies applied to markets mirrors beliefs I’ve been developing for some time, years and years. Specifically, that periodic auctions can allow fair value to be exchanged, that price discovery can be done at human understandable frequencies and that the need for technology, beyond that required to execute the auctions, record the transactions and perform the clearing, is not required.

By embracing auctions executed periodically at daily, hourly or if necessary, minutely frequencies, we can cleanse the markets of those whose sole industry is the extraction of, as you say, “rent”, from the machine that is the market exchange. Like grist from a mill, traders sap friction produced income which benefits only them. True investors, those whose intentions are to act with future purpose, have no need to feed these parasitic traders. Periodic auctions can eliminate such so called jobs in the finance sector; sending those, with no doubt high intellect, back into society where they might enjoin society benefiting occupations.

My core tenet is just this, at what cost to society does the furious frequency of the finance industry operate? What benefit, across all of society, is provided by this sector? And is it not in society’s best interest to guide the practice of exchange, value for value, toward a more reasonable frequency? Using a periodic auction, I believe, is the key.

My ideas are radical. I admit. I hope however, you might have insight that may parallel them, however slightly.

Many thanks for any reply.