I would like comments on the following proposal to replace welfare with
Thanks, Tom (a 3 page post rather than an attachment)
(Bryan, please confirm it goes to the list? Thanks)
The Tax Loan program- replacing the welfare state
A Tax Loan is given by the gov't to a specific person, and is repaid by that
1) Tax Loans can replace gov't grants with loans.
2) Taxes repay the loan.
3) A small loan repayment surcharge (loan tax) also repays the loan.
4) In a Tax Loan program an explicit, honest social contract replaces the
current imprecise and uncertain tax-benefit mixed contract.
(Legal persons, like corporations, could be eligible for such loans as
Most voters want benefits, from the gov't, using Other People's Money. This
desire is part of the social contract espoused by Rousseau, the vagueness of
which makes it both unenforceable and essentially dishonest.
If this entitlement benefit was instead a gov't Tax Loan, and repaid by the
recipient, it would be using the taxpayer's own money, and be an honest,
explicit social contract.
A large portion of the immorality of taxes and entitlements is the fact that
you are forced to pay taxes to benefit others. If your taxes go mostly to
benefit yourself, the immorality goes down. Also, naturally, the desire for
a new gov't entitlement will also be reduced.
An explicit purpose of a tax loan program is to reduce the desire for
entitlements, especially from the rich and middle classes. Including a
repayment surcharge enhances this effect.
A Tax Loan program can, in principle, answer the anti-freedom question: What
about the poor? The answer becomes, offer the poor a tax loan. With
explicit conditions, and a real tracking of individual agreements; and
certainly increasing the known facts about each poor person who is unable,
or more likely unwilling, to pay back the tax loan. (Unwilling in the sense
that they are unwilling to adjust their lifestyles to be able to become
The interest rate on the loan (if any), and the level of taxes which go
towards repayment will be good gov't discussion issues, as will be the
levels and forms of the repayment surtax. This is important because
democratic governments must be actively doing something to be reelected.
Similarly, once enacted for people, such tax loans can also be used to
reduce corporate welfare for big, questionably run corporations looking for,
and now receiving, gov't handouts.
An obvious starting program would be a large Tax Loan for education (eg in
Example program: an automatic $20 000/ year education Tax Loan. After 4
years, the graduate borrowing the maximum would owe $80 000. Half of his
income tax (50%) goes to reduce this, yearly, and the Tax Loan balance is
recorded just like a real loan. PLUS, if he makes more than the average
($30 k?), he pays some surtax, say 10%, on that amount, which also goes to
reduce the tax loan.
Such a Tax Loan program would operate in some specific economic environment,
The income tax rate is a flat 20% (for illustrative purposes; a little
wishful thinking). Average income is $30 k/ year, which continues (instead
of realistically increasing). A surtax of 10% on the amount over average is
also levied. While the surtax would prolly be pre-tax, for the following
examples this is ignored; similarly while there would be some interest rate
(eg the avg. prior year's Fed rate), the examples ignore this.
Individual Example (med success): one graduates and makes $40 k/ which
increases by $5 k/ year.
The grad pays an income tax of ($ 000) 8, 9, 10, 11, 12 over the next 5
years, half of which goes to pay off the tax loan. He also pays 1, 1.5, 2,
2.5, and 3 ($ 000) in surtaxes. Thus his loan repayment the first year is
4+1=5 ($ 000); with the following years: 6, 7, 8, 9. So his Tax Loan
balances starts year 0 at 80 ($ 000) and follows: 75, 69, 62, 54, 43.
Almost half way repaid after 5 years.
Individual example 2 (avg): a graduate makes only $30 000/year, no
increases. No surtaxes. A flat $6 000/ year paid in income tax; $3 000
goes to pay off Tax Loan. After 5 years, $15 000 is repaid, he owes $65
The point is to keep track of the gov't benefits, and put them in tax loan
accounts, so that more middle class folk honestly pay for their own
benefits. While using only 50% of the taxes paid may be needed to avoid
initial strong gov't opposition to such a program, increasing that portion
towards 100% will be an increasing desire of voters who are paying a surtax.
The surtax, which increases gov't revenues through voluntary means, is why
the pols in gov't will support the a Tax Loan program.
Yet that surtax will go a long way towards reducing the DEMAND for gov't
benefits/ gov't power. Which is why freedom lovers should support such a
Other future Tax Loan programs:
An Unemployment Tax Loan /