Fwd: Tax Loans
A Tax Loan is given by the gov't to a specific person, and is repaid by that person's taxes. 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 well.) I think first you would have to clarify why this method is superior to private funding institutions -- e.g. insuffient student loans are a good example of market failure due to a variety of factors -- creating a government body to record information that would help private firms make sound investments would seem to help efficiency and avoid a lot of other problems with putting bureaucrats in charge of our private investment structure -- also, there are some reasons to think that private markets do not provide such loans for a reason aside from information costs -- e.g. a high drop-out rate among state university students who cannot then repay loans out of future earns, which paired with administrative costs of enforcement, etc probably would push the effective rate of interest on successful graduates past usury standards. Reasons 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 productive.) All kinds of efficiency and political problems come up if a significant portion do not repay their loans -- some of the reasons that these people cannot get loans from the private sector may be good reasons -- in other words, the policy may create a large amount of inefficiency. Further restraints (job training, case workers, etc.) might be put into the plan, but that makes the plan increasingly parental. 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. Not charging any interest creates a horde of moral hazard and efficiency problems. Here also, I suspect the tendency would be to charge repayments rates which will never be paid off, a la social security. Also, how do we restrict old people from these loans -- it is hard for seniors to get loans (that they can't back) from the private sector for a reason. An obvious starting program would be a large Tax Loan for education (eg in California): 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. Is this any different from a two-tier "progressive" tax for loans? Such a Tax Loan program would operate in some specific economic environment, for example: 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 exam
Tax Loans
I would like comments on the following proposal to replace welfare with gov't loans. [EMAIL PROTECTED] 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 person's taxes. 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 well.) Reasons 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 productive.) 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 California): 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, for example: 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 $65 000. Micro considerations 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 po