Power to Choose Educators & Schools

New Structure for Public Education

In this proposed re-structuring of public education the current school district concept is divided into:

  • Public School Infrastructure (school district)

  • Public Education Provider Organizations

In this proposal the State underwrites education, but local boards run assets, meaning the infrastructure, the buildings and grounds and other capital assets. Local boards maintain those assets from provider funds.

Education is paid for by local users of education primarily, but assisted by the state, by local residents and businesses and by other interested parties who may want to fund special curricula.

Power To Choose

Like competition in electrical supply to consumers, where the electrical generation and transmission to consumers is separated from the poles and wires of the electric grid, and competition is among electrical providers for consumers over a common infrastructure, educational competition is among teaching (educational) providers in the delivery of education to the student. Education providers compete for students to learn using the provider’s curriculum at the exact same location as all other providers. The school is still the school (and owned by the school district), but educational providers offer their learning programs inside the same infrastructure of buildings. Visit www.PowerToChoose.org to see competition in action.

Learning may be targeted at any age group, including mature adults, retirees, working people, high school graduates, middle-school aged teenagers, children and so on, on a variety of subjects and curricula.

Some education providers may have a laptop, desktop or tablet computer for each child and various other sophisticated technology, while other providers may rely solely on written materials and teaching on the traditional blackboard. They compete right next to each other in adjacent classrooms owned by the school district. The better methods and teachers win.

Generation, Distribution, Consumption

In electric competition, generators supply electricity on a synchronized basis to the grid over transmission infrastructure to the distribution grids that take the electricity down to levels that consumers can accept the electricity into their homes for use. Final electricity providers also supply other services to consumers to enhance their product offering, like hourly readings, time-of-day rates and so on.

Competition for consumers is available over the common distribution grid (poles & wires) and allows a consumer to select a provider of electricity to generate power, deliver it over the distribution grid, measure usage at the smart meter at the drop from the distribution grid to the consumer’s premises.

Generators (providers) operate off natural gas, diesel, nuclear, wind, solar and other raw energy sources to make electricity by companies like TXU, Reliant, and so on.

Poles & Wires (the distribution grid) are owned by Oncor, for example, and regulated by law.

Consumers decide what energy source mix they want to use and what price looks best for them. The pricing includes a charge for pass-through by the distribution grid (Poles & Wires) owner(s).

Students: Consumers, Schools: Poles & Wires, Providers: Generators

Similarly, in education the State supplies core educational goals and materials for a large chunk of the educational curriculum, that can be used for that purpose in a state-wide transmission-shipping network. Providers bring their own or state materials for all optional, supplemental or enhanced education. School districts supply buildings and infrastructure, and supply utilities and common services on a shared basis to all education providers in its buildings.

De-regulated education is enabled by dividing regulated educational institutions, which are buildings and other facilities funded and paid for by taxpayers that do not offer education itself from de-regulated education providers, who can bring their own methodologies, equipment, materials and personnel to provide education to the public. Providers divide their offerings by age group and subject matter and must meet educational goals and other standards set by the state if any.

Taxpayers are guaranteed not to have to pay more than 20 years on any facility the regulated school district entity builds, and education providers fund the maintenance of those same facilities through their fees.

Educational providers collect fees from students, donations from local businesses and organizations, vouchers from parents supplied by state and district, if available, and other sources, like PTA’s and volunteer groups. Some education providers will have all-volunteer staff or some mixture of paid and volunteer. We should let the local market and culture decide.

ERCOT and Facilities Planning for Education

Electric Reliability Council of Texas (ERCOT) studies population movements, consumption, and economic trends to recommend changes to electrical suppliers and the Texas grid.

Any time the schools entity projects that capacity is insufficient to meet the needs of the community they can float a proposal to the taxpayers to modify or add on to existing facilities to provide a specified capacity that supports specified capabilities at a specified cost and estimated time to pay back the cost within 20 years. School planners can also propose multi-million dollar facilities to be shared across the whole district or wider, even.

The days of a handful of elected board members deciding to obligate taxpayers to tens of millions in future taxes to pay for a stadium that threatens to collapse a couple of years later needs to end, and end abruptly. No more indenturing future property owners with massive debt without an approval vote.

Using a ballot referendum revealing projected need, capacity and cost information, taxpayers can reject a proposal offered or can approve it to design and build additional facilities. When more than one option is available, the school district may present a choice of options to the voters or a straight up-or-down vote on the option it considers best. But we should be wary of take-it or leave-it and advisory votes.

Note that the buildings may need to accommodate a variety of body sizes in the toilets and other facilities, and that security may be a tricky subject to tackle. Age groups are often not mixed in traditional schools, although they may have been in the 19th century. It is not clear why age groups were segregated, except that security of younger students may be an issue.

Any time the school district projects that excess capacity exists or will exist, it may conduct a referendum to dispose of a facility and return the proceeds to the taxpayers after all debt is paid off.

Incumbents and Capital Accounts

A regulated school district may also be an educational provider if it so desires through a separate provider entity. A school educational provider entity must compete fairly with other providers and cannot undercharge or overcharge for its students. All providers who qualify are afforded the opportunity to use the regulated school district facilities by paying the appropriate operating costs and maintenance proportionate to its use.

Who pays what is important in this re-structuring of education. Taxpayers have been on the hook for both paying for buildings (now to be owned by the district) and teaching (now done by a separate education provider).

Initially, nothing should change, because re-organizing staff and finances is traumatic. As when TXU split into Oncor and TXU Electric, school districts need to split into School District and Education Provider. Their finances must be kept separated. Local taxes fund the amortization of school district bonds. All taxpayers in effect become stockholders in the school district. CoServ divided its capital assets and created funding for the infrastructure side of its business that consumers effectively owned. As “profit” accumulated each year, CoServ paid its consumers in proportion to their accumulated billing payments.

The school district will be paying down its debt over time, amortizing the amount borrowed, resulting in equity building up in the value of the facilities. Buildings are maintained by provider funding, keeping them fungible at a stable or increasing value. If a “profit” or return of equity situation occurs, those that paid in will be paid back. Return of capital can occur if a building is sold, for example.

Reduced Payback Period for Bonds

It is important that all bonds and borrowings issued are not of terms exceeding 20 or so years and voters get to approve of all bonds. No taxpayer can be expected to pay for his whole life with no prospect of relief. A family may buy a new house in a subdivision that just voted to add a school in a bond election, and after it’s built send their children to that building. But after 14 years or so, the family no longer needs the school, unless they have more children in their home. So, the fairness of paying for a building that they can make little use of comes to the front. Bonds should never be used for short-term assets.

If a building is put up using bond money and the bond is paid off after 20 years, then what is the taxpayer sending money to the school district for? The portion of taxes for paying off the bonds should end after a reasonable time. A family may finish sending its children to school after 20-30 years. We can plan on reducing the taxpayer’s load significantly after they have paid for at least 20 years and finished sending their children through the educational system. Typically, this 20-30 years coincides with normal retirement age, although it may occur later or earlier than 65.

The difference in monthly payments of a 40-year bond and a 30 is about 14%, while a 30 vs a 20 is 27% or 19% for 22. Shorter payback periods result in slightly or somewhat higher payments but massive savings.

Taxpayers need to be relieved of taxes to pay back bonds eventually if they have no school-aged children in the system and have already paid for decades. Education is not provided by the buildings themselves.

As to the educational portion of schools, not the infrastructure, a transition from paying a single amount to the school district to splitting the payment into district infrastructure and education provider payments is needed. Right now the state sends funds for education, but it is at least partially used to pay off debt for infrastructure. That funding of debt needs to end.

The state should continue paying a portion of education, and as part of the transition, vouchers should be issued to every registered family with a school-aged child.

Voucher Eligibility and Issuance

To register to receive vouchers a family or a guardian must apply to the state via the district where resident. Only citizens may apply or other lawful residents, such as military personnel posted in the district or lawful immigrants. The state must establish who is eligible, including how long a person must reside in the district or lawful exceptions, such as transfers from other eligible districts. The definition of citizenship and resident must be spelled out in the law to prevent arguments and possible judicial cases.

Initially, the vouchers can be used only for any captive (incumbent) school district educational provider to get people accustomed to paying that way. Over time, new non-incumbent, challenger providers will appear and vouchers can be used to fund those providers in the same school district facilities or to fund the incumbent provider.

Of course, the old school district needs to release parents from the obligation to use the school district’s incumbent provider. Basically, a parent can choose to use the voucher at any educational provider that meets state standards, including home-based education. We can expect chartered non-profit, profit, incumbent government (non-profit) education providers, all meeting state standards.

At the same time, the local taxing authority also collects taxes that in part fund educational providers. So, a second voucher will be issued by the local taxing authority for the education portion. Parents will initially be able to use the second local voucher only at the incumbent provider. After a transitional period, the second voucher will also be usable with other providers, including home-based schooling.


It will take some time for educational providers to plan for the next academic year and can do so after knowing the estimates of voucher amounts, market demand for their planned services at anticipated price levels, costs of providing labor and materials for their offerings

Hopefully by the time both vouchers are usable with alternative providers there will actually be other educational providers. We should expect some degree of disruption in the whole process as providers come on-line, compete and some fail. Failure is just part of competition. Right now we have major failures in some school districts, and they need to change. Some school districts are currently successful, and they will more than just survive competition, primarily because parents will elect to remain with successful incumbents.

Home schooling, alternative, charter and remote learning are all options that will flourish under a competitive system. As education transitions out of brick-and-mortar based school districts to more 21st century methodologies other learning approaches will become prevalent. Education will no longer be confined to K-12 and college. Costs are expected to drop significantly and choices grow exponentially.

Perhaps the state can enable the process of transition for every district, but allow parents to opt out of competition as a family decision initially. A transition period that lasts longer than the depreciation period of school-owned short-term assets would be unnecessarily long. Parents would, effectively, receive the state vouchers and district vouchers (and be notified), but they would be paid directly to the educational provider. Later, they should be able to join in competition, if they so desire, and actually receive the vouchers in hard form. Some districts will embrace competition readily and lead the way, while competition will effectively dismantle district schools that under-perform.

Security for vouchers would be a concern so as to prevent forgery and duplication. Electronic distribution should be enabled but secure. The Secretary of State can set up a Public Key Infrastructure (PKI) to facilitate secure delivery, receipt and accounting for vouchers, as well as other matters. Once signed over by the student’s guardian/parent, a voucher is redeemed by the provider from the issuing entity (state or district) and may be supplemented by the student’s guardian.

Splitting Short-term and Long-term Items

Currently, school districts have both short-term and long-term assets and liabilities. The objective is to separate the short-term items to the incumbent education provider and the long-term to the school district. As the short-term liabilities are paid off and assets, like books and computers, are depreciated off the books, the incumbents will be in the same position as competitive providers. The short-term debt is actually owed to the school district when separated. Competitive providers will owe their working capital or short-term debt to outside lenders. Of course, providers can negotiate sharing deals for short-term assets or buy and sell them. The school district should not be involved in these dealings.

Notably, some items in a school building are not short-term assets, but more correctly classified as fixtures in real property. Some examples in the school are toilets, drinking fountains, cafeteria fixtures, like stoves, ovens, counters and so on. In commercial real estate fixtures are the property of the renting tenants, not the property owner or landlord, but in some situations landlords provide Common Area Maintenance (CAM) for lobbies and property fixtures or common area utilities.

This concept can be carried forward into the new restructuring of school finance by allowing school districts to provide some common facilities to all or some providers and charge accordingly. This is not to be used as an excuse not to restructure assets and care must be taken by state authorities to review and approve all such proposed arrangements, especially if a competitive provider complains of unfairness in providing such facilities or the charges. The state by law should provide guidance as to what is appropriate to include in CAM and what not to, such as sanitary bathrooms or water fountains or even a library, a swimming pool, a weight room and the like, and to publish statewide statistics for comparison.

The Way Forward

The first step was accomplished long ago, separating I&S from M&O. Now to complete this step, all assets, charges and payments need to be reviewed to assure they are properly classified.

  1. Freeze all bond issues, limiting issuance to compliant plans to sell bonds
  2. Publish accounting standards and qualifying guidelines for districts and providers to use and rules for state audit of public educational entities, districts
  3. Negotiate a timeline with cognizant agencies for transition, specifying goals for each step
  4. Establish a PKI at the Secretary of State for state-wide use, set up officials
  5. Receive and review each district’s plan for transition
  6. Set timeline for beginning and ending transition, including elections if any
  7. Set up procedures for student voucher applications and registration
  1. State budgets per-voucher amounts by district prior to district budgeting
  2. Districts budgets local voucher amount plus sets I&S amount for tax purposes
  3. Incumbents budget student M&O amount for tax purposes
  4. Qualified competitive educational entities publish pricing to attend by district
  5. Families make choices, all providers finalize class sizes , curricula, etc
  6. Vouchers tendered and paid periodically, specifying procedures for changes

Votes – the Currency of Democracy

In democratic government power is wielded by those voted into power.  Changes in the law, like Constitutional amendments and plebiscites also are voted on. Voting is a crucial element of practicing democracy in a republic.

Plurality Rules vs Majority Rules

Decisions are bought into by the voters primarily by majority voting.  Counting ballots usually reveals that only a small portion of citizens eligible to vote actually show up to vote.  The fact that many voters disenfranchise themselves is appalling.  It is also appalling that, although eligible to become voters, many citizens simply fail to register to vote.  Between these two appalling facts of failing to register and failing to vote we find that only a small fraction of the voting-aged population actually exercises their right to vote.

Worse, decisions are almost always determined by the largest number of votes received on an issue.  A plurality is a pitiful way to decide things, especially considering the appalling facts above.votes 40-30-25

With 3 choices available, if 40% favor choice A, 35% favor B and 25% favor C, A will win.  Even though A has only a plurality, it will be the official outcome.

Voter Fraud & Low Turnout

To put this in perspective, typically only 60% of the voting-aged population bothers to register to vote. In a typical election only 20-40% of those registered show up to vote.  This means that tiny fraction of voters (12-24%) can determine the outcome, perhaps only 40% of 20% of 60% of voting age people.  In a close race only half of 12% wins, maybe less.  How can only 5% or less determine an election?

Registration to Vote

Sometimes it’s just laziness: the voter moved and didn’t re-register in the new voting precinct.  Sometimes it’s to avoid jury duty, since often jury pools are selected from voter registries.  Often eligible citizens don’t know the process or the place to go to register, and then it takes a while to get around to it.

Low Information Voters

What do we imagine the 5% or less that vote for choice A B or C know about the 3 choices and how informed they are to choose?  Are they party-line voters, do they recognize the name of a candidate, or did they see a political advertisement that swayed them?

Fraud Affects Outcome

It should be obvious that having a cadre of informed voters who show up is essential to having good election outcomes.  When a few votes out of 5% are fraudulent, it can alter the election outcome to become fraudulent, too.  We cannot allow votes to be bought, to be stolen or in any way to be fraudulently or forcibly cast.  We simply cannot afford to waste even a single vote.

Theft, Loss, & Counterfeit Votes

Since the democratic process runs on votes, the notion that votes are the currency of democracy is correct.  Counterfeit currency steals value from other currency-holders.  Counterfeit votes steal outcome from real voters.  A voter’s wishes are diluted by the presence of fake ballots in the ballot box.  Fake ballots are those created by someone without counting them as coming from a legitimate voter. In the past this illegitimate practice was called ballot-stuffing.

Currency stolen from its proper owner, whether the owner is aware of it or not, is still theft.  Stealing a vote is a matter of attributing a ballot to a particular voter (who didn’t vote).  These stolen votes are based on fraudulent identity, and steal the power of the legitimate voter, even though the voter may not know about the theft.  When ballots are accounted for and handed out only to registered voters, only fraudulent identification of a registered voter will result in theft of vote.  Election Code 63.0101

Integrity from Start to Finish

Theft and loss of votes can also occur later during the canvassing of ballots.  Ballots could be miscounted, could be discarded unintentionally or intentionally, or could simply be misreported.  Trusting officials to safeguard ballots and to count them all properly forces us to design voting systems that can be trusted, typically by re-counting by separate mechanisms and different people and cross-checking the result or allowing audit of votes afterwards.

In an ideal voting system ballots would be intact from casting to canvassing with the ability for audit by officials and for voters to verify their individual ballots were counted and no others recorded in their names.

Single Vote vs Authenticating a Voter

But all systems rely on authenticating a person claiming to be eligible as a voter.  It’s one thing to force everyone issued a ballot to dip their hand in indelible ink so we know only one ballot was issued, but how do we know if they’re eligible at all?

We adhere to the principle “One Man, One Vote” meaning you can’t vote twice for Governor or twice for President and so on.  But, we also mean that Green Party members can’t vote in the Socialist Party primary election, and citizens in one county can’t illegitimately vote for county issues in another county.  Proving that a voter is actually eligible to vote is crucial.

We have these 2 important points:

  • You must be eligible to vote
  • You must not vote more than once

Eligibility to Vote

Today only citizens may vote and residence is used to determine where they vote.  Registering to vote allows an agency of the government to vet the person for citizenship, record any identifying information, confirm their taxpayer status, and issue a voter card.  In an ideal voting system every citizen eligible to vote would be able to register to vote nearly instantaneously.  This would allow the ‘green’ eligible area to be equal to the ‘blue’ registered area show in the graphic above.

Double Voting

Voting more than once can be detected by tracking when a person votes and having all other places or methods to vote precluded by that detection.  If I vote for President in precinct 123, as soon as I cast a ballot for President, all other precincts know about it and I cannot go to another precinct and vote for President again.  My vote is tied to my identity.  If I can be uniquely identified, then duplicate votes can be stopped for me (if my identity is confirmed every time I attempt to vote).  mexico-voter-ID-card-91115061883

Of course not only must other precincts be allowed to see I have already voted but other methods, such as early voting and voting by mail, should be checked before issuing a ballot to me and they should also be allowed to see that I have voted.  Those other locations must be allowed to see the issuance as quickly in real time as possible – if there is a delay, then before allowing the ballot(s) to be cast, the issuance and casting at other locations must be checked.

Poll Book of Registered Voters

Each voting location, including mail processing, must confirm identity of the applying voter.  The voting system will be no more secure against fraudulent and duplicate votes than the methods used to confirm identity of voters and verify uniqueness of ballot issuance.  dallas 3045 pollbook p16

The polling location that has a book of only names and addresses of eligible voters is probably the least secure.  Identity confirmation based on names and/or birthday and/or address are common methods.  Any of these methods are actually not very secure.  Internal processes at the polling station should preclude such a possibility of ballot theft or duplicate voting, but with collusion it is still very possible.

No ID Required

If no ID is required, any person can come up to a clerk and claim to a name in the open book without an indication that the voter already voted.  In fact poll-workers can simply issue themselves or their confederates ballots in the names of any people that have not already voted.


Part of the ballot issuance process, then, should include a method of leaving a trace by the voter that it was she and not someone simply claiming to be the voter that can be audited later.  A signature of the voter might work.  However, very few people are expert enough to recognize whether a signature is a forgery.


No poll books have photos of voters – so comparing the person’s face to a photograph in the book would not work for identification.  But taking a photo (as the trace) would be a change a substantial number of voters would object to.  However, almost all voters have pictures on their driver licenses or other government-issued ID card.  A poll-worker could take a photo of the ID card itself to act as trace that the voter appeared to get a ballot.


Fingerprints, such as a thumbprint, are useful to establish a verifiable trace of the voter’s appearance at the polling station, but comparing fingerprints is probably a difficult job for ordinary poll-workers unless they’re aided by machinery.  And where would the source print come from to compare to?  Driver licenses are often issued by the state department of public safety or motor vehicles, who also take fingerprints as part of the licensing process.  This government source of fingerprints would be a good one.

Capturing biometric data at the time of registration and making it easy to verify at the time of issuing a ballot (or casting it) will add to the security and integrity of the voting system, but will also add some labor and storage needs for the data and the checking.  Machinery to assist poll-workers in verifying could also add to the equipment cost of elections.

Voting Systems We Can Bank On

To safeguard votes, the currency of democracy, we need a voting system that

  • Allows near-instant registration to vote
  • Utilizes existing government identity systems as appropriate
  • Captures needed biometric data on the registered voter
  • Securely stores and distributes registration data and ballot data
  • Assists poll-workers in verifying voter identity data and detecting duplicate ballots
  • Minimizes the possibility of collusion in credentialing and issuance of ballots
  • Securely accepts and transports ballots to a canvassing location for secure storage
  • Permits a voter to confirm her ballot was counted and not altered
  • Permits poll-watchers to confirm a total visual count of voters appearing against the number of ballots cast
  • Permits a non-voter to confirm that no ballot was accepted in his name
  • Permits any citizen to see a list of who voted in which election and confirm each was verified by an official before a ballot was issued
  • Permits the public to confirm that total issued ballots matches total votes
  • Enables auditing of each of the various stages of the voting process

Clearly, verification of voter identity requires an ID card that provides some biometric data, such as a photo or fingerprint, that poll-workers can verify a voter’s identity.  Further, the process must include capturing the same data at the time of ballot issuance and casting.


Government Should Be More Business-like

You Don’t Need an MBA

So many people are afraid to try to figure out their own spending habits and make a budget.  Young people don’t want to be restricted and never had the practice handling money to understand what “budget” actually means.

Before turning to government budgeting, let’s look at family budgeting.  Whether you’re a single person living in an apartment or a multi-generational family living in a huge house, in order to avoid problems like calls from collection agencies or being evicted for non-payment you have to plan your monthly and annual spending so that at least you don’t run out and maybe you actually save some money.

Income vs. Outgo

Usually people try to figure it out the hard way – run out of cash or max out their credit cards, and then plan what they should have done instead.  Maybe they can dig out at that point, maybe not.

Look at your paystubs.  You earn so much every pay period, but there are deductions before you even see the paycheck.  Mostly they’re taxes, but also things you have some control over, like insurance and retirement contributions.  You might also have some other income from a stock account your parents gave you or you created yourself.

Look at your bills.  Food, housing, car, auto insurance, entertainment, cellphone, electricity – the list is long.  Most of the bills are monthly but some are daily or annually, and some are one-off, like buying a stereo for your living room.

You know that over the course of a year that total paychecks must not exceed total bills, plus you’d like to save a little for your retirement fund, or an emergency fund.  When you’re first starting out in life, that can be really hard to do, even to balance the paychecks with the expenses.  The tiniest emergency expense can deplete your meager savings and send you into a cycle of paying late on every single bill.

You have to have a balanced budget for your family finances

Unless you can literally tighten your belt by not eating as much, it may take a while to recover.  If by some magic you have a credit account, you can load it up and then suffer just a little belt-tightening each month to pay back the borrowing.

Expenses, Assets, etc.

It may make sense to borrow money to buy a car.  The car is a long-term asset and so an installment payment plan can also make sense.  If the car will last 5 years, a loan for 5 years seems acceptable, but a 10-year loan would not be sensible.  Why be paying for some asset that is no longer useful?  Pay it off over its life or earlier, if possible.

What is really irrational is borrowing money to pay for daily expenses.  Getting a car loan may be rational, but paying for last week’s groceries over 18 months is not.  You should reduce your food expense to match your funds available for food, or else you will build up a sizable debt just for eating every day.

Your available funds for spending will shrink as you take on more loans to be repaid.  This is the real meaning of budgeting.  Yes, you can borrow, but eventually you have to pay it back, and you should only borrow to purchase assets that have a useful life – not something perishable or quickly consumed.

Businesses are like Families

how statements are linked

Income-Expense Cash Flow to Net Worth

Businesses (because they’re run by people who budget their own family finances) learn early on in their existence to bring in more money than they spend – the leftover is “margin” not mad money.  Margin must be dedicated to retained earnings, rolled over and set aside to pay for growth, improvements in equipment and paying stockholders and, yes, taxes on business income (note other taxes are expenses before margin).

When a business plans their budget, they must include their expenses of production or for services on a daily or unit basis, plus include the monthly lease, annual business insurance and the like.  This is just like what families do.  They have accumulate money to pay annual or quarterly bills in addition to paying the invoices that come on a monthly basis.

Master of Business Administration (MBA)

In business school MBAs learn to plan Cash Flow, one of the basic 4 accounting statements.  When cash runs out, bills can’t be paid – so running out of cash is a crucial aspect of budgeting.  A Cash Flow statement attempts to predict how much cash will flow in from Sales and how much will be needed to pay all the Expenses, both of these are normally done on a monthly basis looking forward 1 to 3 years.

In MBA school we learn that when cash is negative for one or more months, a loan must be taken out to cover the shortfall.  If an asset is to be acquired and that “caused” the shortfall, then a bond could be sold to cover the gap.  The bond has quarterly payments that cover the interest and eventually the whole face value of the bond (principal) must be paid off.

The quarterly payments are tacked onto the monthly “expenses” to re-calculate Cash Flow.  Maintenance on the asset is also added to the list of expenses for Cash Flow calculation.  A non-cash expense is the depreciation of the asset.  The term of the bond is never longer than the useful life asset purchased.

Basic Accounting Statements

Cash Flow analysis is crucial to balancing a business budget.  In addition to Cash Flow, a business has a Balance Sheet, which tracks Assets, Liabilities and resulting Net Worth.  Liabilities are forward-looking obligations that must be paid.  In the Cash Flow statement we must enter the monthly repayments and payments, but the total borrowing or other amounts the business owes are liabilities on the Balance Sheet, like the face amount of the bonds issued to borrow money.

Borrowing to balance income with outgo

When we subtract the Liabilities from the Assets, we know what the business is worth.  This is what the Balance Sheet shows owners and shareholders.  All of the Margin from Sales less Expenses is shown in the Income Statement.

The Income Statement feeds the cash into the Cash Flow statement where Depreciation increases cash and the result flows back into the Balance Sheet.

A Budget is just the planned figures that managers plug into each of these statements, starting with the Income Statement: Sales & Expenses.  If Cash Flow analysis indicates a shortfall, borrowing can be done, but this increases liabilities and lowers Shareholder Equity.

Government Accounting Statements

Have anyone ever seen a Balance Sheet for the United States Government?  Maybe there’s one, probably not understandable, but certainly not discussed.  What does the US own, what liabilities are there to be paid off in the future, and are the income and outgo flows balanced?

When the government borrows to meet shortfalls, eventually those liabilities need to be paid off.  Future Cash Flow must not leave a deficit (shortfall), else Treasury must issue bonds and sell them for cash in the international market.  They become liabilities on our National Balance Sheet that future generations have to pay off.

Businesses know that temporary shortfalls can be filled with Working Capital loans.  Those are paid back quickly, not over 30 years.  If the government operated on a biennial budget, a working capital loan would be repaid within those 2 years.

Long-term borrowing is done by business for long-term assets.  The repayment terms of borrowing for a piece of equipment is always less than the useful life of the equipment.  No business borrows for 20 years to pay for a luncheon.  There is no such thing as “investing” in consumables or disposables.  Government needs to follow the same repayment rule for loans to acquire durable assets: pay it back within the useful life of the asset.

Accounting & Budgeting

Before a budget can be constructed for the next year, last year’s figures have to be gathered.  Then the changes can be compared.  Changes in spending or revenues have to added to the analysis.

We first need the basic 4 statements for government before we can analyze our current situation.  The Office of Management and Budget (OMB) and the Congressional Budget Office (CBO) do have figures but they are separate.  You can find income tax figures, both estimated and actual, but not in an Income Statement form – they are disjoint to obscure how little income there is versus expenditures.

National Balance Sheet does not exist showing all the land Bureau of Land Management (BLM) manages or General Services Administration (GSA) owns are buildings, equipment, vehicles, furniture and so on.  Never mind the assets the military possesses.

balance the budget amendment

Biennial Budget with Borrowing for Assets

How can we manage a business as huge as the Federal Government when reports that Sarbanes-Oxley requires of all businesses aren’t even available?  Worse, S-Ox requires CEOs to sign off on the veracity their financial reports, but no one swears even the Unemployment figures are accurate, much less the non-existent National Balance Sheet.

Making Big Data Understandable

No one can grasp the magnitude of the Federal government.  It is, after all, $3,900,000 Million.  A family household income of $50k is common – so a Million is 20 families’ households’ budgets.  The Federal budget is 3.9M times 20 families’ budgets.  It is nearly unfathomable.

In broad brush a normal person can understand a statement with up to about 50 or 100 items.  A top-level budget would be better understood if it had items up to about $39B so that only 100 or so items appeared on it.

For management purposes those 100 entries should be further broken down in more detailed statements also consisting of around 100 items, or roughly $390M.  And, in turn, those detailed breakdowns should be broken down further to chunks of $3.9M, making them less than the budget of 100 families’ household budgets.

If the most detailed breakdown had 1,000,000 line-items we would have sufficient detail to track down waste and fraud.  But what about the income side?

Off-Budget vs. Budgeted Revenue

Seizures are a wonderful way to hide waste.  If GSA can seize property and sell it at auction or IRS can seize assets and not have to go back to Congress to get permission to use those seized assets, how can Congress ever hope to control spending?

When TARP funds were repaid by bailed out companies, where did those funds go?  Shouldn’t they have gone to reduce the deficit?  They didn’t.

When the National Park Service or the Passport Agency in Immigration service collects funds, do those get deposited into the Treasury or are those funds held out as if they “belonged” to those respective departments?  How can we manage a budget that doesn’t bring the revenue back to a single point, but allows independent autonomous funding or whatever self-funding the agency wants?  The obvious single accounting point is the US Treasury.  All funds must flow from or to Treasury – nothing hidden.

It is not necessary for all revenue to be a tax or a fee, the US Government can dispose of assets it owns or it can lease those assets out for additional revenue.  A business would consider disposing of assets to fund its business plan.

Continuing Resolutions

It doesn’t make sense to plan one year and then not have a plan for 5 years.  Circumstances continually change, each Congress was elected with an agenda in mind, and their budget should reflect that election.  In limited situations it may take a while to resolve budget conflicts, but not the entire term of the Congress.  If Congress cannot come to terms over the budget, then only a complete shutdown will apply enough pressure to reach a resolution.  timeline for shutdown

At the beginning of each term of Congress, the President needs to propose a budget based on the current situation in the government and economically.  If the President refuses to do his duty to propose, then it devolves to Congress to set a budget without his proposal.  However, if the President continues to fail to propose a budget, then the Executive does not need to pay for his staff, who are not performing.

When sufficient time has passed and Congress must create a budget, with or without Presidential input, they also must do their duty to pass a budget law, establishing revenue and expenditure levels that the Executive must abide by.  Should the Congress itself fail to perform its duty, then like for the Executive first Congressional staff should not be paid.  If Congress continues to fail to resolve its differences then Senators and Representatives should lose their compensation.

The loss of compensation can simply be a delay in payment at first, then become a permanent loss of pay.  Finally, once Congress has done its duty if the President fails to enact the law passed, the President himself (and his expense account) should permanently lose his compensation until a budget law is passed and signed.

If no budget law is ever passed as was the case under Senator Harry Reid, nothing should be paid out of Treasury at all, whatsoever.  If a family could decide how to budget its money, they should just stop spending until they do decide.  The same for government.


End Taxation on “Income”


28th Amendment repeals 16th – Clarifies Not to Tax Incomes

For a century we have seen the unfettered rise in taxes levied on incomes.  Taxes are “always” temporary and applied only to “bad things” or “bad people” or so the voters believe.  This belief continues unabated even when good things and good people wind up paying the tax.

Disbelief is often suspended even when the amount of the tax, the rate of the tax, the things that are taxed all increase, and griping begins only when the time required to pay the tax after filling in the form(s) takes more than 3 minutes total.

Today 1040s and the associated schedules filed with Federal income tax reporting consumes an average of 9 work-hours to complete.  Billions of work-hours are spent each year on gathering information, like 1099s, W-2s, and receipts of all types, to be used in completing the annual exercise, installing software or using web-based commercial services to compute the tax after submitting all the gathered information.  We also spend an enormous amount of time trying to interpret whether a rule applies to us, what a definition means, and what additional information is needed to follow the complicated rules.

Income tax preparation software also sets us back some dough that we could use for our enjoyment.  If we had a clue how to calculate the deductibility of a particular expense, we could have saved almost 20 minutes looking it up on-line or trying to read the IRS publication about it, after we searched through 4 other publications that might have the thing we’re wondering about.  It dawns on all of us at some point, that the whole thing is a giant exercise in waste.

Is all this waste of time and money and effort that could be applied to something useful what Americans really want?

No, it’s not a good use of time and effort, and it’s counter-productive.  Taxing incomes basically punishes success.  A graduated tax rate (often called progressive) is actually worse than just punishment.  Taxpayers will attempt to redefine some types of income as others or delay or advance income events to correspond to taxing periods, not economic milestones.

Federal versus State and Local Determination of Taxation

Do we really want a 1-on-1 relationship with the Federal government?  Federal income tax is an attempt to bypass the states as the primary governance with individuals.  The Founding Fathers envisioned the Federal government budgeting and presenting an invoice to each state, based on its population, for the the state’s share of the national budget.  The state, then would decide how that bill would be paid.

The IRS circumvents this thinking by taking the money directly from individuals and businesses, regardless of whether they conduct affairs across state lines or not.  Besides the enormous waste of time for individuals and expense of accounting/tax preparation software the income tax violates the principle of state’s paying its share and worse, it creates a direct link to individual citizens of each state to monitor them.

Amendment XXVIIITaxes are punishment – so what do we want to punish?  Success, failure, or mere existence?  Maybe we want to punish consumption and reward saving or investment.  After all, if someone saves for the future, there is less risk they’ll be dependent on the rest of us.

If everybody consumes less, we’ll all have a smaller carbon footprint, won’t we?

Non-Renewable, Non-Recyclable, Non-Recycled Consumption

But some consumption is of renewable items or from recycled leftovers of previous consumption.  It doesn’t make sense to tax, for example, electrical energy produced from solar power.  Neither does taxing food, at all, unless the food consumed can never be re-grown or renewed.  Labor is also clearly renewable.  Labor should never be taxed as consumption.

Plastic may be recyclable, but it took millions of years to produce the crude oil that plastic is originally manufactured from.  So, the original act of producing plastic may be a good thing to tax as consumption, because the renewal period is so long.  Wood, on the other hand, is renewable within a couple of decades, except of course for majestic trees like redwoods.

Tax All Consumption or Just a Some Things

But, should we punish the necessaries of life?  Consumption of bottled water might be something we should cut back on, and what about red meat or cigarettes or gasoline?

Who gets to decide what should be taxed more than other things, just because they’re not the essentials?  Maybe all food should be tax-free (as if obesity weren’t already a big problem).  If everything we consume simply cost more, then maybe we’d prioritize spending on consumables better.  Taxing consumption would certainly discourage it.

Bottled Water and Mixed Use Consumption

Taxing bottles of water might best be reined in by making the water tax-free but the bottle itself taxable with the tax determined by whether the whole container is recycled, recyclable, or brand new.  So, some consumption should be tax-free and some taxable, but many activities are both at the same time.

But in line with our general principle that taxes should be used to repair damage caused by forces not accounted for in the free market, we have to ask what consumption taxes should be used for.  What harm could consumption do that would not be accounted for by normal free-market forces?

By consuming a non-recycled or non-recyclable bottle did someone lose a job?  Did the oil the plastic came from simply disappear – never to be recycled or re-used again?  What actual harm was done by consuming oil for production of a plastic bottle?  We might also ask what harm is done by depleting oil to be refined and used in transporting us around in gasoline-powered cars?  Climate change acolytes could claim it will raise the temperature of the Earth.  But really by consuming we’re choosing not to save for later consumption.

If using money is a choice between saving and consuming, maybe the mere act of consuming means a person is not saving.  Savings allow a person to weather rainy financial times, to have something to draw on in case of unemployment, to invest in one’s own future, like education or even durable physical things, or to use when one turns old and gray or sick.  So, these things are normally provided for by our setting aside savings and are legitimate possible uses for savings.  We should promote, not tax, saving.

Saving for retirement clearly should never be taxed.  What about gains in the savings due to appreciation or increase in value?  Since no consumption was involved, NO.  Taxing capital gains is ridiculous.  The loss in value of an investment due to inflation is never considered, distorting the market by taxing government-induced inflation of asset values.

The Golden Rule and Retirement

You buy a bar of gold for $100 and the government debases the money supply, making the gold bar price rise to $1,000.  If you convert it back into the debased money, the IRS wants to tax the “gain” in value of $900.  This is just wrong.

Perhaps instead of 15.3% FICA we should have a 15.3% consumption tax allocated to Social Security-type programs.  Or perhaps unemployment re-training and the like.  What government uses the collected tax for is the key factor.  Taking money from us just because they can is immoral and counter-productive.

Ending the taxation of incomes, no matter how defined, is extremely important.  To that purpose the 28th Amendment is proposed.


No Taxation without Representation

Voting today is limited to only those voters residing within the jurisdictional boundaries of the election.  Typically, the geographic limitations are imposed by requiring citizens to prove residence in a jurisdiction before allowing them to vote.  Residence implies that those voting have a vested interest in the outcome because they have to live with those results and pay the taxes that are used to fund the governance in the jurisdiction.  If a citizen pays taxes, they should have a right to say how those taxes are spent.  In 1776 we fought for the principle “No Taxation without Representation.” No Taxation without Representation

If a foreigner visits NYC and pays sales tax on items he buys there, should he get a voter card there?  If he is only visiting, he probably does not have more than a passing interest in who’s mayor or whether a sewer project is voted and funded by taxes and fees.

However, if the NJ citizen who commutes in every workday has to pay taxes on his paycheck he earns in NYC, he probably wants to have a say in whether tunnel fees rise or a stadium is paid for by his taxes.  That’s only fair.

The same is true of a citizen who owns a second home, a dwelling he rents to others or property he simply pays real estate taxes on.  He should have the right to say how those taxes are spent.  While we’re sympathetic to the citizen who crosses a state line to buy goods that are cheaper or not available where he lives, we don’t think he should get a voter card for that situation, even though he pays sales tax.

But why does the apartment-dwelling suburban homeowner have to choose between voting in the city or voting in the suburbs?  Why does the real estate investor have no say over how his taxes are spent that are collected on his rental property?  By requiring residence in the property even though real estate taxes are paid the government has disenfranchised the investor and second home owner.

A citizen should have the right to vote in every jurisdiction where he lives and/or pays taxes.

We need a Constitutional Amendment to assure this. amendmentXXXII

We do need to limit this proposal with the notion we also adhere to “One Man, One Vote.”  For example, suppose the suburban family owns a house in CT and a working parent of the family also owns an apartment in the city (NYC).  Should the apartment dweller be able to vote in both NYC and suburban CT?

Yes, but she or he gets only one vote in each distinct jurisdiction.  So, in each city he or she gets a vote and in each state, but not 2 votes for President, since that violates the One-Man One-Vote principle.  The voter must decide which is the principal residence and vote for President in that precinct only.

When a voter is eligible to vote in more than one precinct because of her taxpayer or residence status, then any overlapping jurisdictions between the precincts have to be resolved to a single vote.  If an investor owns 10 houses in 5 cities with 3 school districts, then she’ll get 5 city votes and 3 school board votes.

One does wonder, though, after due consideration, if “No Taxation without Representation” is a sound principle, is the converse also valid.  If you pay no taxes, should you be able to vote to raise taxes on other citizens?

no-representation-wo-taxationThis parapraxis actually captures the concept described above.  But since it generally disenfranchises people if they pay no taxes, we need to word any Constitutional limitation to cover the case where non-taxpayers are prohibited from setting tax rates or taxes for taxpayers.  This might also include officials responsible for setting taxes and tax rates.  If a person isn’t currently paying a particular tax, that person should not be able to increase taxes on those who are paying.


Taxes are Punishment

Necessary Evil or Avoidable Punishment?

A short article on taxes

Supreme Court Justice Learned Hand in his famous Helvering v Gregory ruling said:

“Any one may so arrange his affairs that his taxes shall be as low as possible. He is not bound to choose that pattern which will best pay the Treasury. There is not even a patriotic duty to increase one’s taxes.”

In fact, many courts have tried to clarify that taxes are not something unavoidable, meaning we have the right to minimize them, avoiding them altogether if we legally can.

Does that mean that we should feel guilty about doing so, or should feel morally obligated to pay, even when we don’t have to?

Evading isn’t Avoiding Taxes

Here we’re not talking about evading taxes, meaning a justified levy for tax purposes that we simply figure we’re not going to pay because we don’t want to.  We mean searching the rules laid down by the IRS or whoever is making the laws, regulations and rules to implement them simply to find a way to minimize what we legitimately obligated to pay.  We also don’t mean taking illegal steps to evade paying taxes.

Changing your name to evade taxes obviously is wrong.  You incurred the liability – just do what’s right and pay.

However, we’ve come to look at what other people do and ask why not apply the same rules to ourselves.  My wallet contains my money, and I should be able to preserve it for what I want to spend it on or just save it to spend later.  Right?  That’s what freedom is about.  Using your assets in the way you want (so long as nobody else has their equal right to do the same thing impinged upon by your so doing) is freedom.

Where do taxes come from, then?  Why do we owe them?  To whom are they actually owed?  How do we collect them?  How do we decide how much they are?  Some say they’re punishment.  In some ways they are.

Taxes for Streets and Highways

For example, if the average vehicle weighs 6,000 lbs and causes a certain amount of wear and tear on our roadways, then we can figure the cost per vehicle or per mile per vehicle to maintain the roadway(s).

But when some truck is allowed to share the road with the 6,000-lb cars and it weighs 80,000 lbs fully loaded, we can expect that the truck causes more wear and tear per vehicle-mile than the passenger cars.  Yes, engineers studied this issue decades ago and revealed a few engineering facts to the public and to political decision-makers those facts were egregiously ignored.

For easy math, let’s say the truck is 10x heavier than the car.  The engineers computed that the wear and tear was actually several thousand times greater.  For you engineers out there, the math is related to strength of materials and does vary over temperature.  Clearly, whether the truck is loaded, partially loaded or an empty tare also affects the answer.  But, if the 9,000x greater damage caused by trucks is to be taken into account, shouldn’t the truck (when loaded) pay more to maintain the roadway than the passenger car?

The roadway may know the difference but only the government (the owner of the road) can assess the cost on the truck.  We call this process of levying costs imposing taxes.  Wait, you say.  Don’t trucks get worse fuel mileage than cars, and in effect, don’t they pay more per mile than cars do?  Well, 9,000x is a heck of lot more damage than 5 mpg versus 20 mpg.  So, they’re buying 4x the fuel (laden with tax), but they’re burdening the road with 200x that in damage.

How do we recoup that cost?  Taxes.

Of course, we could simply ignore the cost burden.  Railroad companies spent mega-millions to improve their roadbeds, but unlike train trackbeds, the roadbeds (and surface) for highways and streets are not paid for by the company that owns them, because the company is the government.  We own and pay for the roads.

We pay for their construction and for their maintenance through taxes.  That system of tax collection and usage should be fair, easy to understand, and straight-forward to fund.

Fair doesn’t mean exactly equal, although some people believe things can’t be fair unless they’re equal.  But, ask yourself how you would react to the following scenario.

Your HOA has a clubhouse that can be “rented” by the members (or others).  The fee is fixed for any usage: no matter which day, what time, how large a group, or what happens to the facility.  So, a small group comes almost a year in advance and reserves the clubhouse for New Year’s Eve to have a party.  They carry on until the wee small hours of January 1 and leave an untidy mess inside.

Another larger group uses the clubhouse Wednesday afternoons to play bridge at their own card tables for a couple of hours and leaves the room immaculate.  Should both groups pay exactly the same thing?  Fairness comes into play, doesn’t it?

Some would argue that the large group should pay more because of the size of the group.  Some would say the messy should be assessed a cleanup fee.  Some would say the holiday rate should be higher than the non-weekend usage.  And so on.  The thinking here is somewhat obscured, but the large group does cause more wear and tear, the shorter time of use should be reflected in the wear and tear, and the demand for holiday usage costs other people the opportunity to use the facility equally.  A profit-seeking firm would not pass up the opportunity to charge more for the holiday time with its higher demand.

We can’t capture all the relationships easily, but we can see the cleanup is a burden that the bridge group shouldn’t have to bear, can’t we?  We can also see that the general members should not have to bear the cleanup cost either.  If the bridge people do no harm, but the party people place a cost burden on the facility owned in common by the neighborhood, then clearly the fee for the party-goers is going to be much higher than the bridge-players.  Goren would be pleased to hear that.

Moreover, demand on scarce items needs to be accounted for.  If 20 families want to use the facility on New Year’s Eve, shouldn’t we let the one offering the most money pay, and then the whole neighborhood benefits by having their portion of the shared cost of clubhouse ownership reduced from the large payment of the highest net bid to use the facility.  “Net” here means accounting for the damage and cleanup, etc.  The other 19 families will have to look elsewhere to hold their party, but presumably they picked the clubhouse for its closeness and low price.  So, another place will be priced to account for its closeness on better terms, or else those families would have bid more for the clubhouse.  Trying to give “everyone” the “equal opportunity” to rent the clubhouse will result in lower revenue and thus higher cost to everybody but the member who wins the cheap rental.

Some would say that it’s not fair that the clubhouse be rented at the highest net revenue to the HOA.  They would want the clubhouse available for free and then a lottery to decide who gets it.  This isn’t the capitalist way, but it can be an acceptable way to do it.  If you were one of the families, would you not be able to decide how much the party venue is worth to you?  Would you be equally happy if a bunch of frat guys got the place and your family mini-reunion were displaced, simply because you lost the lottery?  (You might even feel that someone cheated.)

Suppose your HOA had a Sales Manager reporting to the board.  His job would be to maximum revenue for the association within the rules established for the clubhouse.  He might allow free usage Tueday through Thursday for groups less than 10 for daytime use, and set a $20 price for non-holiday weekends.  Maybe he would set a $50 fee until the day before the proposed use and then lower it to $25.  His job is to bring in revenue so that your HOA fees go down.  You want him to fill the clubhouse regularly and bring in paying customers, while keeping the cost down.

That’s government’s job, too.  Bring in voluntary revenue to keep the cost down for the rest of us.  But in a bureaucratic system the price would be fixed and not adjusted to sell the “empty seats” or account for low-cost usage.  An airline, for example, offers seats to flyers at the last minute at much reduced pricing so they get something for the empty seat rather than nothing.  A government body doesn’t think that way.  They are not profit motivated, and therefore not about reducing the taxes they need to collect by generating extra income.  Government simply doesn’t think in a way to minimize the cost burden to non-players.  Non-players are the vast majority of people who just don’t ask for services, don’t laden the government with demands, and basically don’t do anything but pay for everybody else.

Getting back to the loaded tractor-trailer versus the passenger car, the government thinks in terms of axles, not damage to the road from weight, and in terms of fixed pricing, not about selling empty seats.  A tollway, for example, that is well underutilized between 10 AM and 2 PM, could sell passage for reduced prices and bring in additional revenue (maybe).  Alternatively, when tollways are nearly empty at 3 AM, the toll could be half or less to encourage drivers to get off the roadbed built for street traffic and travel the toll-paying highway to save time.

Tolls and Taxes

Both forms of collecting money are in use today.  We tax the gasoline, we extract fixed tolls by axle from vehicles, and we don’t try to understand the market implications of these actions.  Taxes on all vehicles raise their costs.  A per vehicle tax is even worse.  The vehicle could sit at home undriven for months and yet the government wants the owner to share in road costs – that’s wrong.

The truck usage increases road maintenance enormously, especially in colder weather, yet pays only slightly more than the cars to – that’s wrong, too.  In effect, the taxes punish everybody who owns a vehicle or who drives one, but heavier and more effectively utilized vehicles pay a disproportionately lower share of costs.  The punishment is not according to the crime.  Tolls by axle are even more ridiculously imbalanced and favor huge vehicles.  Why should a 4-axle truck pay only double what a 2-axle passenger car pays, in light of the wear and tear caused?

The same principle applies to government levies in general.  Why should the couple in their 30s pay taxes equal to the family of 5 in their 30s?  Why should the 50-year old doctor pay taxes equal to the 25-year old single guy working in a restaurant and living at home?  Why should be low-income single mother pay more or pay less than anyone else?

The principle of punishment for burdening the rest of us should come into play.  Government isn’t about equality of payment, and fairness is in the eye of the beholder.  A female who spends 12 years getting her medical degree and internship to become a well-paid doctor is somehow placed in the same bin with a used car salesman making the same money.  Is that fair?  A day laborer, a doctor, an engineer, a call-center representative – should they all be taxed the same?  The same in what way?  The same percentage?  The exact dollar amount?

Should we look at the total bill that has to be paid and then divide it up evenly for all of them?  Should we punish the doctor for not contributing all those years into the tax coffers?  Should we punish the day laborer for not getting a job that adds more value to society?  Should we punish the engineer for making a good salary?  Should we punish the CSR for participating in an enterprise we all find frustrating?  After all, taxes take away money from people.

Maybe the bills the government pay are just a necessary expense and we need to collect tax any way we can to pay them, regardless of how it affects short- or long-term actions.  If everyone knows that doctors pay more in taxes, then maybe there will be fewer doctors.  Or, if day laborers pay the same tax as CSRs and engineers, then maybe everybody will look for a way to earn more money to pay for a tax that is evenly split for everybody.

Some would argue that the day laborer just doesn’t make enough money to pay the tax and the doctor makes so much more than he needs.  So we have all swallowed the “progressive” tax dogma that people who earn more money should pay a higher percentage of that money they earn than those who earn less.  They even call it “progressive” as if anything else would not cause progress.  And they call a straight percentage tax “regressive” as if it would take us back to some horrible past time where dinosaurs rule.

The Disconnectedness of Taxes

The heart of the problem is budgeting.  When you or I plan on spending for some large ticket item, maybe a new car, maybe a flatscreen TV, maybe a new house, we sit down and figure out how much we can afford.

If the numbers indicate we can’t afford to buy it now, we save up and come back when we can pay more down and carry a smaller balance.  We know our income is connected to what we spend.  We budget.  If we don’t make enough, we plan on how we can get a little more training and get a higher paying job.  We can also use some of our free time to work at a second job.  The additional income may be enough to cover a short term gap so we can get the item we’re craving or just plain need to have.

Government doesn’t think this way.  The spending budget isn’t really a budget – it’s a plan to spend.  Income is an afterthought.  If the government doesn’t bring in enough revenue, then it first borrows the shortfall (which we sometimes do on our credit cards, if it’s temporary) and then because each purchase or program is not tied to a particular revenue stream, they have to increase some tax somewhere to make up the shortfall.  But, usually they wait until it’s a crisis of some sort, and claim that some other “budgeted” item has to be scrapped because not enough taxes were paid in.

Robbin’ the Hood

This is a lot like the sheriff of Nottingham sending his tax guys out again to collect more money when the sheriff overspends.

So, how is a tax collection punishment?

The sheriff of Nottingham doesn’t look at the second tax collection as punishment – it’s just a necessary action.  The fact that the sheriff’s peasants don’t have enough money to buy flour to bake bread or can’t feed their children doesn’t seem like punishment to the sheriff.  That deprivation is a price we all have to pay to belong to a fair and equal society, right?

We all know it’s the fat cats are at fault for the deprivation, right?  Those lords and ladies who live it up in the castle off the food stolen off the peasants’ tables are to blame.  Probably you’re right that the other people in the sheriff’s castle are benefiting from the burden of taxes.  But is it the guy who sells his vegetables in the market who benefits?  No, we know he can’t be a fat cat because he has to pay taxes just like the rest of us, but at least he can afford it.

He will afford it as long as he doesn’t get so discouraged by working his butt off and giving most of it to the sheriff.  At some point, though, he will simply move to Scotland.  Then the number of stalls in the market will be fewer and filled with less and less.  The sheriff will step forward and accuse those market-creators who headed north of not playing fair.  Others will accuse the departed small business owner of being in the 1% and not helping the 99% by sacrificing more.

Who are the 1% – fat cats?

Perhaps then you’ll think that the fat cats are actually the people in the castle – the sheriff’s men. The sheriff, however, collaborates with other powerful people, like neighboring dukes, barons and other nobility.  He also cooperates with powerful church leaders, who are tax-exempt.  So, where are the big, multi-national corporations?  Back in the sheriff’s time, only the Catholic church would qualify for that title.  Imperial governments might be classified the same way if they were large enough.  The Ottomans ran such a huge empire.

Back to present day.  We know the Federal government, and each of the state and local governments don’t consider taxes a punishment nor do they think that anyone is being deprived by paying taxes.  Some figures might help clarify the truth of it.

Medicare collects 2.9% of your paycheck.  In addition, the Social Security Administration also collects 15.3% of your paycheck.  That 18.2% sum is evenly split between you and your employer.  Your employer coughs up the same amount you do.  When you get a salary of $50,000, the government is receiving $4,550 out of your paycheck plus another $4,550 directly from your boss.  Your $50,000 salary actually costs $54,550 when the Federal Medicare and Social Security taxes are included.

You’re the Fat Cat – that the government wants to tax

If you could put away 18.2% of your wages or salary every year consistently for 40 years, you’d be a fat cat yourself.  Imagine there were zero inflation and that your paycheck remained constant forever.  At the end of 40 years you would have donated 728% of your annual earnings.  For a $50,000 earner that’s $364,000 in the bank.

Of course, money in the bank always earns a little interest, maybe 1-3% per year (net of inflation).  No, we’re not talking about stock market growth or real estate bubbles – just normal real returns after accounting for consumer price inflation.  Your $364,000 with the actual net interest would be around $560k.

That’s like having 16 years of salary coming in if you stopped working.  Huh?  $560,651 accumulated after 40 years of putting aside $9,100 a year and earning 2% interest per year with zero inflation means you lived on $40,900 a year and $560/41 leaves about 16.2 years to receive the same income when the interest it will earn while being depleted is counted.

Where is my retirement?

So, if the government “saves” 18.2% of your salary every year (and assuming there is no government-induced inflation), then after 40 years your account balance should have over half a million dollars in it.  If the government is holding $560k for me, where is it?  I earned $50k a year and lived on only $41k of that.  Do I now have an account with money in it or not?  No.  Social Security is not an individual account with a balance in it that you can transfer or roll over into a stock portfolio or purchase a real estate with.  In fact, the aggregate account where everybody’s money is held is actually empty.

The government pretends that it’s holding the money and pays you with money it receives from others paying into their “accounts” in a large Ponzi scheme.  Ponzi convinced people he was getting fantastic returns by paying huge dividends on investments he received by taking money from new investors and giving to the old ones, telling them they had 20% returns in only 30 days.  Of course, the winners told their friends, who told their friends, and they was a huge influx of new investors with large returns also.  But the whole time the original investment money was gone.

Ponzi spent what he didn’t return to old investors as if the money were his own.  His lavish lifestyle came to a crash when investors wanted the actual money, not just a statement saying they were rich.  If the number of withdrawing investors was small, they might feel foolish that they weren’t patient (but of course they did live well on the proceeds).  As the number of withdrawing investors grew, the problem suddenly became apparent: there was no money in the bank with their name on it.

In Social Security the number of withdrawing investors is about half of the new investors.  Decades ago the withdrawing investors were only a few percentage points of the total.  The problem has now come home to roost.  Who will rescue this Ponzi scheme?