Thus, in the US Fiscal Cliff Debate, I think in deciding what to tax, what not to tax, what US Government expenditures to cut and what not to cut, the driving force behind these decisions should be what choices result in the maximum amount of sustainable US full-time job creation, at a livable wage, as quickly as possible, and after giving due consideration to the cost of doing so.
Presently, employees of US companies having defined contribution 401(k) profit-sharing plans can elect to defer up to $17,000 of their wages in 2012 into these 401(k) profit-sharing plans.
Yeah, that's $17,000 of wages for just one year that can be shifted to future years and just for one employee. When you do US Government CBO scoring over a ten-year period, the total amount of US reduction in Tax Revenues caused by the Elected Wage Deferral is gargantuan. You not only have ten years of continually increasing annual wage deferrals, but also the cumulative earnings from these wage deferrals grow on a tax deferred basis. And in addition, the C Corp and other legal entities can deduct its matches of this elected salary deferral, which further adds substantially to this loss of US Tax Revenues.
Thus, if the US Congress decided to eliminate this incredibly lucrative salary deferral, the funds raised over the next ten years would truly be incredibly high.
But we need to take a closer look at this wage deferral and whether it is a wise US Government policy, especially given the more than $16 trillion of US Debt, coupled with the still very high levels of US unemployment, US underemployment and tepid US economic growth, with no significant increase in sight.
Is this incredibly robust tax incentive fair to all US citizens?
It's really not. It further expands the already huge gap between the very wealthy and everyone else.
Why? Because unemployed US citizens cannot take advantage of it.
Also, underemployed US citizens usually cannot take advantage of it.
And regular employees cannot take nearly the same advantage of it as the wealthy employees can. With the crushing US economy, regular employees need all of their take-home pay, and even more, just to make ends meet.....to just feed and house their families.
On the other hand, the wealthy employees are the ones that take the maximum advantage of the total amount of annual salary deferral.
And the wealthy employees also get a substantial portion of the company match of the elected salary deferral.
Further, the wealthy employees are able to defer a larger amount of the US federal income tax on their salary deferral because their top marginal income tax rate is much higher than that of regular employees.
Is this fair US Government tax policy, that clearly favors the wealthy employee over all other employees? I don't think so. What is in essence happening is another "under the radar screen" further expansion of the economic gap between the wealthy and everyone else, that the US Congress consistently legislates for, and which the non-wealthy are frankly sick and tired of.
And if this incredibly lucrative tax incentive for the wealthy employees were eliminated, there would be absolutely no resultant US jobs lost.
But yet, there would be all of this massive positive US Government CBO Scoring from eliminating it that could be wisely used mostly for very healthy near-term US full-time job creation economic stimulus. And some of these US Government funds can also be used to reduce the US Debt.
And eliminating this annual salary deferral wouldn't be nearly as economically harmful to a wealthy employee as eliminating a permanent tax loophole, such as the tax-free employer-provided health insurance, would be. Why not? Because in the case of eliminating salary deferral, for the most part, the wealthy US taxpayer does not pay much in the way of additional income tax in total, he/she only pays it much earlier.
The salary deferral here overwhelming favors the very wealthy employees.....they are the ones taking the maximum benefit from it and at a tax benefit rate that is substantially higher than the tax rate that would apply to regular employees.
Thus, the focus of sound, fair governance should be to address the most egregious element here, and that clearly is the substantially higher tax largesse received by an employee having a very high Adjusted Gross Income.
But to be totally fair, I would scale in the elimination of this salary deferral tax loophole, and thus the amount of this tax loophole elimination would increase as Adjusted Gross Income above $250,000 increases, but for sure, anyone with Adjusted Gross Income above $1 million would get no salary deferral for US federal income tax purposes starting in 2013.
OK, so that's the case for eliminating the salary deferral for the very wealthy employee.
And the money raised here for the next ten years is off-the-charts. Just think of one wealthy employee taking the maximum salary deferral of $17,000 in 2012. Well, the maximum amount of annual salary deferral keeps increasing each year.....it was $16,500 in 2011. Thus for ten years, the total salary deferral for the next ten years for one wealthy employee is roughly $200,000, and the US federal income tax deferral at 39.6% on it is $79,200 for just one employee, and that ignores the income tax on the earnings of this $200,000, which could no longer be tax deferred. Further, the elimination of the huge company match of the elected salary deferral of the wealthy employees would also raise a substantial additional amount of positive CBO scored US Government Revenues.
But what to do with the massive amount of positive ten-year CBO scoring that results from eliminating this salary tax deferral tax loophole, which overwhelmingly benefits the very wealthy employee?
One simple answer.....spend a huge portion of it to maximize, in the near term, full-time, sustainable US job creation, at a livable wage.
Thus, here's my optimal list of effective, quick-hitting, directly-targeted US economic stimulus, which optimally maximizes US job creation, and gets the most bang for the buck.
First, heavy US infrastructure investments, which also is wisely funded in part by user charges.
Second, heavy US school, US community college, and US public college construction fix ups, with a particular focus on climate change benefiting energy-efficiency investments, which also have an additional benefit of economically saving future energy costs.
Third, heavy US Government energy efficiency investments, with those made by the US military leading the way here. And a huge part of the funding here would come from the future year energy cost savings.
Fourth, for all of 2013, all US businesses should be allowed 100% first-year tax expensing of equipment purchases, and also much more highly accelerated first-year tax depreciation on new building and building remodelings, and also investment tax credit on both equipment and building investments, but these massive tax benefits are earned only if the US business also increases its US full-time payroll counts by sufficient amounts, and with this payroll count increase remaining for at least three years, or else these lucrative tax benefits are recaptured. A significant portion of the funding of the fourth one here is the self-funding coming from the additional US Government Revenues (i.e. the higher individual income taxes and payroll taxes) derived from the necessary increase and retention in full-time payroll counts in order for the US businesses to be able to earn the tax benefits.
Fifth, an extension of renewable tax energy credits for four years, and making them refundable, with all of this paid for by the permanent elimination of all Oil and Gas tax subsidies of larger Oil and Gas companies, including not just repeal of expensing of intangible drilling costs, and repeal of percentage depletion, but also repeal of LIFO Inventory for Oil and Gas companies, the elimination of the domestic activities production deduction for Oil and Gas companies, and eliminating the incredibly egregious US tax policy of permitting foreign royalties paid by Oil and Gas companies to be used as dollar-for-dollar foreign tax credits for US federal income tax purposes.
Sixth, a substantial increase in US Government Research expenditures for critical long-term initiatives, including, among other things, for advanced manufacturing, for high technology, for education and employment training, for medical research, for research on better, more effective, and less costly health care delivery, and for climate change research.
Seventh, for all of 2013, US multinational corps would be allowed to repatriate their foreign earnings, at a somewhat discounted US federal income tax rate, which would be at a very progressive US federal income tax rate based on the amount of foreign earnings repatriated. However, to earn this discounted US federal income tax rate, a US multinational corp would have to increase its US full-time payroll count in 2013 by a sufficient amount, and this increased payroll count must be retained for at least three years, or else the very lucrative tax benefits of this discounted, very progressive US federal income tax rate would be recaptured. The end result here is that this seventh tax incentive, instead of costing the US Government money, will actually substantially increase US Tax Revenues.
Eighth, enhance the current domestic production activities deduction to 10.7%, and increase it even more for advanced manufacturing. This will also be paid for by the permanent elimination of all Oil and Gas tax subsidies, explained in detail in the fifth one above.
Ninth, make the current R&E tax credit over a base amount permanent, and increase the simpler R&E tax credit over a base amount option from 14% to 17%. This would be paid for by the fifth one above related to the elimination of all annual tax subsidies of all larger Oil and Gas companies, by the seventh one above related to foreign earnings repatriation, and by the initiation of new annual minimum tax on foreign earnings.
Tenth and more.....to come.
The key point here is that to best bring down the US Deficit, by far the best way is to wisely and prudently decrease both US unemployment and US underemployment as dramatically and as quickly as possible.
