Redemption

by Sally Fernandez

  At the mention of “tax rate,” Paolo couldn’t resist adding a little humor to breakup Chase’s pontification. “Hey, guys, you know the word ‘rate’ in Italian is tasso. Amusingly, tasso also means ‘badger.’ Pointing to the fact that the corporate tax rate has become a real hassle.”

  The others chuckled until Paolo recaptured their attention. “Seriously, to Chase’s point, Mort Zuckerman, of U.S. News and World Report, summed it up best when he highlighted the three main components of the country’s plight.” Paolo read from his tablet, “‘The faith in the American dream is eroding fast… The lack of breadwinners working full-time is a burgeoning disaster…’ and ‘The great American job machine is sputtering,’ In my view, Zuckerman’s observations are spot on. But whether it’s the Universal Healthcare Act, the Climate Change Initiative, or the numerous other areas we have scoured, we still have not come up with concrete answers to solve the problem. We must find a way to renew corporate investment.”

  Seymour, an avid history buff, was quick to proclaim, “One reason is the administration had returned to the mistakes of the past, following in the footsteps of FDR. Santayana was right about repeating history. Raising taxes, raising the minimum wage, and increasing government-revenue-intensive programs are nonstarters to stimulate an economy. The temporary stimulus jumpstarts are merely hiccups that only prolonged the recession.”

  “In my view, the billions of dollars that were spent in stimulus spending missed the mark, only adding salt to an already festering wound,” Chase attested. “They proved to be political forays dressed to look like economic solutions.”

  Paolo took a deep breath and then seized the conversation once again. “Look, despite our mental gymnastics, we haven’t delved sufficiently into the heavily bloated spending programs. There is little doubt that until the government gets spending under control they will continue to have a voracious appetite for taxes. It’s not molecular physics; it’s simple arithmetic. You can’t spend more than you have. The only way Uncle Sam can pay for these spending programs is to tax or borrow—neither sound solutions to an expiring economy. And turning on the printing presses to create money that is increasingly devalued is not a winning formula. Our massive entitlement programs alone make up forty-four percent of the economy thanks to Social Security, Medicare, and Medicaid—all of which have outgrown inflation.”

  “I couldn’t agree more,” Hank submitted. “Too much emphasis is placed on the validity of the programs. But in addition to spending per se, we also need to identify the enormous waste and abuse within the various federal government departments. To date, there’s no real evidence that this fraud pandemic is being seriously tackled. Medicare fraud alone is estimated to be about sixty billion dollars a year. That would pay for close to half of the UHA!” They were surprisingly angry words from a man who played a significant role in the former administration. An administration that produced programs never funded at inception.

  The others at the table took note, including Noble, who, up to that point, had sat back jotting down notes on his tablet while he listened. Startling the others, he abruptly spoke up. “Government cannot spend its way to prosperity. Attempting to do so only increases the burden on the taxpayers, placing them in a catch-22 death loop.”

  “Speaking of a death loop, don’t forget the Estate Tax,” Chase pointed out, and then he backed up his point by citing Rachel Greszler, also at the Heritage Foundation. “A while back she reported the results of an analysis conducted by their Center for Data Analysis. They found that repealing the federal death tax would ‘increase economic growth by forty-six-billion dollars over the next ten years and add an average of eighteen thousand jobs per year throughout that period.’”

  “That’s just another example of helping the rich—I won’t repeat myself—you get my drift.” Hank’s point was clear.

  “What you don’t get,” Chase countered, “is that the wealthy will continue to spend their money in ways to avoid the tax versus investing their capital, which is not the most efficient use of capital. Besides, forget the rich. It sets a horrible example for a country that taxes the property of the dead, which already had been taxed before. Maybe that’s where the expression ‘taxed to death’ started.”

  Hank quickly veered off the issue. “That’s why we’ve been looking at all the policies and tax burdens that are stifling the job market. Let’s not lose our focus—the real impediments to job growth…”

  “Hank, hold that thought. I need a potty break, so I can be fully engaged,” Chase requested.

  The others noted how Hank had engaged in the conversation with more gusto and wondered whether his conscience was driven by his past indiscretions. Indeed, they were eager to see more of the reformatted Hank in action. Sensing the next round would also require full focus, they were happy to take a break.

  33

  WASTE NOT, WANT NOT

  Okay, guys, listen up,” Hank announced loudly to gather their attention. He even remained standing to ensure all eyes were on him. “Paolo is correct. Perhaps we have put the proverbial cart before the horse. If we focus on the spending that perpetuated the increase in taxes, we might get closer to exactly what is slowing the economy. We have spent weeks debating the policies that are stymying job creation—and we’re only inching along to a finished resolution the president can impose without delay.”

  “Granted, we’ve come up with numerous valid solutions to consider,” Seymour interjected, “but as you yourself said, they all require, either repeal of legislation or new legislation. It would take Congress an eternity to effect change.”

  “Hear me out. I suggest we all step back and reexamine each of the long-term solutions we’ve bounced around thus far. We still need a vehicle to implement the changes we’ve exposed—but we’re missing something. We should go over the areas we highlighted again. This time look back at the spending abuses as the generator of overspending. It doesn’t happen in a vacuum.”

  Hank sat down and waited for a counterargument. Much to his surprise, it didn’t surface.

  “I agree, in principle, with both you and Paolo,” Chase admitted. “You’ve hit on a salient point. But the president still won’t be able to make changes in a timely manner. The snail’s-pace Congress would have the final say. We need a diversionary tactic. A rope-a-dope.”

  Noble picked up on Chase’s unambiguous expression. “So—what are you suggesting?”

  “We have another option,” he replied, as he fingered his horn-rimmed glasses down to the tip of his nose, giving him a professorial air.

  “And?” Hank inquired, with impatient curiosity.

  “I took another go at studying the CBO projections for revenues and outlays for 2017—they were spot on—and it’s not pretty. But it presents a possible solution. I’ve given this a lot of thought.” He paused and then spoke more deliberately. “It’s time for another sweeping tax reform. It’s been over thirty years since Reagan’s Tax Reform Act. Once enacted, it simplified the tax code, instituting two tax brackets, and removing various deductions. Now there are six income brackets with many more complexities. Is this what we call progress? It’s a creaky system of spare parts held together with baling wire and chewing gum.”

  “You’re not talking flat tax again,” Hank grunted.

  “Whether it’s a flat tax, a modified tax, or marginal tax, the debate must include both individuals and corporations.” Anticipating Hank’s next move, Chase quickly added, “A major component must also be to remove many of the allowable deductions, providing a direct benefit to the corporations. The so-called corporate welfare. But that will all have to be worked out.” He held up his hand to hold off further debate for the moment. Then, glancing at his tablet, he said, “You may find these statistics quite interesting. They are a few years old, but in 2013 there were 73,954 pages in the Internal Revenue Tax code. Six thousand changes have been made in a ten-year period. The most extensive tax reduction in tax revenue comes from the Healthcare exclusions, costi
ng seven-hundred-sixty-billion dollars over a five-year period.” Chase looked up and announced, “My favorite, can you believe—six-point-one-billion hours a year are spent on tax preparation by individuals and businesses.”

  “The numbers are staggering, but to an even greater point,” Noble added, “is the collection of taxes. The Internal Revenue Service is a problem unto itself, but not for the obvious reasons.” He caught the mild chuckles, but continued. “The IRS has eighty-thousand employees who are responsible for collecting more that ninety percent of the revenue. But they are also saddled with administering various health, education, and retirement policies, including the Earned Income Tax Credit. The tax collector ain’t what he used to be. It’s no wonder they overpay individuals on average of fourteen billion dollars a year. It’s unsustainable and makes Chase’s case for reform.”

  “Also to your point, about the death loop,” Seymour joined in, “the government habitually spends more than they recoup in tax revenue. Unquestionably, the current structure of taxation is self-destructive. And in our anemic economic state, more families have joined the ranks of the low-income, causing government subsidies to rise. That means the base from which the government derives the tax is shrinking—There’s no doubt we are spiraling out of control.”

  “It sounds more like the country’s caught in a maelstrom,” Paolo interjected.

  “We can reverse the trend. Here are two other steps I’d like to propose,” Chase stated, and then looked carefully at each of the others before completing his statement. “First, a spending moratorium to be imposed for one year. Second, new short-term tax reforms to be retroactive to January of this year, providing some immediate relief in the way of a tax holiday. A tax rebate will be allowed on all individual and corporate 2018 tax forms to compensate for the overpayment of 2017 taxes—It could pave the way for the solution we are seeking.”

  “What don’t you get—The government is broke!” Hank blurted out. “We can’t afford the loss of revenue. I might be able to buy in on a modified version of a tax rebate for individuals, but I fail to see how helping corporations get richer will have any positive impact. You’re barking; excuse me, banking up the wrong tree.”

  “I couldn’t help but agree with Hank, save his last comment,” Seymour retorted.

  Hank appreciated the endorsement, but he had already handed over the last straw to Chase.

  “Who cares? The myth about corporations being given a free ride must be abolished. It just constrains our progress!” Chase, in a raised voice, insisted. “I’m so tired of that argument. And Hank, you’re forgetting about the small-business owners. They are a vital part of the business community and offer the best opportunity for job growth.”

  The others were taken aback by Chase’s unusual outburst. The issue had obviously touched a raw nerve.

  In a more calm tone, he asked, “May I continue? When corporations have more disposable income, it’s likely they will apply capital to expand and create more jobs. When wealthy people have more disposable income—their spending stimulates our consumer-driven economy. The Estate Tax was one example. But if our taxing policies don’t unlock capital to produce hard assets, the only choice will be to continue to print money, which debases our currency. Don’t fret, Hank; those corporations and wealthy individuals will still pay a disproportionate share of the taxes as they have historically. They may be taxed at a lesser percentage, but we have proposed eliminating many of the current allowable deductions. A point I attempted to make earlier. The net result can only be positive for the country and, especially, for those who are impoverished.”

  “Chase is right.” Paolo fell in step. “As long as they are forced to play by the rules, we shouldn’t be influenced by the financial success of any given company or individual. Remember free cash flow produces the liquidity for companies and individuals to invest, benefiting the overall economy. How many jobs do entitlements create—I ask you?”

  Ignoring his rhetorical question, Hank challenged, “Not if they use technology to expand. They will only displace workers.”

  “Hank, you’re starting to sound like a Luddite,” Paolo chided, and then he continued to chastise. “If they had their choice, the Luddites would have ended the Industrial Revolution. We can’t stand still while the rest of the world embraces technology; otherwise the U.S. will wind up in the technological garbage heap. It’s a natural cycle of business—an area where government doesn’t have to be involved.”

  Hank chose to back off and take a different approach. “Okay, so the carbon tax is presumably to encourage companies not to pollute by affecting their bottom line. Now you want to relieve companies of paying a high corporate tax. Won’t that, in essence, be a wash and obfuscate the purpose behind the carbon tax? Are we going to forget the environment? There will be no incentive not to pollute.”

  “What I am proposing is for a rigid twelve-month period, giving the administration time to launch our longer-term proposals,” Chase stressed. “Hear me out, please. I suggest a freeze be placed on all new spending and any recent appropriations for select projects to help offset the loss of revenue. And we can’t give in to special-interest groups, despite public reaction.”

  “Remind us again of the total revenue we’re talking about?” Noble asked.

  “Revenue from income is currently two-point-eight trillion dollars. It will depend on the tax-reform components, but if we revert back to the two bracket system of the nineties—I’d say the loss of revenue would be closer to roughly one trillion.”

  “What! Did I hear you correctly?” Hank bellowed. “You want us to find close to one trillion dollars of proposed expenditures that will be considered cuts, even if they are temporary?” he asked, underscoring the word temporary. “Congress never met an expenditure cut that they liked.”

  “Look upon it as a temporary shortfall and not a loss, per se,” Chase explained. “It may not cover the loss completely, but for the short period the payback will be realized in other ways. If Congress reforms the tax code, it will provide an opportunity for the private sector to free up capital to expand their operations, increase their profits, and boost their taxes. The promise of a rebate would, in essence, provide families with a windfall to stimulate the economy further. It could be just the self-imposed stimulus we need to increase consumer spending, which, don’t forget, counts for over seventy percent of the economy. We’re delving into the tax bases and not relying on an artificial so-called stimulus.”

  “We’d leave the state and local governments alone?” Hank asked, in a manner that sounded more like an ultimatum than a query.

  “Yes, we’re talking only federal taxes. Now here’s how I suggest we approach it. The Congress reviews twelve groups of legislation comprised of the cabinet-level and a few sub-level departments, which constitute the annual appropriations requests. I say we focus on the specific departments responsible for the areas we’ve identified. Our challenge will be to find savings where outlays can be suspended for one year, with an eye to a possible permanent suspension. This is a time for drastic actions; no half steps or platitudes will do. The goal is to right the economic ship so we can sail into the future.”

  “You mean focus on the same areas where the Congress consistently shirks its responsibility to make the hard decisions,” Seymour carped. “They’ve been slavishly churning the government wheels on a month-by-month basis, very much like the indebted consumer.”

  “I have to agree. Passing the Continuing Resolution has become an unending non-solution,” Paolo observed. “It’s a convenient way for Congress to evade its responsibility by hiding behind the resolution.

  “More importantly,” Seymour added, “this is the same do-nothing Congress we need to approve our proposal. Are they up to the challenge?”

  “Remember, this time President Post has the necessary margin in Congress,” Noble added. “It looks like the time is ripe to make a radical move. It’s now or never.”

  “The American public would a
lso have to buy in. It’s not going to be unanimous, but their support is essential,” Chase stated, and then he added, “In some ways they are just as much to blame, blinded by Congress’ overspending and easy-money policies. It fed right into their habit.”

  “I guess I’ll have my hands full trying to convince the American public to put their trust in their government again.” Seymour imparted, half-jokingly, for he knew his task would be an enormous challenge—in particular, selling the corporate tax relief.

  “Convince them and the Congress will have no choice. They are lily-livered and only respond to the vote,” Chase declared. “Now back on point. We need to focus primarily on discretionary spending, but don’t forget to look between the lines of the non-discretionary items as well.”

  “‘Non-discretionary’ is such a loose term, other than to mean do not touch,” Hank noted.

  “That’s why I said look between the lines. There are many areas of duplication and waste. Let’s look for any type of spending that can be suspended. Even if it will be a tough sell. Are we all in agreement?” Chase asked with slight trepidation.

  Surprisingly, after such a heated exchange the nods were not hesitant, but eager. He had his answer.

  “Great; now here’s how I’d like to proceed. Obviously, any spending bills associated with climate change must be addressed?”

  “The bull’s-eye is obvious,” Seymour quipped.