McCain and Obama on the Road to Perdition

Here's another letter sent to the Wall Street Journal, and cc.ed to Dean Hubbard of the Columbia School of Business.

Dear Sir(s):

Dean Hubbard's op-ed piece in today's Wall Street Journal ("We Can't Tax Our Way Out of the Entitlement Crisis," WSJ, 08/21/08, A13) is absolutely correct. Under current assumptions and institutions, the United States is headed down the road to economic perdition unless serious — and adequate — steps are taken . . . and the path is not the potholed and precarious trail blazed by Europe.

Unfortunately, while Senator Obama apparently has no clue as to how to rescue the floundering American economy, Senator McCain's prescriptions in light of his admitted ignorance on economic matters aren't any better. Both candidates insist on doing more intensively what has been tried and failed before.

Neither candidate appears to have given serious consideration — or any consideration at all — to the Capital Homesteading proposal developed by the Center for Economic and Social Justice ("CESJ"), www.cesj.org. Capital Homesteading is designed to supplement and, eventually, replace Social Security and Medicare after all current promises have been kept. Replacing the current regressive payroll tax, all programs would be funded out of general revenues through a single tax rate set to balance the budget. To minimize future demands on the system, Capital Homesteading would enable people to accumulate approximately $500,000 in income-generating assets by age 65, throwing off annual after-tax income of an estimated $50,000, with total dividends from age 0 to 65 of more than $1.6 million.

Under the recommended tax reforms, corporations could avoid taxes altogether by paying out all earnings as tax deductible dividends, to be taxed as regular income to the recipients. Corporations would obtain necessary growth financing by floating new equity issues and selling them to a broad-based ownership constituency who would purchase the new shares with the proceeds of loans obtained through the commercial banking system and discounted at the Federal Reserve — as permitted under § 13 of the Federal Reserve Act. Collateral would be provided in the form of the new assets financed, backed up with capital credit insurance, with the standard loan risk premium used as the premium on the policy. This would restore an asset backing to the currency — something the United States needs badly.

Reforming the tax code by eliminating virtually all tax credits and personal deductions but raising the personal exemption to a realistic level sufficient to meet common domestic needs adequately (including education and health care) would result in most people paying no taxes until aggregate gross income for a typical family of four exceeded an estimated $120,000. Cutting off the federal government's ability to circumvent the Federal Reserve's prohibition against monetizing government deficits would entail some bullet-biting for about twenty years, but the reduction and, ultimately, the elimination of both entitlements and the outstanding federal debt would be well worth the effort — especially if every American was entitled to a tax-free accumulation of assets of up to $1 million as proposed under Capital Homesteading.

It's high time the United States began to implement the vision of Louis Kelso and Mortimer Adler as detailed in The Capitalist Manifesto, ironically published exactly fifty years ago, and take heed of the warning in The New Capitalists (1961) — subtitled "A Proposal to Free Economic Growth from the Slavery of Savings."