Tax Loans -- replacing the welfare state

Liberty Dad

The Tax Loan program-- replacing the welfare state

A Tax Loan is given by the gov't to a specific person, and is repaid by that person's taxes.
1) Tax Loans can replace gov't grants with loans.
2) Taxes repay the loan.
3) A small loan repayment surcharge (loan tax) also repays the loan.
4) In a Tax Loan program an explicit, honest social contract replaces the current imprecise and uncertain tax-benefit mixed contract.
(Legal persons, like corporations, could be eligible for such loans as well.)

Reasons

Most voters want benefits, from the gov't, using Other People's Money. This desire is part of the social contract espoused by Rousseau, the vagueness of which makes it both unenforceable and essentially dishonest.

If this entitlement benefit was instead a gov't Tax Loan, and repaid by the recipient, it would be using the taxpayer's own money, and be an honest, explicit social contract.

A large portion of the immorality of taxes and entitlements is the fact that you are forced to pay taxes to benefit others. If your taxes go mostly to benefit yourself, the immorality goes down. Also, naturally, the desire for a new gov't entitlement will also be reduced.

An explicit purpose of a tax loan program is to reduce the desire for entitlements, especially from the rich and middle classes. Including a repayment surcharge enhances this effect.

A Tax Loan program can, in principle, answer the anti-freedom question: What about the poor? The answer becomes, offer the poor a tax loan. With explicit conditions, and a real tracking of individual agreements; and certainly increasing the known facts about each poor person who is unable, or more likely unwilling, to pay back the tax loan. (Unwilling in the sense that they are unwilling to adjust their lifestyles to be able to become productive.)

The interest rate on the loan (if any), and the level of taxes which go towards repayment will be good gov't discussion issues, as will be the levels and forms of the repayment surtax. This is important because democratic governments must be actively doing something to be reelected. Similarly, once enacted for people, such tax loans can also be used to reduce corporate welfare for big, questionably run corporations looking for, and now receiving, gov't handouts.

An obvious starting program would be a large Tax Loan for education (eg in California):

Example program: an automatic $20 000/ year education Tax Loan. After 4 years, the graduate borrowing the maximum would owe $80 000. Half of his income tax (50%) goes to reduce this, yearly, and the Tax Loan balance is recorded just like a real loan. PLUS, if he makes more than the average ($30 k?), he pays some surtax, say 10%, on that amount, which also goes to reduce the tax loan.

Such a Tax Loan program would operate in some specific economic environment, for example:

The income tax rate is a flat 20% (for illustrative purposes; a little wishful thinking). Average income is $30 k/ year, which continues (instead of realistically increasing). A surtax of 10% on the amount over average is also levied. While the surtax would prolly be pre-tax, for the following examples this is ignored; similarly while there would be some interest rate (eg the avg. prior year's Fed rate), the examples ignore this.

Individual Example (med success): one graduates and makes $40 k/ which increases by $5 k/ year.

The grad pays an income tax of ($ 000) 8, 9, 10, 11, 12 over the next 5 years, half of which goes to pay off the tax loan. He also pays 1, 1.5, 2, 2.5, and 3 ($ 000) in surtaxes. Thus his loan repayment the first year is 4+1=5 ($ 000); with the following years: 6, 7, 8, 9. So his Tax Loan balances starts year 0 at 80 ($ 000) and follows: 75, 69, 62, 54, 43. Almost half way repaid after 5 years.

Individual example 2 (avg): a graduate makes only $30 000/year, no increases. No surtaxes. A flat $6 000/ year paid in income tax; $3 000 goes to pay off Tax Loan. After 5 years, $15 000 is repaid, he owes $65 000.

Micro considerations

The point is to keep track of the gov't benefits, and put them in tax loan accounts, so that more middle class folk honestly pay for their own benefits. While using only 50% of the taxes paid may be needed to avoid initial strong gov't opposition to such a program, increasing that portion towards 100% will be an increasing desire of voters who are paying a surtax. The surtax, which increases gov't revenues through voluntary means, is why the pols in gov't will support the a Tax Loan program.

Yet that surtax will go a long way towards reducing the DEMAND for gov't benefits/ gov't power. Which is why freedom lovers should support such a program.

Other future Tax Loan programs:

An Unemployment Tax Loan / savings account where current insurance contributions are converted into a specific amount into each taxpayer's unemployment savings account. In the case of unemployment, they can draw on their savings until it is used, and then switch into a Tax Loan, on an individual basis. There would be some maximum total unemployed Tax Loan offered (as currently). The main innovation is that, for those who go through their savings, and use a Tax Loan; when they DO get a job, their taxes go first to repay the Tax Loan. And the surtax, provides an incentive to avoid taking out the Tax Loan. Once the unemployment savings account is created, it should be available to be converted into additional health savings upon retirement.

Small business Tax Loan, Farmer's Tax Loan, etc.

Large corporation Tax Loan (eg airlines): A corporation surtax could easily be some 1% of turnover (top line revenue), a number which is much less susceptible to accounting manipulations than reported profit.

The large number of any such individual loans essentially requires a functioning, computer based administration. Such considerations are moot in modern economies, but become a significant justification to computerize developing nations in order to implement such a tax loan program (eg Iraq)

The First Tax Loan program? Perhaps California?

Imagine if gov-elect Arnie goes to Pres. Bush to get, instead of $50 bil now, an agreement that US taxpayers who take out a CA Tax Loan will pay that loan back from their state and federal Income Taxes, as well as a 10% surtax. In return, the huge and hugely subsidized University of California system gets revised to increase tuition to fully cover the costs. The increase in tuition immediately reduces the CA state budget. The Tax Loan program insures that all students, including the poorest, who are accepted can afford the full cost. But at the cost of the surtax on the Tax Loan. It might need federal US agreement in order to make sure that those who leave CA continue paying the state/fed Tax Loan.

Once a Tax Loan program is approved, it can be funded by specific state bonds, further relieving the immediate tax burden and the interest on the bonds (avg of prior years) should be the interest rate the bonds bear.

Or, perhaps Slovakia could be the first?

Where such a program is designed, and the World Bank is asked for a series of annual loans for this purpose by the Ministry of Education (KDH). This results in a large increase in resources towards education, while less current budget is devoted to it.

Flowery, wonderful thoughts and words on the future of a smaller, personal gov't (coming soon?).

*You* are welcome to comment & improve this idea.