Unanimously Agreeable and Fundamentally Fair (Constitutional) Tax Policy

Dr. Sankarshan Acharya
Founder, Pro-Prosperity.Com and Citizens for Development

April 29, 2017

Dear President Trump,

The Journal of Finance (1989) paper on optimal bank foreclosure policy - which led to enactment of an unprecedented bank foreclosure rule in the FDICIA1991 - is the first paper that formally models how a not-for-profit government with an objective to minimize its cost of operation (to be efficient) should set such policies. [1]

The not-for-profit objective of a cost minimizing government will levy as little tax as necessary to operate efficiently. 

This objective is further reinforced by another fundamental finding published in the Journal of Governance and Regulation that efficiency and sustainability of governance obviates subsidies funded by taxation and borrowing. [2] 

The U.S. has badly strayed from these fundamental governance rules for efficiency and sustainability by borrowing a massive unrepayable debt of $20 trillion.

The new tax policy your administration unveiled this week has just one aspect which is consistent with governance rules for efficiency and sustainability, namely, elimination of special taxes for subsidies on health insurance.  I had proposed elimination of such tax-subsidy in my proposal on Unanimously Agreeable Health Insurance Act. [3] All other elements of your tax policy announced this week badly deviate from the fundamental governance rules for efficiency and sustainability. 

If your goal is Unanimously Agreeable and Fundamentally Fair (constitutional) Rules of Governance that are efficient and sustainable, your tax policy should reflect it unambiguously:

1. Tax at the same effective flat rate every dollar of income, whether it is from corporations (considered as citizens) or individuals, above (say) the cut off level for poverty.

2. Eliminate all forms of subsidies including deductions as well as penalties like alternative taxes, surtaxes and inheritance tax on wealth built by savings from income after payment of taxes. 

3. Pay even the social security retirement income on an actuarially fair basis, stemming from actual social security tax contributions.   Pay an alternative lump-sum refund of the contributions with interest (calculated the way IRS does on unpaid taxes) to anyone who prefers it in lieu of the actuarially fair periodic social security retirement incomes.

4. Avoid the specious dogma that corporations charged at lower rate will somehow create more jobs that will eventually raise government's tax revenues.  To see the speciousness, suppose that the corporate tax rate is reduced by 0.24 (from the current 0.39 to 0.15) - for every dollar of corporate income - and that all of this new corporate income (due to tax waiver) is used by the corporations to pay wages (0.24) in the newly created jobs.  Only if the government collects all of these new wages (0.24) in taxes, it cannot make up for the shortfall due to reduction in corporate taxes of 0.24.  Collecting all the newly created wages in tax is as bad as not having these jobs!    

5. Eliminate all currently established rules of governance which facilitate unconstitutional (fundamentally unfair) transfer of wealth from some groups to others.  This is inefficient, unstable and unanimously disagreeable. [4]     

The above FIVE cardinal principles of taxation are unanimously agreeable and fundamentally fair (constitutional) because no one prefers to pay higher taxes to subsidize others, that everyone would prefer taxation at uniformly fair rate for each dollar of income earned, and no one prefers to be robbed systemically (via government rules and policies), even surreptitiously. 

The tax policy announced by your administration is another surreptitious scheme of unanimously disagreeable, fundamentally unfair (unconstitutional) transfer of wealth, which has made the US economy inefficient (uncompetitive) and unstable (on the precipice of collapse).

With profound regards,

Dr. Sankarshan Acharya
Director, Academy of Unanimously Agreeable Philosophy and Governance       
http://pro-prosperity.com/About.html

[1] http://pro-prosperity.com/Research/Bank-foreclosure-rule-paper-Acharya-Dreyfus-Journal-of-Finance-1989.pdf

[2] http://pro-prosperity.com/Research/Governance-and-Most-Efficient-Competitive-Economy.pdf

[3] http://pro-prosperity.com/Unanimously-Agreeable-Health-Insurance-Act.html

[4] http://pro-prosperity.com/Public-Interest-Litigation-on-Unanimously-Agreeable-Governance.pdf