Floyd Reports Opinion


A Detailed Plan for Government Reform



Some of the proposals contained here will almost certainly meet resistance from those who have a vested interest in the status quo, or who just naturally object to change. However, it is hoped that the potential for real gain to the nation will outweigh such resistance, and that the short-term pain for some will yield to the long-term gain for all.

I – Tax Reform Rules

There are two separate classes of taxpayers: personal and business.

A. Personal Taxes

1. Personal taxes will be paid on ALL income; there will be no tax-exempt or tax-deferred or tax-free status for any kind of income from any source, nor will there be any other form of deduction or exemption for anyone, in particular no special interest exceptions for those in positions of power.
2. There will be a simple formula to calculate an exemption which will apply to all personal income, determined by the two variables: personal total Gross Income (GI), and national Median Income (MI), as follows:
Exemption = a percentage of GI equal to GI / (R x MI) up to an income of GI = R x MI; above an income of R x MI, the exemption will remain constant at the value R x MI / 2. R may have any value between 1 and 2. My preference is R = 2 as this best protects the poor from over-taxation while having a minimal effect on total tax collected. This results in:
Taxable Income (TI) = GI x GI / (2R x MI) up to GI = R x MI.
For incomes above R x MI, TI = GI – R x MI / 2.
3. A third variable, Flat Tax rate (FT), is needed to calculate the tax, so that:
Income Tax owed will then equal TI x FT, for all taxpayers.
4. Each year the value of FT will be updated to reflect Federal Spending (FS) and the Total Income Tax (TT) collected for the preceding year as follows:
FT(new) = FT(old) x FS / TT
If Congress spends more than it collects, FT will increase; if it spends less, FT may decrease. A small surplus should be figured into each new FT value to gradually pay down the National Debt; however, in years of serious economic difficulty, Congress may, by 2/3 vote of both houses, waive all or part of a required increase. It might be reasonably expected that this feature will not only act as a brake on Congress’ spending habits, it may well prove to be more effective than Term Limits for replacing unrepentant over-spenders in Government.
5. The above restrictions do NOT allow extra deductions for dependents, regardless of family size or condition. Social Engineering is not a proper agenda for the Federal Government. The maximum exemption under the above formula -– R x MI / 2 — is greater than the “poverty level” that Congress has defined over past decades, so this exemption should be more than adequate for any normal household situation.
6. See Figures 1 and 2 for tax tables with MI = $50,000 and R = 1 and 2.

B. Business Taxes

1. Business income which stays in the business, to be used for expenses and for the growth and improvement of the business, will not be taxed.
2. Any business income which is extracted from the business for the benefit of an individual in any form will be taxed as income to that individual. Payroll, employee benefits, employee insurance premiums, bonuses, dividends, interest payments, etc., all will be taxed as personal income as described above. Where it is simpler for the employer to pay both the benefit and its concomitant tax directly (as when an employer pays for a group policy, plus tax, for medical insurance for many employees), the total amount of the benefit plus tax must be used in calculating the correct amount of the tax.
For example: a company purchases a group policy for all of its employees at a cost of X dollars. The net tax must be FT x (X + tax), so the tax can be calculated as:
Tax = FT x X / (1 – FT)
To demonstrate this, let’s say that a benefit paid by a company has a cost of $100, and FT for this year = 20%. Then the tax will be $25, not $20, because 20% of the total benefit plus tax, or $125 x 0.2, is equal to the amount of the tax, $25.
3. Non-commercial organizations, such as Unions, Churches, Charities, Social Groups, Homeowners Associations, etc., are all considered businesses under these rules, and they will pay no taxes on already taxed money that is donated to them by individuals/households. When any organization pays money to others who class as Personal Taxpayers, those persons will pay the appropriate Personal Taxes, as above. A charity or church, however, may provide food, clothing, general welfare materials to those it deems to be in need, without incurring any tax obligation on the part of the recipient or the provider. That is the nature of the charity’s business rather than payment for goods or services; for example, a union may provide temporary support for members who are unemployed without being taxed.
If, however, a business contributes to a charity and such support does not qualify as a part of the business’s normal activity, then there will be a Personal Income Tax obligation to be paid by that business because the end beneficiary of the donation is the welfare recipient, and because no prior taxes have been paid on the amount donated. As in the group insurance policy example above, the charitable donation plus tax must be figured into the amount of tax due.
4. When one business buys stock in another business, to increase its cash reserves or improve its product, or any other legitimate business purpose, any profits realized from such transactions which remain in the business will not be taxed.
5. Any business which sends money overseas, to open a new plant or start a new branch operation for example, will post a “tax bond” in the amount of the current FT personal tax rate applied to the amount of money expatriated. Assuming that the foreign investment bears fruit and returns money or equivalent cash value to the U.S., there will be a refund at the same tax rate on the value repatriated. This serves two purposes: it prevents American companies from sending income to offshore accounts for favored executives without paying the appropriate income tax, and it minimizes the incentive for companies to ship jobs overseas where labor costs are less than in the U.S. When (if) the overseas operation returns the whole amount originally expatriated, the “tax bond” account will be closed and any further money coming into the U.S. for that account will be simple profit to the company.
Political Influence
It has been traditional for both individuals and businesses to deduct political contributions from their taxable finances each year before computing taxes due. New rules are needed for this area.
1. Personal contributions:
Since deductions from personal income are no longer allowed, there is no reason to limit contributions that individuals can make, after taxes, to any politician or political organization. People should be free to give any amount to anyone they wish without penalty.
2. Business contributions:
Since business profits will no longer be taxed in the traditional manner, it is necessary to consider the basis for any political contribution from a business source. The primary consideration, of course, must be that a business does not contribute to a political entity for purely altruistic reasons; such giving is necessarily always done to gain some influence or advantage that would not be available otherwise. In other words, money is used to gain favorable legislation and/or attention. For this reason, there should be a cost to the business for the gain it expects to realize. This same reasoning applies to Unions, Charities, or any other business or organization.
The simplest arrangement is to require a tax donation equal to the political donation, dollar for dollar. If business executives or union bosses believe it is worth a large donation to get the favorable action they want, it is only fair that they pay the cost of such favors in taxes, in the same amount. The penalty for failure to pay the equal amount in taxes should be a fine of ten times the amount not paid up front.
Corporate and union influence in Congress both are notorious sources of bad legislation, and have been for as long as the United States has existed. At least by matching tax and donation influence we may achieve a better balance. I would urge that taxes realized from this source be dedicated to paying down the National Debt rather than simply going into the General Fund. This again would go a long way toward defraying the cost of “business as usual” in our “crony capitalism” society.

II – Retirement Reform Rules

There are two methods available for making Social Security sustainable. The first protects Social Security, as it is now, from long term losses and ultimate bankruptcy; the second shifts it gradually over to privately owned Personal Retirement Accounts (PRAs). Both methods can, and should, be implemented simultaneously.

A. Making the current “defined benefit” system sustainable

1. Redefine the Income Cap on which “Payroll Taxes”, or FICA taxes, are paid to twice the Median Income (MI), or MI x 2. This is a close match to the cap which has been used for many years, and has the advantage that it adjusts automatically to inflation and economic variation (better proxy for COLAs).
2. Redefine the standard monthly payment, after retirement, for those who are fully vested and have paid the FICA tax up to the income cap level, to Median Income times 3.5 %1. This would put the standard S.S. payment at $1750 on the 2010 MI of approximately $50,000. The current SSA rules for adjusting the monthly payment based on early or late retirement will be retained, as will the current rules for adjustment based on income lower than the Cap.
3. For those whose incomes have been above the Cap for most of their working years, and whose income from sources other than Social Security remain greater than the Cap (as defined above) after retirement will receive monthly SSA checks which are reduced by the ratio of their non-SSA income divided by the Cap. Thus, if in some future year the MI grows to $60,000 and a retiree has a Gross Income (before tax and before SSA payment) of $150,000, then his SSA check will be only $1680 rather than the standard $2100: (2100 x 120000 / 150000). This is similar to the concept of a “Means Test” currently under discussion in Congress but does not involve any convoluted legislation.
4. FICA taxes collected from those still employed should be invested in “locked” accounts like those defined below (see section II-B-11), not put into the Treasury’s General Fund.

B. How to gradually shift from today’s “defined benefit” scheme to a “defined contribution” retirement plan.

1. Once Congress has agreed on the rules for Private Retirement Accounts we can designate a starting year as Year 0.
2. On the retirement age birthday in Year 0 of any workers who already have at least 40 years record of payment into SSA, those workers will be eligible to retire on normal standard Social Security pay-out. If they decide to continue working and contributing to a greater retirement fund, they will have the option of discontinuing their FICA payments and instead putting the same amount into their own Personal Retirement Account instead.
3. In order to maintain an adequate flow of funds into the SSA account, the matching funds from their employer will continue to go into the SSA.
4. When those workers do elect to retire, they will collect their standard S.S. checks enhanced by 1.25%2 for each year their employer has continued paying the matching contribution into the SSA account.
5. In Year 1, the same rules will apply to those who will be eligible to retire one year in the future. They may discontinue their payment into the SSA fund and instead direct the same amount into their PRA. They will realize the ownership of their PRA funds, plus any investment gain on those funds, and they will lose 1.25%² of the SSA pay-out they would have received at normal retirement age. Again, if they work beyond retirement age, their S.S. checks will grow at the same 1.25% for each added year of employer matching contribution.
6. From Year 2 through Year 10, the optional switchover to PRA will proceed starting an additional year ahead of normal retirement age, with the same adjustment of S.S. payout for each earlier year. Thus, by Year 10 all of those who plan to retire in Year 20 may choose to switch to the PRA plan, take a loss of 12.5% of their S.S. checks and enjoy the ownership of all the funds growing in their own PRA. Continuing employer contributions will offset the SSA loss as above.
7. Assuming that the switchover has been a success up to this point – no shortfall in funds available to the SSA to pay all of the S.S. checks due to both full- and partial-beneficiaries, and satisfaction with the growth of their PRAs among those who have made the switchover – then it would be reasonable to accelerate the switchover option to an additional two, or even five, years for each additional year after Year 10. By Year 11, for example, the accelerated PRA option might allow workers at retirement age minus 15 years to shift immediately rather than having to wait until Year 15 to make the shift.
8. At this rate, we can assume that some people will be starting their careers, forty or more years before anticipated retirement, with the PRA option available to them immediately, possibly as early as Year 16. These first workers who opt to put all of their retirement money into a PRA will have the additional option of having all of their employers’ matching funds also put into their PRA, rather than into the SSA. At this point we would begin to see the full benefit of Personal Retirement Accounts.
9. At some point between Year 16 and Year 40, all workers will be able to start directly into the PRA scheme and all retirement fund pay-in from that point on, from both employees and employers will also be into PRAs. There may be some significant number of older retirees still receiving S.S. checks, but they will be a diminishing number, and most of those checks will be reduced by many years of attrition at the 1.25% per year rate (due to the employee contributions going into their PRAs rather than into SSA).
10. Beyond about Year 30, or earlier if all goes as well as anticipated, no employer matching funds will be allowed to go into the SSA fund, but will instead be directed into each employee’s PRA. The turnover point should be determined when it is clear that sufficient SSA funds still exist to cover the few remaining retirees still drawing S.S. checks.
11. The accounts used for accumulating PRA funds will be managed by reputable investment firms and the structure of those accounts must be approved by Congress, with criteria such that income and growth are maximized within the absolute constraint that risk will be as close to zero as possible. Many similar 401K and other fund accounts exist today, and most show returns averaging between 4% and 10% over many decades.
12. The SSA itself should be required to put all of the contributions accruing to it, with the exception of sufficient funds to pay current retirees on a monthly basis, into the same or similar accounts so that there will no longer be any way that Congress can use them for General Spending purposes. This change should be made now, completely separate from any discussion of the rules given here. By locking these funds away, the SSA can essentially guarantee that it will have the funds necessary to pay S.S. checks to all remaining beneficiaries of the old system, without having to dip into current debt to honor its obligations. Once all remaining SSA beneficiaries have died, all funds still left in the SSA accounts, if any, will automatically revert either to the General Fund or, better, go directly to retiring National Debt liability.
The single most important rule for Entitlement Benefits is that all of the above rules will apply equally to everyone. Specifically, this means that all government employees, including our elected servants, will abide by these same rules; they will no longer be covered by separate pensions, retirement plans, medical coverage or any other benefits that are not equally available to every citizen of the United States. (See also Section V-2)
This same argument applies also to all laws which benefit or restrict some people and not others. Congress will not pass any law benefiting Federal Employees which is not available to all citizens; and Congress will not pass any law restricting or punishing any citizen which does not apply equally to themselves. The present ability of Congress to establish its own perquisites: salaries, vacations, pensions, healthcare coverage, etc., must be subject to approval by all other branches of government and by the people.
This reasoning necessarily implies that all businesses must also provide the same basic minimum benefits, specifically pension and healthcare benefits, for all full-time employees. If employers elect to provide additional benefits, they will be valued at cost and taxed to the employees as income. In accordance with our Constitution and Declaration of Independence, the time has come to honor the “Equal Opportunity” clause and treat every citizen with the same respect. This does not imply equal outcomes for all, but it does mean that everyone will receive the same outcome results versus input worth as anyone else. Obviously, “input worth” is subjective and requires cooperative agreement between the employer and the employee, which in turn requires honesty and integrity on both sides.
1 This percentage figure is approximate and may need to be adjusted.
2 The 1.25% value is predicated on a nominal work-life of 40 years, and equal contributions from employee and employer.

III – Healthcare Reform Rules

Healthcare costs are most affected by two considerations: the age of the recipient and the delivery system.
For normal healthy individuals, healthcare costs are minimal during early life, at least once we’re past the infant and accident-prone adolescent and teen years. Increasing costs are a serious factor for those approaching the end-of-life years.
The meaning of the term “delivery system”, as used here, is that a minimal cost system is one in which every person in need of medical attention goes directly to the doctor who can best treat him, and then pays the doctor directly for the cost of treatment. Only when that cost is too high for the patient to pay directly do we need an indirect system in the form of insurance or welfare. When such assistance is needed the total cost increases because we have also to pay the cost of all the middlemen and the bureaucracies in the insurance and welfare streams. Under no circumstances should the choice of delivery system be mandated by Congress.
The preferred solution would be for everyone to have access to minimum cost basic insurance provided by nationwide insurance providers in a fully market-competitive system. Starting at earliest employment age, such insurance should be affordable even to low income earners. Considering that healthcare is an unavoidable factor in everyone’s life, an argument can be made that a minimum insurance premium cost should be deductible for everyone, in violation of the rules in Section I-A. Each worker can then make the choice of paying the cost of an insurance policy (pre-tax) or of being personally responsible for his own medical costs, out of income. Obviously, changing at a later age from pay-as-you-go to a healthcare insurance policy would be more expensive than making the choice at the earliest possible age. Even that cost, however, would be vastly preferable to having Government mandate a one-size-fits-all choice for everyone.
The Medical Savings Accounts (MSA) strategy that was proposed some years ago would provide a simple method of accomplishing this objective. Each working adult should be able to put a prescribed maximum amount into a MSA each month, pre-tax, and then use that either to cover medical bills directly (the least expensive way) or to purchase a basic care insurance policy. The capped MSA contribution should be enough to cover the basic policy plus a small amount extra so that over time, the MSA would accumulate a surplus which would handle emergencies, or which could be used in later years to absorb age-related increasing costs. Some employers may prefer to cover some or all of the cost of a MSA for its employees; alternatively, an arrangement similar to the 50-50 split of Social Security costs might be a preferred solution. Obviously, any agreement which puts additional costs on the employer will directly affect wage scales.
Only in cases of early life exceptional situations – physical and/or mental conditions that preclude the possibility of a family or individual managing the costs – should the government step in and provide a welfare solution. Even in such cases, State management would be much preferred over Federal involvement. There is no workable “one-size-fits-all” technique, and with Federal involvement that is the only likely outcome.

IV – Education Cost Rules
One final exception to the Tax Rules in section I-A is cost of education. As we all know, education in the U.S. is far more expensive than in any other country, yet our achievement is well below international standards. In other words, our public education system is not working optimally.
We have two competing systems working in competition with public education: private schools that are not tax-supported, and home schooling. Both of these competitive systems appear to work remarkably well, at least when they suffer minimal interference. Regulation of these alternatives is a taxpayer cost that probably does more harm than good, although minimal State oversight is probably necessary.
Both of these alternatives are a cost item primarily to those who use them – namely the parents of those children who benefit from them. I would argue that the household cost of private schooling, or of homeschooling, should be a tax deductible item, but only up to a very minimal national standard cost of public schooling per child.

V – Congressional Reform Rules
Congress has, for far too long, viewed its own members as though they were a “Ruling Class”, not bound by the same rules they write for the “rest of us”. This is perhaps the clearest sign that our government has turned away from the Constitution and has taken upon itself the role of “The Governing Class”. A new set of rules is needed to get our nation back onto the track of its founders.
1. Congress shall make no law which in any way restricts or penalizes all of the Citizens, which does not apply equally to Congress and all members of the Government Bureaucracy. (E.g., Insider Trading)
2. Congress shall make no law which in any way benefits or favors its own members, or other Government employees, which does not apply equally to all citizens of the nation. (E.g., Government pension and medical plans)
3. Congress shall pass no law which it is not certain is clear and devoid of damaging “unforeseen” consequences, or which it is not convinced is enforceable. (E.g., Illegal immigration problems)
4. Congress shall make a concerted effort to remove any and all old laws which have proven to be poorly written, unenforceable, duplicative of other better written laws, or otherwise simply not worthy of retaining. Frankly, I would much rather vote for a Congressman who would promise to get rid of bad laws before I would ever vote for one who would promise to try to pass a law that would benefit me personally!
5. Congress shall permanently terminate the practice of adding riders to bills unless the riders relate clearly and objectively to the primary subject of the bill in question. If the subject of any unrelated rider is worthy of passage, it must be considered on its own merits as a separate bill, no exceptions.
6. Congressional salaries should not be determined by Congress alone. Any increase in any Government salaries must be approved, on a case-by-case basis, by both houses of Congress and the President, or by the people of the Congress person’s district – preferably the latter. There should never be a general Congressional salary increase without voter approval, each and every time.

VI – Consequences
It can easily be seen that the above five sections, if fully implemented, would produce consequences, most of which would be viewed by most people as good. However, some of the consequences will cause temporary harm to some people. Let’s look at how these new rules will affect various segments of the population.
1. With the greatly improved predictability of business costs – taxes, healthcare and retirement contributions – it can be assumed that business will boom as never before. All businesses and virtually all employees will benefit.
2. The new tax rules will be very popular with virtually everyone except for those whose current livelihood depends on tax code complexity. Almost all of the IRS employees will no longer have jobs.
3. Nearly all of the tax lawyers, tax accountants in private business and the thousands of minor employees working in tax and accounting departments will have to be retrained in other aspects of corporate business. With the explosion of profitable business one should expect from all this, the number of productive jobs available to absorb the loss of “make work” jobs should be satisfying to almost everyone.
4. Since a very large part of government business is based on and supported by tax complexity, a huge chunk of government “make work” will disappear.
5. The details of the shift from Social Security to the Private Retirement system will require retraining the surplus IRS and other accounting personnel to make sure the SSA accounts remain balanced and no retirees lose payments they have coming to them. No net loss is foreseen here.
6. The same potential applies to government’s reduced presence in the healthcare and education “industries”; just releasing its grip on these areas of public affairs, in which the Federal Government has no Constitutional authority in the first place, will take some years of careful extraction, with a large number of qualified workers to untangle the mess.
7. The growth in productive business – and corresponding growth in profits – will create a need for more workers at all levels, especially more highly qualified workers. The increased need and the growth in profits will work together to make higher pay rates both necessary and affordable, to the benefit of workers at all levels. It’s the exact opposite of what we have with creeping Socialism, which stifles business and causes greater harm to both lower paid workers and the middle class than does healthy Capitalism.
8. Inevitably, there will be some individuals – in government, in the corporate world, and in the unions – with either power or bad character who will try to suborn this new system to their advantage (and to everyone else’s disadvantage), so it will always be necessary for honest members of Congress and The People to maintain careful oversight.
9. Weaning taxpayers from the current Special Interest system in which many investment vehicles are “Tax Free” or “Tax Exempt” (Municipal Bonds are typical of this class) will be a gradual process. It would not be reasonable to expect to break existing contracts just to more quickly realize the benefits of these new rules, so some degree of “grandfathering” of contracts now in place must be accepted, but with any new investment fully locked into the new rules.
10. It will likely take at least 20 years, possibly longer, with this system in place before the National Debt will be adequately reduced, or eliminated – about the same length of time it should take to fully shift over to the Private Retirement Accounts. By that time it can be assumed that our economy will have shifted into high gear and our future should look far better than it does today.

Table 1 – Tax Table Using New Tax Code – 50% at 2MI
MI = $50,000
Gross Income Exemption Taxable Income Total Tax
FT = 15% Eff. Rate FT = 20% Eff. Rate FT = 25% Eff. Rate
$10,000 $9,500 $500 $75 0.75% $100 1.00% $125 1.25%
$20,000 $18,000 $2,000 $300 1.50% $400 2.00% $500 2.50%
$30,000 $25,500 $4,500 $675 2.25% $900 3.00% $1,125 3.75%
$40,000 $32,000 $8,000 $1,200 3.00% $1,600 4.00% $2,000 5.00%
$50,000 $37,500 $12,500 $1,875 3.75% $2,500 5.00% $3,125 6.25%
$60,000 $42,000 $18,000 $2,700 4.50% $3,600 6.00% $4,500 7.50%
$70,000 $45,500 $24,500 $3,675 5.25% $4,900 7.00% $6,125 8.75%
$80,000 $48,000 $32,000 $4,800 6.00% $6,400 8.00% $8,000 10.00%
$90,000 $49,500 $40,500 $6,075 6.75% $8,100 9.00% $10,125 11.25%
$100,000 $50,000 $50,000 $7,500 7.50% $10,000 10.00% $12,500 12.50%
$125,000 $50,000 $75,000 $11,250 9.00% $15,000 12.00% $18,750 15.00%
$150,000 $50,000 $100,000 $15,000 10.00% $20,000 13.33% $25,000 16.67%
$200,000 $50,000 $150,000 $22,500 11.25% $30,000 15.00% $37,500 18.75%
$300,000 $50,000 $250,000 $37,500 12.50% $50,000 16.67% $62,500 20.83%
$500,000 $50,000 $450,000 $67,500 13.50% $90,000 18.00% $112,500 22.50%
$1,000,000 $50,000 $950,000 $142,500 14.25% $190,000 19.00% $237,500 23.75%
$2,000,000 $50,000 $1,950,000 $292,500 14.63% $390,000 19.50% $487,500 24.38%
$5,000,000 $50,000 $4,950,000 $742,500 14.85% $990,000 19.80% $1,237,500 24.75%
$10,000,000 $50,000 $9,950,000 $1,492,500 14.93% $1,990,000 19.90% $2,487,500 24.88%
$50,000,000 $50,000 $49,950,000 $7,492,500 14.99% $9,990,000 19.98% $12,487,500 24.98%


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