The Government as a product.
LET’S START BY APPROACHING THE US GOVERNMENT AS IF IT WERE JUST ANOTHER PRODUCT. What does this product cost? What are its benefits? Is it a product that I can use right out of the box or do I need to read a long and complicated manual? Is the product well designed? Is it product that people love?
When viewed as a product, it’s pretty clear that we can do far better that what we currently have. The US Government is very far from being anywhere close to an iPhone from a consumer satisfaction perspective. It evolved, it was not designed. We need to design it as Steve did the iPhone.
In 2009, according to a memo from the Joint Committee on Taxation, a bi-partisan Congressional committee, only 49 percent of Americans owed money on their Federal income tax returns. So for about half of Americans, the product we are describing is actually close to free. April 15th used to ba a pain, now its Christmas. It’s the day that half of America get a tax refund. They think taxes are a benefit.
For the other 50 percent, the product is relatively expensive. That group pays 36% of its income to the Federal government. On top of this, the tax paying group pays on average about 7% in state taxes and 6% in social security taxes — all told, about half of all income goes to some form of National or State Government.
Unlike other products in the marketplace, this product has to be purchased by individuals at the published price. You can live abroad, but as a US Citizen, you are still forced to pay US taxes. It’s the only country in the world that taxes you anywhere in the world. You can try to drop your citizenship, but there may be “exit taxes” to do so — and the government may never let you back in the country if you do so. Once you do this, an undocumented worker has more freedom to come and reside in America than you do.
While individuals, except for state taxes, have zero choice in buying the product or not, companies increasingly have many more choices as to where to place their tax (and actual) headquarters. In the 60’s and 70’s only large multinational corporations could set up shop abroad. Today, it’s a relatively simple process to set up a company in Singapore, Ireland or the British Virgin Islands.
Workers can be hired on a contract basis in India, the Ukraine, or Argentina. Even if you are legally incorporated in the US, all your actual operations can be easily outsourced, meaning that you as a small business owner will not actually create jobs in the United States.
Not only is the cost of Government high (for those who pay it), the actual mechanics of paying these fees are anti-diluvian. As mentioned in the introduction, at 73,000 pages, the tax code is simply not understandable by any one individual. We need to hire specialized accountants to fill in our taxes every year, make estimated payments, and occasionally defend ourselves in IRS audits.
Furthermore, we are not only dealing with massive complexity — we are dealing with complexity that is evolving every few years. This makes planning extremely difficult. In the decision to start a company or not, we can only guess what the tax will be on capital gains if we sell it some time in the future. We don’t understand what medical insurance costs will be for our employees. We don’t understand how the regulatory environment could change against us.
And what does this product supposedly do for us? In the constitution of the United States, one of the main first goals of the federal government was to provide roads and postal service. In the 21rst century, there still are some federal infrastructure needs, but — as we will detail below — this is a very, very small part of the overall budget.
By and large the funds collected by the Government are primarily used to pay for the Department of Defense, and for retirement and medical benefits for the bottom half of the US population. Note that in a very perverse way, by charging a high tax rate on individuals that do work and start companies, the economy as a whole is kept at sub-par levels, resulting in a bigger need for retirement and medical benefits. But more on that later.
Objectives we can agree on.
With this initial discussion in place let’s set down a couple of clear, bright-line principles for how the Government should ideally work in the 21st century.
- There should be a login. Right now you have a login to your Bank, your Google account, your Apple account, your Facebook account. There is no login to your account at the US Government. We need a way to login, change your address if you move, view your taxes, pay your taxes, check your retirement and medical benefits and actually vote.
Your carbon footprint, your taxable wages, documentation on any proposed laws, explanation of the penalties for not following the laws — all of these should be online. Customer support, in the form of phone and online chat should be available 24 hours a day, seven days a week, even if it is outsourced to India.
- Taxes should be clear, simple, and should not change. I will argue further in the book that an overall 15% income tax rate — payable by both corporations and individuals, and an elimination of the social security tax and capital gains tax should be enough to pay our bills. Everybody, including low income workers can afford to pay this tax. [taxation is for revenue not social engineering].
- The Federal Government should have a clear, simplified accounting rules. There should be no “off budget” items like Homeland security, or Social Security. It should be absolutely clear where the spending is taking place.
- Defense Spending should be reduced to a more reasonable percentage of our GDP. It is not acceptable that in 2010 we spent almost 100% of all income tax receipts on Defense and Defense-related activities. We should be able to do this and keep our military 3X stronger than we will ever need. The failure of a military is having to use it. If you appear invincible, no one has a war.
- Clear policies must be developed with respect to the Government bailing out banks and other financial institutions. We cannot have a repeat of 2009, where the US almost led the world into a financial Armageddon.
With respect to banking, you should be able to deposit money directly with the US Government, bypassing the banks directly. The money should be freely transferable in an electronic fashion should you decide to enable that.
- There should be some level of free emergency medical healthcare coverage for those in dire need. But this needs to be carefully monitored to prevent abuse.
- There needs to be some level of support to people who make very low salaries, or who are retired and living off a very low income. They should still pay taxes (on what salaries they do make), but they should also get some basic stipend. In all cases, they should be incentivized to work more to make more money than the base amount. Neg income tax.
- The Government should do more to incentivize education. Online education works. There should be money available to everybody who hits measurable thresholds. National testing centers should be set up to test in a wide variety of areas: math, science, language skills, sales, medical skills, etc. Online certificates (with distinctions) should be awarded to people who pass the tests; and actual cash money should paid.
- The Government should do more to incentivize wellness. Healthy people don’t have high medical bills. If you can prove you are in good shape you should get money.
- The Government should incentivize energy conservation and self sufficiency. Development of new solar energy and other alternative energy sources should be encouraged by a wide variety of incentives. We should encourage American manufacturing by keeping a guaranteed low corporate tax of 15%, and eliminating capital gains.
One of the first things every startup company in Silicon Valley does is implement a web login. For most companies this is no more than a username (or email) and a password. For more secure operations, such as financial applications, two factor authentication is generally enabled — a unique code is sent to your cell phone for example, which needs to be keyed in to get access.
Once logged in, every new application needs, at a minimum a place to change your name and address, set your email alert preferences, and change your email and password.
Amazingly, our Federal Government still doesn’t have a central login. We all have a unique identifier (our social security numbers or corporate employer numbers), but these are not directly tied to a central online account. This needs to change. If Startups can do it, the 1 Trillion a year enterprise known as the USA can do it as well.
Once logged in — a user should be able to do the following:
- View and Pay Federal Income Tax, as it is due. As I will discuss below, I believe we can dramatically simplify our tax structure to the point where a person can file their taxes, by themselves, in just a few minutes. Essentially this boils down to enumerating all the sources of income for the year (some of these can be pre-filled as the Government collects this information from employers on the fly). That number will be multiplied by the tax rate, less taxes withheld, to show the taxes owed. This can be then paid by any type of instrument: credit card, PayPal, wire transfer etc..
- View or transfer cash held at the Government itself. The Government should allow people to deposit money directly — bypassing the entire banking system. This electronic cash would be, by definition, 100% guaranteed by the Government, would be accessible at any ATM machine, and would be transferable, just like Bitcoin. This secure e-cash would be a boon for the economy, would be 100% track-able, and would be a hedge against another major bank meltdown.
- View a list of all your medical, retirement or income benefits. As I describe further in the book, I believe we can eliminate the concept of social security, and replace it with specific benefits that are part of the overall budget.
- View all your education, fitness and environmental badges, and choose, if you want, to share them on other parts of the web — for example on your LinkedIn or Facebook pages, or on your personal website.
- Get real time help by chat or voice on any topic. Have a question on your income tax? Ask a specialist. Want to understand your retirement benefits better? Chat with someone who can help you.
- Vote. Yes, Vote. Once we have a secure, unique ID for every person, we can also allow voting on the Internet. We already allow voting by mail — this would be far more secure.