Financial transaction tax could actually ease our national debt

Financial transaction tax could actually ease our national debt
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The news from the Treasury Department that the federal deficit has hit a six year high of $779 billion should give President TrumpDonald John TrumpSunday shows preview: Shutdown negotiations continue after White House immigration proposal Rove warns Senate GOP: Don't put only focus on base Ann Coulter blasts Trump shutdown compromise: ‘We voted for Trump and got Jeb!’ MORE added incentive to reset his agenda for 2019, regardless of whether or not the anticipated Democratic blue wave in the midterm elections materializes next week.

A key element of that agenda should be the introduction of a financial transaction tax dedicated to payments for Social Security, Medicare and Medicaid, unemployment insurance and other forms of public assistance. Such a tax will address the federal government debt and the growth of entitlements, two of the biggest threats to our economic health.

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We now owe more than $21 trillion and counting. No matter how you state that amount, it has never been higher in our history, and it will continue to grow despite predictions of increased revenue. While some may disagree, the tax cut legislation passed last year is likely to yield more revenue through growth. Still, the prediction of an insurmountable mountain of debt must be directly addressed by our policymakers.

The focus of debt solutions has been the perennial lament that we have to stop spending money we do not have. As long as we have lawmakers in Congress who politicize debt limits, nothing short of default will stop the debt junkies from raiding the legacy of our children. Management of the debt must encompass the elements of to whom we actually owe the debt, how much debt we really owe, and how to find a systematic way not only to service it but to reduce it. This has to be done while finding the political leverage to keep the government focused on realistic fiscal goals.

Entitlement programs such as Social Security, Medicare, Medicaid, Supplemental Nutrition Assistance, and unemployment insurance eat up about 60 percent of the total federal budget. These programs are funded by an arcane 19th century income tax system that pulls us away from any real hope of finding a solution to the debt issue. There is just not enough available income to service the debt. Something must change.

Among the many possible approaches to this issue could be a separate dedicated tax to directly fund all economic security payments that would effectively depoliticize the broad spectrum of entitlements. This type of tax would be equalizing to the responsibility it funds, much like a bridge toll. The tax would support all economic security payments without ever having to expand the debt to maintain the whole system, which now impinges on national defense and other federal expenditures.

Enacting a dedicated financial transaction tax would eliminate the Federal Insurance Contributions Act tax withholding from wages. Such a move that should find populist favor. Social Security and health care can be easily fixed with this kind of a tax system, so fixing Social Security and health care would have to simultaneously address the national debt.

This solution is actually rather simple. It is much the same as interstate highway maintenance, which is funded with the gas tax. A separate dedicated transaction tax may work well. Various forms of this have been tried with success in Brazil, India, Pakistan, and Australia. In America, a transaction tax of 2 percent to 3 percent of all bank withdrawals paid by consumers and businesses alike and collected electronically could raise enough revenue annually to fund all economic security payments.

Such taxes would relieve the income tax system from having to service such payments. Instead of redistributing wealth, it would more fairly distribute the government obligation for entitlements and revamp America into an economically viable Social Security system. Both taxpayers and businesses should embrace the idea of financial transaction taxes, as it is the key to the health of our fiscal future.

Patrick Colabella, CPA, is an associate professor in the department of accountancy at the Peter Tobin College of Business at Saint John’s University and the author of “How to Get Rid of Socialism and Solve the Fiscal Problems of the United States of America.” The views and opinions expressed in this article are those of the author and do not necessarily represent or reflect the views and opinions of Saint John’s University.