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 TrumpMeet the lawyer Democrats call when it's recount time Avenatti denies domestic violence allegations: 'I have never struck a woman' Trump names handbag designer as ambassador to South Africa 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 all economic security payments (that is Social Security, Medicare and Medicaid, Unemployment Insurance and other forms of public assistance). Such a tax will address two of the biggest threats to our continued economic health: the federal debt and the growth of entitlements.

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We now owe $21 trillion (that is $21,000,000,000,000!) plus and growing. 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 do not agree, the Tax Cuts and Jobs Act of 2017 is likely to yield more revenue through growth. Nevertheless, the prediction of an insurmountable mountain of debt needs to be directly addressed.

The debt is increased by deficit spending and the focus of debt solutions is the perennial lament that we have to stop spending money we don’t have. As long as we have a Congress that politicizes debt limits, nothing short of default will stop the debt junkies from raiding the legacy of our children. Management of the debt must encompass three elements: 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.

Programs such as Social Security, Medicare and Medicaid, SNAP (commonly known as food stamps) and Unemployment Insurance eat up about 60 percent of the total federal budget. They are funded by an arcane 19th century income tax system that politically 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 has to 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 directly impinges on national defense and other general government expenditures. Enacting a dedicated transaction tax will eliminate the FICA tax withholding from wages which 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 gasoline tax. So, a separate dedicated “transaction tax” may work well. Examples of these taxes have been tried with success in Brazil, India, Pakistan and Australia. In America, a bank withdrawals tax of two to three percent of all bank withdrawals paid by individuals and businesses alike and collected electronically, across the board could raise enough revenue annually to pay for all economic security. Such taxes would relieve the income tax system from having to service such payments. Instead of redistributing the ”wealth,” it would more fairly distribute the government obligation for entitlements and revamp America into an economically viable Social Security system.

Individual taxpayers and businesses should embrace this tax, as it is the key to a healthy fiscal future.

Patrick R. Colabella, CPA, is an associate professor in the department of accountancy at the Peter J. Tobin College of Business at St. 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 St. John’s University.