13 Nov 2016

An Open Letter to Donald Trump

Mr Trump,

While I sincerely believe that your election victory was a travesty of democracy because only 26.3% of eligible voters wanted you as president, and 600,000 more people would have prefered Hillary Clinton, there is no doubt that you will be the president of the most powerful country on the planet as of the 20th January 2017.

While I am no fan of your style, there is no doubt that you are not afraid to take unpopular decisions and stand up against the lobbyists who normally dictate Republican party policies. So, for me, it is just possible that you might be the person who could really change things for the good.

That is why I am writing to you now, before you appoint yet another long list of Goldman Sachs and JP Morgan bankers to run the US economy. Because I believe that there are a number of things that you should consider if you are serious about your desire to
  • Reduce taxation
  • Increase public spending on infrastructure
  • Get jobs for US workers
  • Get the millions of illegal immigrants from Mexico and elsewhere to go back home
Here's how you could do this.

Firstly, you have to ignore the Wall Street bankers who will tell you that any form of financial transaction tax will make the sky fall in. It won't.

The Bank for International Settlements details some $30.9 quadrillion in financial transactions in the US over the past ten years, as shown in this table:

Donald, in case you haven't come across quadrillions before, a quadrillion is $1,000,000,000,000,000.

As you can see, the US-based Fixed Income Clearing Corporation handled nearly $11 quadrillion in transactions in ten years, Fedwire handled nearly $7 quadrillion, CHIPS over $4 quadrillion etc etc.

But even these figures that added up to over  $3.1 quadrillion in 2016 are actually massively underestimated, because BIS doesn't include some of the major US based players. For example, they apparently haven't heard about the Chicago Mercantile Exchange (CME) which handled a record 13.9 million contracts a day in 2015 which, with 252 trading days per year, means about 3.5 billion contracts in all. Unfortunately, they don't give numbers for the total value of those contracts, but it is undoubtedly a large number.

Nor does the BIS  include the Options Clearing Corporation, which handled over 4.2 billion contracts in 2015. Again, OCC doesn't give the total value of all those transactions,  but it does give numbers for the premiums alone, which total about $1.2 trillion a year. Donald, maybe you know the ratio between premiums and the value of the transactions themselves. But my guess is that we are talking about several quadrillions of dollars on top of the numbers provided by BIS.

But let's just stick with the "official" numbers provided by BIS - over 3 quadrillion a year. Compare that with the total tax take of the entire US government, estimated to be $3.6 trillion in fiscal year 2017. Transaction volumes within the US alone are thus at least 1000 times larger than total tax revenue. It follows that you could replace ALL existing taxes with a universal flat rate financial transaction tax of just 0.1%. And if the CME and OCC figures were included, the rate could be just a fraction of that.

Now your banker friends at Goldman Sachs and JP Morgan will no doubt tell you that if you dared to put a 0.03% tax on financial transactions, then all the traders would leave to work in Singapore, Hong Kong or Europe. But you have another trick up your sleeve. You could say that any US dollar denominated transactions would have to pay the tax, wherever they occur. If people want to trade in dollars, they pay the tax. Or they go to prison. In that way, you could get revenue not just from dollar denominated transactions in the US, but also those in other locations. For example, according to the BIS's triennial report, 37.1% of Foreign Exchange trading takes place in the UK, but 87.6% of that total (around $11.1 trillion) was denominated in US dollars. That would be easy to tax. And if you did this, then it would allow all the other Central Banks around the world to do the same thing.

So, now I have explained to you where you can go to replace the existing taxes, just imagine the effect on the US economy of abolishing sales taxes, income taxes and taxes on company profits. You have been complaining about US-based multinationals like Apple and Google who keep a large slice of their profits in offshore tax havens to avoid paying the (very high) US tax rate of 35%. Reduce it to 0%, and all those trillions could be brought back into the US economy where it would give an immediate boost to the economy.

And if people no longer had to pay taxes on their personal income, like you, they would be able to spend a lot more, again boosting the economy.

And if there were no sales taxes, again this would directly boost the economy.

The next time Goldman Sachs and JP Morgan bankers try to tell you why it is better to tax everyone except bankers and the financial markets, just try and understand that their interests may not be exactly aligned with the interests of the people who voted you into office.  The fact is that a lot of Republican party people, including Tea Party supporters could not possibly object if you were to do what I suggest and replace the existing tax system with a single, fair, automatic and painless tax that absolutely everyone would pay.

Oh, and by the way, adminstration of such a tax system would cost the government next to nothing. You could fire the 80,000 people currently working for the IRS, and save around $12.5 billion a year. Your Republican friends will love you for that.

And what about the huge number of US citizens who currently have to employ tax consultants to fill in their tax returns - which simply results from the US's ridiculously complicated tax code which runs to 74,608 pages. All that could be trashed with a stroke of the presidential pen. Ok, you would lose the support of the entire industry of tax advisors and lawyers. But you would be very popular with the other 99% of the population.

OK, Donald, so if you have followed the argument so far, let's take the story a bit further.

You want US industry to be competitive with goods produced in China, Mexico and elsewhere, and your "solution" is apparently to slap a 35% tax on Ford cars imported from Mexico. Do you seriously think that you could get that through a Republican controlled Senate and House of Representatives? These people are ferociously strong supporters of free-trade. I wish you luck.

But there is a better way.

I've already provided you with a way to increase the competitivity of US industry by eliminating taxes on company profits, personal income and sales taxes. The result will be that US companies could get away with paying their workers a lot less than they currently have to - and since those workers will not have to pay taxes, they will be better off anyway.

But we can go further. You are proposing to scrap most of Obamacare and force US workers to find their health cover on the commercial health insurance market. In case you didn't know this, the US's private health care system is incredibly expensive, as shown in this figure from Wikipedia - way more than any other country, despite the fact that 13.4% of the US population had no health cover at all in mid 2014 (down from  18.0% before the introduction of ObamaCare in 2013).
Not only is the US system outrageously expensive, it's not even much good. A report from the Commonwealth Fund shows that it ranks bottom of 10 major countries, and life expectancy in the US ranks 43th in the world.

This expensive health system is yet another reason why US Companies cannot compete succesfully with companies based in other countries. They have to may their workers far more just so that they can provide basic health care for themselves and their families - all money that is taken out of the companies potential profits (and shareholder dividends).

There's a simple solution. Just switch all the health costs to a state-funded program (a sort of Super ObamaCare) that would remove the health costs from the payroll costs for manufacturers. You could, if you insist, still have health care provided by private commercial companies. It's just that the costs would be paid for from taxes rather than added to the production costs for industry. And, of course, I've already told you where to get the tax revenue from. Just add another 0.1% to the FTT and you could pay all the $3 trillion that health costs in the USA without putting a drain on productive industry.

But we don't even have to stop there. Why limit the off loading of industry costs to just health? A lot of people are talking about the idea of giving people an Unconditional Basic Income, whether or not they are in work. Interestingly this actually exists in Alaska, where there is a Permanent Fund Dividend to every citizen that could be $2052 in 2016 (it was actually $3,269 in 2008 because the State added an extra $1200 to each check as a rebate from the state's budget surplus). This is a graph of the amounts paid since 1982 when the scheme was introduced.

Now, if Sarah Palin can do it, why can't you? Imagine what would happen if every US citizen got $2000 as a basic right. That could be $10000 for a family of five - and that's before anyone has gone to work. That means that an employer wouldn't need to pay workers as much as they currently do, because their employees would be able to live comfortably on less pay. That would immediately make US companies more competitive.

And where would you find the $650 billion needed to hand out $2000 to each of your 320 million citizens as a Universal Basic Income? Hopefully you can guess by now - just slap another 0.01% on the FTT. Easy. Make it 0.025% and you could make the payout $5000 each.

Would the people who voted for you thank you for giving everyone a big fat check every year? You bet. And the people who are opposed to big government wouldn't be able to complain either, because the administrative costs of such as scheme are next to zero.

And here's the final killer argument, that should be the clincher.

You want to get rid of the millions of illegal immigrants? OK, well just arrange things so that only bona fide US citizens or legal migrants get the Unconditional Basic Income. If you are an illegal Mexican immigrant who is currently prepared to work for crappy wages and thus undercut the local workers, you will have a much tougher time if those local workers were all getting thousands of dollars from the US government (plus free health care). My guess is that the attraction of working illegally in the US would suddenly be much less clear. People would go back home spontaneously, and you wouldn't even need to build your wall.

So, there you have it, Donald. If you are serious about doing something for the people who voted for you, you now know what you can do. But the most important thing of all is not to let the lobbyists for Wall Street anywhere near the White House.

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