The Tax Reform and Economic Policy Papers of Tom Pallow

Posted below this post are 20 different papers that were written primarily for the top tax counsels and staff on Capitol Hill, primarily in the Senate and on the House Ways and Means Committee.

In August 2010 Tom’s work was discovered and quickly became required reading for the top tax counsels in the Senate for taxes affecting businesses, at the request of then Committee on Finance Chair, Senator Baucus. It is regularly known that Tom’s papers also became regular reading among most top tax experts, particularly on the Finance and Ways and Means committees, and particularly with Democrats.

All of the below paper’s have at least to some degree influenced public policy and discussions in Washington DC, The most important, and crucial first step, tax reform idea of Tom’s, the Employer Tax Carve Out, became an important bipartisan bill in the U.S. Senate in fall 2010. The ETCO has been called “the linchpin” to any tax reform and budget deal by it’s influential cosponsors, Republican Senator Susan Collins of Maine and Democratic Senator Claire McCaskill of Missouri.

An ETCO, with the personal income tax, is simply a shift of the personal income tax burden, off of domestic employers and onto the wealthy who do not employ domestically. This tax carve out for active American employers is achieved through a tax credit for domestic employees, that are W2’d where all FICA taxes are paid, that are worth just less than the employer’s side of employee FICA taxes paid, So a financial gain will not incur simply by employing domestically, only a tax credit and tax carve out against one’s personal income tax bill. With this carve out a much more efficient personal income tax system is created.

Since the vast majority of personal income taxes are paid by the wealthy, and since active domestic employers account for a very small percentage of all income within even the wealthiest income strata, for example within the top 2% of U.S. incomes only 14% of all income is generated from active U.S. employers, yet these domestic job creators are among the fastest growing in the U.S., generating typically around 50% to as much as 80% of all domestic private sector jobs, meanwhile the wealthy non-employers in the U.S., those for example who generate the 86% of income within all of the top 2% of US incomes that are not generated via US employing businesses, they have some of the highest savings rates in the entire economy, about 40% and in savings vehicles that are least often invested tangibly in the U.S., so therefore, this shift in the personal income tax burden, off of domestic employers and onto wealthy non-employers in the US, will create a much more efficient personal income tax system while raising tax revenues without raising overall taxes, by freeing up capital for America’s fastest growing domestic job creators, increasing taxes in the place of the economy where it is least spent tangibly in the U.S., and creating a tax incentive for wealthy non-employers to employ in the U.S., and further, the greater the difference in effective tax rate between the domestic employing and those who do not, the more tax revenues will be generated and the greater will exist an incentive to employ domestically, thus increasing domestic labor compensation!

The truth is that the Employer Tax Carve Out is likely to become law over the next 2.5 years, given that most members of congress are committed to bringing forward some kind of business tax reform, at least right after the 2016 election, and that the ETCO is an essential part of Capitol Hill’s leading business tax reform plan. This leading plan being: To make our C Corporation income tax code more efficient and globally competitive by eliminating or reducing certain tax deductions that are taken mainly by many of America’s largest corporations, in exchange for lowering overall C Corp income tax rates. This shift in the tax burden would be more apt to benefit smaller, and faster growing in the U.S., C Corporations. Thus creating an economic efficiency benefiting domestic growth. Yet this leading business tax reform plan also calls for a similar elimination, or reduction, of certain tax deductions for a reduction of overall income tax rates for pass-through businesses that are taxed as personal income. But if an Employer Tax Carve Out were not also enacted with this reduction of tax rates for pass-through businesses, every American taxpayer, domestic employer or not, could simply claim to be a small business pass-through and receive a lower income tax rate. But with an ETCO, a much more efficient personal income tax system is created!

All of the papers below have influenced policy and debate in Washington DC. The latest post describes the above leading business tax reform plan and the ETCO’s role with this plan, among other things. A great paper for learning the bassics of Tom Pallow’s tax reform and other economic policy work is the paper, “Wrestling and Bouncing Crude Keynesianism Out of Washington DC for Good.” The best paper for details of how ETCOs work, and very importantly, how ETCOs, and Employer Tax Credits that create ETCOs, can be used in nearly all areas of tax codes in ways that will create more employment domestically and in higher compensating manors, read, “Our Tax Reform Submission Paper to The Senate Committee on Finance.” You can also watch Senator Collins discuss the ETCO on Larry Kudlow’s CNBC TV show if you YouTube search, “Senator Collins and Larry Kudlow, Protecting small businesses, job creators from the Fiscal Cliff.”