The Consumer Tax Cut Explained

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The Source of the 10%, $25,000 Tax Cut Amount

Let us take a look at the Davis Job Creation and Economic Growth Plan. This is a plan that utilizes the consumer. It takes advantage of the fact; consumers represent seventy per cent of the United States’ GDP. When you look at the Social Security trust fund, it is in reality American workers’ savings account. In essence, it is money put away for use later. Here is the deal, the American worker’s savings account has been depleted by the rich, and the powerful, who monetarily supported politicians that did their bidding. Now, the United States finds itself in a slow growth economy and the country needs to create more consumer demand. If we create more consumer demand, this should increase our economic activity, thus creating more jobs.

Because we know consumers represent 70% of our gross domestic product (GDP), the question that arises, is how do you push capital on a long-term, organized, and sustained basis down to the consumer? The 10% retirement distribution amount is based on the average annual Social Security benefit check for 2019. According to Social Security that benefit amount was, $17,532.00. The $17,532.00 annual payout works out to a monthly income of $1,461.00. The principal amount of capital needed to generate $17,532.00 annually is $254,100.00, earning interest at 6.9% (why use 6.9% annual interest, will be answered in the ensuing paragraphs under Interest Rate Adjustment). 

The 10% across the board tax cut is calculated, based on a one-time partial distribution payment of $25,410.00 from the principal of $254,100.00. In other words, we are allowing Baby Boomers, as they reach full retirement, to take 10% of their average principal, as a tax cut. The 10% partial distribution is $25,410.00. Please note, because this is a tax cut, Boomers are not required to pay this money back or have their monthly Social Security benefits reduced. The $25,410.00 should not be subject to federal, state, and local taxes, or any form of garnishment. They actually receive, an initial one-time deposit from Social Security of $25,410.00. The 10% partial distribution to retirees, based on the average Social Security annual retirement of $17,532.00, is no different than the tax cuts given to millionaires, billionaires, and corporations. The end result is each plan reduces the amount of money in the U.S. Treasury. However, included among these retirees, are the millionaires and billionaires! In that respect, the Davis Plan, is more equitable, than prior Republican tax cut plans.

Calculating the 10%, $25,000 Consumer (Demand Side) Tax Cut

BOOMERS ARE RETIRING AT A RATE OF 10,000 PER DAY having STARTED IN JANUARY of 2012, at the age of 66. 10,000 Boomers per day RETIRING times $25,410 = $254,100,000.00. 365 days times $254,100,000.00 = $92,746,500,000.00 annually. 10 years times $92,746,500,000.00 = $927.5 billion over 10 years.

Distribution of the 10%, $25,000 Consumer (Demand Side) Tax Cut

The retirement of Baby Boomers is happening based on a bell-shaped graphic. The upward line, which forms the left side of the bell, indicates an increasing number of Baby Boomers were born from 1946 to 1955 and the descending right side of the bell shows a decreasing number of births. It is the overall number of Baby Boomers, 68 to 72 million, that makes this Consumer Tax Cut doable. 10,000 Baby Boomers retiring per day represents an average. That 10,000 per day retirement rate, is affected by the following variables: 1) Some people retire at 62 years or early, losing 25% of their Social Security income. However, early retirement reduces the 10,000 per day average. 2) Death prior to 66 reduces the average. 3) Disability retirements are another variable affecting the daily rate of 10,000 per day. 4) Tax cuts to the wealthy are not stimulative because rich households just preserve their wealth and income rather than spending it. To offset these variables and ensure the integrity and continuity of the 10,000 per day $25,000 stimulus, following are the  adjustments, based on the stimulus payments starting in 2021 and continuing for 10 years, the duration of the tax cut. The distribution of $25,000 stimulus payments can be accomplished using the following method. Baby Boomers born in 1955 would receive the $25,000 stimulus payment along with Boomers born in 1946; Boomers born in 1956 would be tucked into the group of Boomers born in 1947; Boomers born in 1957 would be part of the group born in 1948;  Boomers born in 1958 would be part of the group born in 1949; Those born in 1959 would be part of the group born in 1950. Boomers born in 1960 would be part of the group born in 1951. Those born in 1961 would be part of the group born in 1952. Boomers born in 1962 would be part of the group born in 1953; Those born in 1963 would be part of the group born in 1954 and finally those born in 1964 would be the final recipients. The increasing numbers of Baby Boomers on the left side of the bell graphic amount to more than 10,000 per day, while the Baby Boomers born on the right side of the bell graphic represent decreasing births. However, when matched or grouped together, their numbers should average less than 15,000 retirees per day, compensating for the variables mentioned above.

The cost of the 10%, $25,000 Demand Side Stimulus Tax Cut is approximately $1.5 trillion, matching the cost of the 2017 Trump Tax Cut. However, the Demand Side Tax Cut, is data driven and will achieve its objective of throttling the recovery. The 50+ year demographic, of which Baby Boomers are the majority, is responsible for 40% of our consumer demand or consumption. Consumption data show low- and middle-income Americans, are more likely than higher earners to spend benefits from the government, creating economic growth and millions of jobs. At its core, the cause of the Economic Downturn is due to a lack of consumer demand. The Federal Reserve (Fed) has studied the character and nature of this Economic Downturn. The study, according to a recent news article stated, “….A new Federal Reserve study squarely pins the blame (cause of this Economic Downturn), on a collapse in demand, as consumers sheltered in home to avoid infection.” The exact wording, in the Fed’s conclusion in that study, dated August 24, 2020, says, “…Current data show that the recent drop in core PCE (personal consumption expenditures)” …. is mainly attributable to large declines in consumer demand for goods and services stemming from Covid-19.”

Consumer spending, which is responsible for 70% of our economic activity, when it comes to creating jobs, is what makes our free market economy work. The truth is, there is no greater economic engine in the world, than U.S. consumer spending. It is a historical fact, consumer spending, made the United States the #1 and largest economy in the world. Therefore, if you increase consumer spending, you will shorten enormously, or end this Economic Downturn altogether. A new American economy, for our families and the next generation, can be built through restoring the lost consumer demand, due to the virus, with a 10%, $25,000 Consumer Tax Cut.

The tax cut is designed to last for ten years and include all Boomers. However, Congress, if prompted by voters, can extend the tax cut to the next generation of retirees. Thus, this “Direct” Consumer Tax Cut, is an opportunity for one generation, the Baby Boomers (1946-1964), to leave a legacy of reformation to America’s capitalist system, that will benefit and be felt financially, by future generations: Generation X (1965-1980); Millennials (1981-1996); and even Generation Z (1997-2012).

There is no question our economy is out of sync! A near 0% interest rate economy is not normal. Retirees are under stress and need relief, from twelve years of abnormally low interest rates. Real unemployment rates, are historically high. The solution: a 10% Consumer (Demand Side) Tax Cut, would correct all three problems. In a growing economy anchored by a 10% Demand Side Tax Cut, the Federal Reserve would have room to incrementally raise interest rates without snuffing out recovering growth. With millions of Americans out of work and millions more suffering, our government must act with courage, strength, and urgency. We urgently need to restore our economy to a sustained long-term trajectory of growth, that does not call for easy money or abnormally low interest rates to be the source of that growth. There will be no additional bureaucracy needed, in activating the tax cut, as we have already seen, due to the $1200 stimulus checks, the 10%, $25,000 Stimulus Tax Cut checks can be efficiently distributed through the Social Security system, giving that agency a lift.

Interest Rate Adjustment / Normalization of Interest Rates

The daily spending of $25,000 stimulus checks should create upward pressure on inflation targets set by the Federal Reserve (Fed), the central bank of the United States. This pressure should force the Fed to raise interest rates. When, we go back to 1994, during the Clinton administration’s economic expansion, gross domestic product (GDP) reached 4.0%. Unemployment was at 5.5% and inflation was at 2.7%. The Fed increased the federal fund rate from 3.25% in February to 5.5% in November, during that year.

In 1995, as the federal fund rate reached a high of 6.0% in February, GDP fell to 2.7%, unemployment increased to 5.6% and the inflation rate dropped to 2.5%.

However, the economy resumed upward growth in 1996, with GDP reaching 3.8%, and GDP, continued rising in 1997 to 4.4%, in 1998 to 4.5%, and topped out in 1999 at 4.8%, with the federal fund rate reaching 5.5% on November 16, 1999.

Consider the prime rate; it is the rate, at which banks lend money or retail money, to its more favored bank customers. As a general rule, the prime rate is pegged about 3% above, whatever the federal funds rate is. So, the 6.9% interest earned on the principal capital amount, of $254,100.00, is conservative. Remember, the federal fund rate, in November of 1999, was at 5.5%, and the economy was able to deliver a 4.8% GDP figure. Three percent on top of 5.5% equals 8.5%. The federal government has a moral obligation to pay the going rate, on funds being held in its trust, by Social Security, making the 6.9% interest rate, doable.

Because, the Baby Boomer tax cut, will be a continuing flow of capital directly to the hands of the consumer, higher interest rates or should I say, the normalization of interest rates, by the Federal Reserve, should not impede the economic expansion or economic growth, based on actual Federal Reserve conduct, as illustrated above.

Paying for the Davis Deficit Neutral Job Creation and Economic Growth Plan

The 2020 presidential race produced Democratic presidential candidates, who presented tax plans, they thought were balanced, given what wealth distribution is today, in the United States. Any number of those tax plans would pay for the Davis Plan. Biden’s plan to tax those making above $400,000 would also be adequate. However, the 10% Consumer Tax Cut should pay for itself through the development of new streams of tax revenues at the local, state, and federal level. Once, the free market style tax cut is enacted, consumer spending will be unleashed, becoming the wind beneath the wings of high-quality 3rd Party Programs, projects such as the Green New Deal and infrastructure projects. Consumer spending, will carry the United States economy to new heights, creating millions of jobs and economic growth.