Coronavirus Pandemic – Stock Market Milestones: Dow 30K and Nasdaq 12K

Though the major stock indices, including Dow and Nasdaq, fell sharply at the onslaught of the pandemic in March, they have made a spectacular turnaround since then, hitting new all-time highs. Dow reached a historic 30,000 milestone while Nasdaq crossed 12,000. 

After swooning to 18,592 on 3/23 from a February high of 29,551, Dow continued its steady upward swing until 9/1 when it hit 29,101, coming very close to the previous high. It went through a mini-correction in September, falling to 26,763, creating a good re-entry opportunity for the new investors and those who buy the dips. On 11/16, when Pfizer announced its awe-inspiring Phase-3 vaccine results, the index eclipsed the February high, and on 11/24, it crossed the historic 30,000 marks and recovering 11,454 from the March lows.

Though the Nasdaq's story has been similar to that of Dow -- plummeting in March as the pandemic gained momentum -- it has shown more strength since the beginning of the recovery, trending more linearly than the Dow.  For instance, on 6/18, Nasdaq surged past the February high of 9,817 and hit 12,056 on 9/2, making a historic comeback and achieving such momentous feats well ahead of Dow.  

The above regression scatter shows how Nasdaq had outperformed Dow after the intersection point of 26,000 and 9,500. To put it in proper perspective, during the recovery period between 4/1 and 11/25, Dow has bounced back 32%, while Nasdaq has jumped 53% -- a stunning 20% spread, which is why the r-squared value has been a moderate 0.588, rather than the usual lockstep value of 0.90 and above.

Here is a look at the market achievement from a more humane perspective: The pandemic made the rich significantly richer, while the poor further regressed with more all-around devastation, paving the way for a more rapid widening of the ever-expanding wealth gap.

To save the poor and middle-class from the cyclical downturns and future calamities, we need to introduce Universal Basic Income (UBI) as soon as possible so that they can also cheer the Dow 40,000 in chorus. Right now, they are just silent spectators, worrying about money for rent and utilities. Worse yet, in poorer countries, millions of children are going to bed hungry while their mothers are starving.

What a spectacular achievement!

Stay safe!

-Sid Som

homequant@gmail.com

Coronavirus Pandemic – Instead of a Lockdown, We Need More Meaningful Socio-Economic Measures

While mitigation measures are critically important in public places during a pandemic, it's debatable if a total lockdown helps save more lives than just a set of meaningful socio-economic restrictions. I believe that the former would do more harm to the physical and economic lives than the latter. Then again, such restrictions must not only be well thought out but also be uncompromisingly implemented. 

Here are five basic socio-economic ideas that can hopefully help strike a balance between the two opposing spectrums.

#1 Relocating Sit-down Dining and Movie Theaters to roof-tops of commercial buildings, including multi-story parking structures. The operators need to buy or lease air rights. To weatherize the place, all the operator has to do is install a retractable or permanent metal roof and durable awning windows around the existing parapets, with some cosmetic changes or upgrades. The sitting arrangement should have a social distancing built-in. The restaurants currently located inside hotels can also consider relocating operations to the hotels' roof-tops, thus enticing at least the hotel residents to dine in. Even after the pandemic, this concept might retain significant economic value. Religious congregations could follow this format until the dust settles.

#2 Converting the Cruise Ships to Passenger Ships. It may take years before the cruise lines recover from this doldrum (see the picture at the bottom of the post), so the cruise operators may consider making a navigational change to an old-fashioned passenger ship to avoid having to scrap the fleet and layoff the entire crew. The ship operators need to open up the three upper decks for more open-air space and install more technologically advanced internets so the passengers can comfortably perform office work while traveling. Unlike cruise lines, the ticket prices should include only breakfasts, letting passengers pay for the other meals according to their choice. To start with, the operators can try the US-Europe and US-Caribbean routes. Of course, they must initially qualify for the stimulus money to make the switch. This switch may have long-term economic value. It would be a great alternative to international air travel, especially for those afraid of air travel. 

#3 Switching to Solar Roofs. It's about time that our homes are more energy-efficient, switching to eco-friendly roofs with solar panels. Post pandemic, a sizable percentage of new homes should be built with all-solar panel roofs. Even when the existing houses with traditional roofs constructed with shingles, metal, concrete tiles, etc., require new roofs, homeowners should be encouraged to switch to all-solar panel roofs. It will not only save homeowners a ton in energy costs but will also be environmentally cleaner. It will also give a significant boost to the economy. This move should primarily be funded by the infrastructure stimulus, which is way overdue. Both existing and new homeowners opting for it will get a sizeable tax credit.

#4 Reinventing Student Loans and Phasing out H1-B Visas. We need a 5-to-7 year moratorium on all student loans except STEM education to make our education more labor-force friendly. In addition to STEM, the renewed student loan programs should include para-medical and counseling services like nursing, physical therapy, family counseling, etc. All financial aid must also go to those students only. Even the new STEM teachers will be big beneficiaries. Meanwhile, we have to gradually phase out the H1-B Visas -- preferably in the next five years -- to protect our new STEM graduates from the highly unfair foreign competition. Therefore, by the time these new STEM students graduate, the new H1-B would be non-existent. 

#5 Introducing Universal Basic Income (UBI). The federal government must introduce UBI to protect citizens, especially the poor and middle-class, from unprecedented calamities in the future.  The government needs to introduce a middle-class friendly, progressive consumption tax on durable goods at the national level to fund the proposed UBI. For instance, a middle-class family spending $3,000 on a pair of washer-dryer will not pay this additional sales tax, but a wealthy family spending $15,000 on a smart pair will pay this extra federal sales tax. Additionally, the introduction of UBI will help replace the existing welfare system, including Medicaid, paving the way for "Medicare for All" economically feasible.

It's high time that we think a little outside-of-the-box to avoid much socio-economic misery tormenting humanity.

Stay safe!

-Sid Som

homequant@gmail.com 

https://www.insider.com/abandoned-scrapped-cruise-ships-illustrate-struggling-industry-2020-11

Post Pandemic, US States and Cities Need Better Plans to Reduce Income Inequality

According to Forbes, "In 1965, America's top 1% controlled about 10% of the nation's after-tax income. That number has now grown to over 15%. The average CEO-to-worker pay ratio had increased from 20-1 in 1965 to a whopping 312-1 in 2017. And middle-class real wage growth has been stagnant for decades."

Presidential candidates have also weighed in on the fast-growing income inequality in the US. Senator Bernie Sanders talked about "Tax on Extreme Wealth" with a proposal for an ultra-wealthy tax ranging between 2% and 8%. Andrew Yang, another presidential candidate, ran on implementing a universal basic income of $1,000/month for every American adult over the age of 18. 

Given this widening income gap between rich and poor and stagnant wages for the middle class, we need some serious socio-economic re-engineering. Here are some:

1. Implement Laureate Yunus' Microcredit Model to Create Economic Opportunities in Inner Cities –- Most inner cities in the US lack good economic opportunities resulting in poverty, often rampant poverty. Thousands of bright people are stuck in poverty in inner cities due to state and local governments' inability to create meaningful economic opportunities. One-size-fits-all economic model does not work there; instead, local governments should try Laureate Yunus' Microcredit Economic Model, thus financially empowering the local entrepreneurs (who "are too poor to qualify for traditional bank loans") to turn their neighborhoods around. Though this bottom-up economic model was developed for impoverished villages in third world countries, it has tremendous potential for our inner cities. 

  

2. Let the Private Sector Develop a Fair and Equitable Property Tax Assessment System –- Property tax is often the primary source of revenue for Cities and Towns. The poorly built or haphazard assessment systems tend to be highly regressive, thus heavily favoring the rich. Under such a biased system, the poor and middle-class homeowners subsidize the upscale and high-end properties. Therefore, the growing and prospering cities and towns around the country must consider outsourcing this crucial public task to the private sector or developing it in collaboration with the private sector, so it becomes truly fair and equitable. Ideally, the development and managing of this task must be entrusted to the private sector. An unfair system uproots seniors and minorities and often pushes the middle class off the cliff. 

3. Build more Long-term Care Facilities, not Jails and Prisons –-People committing the so-called "serious crimes" must be sent to high-security long-term care centers under the care of qualified psychologists and psychiatrists. The young and reinvented cities around the country should rethink and redefine crime and punishment from a moral high ground. The lack (perhaps the absence) of economic opportunities often forces poor people to commit petty offenses, resulting in additional jail terms. Instead of sending them to jails, they should be assigned to the local clergies, rabbis, and imams to perform community service. Similarly, in a civilized world, juvenile detention centers' building does not pass the muster of moral hazards. 

4. Make College Education Free for STEM Students – This country needs to emphasize science and technology education to maintain global championship. Government colleges must provide free STEM education to all qualified poor students. Students must compete and qualify for the available seats to get into the free STEM programs, ensuring the best and brightest acceptance. Students pursuing other essential disciplines like nursing, teaching, etc. must receive tuition subsidies as well. All other majors (e.g., business, humanities, etc.), irrespective of the students' financial needs, must pay full tuition, thereby forcing the otherwise needy to pursue vocational education in line with the market demand. 

  

5. Richest 1% Needs to Accept the Generational Reset – The wealthiest 1% now owns 50.1% of the world's wealth. Given this absurd concentration of wealth, we need this 1% to be self-convinced (like Mr. Warren Buffett) that they are just temporary custodians of their wealth. They must, therefore, come to terms with the generational reset, meaning, at the end of their lives, they must return a sizable portion, if not all, of their wealth to society, pulling tens of thousands out of abject poverty each year. In other words, the success or failure of this country is now mostly dependent on them. If they are honest and honorable enough to accept this harsh reality, the citizenry's advancement will gleefully continue; absent this, millions more will continue to drift away in utter poverty. 

Of course, the 99% must also learn to put the country's interest ahead of their own. So, the rich and poor alike must come to terms with the generational reset, voluntarily returning a big part, if not all, of overall wealth to society. 

-Sid Som

homequant@gmail.com

Post Pandemic, Developing Countries must Improve Existing Economic Models

Income inequality has been growing by leaps and bounds in developing countries. While some of those countries are creating more billionaires every year, millions and millions of people are stuck in utter poverty, without any light at the end of the tunnel. They can break out of this vicious cycle by revisiting and renewing the existing economic models, emphasizing exploring and inventing forward-looking growth and income opportunities for the so-called 99%. 

To properly explore growth opportunities, developing countries should start at the national level, gradually drilling down to the state, local, and individual (yes, individual) levels. The onus is on all of us. A renewed "private-public partnership" economic growth model would be ideal for developing countries... 

1. Develop Basic Infrastructure with Private Cooperation. A developing country with well-developed infrastructure can attract more high quality foreign and domestic investments than their counterparts who are struggling to ramp up their infrastructure. Therefore, instead of selling out their natural resources, developing countries should intensify the development and expansion of necessary infrastructure by enticing private companies (well-known local and foreign) to provide the leadership in that sector. For example, those companies could be encouraged to build new toll highways and bridges, railroads, metro, and light rail, ports, airports, rural electrification, telecommunications, etc. shouldering all costs in return for all revenues (at pre-negotiated resell rates) from those projects for the first 15 to 20 years. 

2. Entice Neighbors to Follow the Successful Example. Of course, with the rising prosperity comes the border issue. A good leader sets examples that the neighboring countries spontaneously follow. Today, we live in a world of economic cooperation and free trade, so building a Chinese wall around the country's border does not lead to lasting economic prosperity. Instead, the prospering countries must encourage the weaker neighbors to follow the successful example and shore up their necessary infrastructure, paving the way for a concerted regional revitalization and growth by avoiding the refugee problem from the neighboring countries.

3. Develop Regional Economic Zones. As the regional renewal gains momentum, countries must work together on creating their economic zones, letting goods and services flow freely across borders without the costly and unnecessary taxes, tariffs, and other financial barriers. With economic zones in place, it would be easier to convince corporations to build toll-ways, bridges, waterways, etc. across borders, offering better scalability and enhanced economy of scale. Developing countries must experiment with and use (macroeconomic) growth models that are sustainable. G-7s down to BRICS must aid and cooperate with the developing countries that become signatories to an international economic model emphasizing regional growth, renewal, cooperation, and development of industrial zones.  

4. Create Tax and tariff-free Enterprise Zones. With the rapid growth and expansion of the necessary infrastructure, countries will need to set up tax-free or, at least, tax-abated enterprise zones around the country. It does not make sense to build all infrastructures around a handful of big cities, making them even more overcrowded. It must be a distributed and decentralized economic model, emphasizing enterprise zones, including affordable housing. 10-15 year tax abatement is an excellent incentive to attract an array of significant and diverse groups of companies worldwide, vertically integrated with the growing infrastructures. A decentralized model would help people live close to their roots – an ideal way to keep employee turnover and absenteeism low, with morale always high. 

5. Invite Private for-profit to Build Institutes of Higher Technical Education. As those countries start to develop the service sector (atop the manufacturing industry), a steady flow of qualified employees with higher technical education would be needed. Again, instead of the local governments getting involved and controlling this layer of education, the private for-profit companies could be invited to build and run the institutes, with initial concentrations in enterprise zones, as an added enticement. While the acceptance must always be merit-based, governments must significantly subsidize all economically disadvantaged students to avoid implementing a quota system down the road. 

While local governments should refrain from running all non-essential services (which they should outsource to the private sector), they must be involved in properly managing their natural resources and all essential services like military, law and order, taxes, primary education, healthcare, clean water, etc. The developing countries built on moral (not religious) high grounds are more attractive to investors. For example, in many third world countries in Africa, Asia, and Latin America, young women do not have equal access to education (which is a crime against humanity!). "Equal access to education" is a primary metric all foreign companies must use in evaluating the investment climate of a developing country. 

Stay safe!

-Sid Som

homequant@gmail.com

Post Pandemic, Congress should Introduce Universal Basic Income (UBI)

Under a Universal Basic Income (UBI) plan, the federal government will pay a monthly stipend to each adult citizen irrespective of their needs or circumstances. The growth of Artificial Intelligence and Robotics has prompted many Silicon Valley leaders and other celebrities to raise UBI's issue as a countermeasure to this emerging threat to the American labor force. Former presidential candidate Andrew Yang even made the UBI the centerpiece of his campaign, labeling it a 'Freedom Dividend.' Here are some of the apparent reasons why Congress should seriously look into it:

1. The UBI plan will incentivize early Retirement – Though the eligible people can activate Social Security at age 62 and retire, the vast majority of them are unwilling to do so due to the reduced qualifying income. Since the UBI plan will not interfere with the social security income, those willing-to-retire-early folks would welcome this supplemental income and seriously consider the move. 

2. The UBI plan will Create a new generation of young Entrepreneurs – Millions of young people, especially college students, have forward-looking business ideas. Still, they generally go nowhere with their brilliant ideas as they lack the start-up capital. The UBI plan will empower them to move forward with their ideas, knowing that this is not a one-off stimulus. The perennial monthly UBI (could be higher over time with adjustments for CLI) would allow them to allocate a portion of their business income while taking on fewer student loans, reducing the usual mental and financial stress. 

3. The UBI plan will turn Stay-at-home moms into a new generation of Home-based Entrepreneurs – Stay-at-home moms would be one of the program's big beneficiaries. Most of them have the time but not the capital to invest in bringing their entrepreneurial dreams to reality. Now, with the new-found capital, their lives would be financially lifted to the next level. Since women tend to be better money managers, they would better allocate the money between family and business, adding a whole new dimension to the economy.   

4. The UBI plan will do yeoman's service to Inner City Youths – The inner-city youths in America are severely deprived of essential economic opportunities, resulting in higher drop-outs from high schools. The UBI plan would entice them to stay in schools, opt for college education, and compete more effectively. Minority youths, especially African-American youths, would see the leveling of the playing field. In no time, the enterprising youths would pool their resources together and take the entrepreneurial plunge, pulling their neighborhoods and communities out of poverty. 

5. The UBI plan will immensely help seniors currently living off Social Security incomes only – Today, millions of seniors live off social security incomes only, which sometimes are below the national poverty level, despite having worked and paid taxes all their working lives. It would be the saving grace for those seniors living month-to-month off the social security incomes. Using a typical proposal of $1,000/mo., the additional $2,000/mo. (for two seniors) would lift them out of the poverty threshold. 

The new $10K SALT cap has been hurting the rich folks in high tax states. Therefore, the government should offer a deal whereby those rich folks would give up the monthly UBI in exchange for a correspondingly higher SALT cap. Right now, the cap has been severely impacting specific housing markets, making them very illiquid. The higher SALT cap could make those housing markets a bit more liquid.

Again, the UBI is a plan to fend off poverty and unprecedented calamities. The merits are numerous and multi-faceted. It helps the poor. It helps the middle class. It even helps the rich in specific scenarios. Last but not least, it would be growth-financed without having to tax and spend.

Stay safe!

-Sid Som

homequant@gmail.com

Post Pandemic, Congress should Introduce Universal Basic Income (UBI)

Under a Universal Basic Income (UBI) plan, the federal government will pay a monthly stipend to each adult citizen irrespective of their needs or circumstances. The growth of Artificial Intelligence and Robotics has prompted many Silicon Valley leaders and other celebrities to raise UBI's issue as a countermeasure to this emerging threat to the American labor force. Former presidential candidate Andrew Yang even made the UBI the centerpiece of his campaign, labeling it a 'Freedom Dividend.' Here are some of the apparent reasons why Congress should seriously look into it:

1. The UBI plan will incentivize early Retirement – Though the eligible people can activate Social Security at age 62 and retire, the vast majority of them are unwilling to do so due to the reduced qualifying income. Since the UBI plan will not interfere with the social security income, those willing-to-retire-early folks would welcome this supplemental income and seriously consider the move. 

2. The UBI plan will Create a new generation of young Entrepreneurs – Millions of young people, especially college students, have forward-looking business ideas. Still, they generally go nowhere with their brilliant ideas as they lack the start-up capital. The UBI plan will empower them to move forward with their ideas, knowing that this is not a one-off stimulus. The perennial monthly UBI (could be higher over time with adjustments for CLI) would allow them to allocate a portion of their business income while taking on fewer student loans, reducing the usual mental and financial stress. 

3. The UBI plan will turn Stay-at-home moms into a new generation of Home-based Entrepreneurs – Stay-at-home moms would be one of the program's big beneficiaries. Most of them have the time but not the capital to invest in bringing their entrepreneurial dreams to reality. Now, with the new-found capital, their lives would be financially lifted to the next level. Since women tend to be better money managers, they would better allocate the money between family and business, adding a whole new dimension to the economy.   

4. The UBI plan will do yeoman's service to Inner City Youths – The inner-city youths in America are severely deprived of essential economic opportunities, resulting in higher drop-outs from high schools. The UBI plan would entice them to stay in schools, opt for college education, and compete more effectively. Minority youths, especially African-American youths, would see the leveling of the playing field. In no time, the enterprising youths would pool their resources together and take the entrepreneurial plunge, pulling their neighborhoods and communities out of poverty. 

5. The UBI plan will immensely help seniors currently living off Social Security incomes only – Today, millions of seniors live off social security incomes only, which sometimes are below the national poverty level, despite having worked and paid taxes all their working lives. It would be the saving grace for those seniors living month-to-month off the social security incomes. Using a typical proposal of $1,000/mo., the additional $2,000/mo. (for two seniors) would lift them out of the poverty threshold. 

The new $10K SALT cap has been hurting the rich folks in high tax states. Therefore, the government should offer a deal whereby those rich folks would give up the monthly UBI in exchange for a correspondingly higher SALT cap. Right now, the cap has been severely impacting specific housing markets, making them very illiquid. The higher SALT cap could make those housing markets a bit more liquid.

Again, the UBI is a plan to fend off poverty and unprecedented calamities. The merits are numerous and multi-faceted. It helps the poor. It helps the middle class. It even helps the rich in specific scenarios. Last but not least, it would be growth-financed without having to tax and spend.

Stay safe!

-Sid Som

homequant@gmail.com

Replacing Personal Income Taxes with Middle-Class friendly Progressive Consumption Taxes

Under the existing income tax system, the top 1% pays 40% of all federal taxes. According to the Tax Policy Center, 44% of Americans will not pay any income taxes this year. On the other hand, Warren Buffett claims he has a lower tax rate than his secretary does. While much buzz was created about the carried interest, nothing has been done yet and as a result hedge fund billionaires continue to enjoy one of the lowest tax rates. According to Fortune, “Amazon will pay a whopping $0 in federal taxes on $11.2 billion profits.” These conflicting scenarios demonstrate how irrational the US Income Tax system has become. Therefore, it’s high time that we (phase out and) replace the personal income taxes with a set of progressive consumption taxes.

Of course, the one-size-fits-all consumption tax – which was proposed before and was justly unsuccessful – is inherently regressive, as poor and middle class folks tend to spend a much higher percentage of their incomes compared to the rich folks. Yet, the consumption tax could be an ideal replacement for the current income tax, as long as it is progressive. How? Quite simple – all non-food goods and services must be broken down into three progressive tax categories: Basic, Luxury and Ultra-luxury. While the basic category will have the lowest tax rates, luxury and ultra-luxury will carry progressively higher rates; for example, the national sales tax rate (atop the state and local sales taxes as it replaces the federal income tax) for basic durable goods (e.g., appliance) could be 2 to 3%, whereas the luxury and ultra-luxury could carry 5% and 10% rates, respectively. Needless to say, the lower rates for the basic category will advantage the middle class while the rich will be

Happier to pay higher national sales taxes in lieu of their disproportionately higher share of the federal income taxes (case in point: the top 1% pays 40% of all federal taxes). 

So, how will the progressive consumption tax system work?

1. National Sales Tax on Basic and Luxury Durable Goods – In order to save, say $5K to $5M on annual income taxes, taxpayers would be amenable to an additional national sales tax – obviously atop the current state and municipal sales taxes – on durable goods. Unlike income taxes, consumption taxes are more humane meaning families can budget or plan for these expenditures. Since the basic durable goods impact the poor and middle class, the rate must be lower, say 2% to 3%, followed by progressively higher rates on luxury durable and ultra luxury durable goods generally demanded by the rich; for instance, all appliances under $10K could be the basic, $10K to $20K being the luxury while over $20K being the ultra luxury category, with progressively higher rates. Likewise, automobiles could have three categories as well. Since this a national sales tax, it must cover all online purchases. While states and municipalities will continue to charge different sales tax rates, the national sales tax rates will be uniform across all states and territories as they will replace the federal income taxes.

2. National Sales Tax on Unhealthy (processed) Foods and Beverages – It’s about time that the health-conscious folks are not forced to subsidize those who basically live off junk foods and high-calorie beverages. This is a (preventive) health issue and, hopefully, this national sales tax will save citizens billions in health insurance premiums down the road. The parallel case is equally compelling: Today smokers are paying a hefty price for their lifestyle (significantly higher taxes on their lifestyle products and higher premiums on life and health insurances, etc.). While we must not take smokers’ choice away, the rest of us must not finance their lifestyles either. The phase-out of the income tax system will take 5 to 7 years, during which as the income tax revenue starts to come down, the junk food/beverage sales tax should start high at, say 10%, graduating down and perhaps bottoming out at 5%.

3. National Sales Tax on all Name Brand Prescription Medications – When a particular medication (all forms: oral, injection, iv, etc.) has a generic counterpart, it must be subjected to the national sales tax. Since the name brands are significantly costlier, they are generally meant for the rich folks, without directly impacting the poor or middle class. Of course, if or when a generic is not available (or is not easily or readily available), the brand name must be exempt from the proposed sales tax. Even the prescription generics produced in foreign facilities could be taxed (excise or sales).

4. National Sales Taxes on Million dollar-plus Home Sales – Since the rich and ultra-rich owning the upscale and expensive homes will be big beneficiaries of the phase-out (followed by no income taxes), the million dollar-plus home sales must be subjected to the additional progressive national sales taxes. It must not be a blanket one-size-fits-all rate; instead, it must be progressive, for example, sale price $1M to $2M @5.00%, $2M to $3M @5.25%, $3M to $5M @5.75%, $5M to $10M @6.00% and $10M+ @6.25%, etc. At the individual level, unlike the income taxes, these sales will impact them once in a while, thus a far preferable option than the high annual income taxes they have been paying. On the contrary, in order to keep the upscale housing market liquid and economic, the property tax component of the SALT cap must be separated and de-capped. Should sales clusters start to balloon just under $1M, the threshold could be lowered to the jumbo mortgage (non-conforming) level.

5. National Sales Tax on Luxury Hotels (4 and 5-Star) – These hotels are primarily for the corporate executives and rich folks so an additional 5-6% national sales tax will not harm the hotel industry. In fact, these hotels might even use this sales tax as a promo (“We Will Pay Your National Sales Tax”) in order to compete for the traffic during off-peak seasons. A vast majority of these hotels have medium-to-large convention centers – seasonal to round-the-year – so convention center sales surtax could be an ancillary surtax as well. The hotels that are run as resorts must be subjected to an additional resort sales surtax. Similarly, all private golf courses must have additional surtaxes. Again, none of these will adversely impact the middle class; even if they impact the middle class to some extent, it will be insignificant when compared to the tax savings they will be enjoying from the elimination of income taxes.

6. National Sales Tax on all Luxury Air Travels, Amtrak, Vacation Cruises and Car Rentals – Business and first class air travel, both domestic and international, is primarily for the corporate executives and rich folks so an additional 5-6% national sales tax will not harm the airline industry. Similarly, those who spend thousands more on luxury and ultra-luxury vacation cruise suites can afford an additional 5-6% national sales tax and it won’t harm the cruise industry either. Foreign cruises coming to the US shores may be subjected to additional port charges. Luxury car, charter flights and private jet rentals must carry sizable luxury and ultra-luxury national sales taxes. Likewise, upscale suites and berths on Amtrak must be subjected to the national sales tax as well. Again, none of these will adversely impact our middle class.

7. Selling Non-specific National Sales Tax Data to Private Companies – Undoubtedly, the national sales tax data will pave the way for the largest warehouse of the most uniform consumer spending and market performance Big Data, so the Commerce Department might consider selling the generic data to private companies, reducing the importance of the back-door data from the social media. Private companies in the consumer sphere, including the market research and econometric consulting firms, will pay large sums on an on-going basis to have access to such central and uniform data. Since the data will constantly change in line with the economic cycles, companies will be dependent on it, perennially. Additionally, the sale of data to the end-user private companies will be directly taxed while the value-added resellers will collect sales taxes from their clients. In no time, the national sales tax data could be a big money maker for the federal government. Citizenry would be relieved as the dominance of the social media data taking a nosedive.

8. Selling Naming Rights to Lesser-known or Un-named Federal Infrastructures – Let the rich people and private institutions pay to put their names up on lesser-known federal government buildings, town squares adjacent to federal buildings, highways, bridges, parks and recreational centers, education/job training centers, shelters, libraries, etc. that the federal government owns and operates. Federal government must also own the naming rights while funding (or primarily funding) non-profit institutions with federal dollars. If the wall is built on the southern border, naming rights to each stretch or segment must be auctioned off as well (in fact, this could provide partial funding for the wall, as well as the cost of general maintenance). The selling process must be totally open and transparent (via open tenders), thus awarding the naming rights to the highest bidders (some restrictions could apply). Also, in order to attract the right market price, it must also be term-limited, say 3 to 5 years. US DOT should also consider private-public joint ventures to build new toll roads and bridges (unable to get federal funding) wherein the private party incurs all costs to build the infrastructure in return for the toll incomes for 10-15 years.

9. Last but not least, Massive Savings will be generated by Downsizing IRS – IRS has over 80,000 employees with an operating cost of $11.5B. Obviously, the vast majority of them are expected to work on the personal income side. With the phase-out and eventual elimination of personal income taxes, the overall manpower could be significantly downsized, reducing the operating cost to $2B to $3B. Of course, a much smaller national sales tax group (Collection, IT and Data Science) will be needed under the umbrella of the Commerce Dept. Along with the reduced headcount, many IRS Centers around the country could be closed, data centers merged and cloud/storage facilities scaled back. The corporate income tax rate has already been lowered to 21% and any further reduction would necessitate some compensating European Union-style VAT. 

Instead of forcing the top 1% to pay 40% of all federal income taxes, we should seriously consider switching to a more humane progressive consumption tax system wherein people at large get to plan and decide the amount of taxes they would pay. While progressive consumption tax is poor and middle-class friendly, the rich would also welcome the idea considering the trade-off. Of course, studies will be needed to make the switch at least revenue neutral.

- Sid Som, MBA, MIM

President, Homequant, Inc.

homequant@gmail.com

Link to the Book

The Growing Income Disparity – The Global Case

According to a recent Credit Suisse report the richest 1% now owns 50.1% of the world’s wealth. Given this absurd concentration of wealth, we need this 1% to be self-convinced (like Mr. Warren Buffett) that they are just temporary custodians of their wealth. When a big chunk of their billions remains wastefully invested in unproductive and ostentatious wealth like $50M yacht and $300M in multiple mansions, it hardly benefits the human race.

The income inequality has been growing by leaps and bounds. The only way we can break out of this cycle is by establishing a whole new outlook: Exploring and inventing forward-looking growth and income opportunities for the so-called 99%. In order to maximize the exploration and harnessing of such growth opportunities, every country should start at the national level, gradually drilling down to the state, local and individual (yes, individual) level. The onus is on all of us.

So, what should we do about it?

1. Develop Basic Infrastructure with Private Cooperation – A country with well-developed infrastructure can attract more high quality foreign and domestic investments than their counterparts who are struggling to ramp up their infrastructure. Therefore, instead of selling out their natural resources, the poorer third world and developing countries should intensify the development and expansion of the basic infrastructure by enticing private companies (well-known local and foreign) to provide the leadership in that sector. For example, those companies could be encouraged to build new toll highways and bridges, railroads, metro and light rail, ports, airports, rural electrification, tele-communications, etc. shouldering all costs in return for all revenues (at pre-negotiated resell rates) from those projects for the first 15 to 20 years. It will be win-win. With the rapid growth of infrastructure, the credit ratings of those governments will improve. On the other hand, companies investing in infrastructure will get a steady and predictable revenue stream (revenue for, say 12 to 18 years, post completion).

    2. Let the Revenue Cycle Continue – When the ownership returns to the government, they can once again auction off those projects (revenue rights and maintenance obligations) generating significant upfront revenue to reinvest in derivative infrastructure, e.g., schools, hospitals, national/state parks, etc. In order to maintain the tempo of growth, governments must not get into the business of “running” any basic infrastructural services. Of course, they should be in the front-end (deciding on the location, type, extent, etc.) and back-end (project audit, collection and oversight), but not in the mid-end (actual “running” of the services). At that point, the toll, utility and transportation rates would be much lower (considering they would be paid for) benefiting all consumers, including the new arrival of businesses needing better and faster transportation and communication services.    

    3. Avoid Bridges to Nowhere – The participation of the private sector will help avoid the building of unproductive bridges to nowhere as they will conduct their own feasibility studies with rigorous cost-benefit projections. With the expansion and renewal of the basic infrastructure, those countries will become more attractive for foreign investments. Since they are inherently foreign exchange poor, enticing foreign investments with more competitive infrastructure will be the path forward. As the multi-national companies find out the growth of investment-friendly infrastructure in those countries vis-à-vis their surrounding peers, they will be more eager to explore direct and joint venture investments there. Needless to say, those companies are also constantly looking for new markets to explore and penetrate!

     4. Entice Neighbors to Follow the Successful Example – Of course, with the rising prosperity comes the border issue. A good leader sets examples that others are spontaneously enticed to follow. Today, we live in a world of economic cooperation and free trade so building a Chinese wall around the country’s border does not lead to lasting economic prosperity; rather, the prosperous countries must encourage the poorer neighbors to follow the successful example and shore up their own basic infrastructure, thus paving the way for a concerted regional revitalization and growth. This is how the refugee problem (from the neighboring countries) will be best avoided.

    5. Develop Regional Economic Zones – As the regional renewal gains momentum, countries must work together on creating their own economic zones, letting goods and services flow freely across borders without the costly and unnecessary taxes, tariffs and other economic barriers. With economic zones in place, it would be easier to convince corporations to build toll-ways, bridges, waterways, etc. across borders, offering better scalability and enhanced economy of scale. Countries must experiment with and use (macro economic) growth models that are sustainable. In fact, G-7s down to BRICS must aid and cooperate with the countries that become signatories to an international economic model emphasizing regional growth, renewal, cooperation and development of economic zones.   

   6. Create Tax-free Enterprise Zones – With the rapid growth and expansion of the basic infrastructure, countries will need to set up tax-free or, at least, tax-abated enterprise zones around the country. It does not make sense to build all infrastructures around a handful of big cities, making them even more overcrowded. It must be a distributed and decentralized economic model, with the emphasis on enterprise zones, including affordable housing. 10-15 year tax abatement is a good incentive to attract an array of big and diverse group of companies from around the world, vertically integrated with the growing infrastructures. A decentralized model would help people live close to their roots – an ideal way to keep employee turnover and absenteeism low, with morale always high. New payroll taxes along with the derivative revenue taxes would initially compensate for the lost corporate income taxes. Upon expiration of the tax abatement period, the corporate income tax revenue would start to kick in, enriching the exchequer by leaps and bounds.

   7. Invite Private for-profit to Build Institutes of Higher Technical Education – As those countries start to develop the service sector (atop the manufacturing sector), a steady flow of qualified employees with higher technical education would be needed. Again, instead of the local governments getting involved and controlling this layer of education, the private for-profit companies could be invited to build and run the institutes, with initial concentrations in enterprise zones, as an added enticement. While the acceptance must always be merit-based, governments must significantly subsidize all economically disadvantaged students, to avoid having to implement a quota system down the road. Furthermore, the interested students must have equal access to all competing schools across the economic zone. Again, a steady flow of technically qualified local employees is critical in enticing companies to invest in the service sector.

    8. Manage Natural Resources Properly – While the local governments should stay away from running all non-essential services, they must be involved in properly managing their natural resources along with all essential services like military, law and order, taxes, basic education, healthcare, clean water, etc. Countries that are built on moral (not religious) high grounds are more attractive to investors. For example, in many third world countries in Africa, Asia and Latin America, young women do not have equal access to education (which is a crime against humanity!). “Equal access to education” is a primary metric all foreign companies must use in evaluating the investment climate of a country, thus forcing those evil regimes to return to the basic decency and morality we must all follow and promote. While evaluating direct foreign aids, foreign governments must also use this as one of the primary “humane” metrics.

    9. Negotiating Trade Deals – When a rich country borders with poorer countries, it is prudent to consider the collective economic interest of the region while negotiating trade deals. Case in point: Whether we build a wall on the southern border or not, while re-negotiating trade deals with Canada, Europe, Japan, China and the rest of BRICS, etc., the US must wrap around the economic interests of the Central American countries. Their growth and prosperity is in our best interest. For example, many successful companies from around the world would be interested in the US market but they might not be able to initially meet our wage levels. If a common trade deal is in place, those companies would set up their initial shops – manufacturing, processing, assembly, IT, research, etc. – in one of the Central American countries with lower wage levels, with unrestricted access to the US market. No doubt, given time, they would be setting up shops here, hiring locally and paying our prevailing wages. Meanwhile, we have to consider Central America as our enterprise zone, enticing and redirecting vast amounts of second-tier economic activities from around the world to them (we are losing those businesses, anyway!). Let Central America be our nurturing ground. It will be win-win. Once we have a level playing field, they will be our full world partners, not just our enterprise zone. In not too distant future, we will have fast-track lanes at the border for them. No human crisis is ever solved by building walls; they are solved by creating meaningful and cooperative economic opportunities. And, it’s never too late!      

- Sid Som, MBA, MIM

President, Homequant, Inc.

homequant@gmail.com

Link to the Book