Personal Government Accounts

(23 March 2001)

We live in an age with the capability to make important decisions about how each individual supports government. Debates and spin statements intent on arriving at common taxation policies are outmoded for today's Me generation and with today's computation tools.

It is well known that by the time government makes a fiscal decision more than half the people will be unhappy with it since it is made for the typical case or, at least typically, the most vocal, rather than for the largest number. And the decision impact will be late because the decision process is so cumbersome.

Let's imagine that it is our government, ours individually. And that government is responsive to the US Army's new mantra for a "unit of one."

Personal computers are now available and used by over half of the US population and steadily increasing in their penetration. These machines are putting consumers in direct contact with millions of sellers, are empowering people with library sources equal to nearly all major libraries in the world, and through chat are making their voices heard directly where they count.

Now let's give every citizen with a Social Security account access to their complete and individual government financial statement. And let them choose how to manage it.

We know that each citizen could be allocated a direct portion of the federal debt. That debt was accumulated by the underpayment in earlier years of taxes. It would be possible to determine from prior tax records the amount of underpayment, and accumulating debt, attributable to each taxpayer. That information could be used by the taxpayer to make a personal decision to reduce their debt, thereby saving allocated interest costs, or to defer payment with increasing leverage and related interest costs. Or taxpayers could elect a default position - and just do the average of everyone else for that decision period.

Some taxpayers would elect to pay off their portion of the debt as quickly as possible. These might be the same people who accelerate payments on their home mortgage, and for the same reasons.

Adjustments would be made to transfer unpaid debts to estates and pass through estates to heirs.

Simplification of the tax code is a goal shared by all, except special interests who wish to use revenue collection policy to promote one or another purpose. The accumulation of all these incentives produces an economic outcome that only lasts until markets learn to adjust for the incentives but incurs the long lasting effect of cheating those taxpayers who do not hire professional services or can not personally understand the new rules.

A first principle of finance is to separate revenue-gathering methods from expense allocation. Thus, government should treat all its income sources - income, corporate and capital taxation, sin and luxury taxes, fees like customs and even profits from quasi-private activities like International Finance Corporation and Overseas Private Investment Corporation - together. By determining the percentile income strata for some base period, let's assume the past 50 years, a benchmark would be set on how the US elects to collect revenues on the basis of ability to pay. And tax levies for coming years, perhaps in blocks of three to five years, would be based upon a goal of meeting expenses subject to the will of taxpayers' election to pay down or increase leverage.

Some Jeffersonians will argue that taxpayers do not know when to consume or save. They will say these decisions need to be made collectively for the collective good. There were some procedural excuses for that position with lack of education, lack of financial sophistication and lack of accounting tools. None of these reasons count today.

Any one who can understand a Medicare statement can handle their personal portion of the Federal Government's financial posture.

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