Problems in a Bright Future: There is Plenty but Plenty of People are Useless from a Productivity Standpoint

On the previous post, B writes

"I agree with everything except the idea that there is necessarily a fixed limit to the amount of unproductive people that a society can support. It is entirely conceivable that technology could evolve to a high enough level that a small amount of productive people could support the rest. The main issue is how to keep stupid and unproductive people (whose unproductivity is mostly contextual and caused by tech-in a tropical climate, given a digging stick and a 5 gallon bucket, they could produce enough manioc to support themselves and a dozen kids) from degenerating morally and making their life and the lives of those around them a living hell."

This is one possibility for the future---fictionalized in 'The Diamond Age'.  What has happened in such a scenario is that a very large fraction of the population has become useless from a productivity standpoint.  A few people have meaningful jobs but most forms of scarcity, excepting, of course status and positional goods, have been repealed.

In our own time in the US, we've seen a steady rise in the fraction of the public that are unemployable or 'zero marginal product' workers.  Indeed the minimum IQ coupled with average work ethic needed to be worth a 'living wage' has steadily risen.  As it continues to rise this will inexorably raise tensions between the productive and the combination of the unproductive and those simply not allowed to produce due to regulations, minimum wage, and the like.

My suggestion regarding how to deal with this problem is the following (my recommendation with how to deal with an economic contraction due to a future where cheap energy has gone the way of the dodo is similar):

Repeal pretty much all social safety net programs---medicare, SS, welfare, unemployment, et al.
Eliminate pretty much all minimum wage and similar labor regulations
Guarantee all citizens over the age of majority a citizen's dividend, probably on the order of $10k/year present purchasing power.  You can fund this dividend however you like, but I recommend a simple consumption tax or something equally transparent.  Treat it exactly like monthly dividends from a corporation like the Realty Income Corporation (O on the NYSE), except it wouldn't be transferable.  No means testing would be used and the team to do the distribution could probably be a dozen people or less.  Ideally, this would represent 2/3 or so of the governmental budget and the tight connection between taxes paid and dividend received would tend to constrain other budget elements.

Do that and most of the population can find SOMETHING useful to do, and the reasoning behind minimum wages and the like becomes moot.  Status striving will insure that most people don't just take the dividend and like a low lifestyle, although such would be an option and necessarily so.  The fact that people would be free to work for very low wages---as a supplement to their dividend, much in the way that some retirees work as Walmart greeters and the like to make a few extra shekels---would tend to drive unemployment rates very low.  People would also have a strong incentive to maintain the borders and be conservative on legal immigration, since it would directly and tangibly impact their own dividends.

Some Suggested Tax Simplifications

Since several candidates for president have weighed in with portions of their tax plans, I'll toss a few suggestions in as well.  The overriding theme of these suggestions is simplification with minimal impact on aggregate taxes collected---revenue neutral in the language politicos like to use.

1.  Make health plans fully taxable.  Increase the personal exemptions by the average amount presently exempted by health plans being effectively above the line.  People with exceptionally high health care costs during a year can continue to use the itemized additional deduction.
Benefits:  This has the potential to effectively disentangle health care plans from employment, which will make labor more mobile. Also, it will tend to reduce the complexity of health insurance in general since there will be no temptation to cram things into an insurance paradigm simply because they can then be paid with pre-tax dollars.  Insofar as winners/losers, this will benefit the younger versus the older.

2.  Make dividends deductible as an expense (like interest is) for corporations that pay them out.  Make them fully taxable as ordinary income (also like interest) for those that receive them.
Benefits:  Removes the distortion of incentives for corporations and stockholders insofar as how to return money to the shareholders.  Dividends are also a lot harder to game than the other ways and tend to keep companies more honest.  In addition, because dividends are antithetical to stock options (because granting a dividend of x cents immediately drops the price of the stock by x cents), this will tend to reduce the amount of options companies will have an incentive to grant.  Options can create all kinds of perverse incentives, because if you hold an option, you want the price of the stock to be volatile and tend to care most about the highest spike of stock price rather than the long term value.  Consider also how this interacts with stock buybacks (another method of returning value to the customer).  Do heavily option-loaded executives have a strong incentive to 'buy low' when executing a stock buyback?  Or is the incentive rather to attempt to juice the stock price prior to exercise of options?

3.  Seriously consider trashing the Mortgage interest deduction and using the average amount to increase the personal exemption.  Winners:  renters and those who have paid off their houses already---people who don't care:  those who don't itemize---losers:  those with large mortgage interest payments.  This will also deflate the housing market prices somewhat because people won't be paying for houses with artificially cheap dollars anymore.  The college loan fiasco should provide an object lesson as to what happens when everyone is bidding with subsidized dollars (hint, the prices inflate far faster than inflation).

4.  Get rid of phase outs.  If you want to charge people higher tax rates at higher AGI levels, just charge them higher tax rates.  Don't create a bunch of knuckles in the marginal tax curve by phasing things out over various 10k and 20k wide bands thereby increasing the complexity of the tax code (and, in particular, increasing the complexity of optimizing one's behavior and timing so as to pay less).

5. Get rid of customer-side tax credits.  If you really HAVE to give a tax credit on, say, Toyota Pious V's or holy light bulbs and washing machines, give it to the seller, not the customer.  The ultimate effect will be similar but you'll inflict the complexity of compliance and record keeping narrowly instead of widely.

6.  Seriously consider getting rid of the deduction for state, local, and other taxes paid.  Instead, once again just raise the personal exemptions by whatever that would average out to.  In theory at least, people who live in higher tax areas receive higher services in return for their taxes.

7.  Seriously consider moving charitable contributions above the line and having the charities automatically furnish the year end statement to the IRS as well as to the taxpayer, much like employers already do.  This would probably remove most of both fraud and unnecessary audits (since the IRS could just add the numbers up themselves) from the present itemization process.  Charitable mileage deductions could be eliminated at the same time, helping revenue neutrality and reducing the record keeping and audit complexity at the same time.  In addition, if items 3, 5, and 6 have been implemented as well, this will remove most of the remaining taxpayers that itemize.

All told I suspect that these changes would at minimum cut the compliance cost in time by average taxpayers at least in half.  Turbotax would, of course, be upset, because very few taxpayers would require anything more than Turbotax basic.

999 and other Tax Plans that will never happen

Presidential Candidate Herman Cain, whom I dislike less than Rick Perry and probably less than Mitt Romney, has been talking a lot about his 999 tax plan.  In short, he'd like to replace nearly all federal taxes with a 9% sales tax, a 9% income tax, and a 9% corporate tax, all of which he'd greatly reduce any deductions and exemptions for in the attempt at rough revenue neutrality.

I give him credit for recognizing that our current tax system is an abomination, dragged up from the hells of complexity that the Elders of the Second Sigma find congenial.  It is precisely because these Elders of the Second Sigma, as represented by lobbyists, tax attorneys, lawyers, et al are so invested in the complexity of the tax system that I predict nothing of the sort will happen on this side of a total collapse of governmental legitimacy and authority.  In their attempt to defend the infernal complexity of the existing system, they benefit from the Fundamental Theorem of Reaction---which is to say that any significant change WILL have winners and losers, and if you control the cultural battlespace, it is easy to provide a parade of sympathetic losers and implicitly demand that no change be made unless it is actually perfect, with no losers.  Reactionaries know that this is impossible, and generally view this practice with contempt, but it wins elections and useful idiots.

But, since we're on the topic of taxation, let me present---only half-jokingly---a proposed Jehu tax plan.  My prediction is that rich neurotypicals, like present day Americans, will loathe this plan because of its open and transactional nature.  Here it is:
Create a ladder of classes, possibly even several ladders that branch off the first ladder.  For instance, your ladder might look like this

Lower lower class, middle lower class, upper lower class, lower middle class, middle middle class, upper middle class, lower upper class, middle upper class, and a ton of flavors of upper upper class.

This class ranking would be 100% A-OK for discrimination.  You could have neighborhoods that living in them required class X or lower, class Y only, or class Z or higher.  There would also be perks associated with upper classes, like the police would ACTUALLY bother to investigate identity theft claims you made if you were of class X or higher, for instance.  You'd also have a few sumptuary laws as well, so you could effortlessly display what class you were for the social and romantic marketplaces.

Now for the tax.  You, the taxpayer decide what class you want to be for the next year.  Your net payment to the treasury determines what class you're going to be rated as---perhaps with a sliding window function covering the past decade or so.  And there you have it, a tax system that has very low complexity and requires next to nothing in the way of auditors.  In addition, it acknowledges the fact that there is a hunger for discrimination---such is just inherent in our status-seeking natures--and chains it to a useful purpose.  It also makes status displays a lot less subtle and costly.  Everything is pretty transparent and above the board.  Historically speaking, this isn't even all that odd of a tax system---it's like a head tax where the upper classes have a surcharge.  I predict this same transparency and open nature would cause most neurotypicals to run screaming in terror.

Charitable contributions and Taxes, a few questions and ideas

In the US, charitable contributions are deductible if and only if you itemize your deductions. Apparently most people in the US don't (only about 35% according to http://www.taxfoundation.org/research/show/22499.html ).
So an awful lot of charitable contributions by US taxpayers don't get deducted.
I have a few questions for my readers. As always, you're perfectly welcome to appropriate any of these ideas if you find them useful.
1) Since a business can basically take off charitable contributions as a cost of doing business, in much the same way as they can take off your salary if you're their employee, why is it that we don't see job benefits of this form offered:

Say you're an 80K/year employee for Acme Enterprises. Acme offers to write an 8K check to your church next year while paying you 72K instead of 80K. In fact, they're willing to instead donate any amount you'd like to your church or favorite charitable organization from the 80K it costs them to employ you. You'd get around the charitable contribution limits (only a certain fraction of your AGI can be deducted, but you can carry it over from year to year), and your deduction would be effectively 'above the line', because it'd never show up as your AGI. This means that any phase outs wouldn't hit you and in many cases you'd just claim the standard deduction instead of itemizing. So why don't we see this on cafeteria benefit plans?

2) People are allowed to give money to other people without tax implications if the gifts are below a certain (fairly large) amount. Could a person in a lower tax bracket not then effectively 'sell' their charitable deduction to another person? Imagine Joe, who is below the threshold of itemization and Bob, who pays nearly 50% between federal, state, and local taxes. Joe gives 1000 each year to the Campus Crusade for Cthulhu. This gift does not lower Joe's taxes a cent. But what if Joe instead gives the money to Bob. Bob then gives 1k to the Campus Crusade, and gets 500 back from Leviathan. Or Bob could give 2k to the work of Cthulhu, receiving 1K back from Leviathan. There are all kinds of 'production possibilities' here. I've heard of companies effectively 'buying losses' for tax purposes. Would something like this be feasible/legal, and if not, why not? Obviously this scheme has the disadvantage of requiring some measure of trust between Joe and Bob.