**4. Discussion**

In the US, there is a bad connotation when discussing the poor taking advantage of the welfare system, or the rich taking advantage of tax breaks. With the five guiding principles satisfied, all taxpayers are encouraged to take advantage of the victory tax system for personal benefit, regardless of their station in life. As taxpayers take advantage of the victory tax system based on rational self-interest, a synergic benefit for society as a whole arises from the constraints on the tax structure. The mathematical framework enables a pragmatic approach to taxation, because competing interests within the population are represented within a small parameter space, which helps funnel opposing public policy options into transparent objectives. For illustration, several issues that are important to the US are discussed herein.

#### *4.1. Consolidation of Diverse Interest Groups*

A victory tax system necessarily eliminates myriad assistance programs in the US that require a need-based qualification, such as food stamps, housing/energy assistance, unemployment, social security and medicare. All types of income based welfare programs are consolidated into a single mechanism for distributing governmen<sup>t</sup> transfer based on need, without judgment qualifications. Social security is an excellent topic of discussion. Unfortunately, the US social security program often fails to meet the basic needs of the elderly, and its solvency is questionable because new revenue from the workforce is not synchronized with recipient needs. Moreover, social security benefits have expanded beyond a retirement fund tied to age.

In the victory tax system, the unemployed and retirees belong to the same interest group. A large diverse subpopulation of recipients of governmen<sup>t</sup> transfer will lobby for public policy to overestimate the poverty line (requiring a higher tax rate), which will counteract other large diverse subpopulations that will lobby for a lower tax rate to stimulate economic growth. In addition, as the middle class lobbies for greater itemized deductions, this also requires increasing the poverty line. Notice that the vast majority of advocates for increasing the poverty line will not belong to the marginalized subpopulation living in poverty. Competing interests from large influential groups will encourage an objective measure of the poverty line to be set within public policy. It is critical for large powerful and diverse groups to argue for specific changes within a small parameter space to produce effective outcomes.

### *4.2. Legal Requirements*

If proof of citizenship or legal residency is required, illegal immigrants seeking public welfare are discouraged from living in the country because they will be identified. Furthermore, it would be disadvantageous for households with incomes below the poverty line not to report income for work.

#### *4.3. Tax Form Simplicity*

It is envisioned that a simple form determines tax liability. The main page of the tax form will be less than 1 page long, with optional worksheets for specifying itemized deductions and capital gain/loss information. A look-up table could be invoked to determine the basic and maximum deductions depending on the number of dependents in a household. Although public policy determines the tax code, the presence of maximum deductions does not warrant complexity in the code. For illustrative purposes, an example of the first page of a victory tax form is given in Table 2.

**Table 2.** Calculation of tax liabilities for twelve exemplar households. The first column gives the line numbers on the tax form. The second column gives the instructions. The six columns afterward represent example answers for households at different percentiles, f. The first 11 rows of the table correspond to the first 11 line numbers: #1 governmen<sup>t</sup> transfer; #2 earnings income; #3 other income; #4 deductible income; #5 basic deduction; #6 itemized deductions; #7 total deductions; #8 reduced income; #9 net income; #10 taxable income; #11 tax owed. The *ETR* is given in the bottom row. All examples are based on economy A with a poverty line of \$22,306 for a household of 3 with 1 dependent. The models in Section 3.3 for itemized and capital loss deductions are used to fill table entries in lines #3 and #6.


To cover a diverse range of possibilities, Table 2 compares 12 examples of filled tax forms for a range of household percentiles from 0 to 90 in steps of 10, as well as 95 and 99. A maximum deduction of \$44,612 (being twice the poverty line) together with a \$30,871 basic deduction create a cap of \$13,174 on itemized deductions. From line #6 on the tax form, households at and above the 80 percentile request the maximum deduction possible. Households within the percentile range from 40 to 70 pay more taxes than they need, because they are likely not to have enough surplus income. Allowed itemized deductions help society and the household. For example, an important itemized deduction should be to invest in a retirement fund. As a household achieves greater net income and/or reduce expenses, more itemized deductions for a retirement fund are possible, among other allowed reasons.

#### *4.4. Financial Security from Job Loss*

Regardless of a household's savings or previous income levels, a household automatically gains a minimum guaranteed income at the poverty line if job losses lead to no income. A household with a living standard far above the poverty line would inevitably exhaust their savings due to an extended period of job loss. However, it is not the role of governmen<sup>t</sup> to maintain differences in wealth in households, even for a short time.

#### *4.5. Right to Work*

The basic guarantee of income in the victory tax system eliminates the need for a minimum wage. Without a minimum wage, many companies are likely to lower wages below a living wage. Nevertheless, a low-wage job will increase *ATI* above the poverty line, as the regressive *ETR* leads to significant increases in *ATI* from modest income increases. This increase in net income was not the case with the negative income tax, which was tested in the late 1960s to early 1970s in North America [9]. Within a victory tax system, low-wage entry-level jobs can benefit society. For example, a young person with no previous work experience earning low wages increases the collective *ATI* of a household. This is a win– win–win situation: A company acquires cheap labor, a new worker gains valuable training, and the household increases its net income. The steep regressive tax encourages workers to accept low paying jobs in exchange for building skills. After gaining experience, workers should expect to move into higher-paying positions, creating rapid turnover in entry-level jobs. Companies will have to adjust their wages to balance the turnover rate with the costs of training new workers.

#### *4.6. Right Not to Work*

As companies become dependent on the governmen<sup>t</sup> to pay low-wage workers, if left unchecked, this practice will inevitably develop into a modern form of slavery [28], when work is required in exchange for governmen<sup>t</sup> transfer. Enforcing work for governmen<sup>t</sup> transfer at the poverty level is analogous to forcing companies to pay workers a high minimum wage. To prevent exploitation of workers, work requirements cannot be applied to the basic income guarantee. In particular, the right not to work is a necessary balance in a free market in which individuals are free agents who promote their own agenda for wealth accumulation. Guaranteed basic income subsidizes both workers and owners. When workers are independent agents, the main reasons for unions become unnecessary. For example, a person can refuse to work in conditions they consider inappropriate, unworthy of their talents, too little pay, or because the job is uninteresting. This gives workers free time to develop new skills and seek better-paying jobs based on their merits. Whether a person receives governmen<sup>t</sup> transfer because of retirement from the workforce, does not find work or decides not to work is irrelevant to the victory tax system.

#### *4.7. Productivity in Society*

The victory tax system promotes a productive society, not by providing comfortable financial security to people, but rather by providing incentives for people across the income spectrum to take jobs, become more demanding for higher salaries and better benefits, and to regularly make financial investments. Of course, there will be a subpopulation of people that will take guaranteed basic income and never work. A victory tax system allows the free market to determine workforce equilibrium, and it embraces the income distribution from that free market that includes non-working households. The victory tax system makes no judgments about why people work or not.

It is important to stress that productivity cannot be quantified in monetary terms, because not generating taxable income is not the same as unproductive. For example, a basic income guarantee can help low-income parents meet household needs to raise children, which is a productive activity for society. People in low-income households often have health problems that prevent them from working [15]. Some people will choose to live a life near the poverty level while providing community benefit through good deeds. Allowing people to retire at the age of their choice also eliminates the arbitrary mandatory retirement age set by government. In short, the victory tax system offers each individual the opportunity to achieve success in their own terms, which can evolve over time.

Consider the case in which a person (young or old) wishes to pursue creative interests. Such passions can be pursued productively, rather than inhibited by the need to work for mere survival without dignity. Observing peers accumulating personal wealth creates a powerful incentive for the vast majority of people not to indefinitely pursue personal

interests strictly at the poverty line. Generally, wealth accumulation occurs over one's lifetime. Consider the most likely scenario when young adults leave their parents' home. For an inexperienced worker, it is generally difficult to find a good-paying job that meets basic needs. The victory tax system allows young adults to become independent and productive taxpayers sooner due to the regressive nature of the ETR. Starting with governmen<sup>t</sup> transfer, as an individual's economic status increases governmen<sup>t</sup> assistance changes to itemized and capital loss tax deductions. Thus, all forms of governmen<sup>t</sup> assistance help create a productive society as individuals capitalize on their rational self-interest.

#### *4.8. Security in Personal Wealth*

The victory tax system offers short- and long-term opportunities for prosperity through itemized deductions. For example, the cost of investing in stocks and bonds can be an itemized deduction. In the short term, this itemized deduction contributes to wealth accumulation by encouraging households to reduce their *ETR* and increase their *ATI* by investing in the economy. In the long run, the accumulated wealth of a household can be exploited during retirement as other income, which can substantially increase *ATI* above the poverty line for the middle class. For lower-income households, modest but significant gains in *ATI* will result from supplementing governmen<sup>t</sup> transfer. Furthermore, the wealth generated by a taxpayer stays with the taxpayer at all times. Households can sell assets for income at any time without imposing penalties for early withdrawal or waiting until a certain retirement age.

Policy makers should allow a wide range of itemized deductions to offer opportunities for prosperity. For example, allowing itemized deductions on accumulating assets, such as a house, or to offset the cost of higher education or for training on workforce skills. Other forms of security could include itemized deductions on health insurance or health care costs. In this way, households can pay less taxes by taking measures to strengthen their financial independence and well-being. In summary, many allowed itemized tax deductions in the tax code will give households the opportunity to use surplus income for personal gains that create benefits for society.

#### *4.9. Catalyst for Micro-Businesses*

The victory tax system creates a supportive environment for micro-enterprises to form. As low-wage jobs are subsidized, new businesses can rely on this to reduce startup costs. For example, new businesses can form a mission to attract low-skilled workers to help the local community while building skills for their recruited workers. This paradigm replaces working in low-wage jobs without growth opportunities. With a foundation for social security, the private sector has the means to solve local community problems without high barriers. The safety net of guaranteed basic income enables low- to middle-income households to take risks in entrepreneurial endeavors that would otherwise be prohibitive. Over time, micro-enterprises can grow into larger businesses.

#### *4.10. Responsible Government*

The floating tax rate helps avoid runaway deficits, as it can adapt to governmen<sup>t</sup> budgets that take into account debt and repaymen<sup>t</sup> plans to control the ratio of debt to gross domestic product (GDP) through public policy. It is worth noting that public policy may promote large debt accumulation to keep the victory tax rate lower, but this jeopardizes long-term stability. For the US, an open budget to the public provides transparency to determine if taxation has representation. With only a few key tax parameters, debates will focus on why tax rates, poverty lines, or deductions should be changed. Furthermore, any proposed changes to the parameters can be modeled and tested with the consequences predicted. This clarity will make public policy debates more substantive, such as evaluating the effectiveness of expanding free public services compared to increasing the poverty line.

Government transfers should be distributed continuously, as they are part of a steady income of a household. An efficient and convenient method of governmen<sup>t</sup> transfer and

collection of taxes owed is consistent with Adam Smith's four principles [29], the third of which states: "Every tax ought to be levied at the time, or in the manner, in which it is likely to be convenient for the contributor to pay". This logic also applies to governmen<sup>t</sup> transfers in the victory tax system, which eliminates the need for governmen<sup>t</sup> to administer complex assistance programs. However, there will be subpopulations in society that will refuse governmen<sup>t</sup> support on the grounds of principle or incompetence. In the latter case, the governmen<sup>t</sup> should support institutions that care for people who are dependent on others, such as nursing homes, institutions for mentally ill or homeless, etc. If a person must be put in a public or private institution because they cannot live independently, the institution becomes their household, and will receive governmen<sup>t</sup> transfer in their behalf. Financial administrators of these institutions will be obliged to pay income tax on the governmen<sup>t</sup> transfer received in aggregate form. In this way, the victory tax system supports the entire population, including the "forgotten" people in society who must live as dependents.

#### *4.11. Role of Corporate and Other Taxes*

In the analysis of the victory tax system, all other sources of tax revenue, such as sales and corporate tax, were dismissed. As the example economy of Table 2 shows, *VTR* approaches 30% when there is a weak middle class and highly skewed net income distribution, as is currently the case in the US. An argumen<sup>t</sup> often made is that low corporate taxes create GDP growth. For the analyses given here, corporate taxes are 0% across the board, regardless of the size of the company/business. Remember that in 2003, approximately 19 percent of tax revenues came from other admissible sources. Therefore, it is feasible to shift *VTR* down by approximately 5% when other tax revenues are taken into account. Ignoring all other admissible tax revenue sources, the 27.7% *VTR* is not prohibitively high, demonstrating that the victory tax system is cost effective. Discussion of an appropriate corporate tax system goes beyond the scope of this paper.

#### *4.12. Future Work*

This work can be expanded in several ways. The consequences of a victory tax system should be quantified by large-scale agent-based modeling to simulate an evolving economy [30]. Different initial economic conditions under different public policy constraints should be systematically investigated and compared with other tax systems. A few key questions should be addressed: Does the victory tax system stabilize the middle class? What is the impact on market income distribution? How will GDP be affected? Other features to be explored include how to deal with spatial (regional) inhomogeneity, how to synergistically combine this system with corporate taxation, and how to transition from an existing tax system into a victory tax system. The victory tax system, along with other tax systems, should be tested in economies that will be largely automated. For those interested in further testing or developing the victory tax system, a C++ program that is used to generate all the results presented here (including other types of Lorentz curves that are not shown) is available in supplementary materials. Although many aspects and consequences for universal basic income have recently been addressed [8], these findings, albeit insightful, are not directly applicable to the victory tax system.
