The first article I wrote for American Thinker was published on December 19, 2008. I proposed the creation of a Super Roth investment for U.S. taxpayers that could be used as an alternative to bailouts the government was meting out to insurance companies, banks, and automakers in the aftermath of the financial crisis.
The U.S. is currently faced with another financial crisis: the $37-trillion national debt. I believe that the Super Roth concept can be reimagined — along with three other strategies — not only to reduce, but to eliminate this debt. To zero. Donald Trump and the Republican Congress can accomplish it this year.
Here’s my four-point plan:
- First Dollar Estate Tax
The federal estate tax rate begins at 18% and rises to 40%, depending upon the amount of the net worth of an estate at death. There is a $14-million exemption for individuals and $28 million for married couples. The 18% rate applies to each dollar of net worth of the estate over these exemption amounts and increases to 40% by gradations up to $1 million of additional estate value. Thus, a decedent with an estate value of $10 million at death owes zero estate tax; a single person with an estate worth $100 million would pay approximately $34.4 million (40% of $100 million less the $14-million exemption).
Eliminate the exemption
My proposal eliminates this exemption: the first dollar of a decedent’s net worth would be taxed at 60%.
However, unlike the current estate tax process, which assesses estate tax only at death (or in the case of married couples, at the second death), there will be a 25% opt-in while the taxpayer is alive.
Here’s how it works.
The 25% Option
The 25% Option would be a present-day while-you’re-still-alive choice to opt into a 25% estate tax rate based on the value of your estate today. Available only to those 50 years or older, the taxpayer will commit to pay 25% plus compound interest of the present-day value of his estate until the date of death, with estate tax due at death. If a taxpayer’s estate today is worth $1 million, his base estate tax is $250,000. A running total of this amount plus interest will accrue until death.
The interest rate will be the same as the notes used to service the national debt.
An Example
The actuarial life expectancy of a 60-year-old male in the United States is, on average, 21.5 years. Assuming a compound interest rate of 3% on $250,000 over 22 years, as per the illustration above, this taxpayer would accrue an estate tax at death of $416,766.05 at age 82.
If the value of his $1-million estate were compounded annually at 5%, the value of his estate at death would be $2,683,644.52. Had he not chosen the 25% opt-in, his estate tax liability would be 60% of that figure, or $1,610,186.71.
$124-Trillion Wealth Transfer over the Next 25 Years
A report by Cerulli Associates estimates that over $124 trillion will be transferred to succeeding generations and charities over the next 25 years. Assuming a present value of that $124 trillion today to be $60 trillion, if all eligible taxpayers opted in to the 25% plan, this would result in a present-day transfer of $15 trillion.
Balance the Ledger
This scheme will enable $15 trillion of “Notes Payable” — a debt — on the ledgers of the U.S. government to be negated by $15 trillion of “Accounts Receivable” — an asset. The Notes Payable referred to are, of course, the Treasury bills, T-notes, and other financial instruments used to fund the National Debt.
- Resource sale
The value of the U.S. Government’s oil, gas, coal, and other material holdings is estimated to be $45 trillion. Sell off one third of the resources. This will generate $15 trillion.
- Super Roth
Retirement plans hold a total of $42.4 trillion as of 2024. Of these, approximately $27.5 trillion are in defined contribution plans (i.e., 401[k]s and IRAs), with the remainder being defined benefit plans (i.e., government or private company pension plans) of approximately $12.2 trillion. There is also $2.5 trillion in annuity reserves.
Assuming that half of all defined contribution ($13.75 trillion) and annuity reserve ($1.25 trillion) plans will not be distributed by the time of death, this leaves $15.0 trillion that will be distributed to the plan owners during their lifetimes. This is an important distinction to make because the value of defined contribution plans and annuity reserves in the estate tax proposal, above, has already been included.
Note that defined benefit plans are almost always set up as lifetime annuities that end at the death of the recipient or his spouse. Thus, they are distributed and depleted in their entirety during the lifetime of the taxpayer.
The $15.0 trillion in defined contribution and annuity plans that will be distributed plus the $12.2 trillion in defined benefit plans that will also be distributed during owners’ lifetimes total $27.2 trillion.
Create a Super Roth option. Allow the owner of a defined benefit plan, an annuity reserve plan, or a defined contribution plan who distributes during his or his spouse’s lifetime to opt into a Super Roth: an immediate 20% flat tax on the value of all plans, to henceforth grow both income- and estate tax–free. This will generate approximately $5.5 trillion in tax revenue. Sell-off of assets to pay the taxes can be staggered over a ten-year period in order to avoid fire-sale market crashes. However, the commitment to participate in the program can be opted in to in the present day, and, like the estate tax plan above, the taxes to be paid entered into the ledger as an account receivable that also offset the national debt liability.
- $5-Million Gold Card
President Trump has proposed a $5-million Gold Card visa for foreign nationals who desire to emigrate to the United States. Assuming that 400,000 individuals take advantage of this offer, $2 trillion will be generated.
Summary
The following is a summary of the revenue and accounts receivable generated by the plan:
25% estate tax option: $15.0 trillion
Resource sale: $15.0 trillion
Super Roth: $5.5 trillion
Gold Card: $2.0 trillion
TOTAL: $37.5 trillion
Tony Kondaks is the author of Why Canada Must End. He resides in Vancouver, B.C.
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