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For nearly three decades, my former colleague Rep. John Conyers of Michigan would introduce H.R. 40, legislation seeking to establish a commission to study and develop reparation proposals. Though many thought it a lost cause, he believed that a day would come when our nation would need to account for the brutal mistreatment of African Americans during chattel slavery, Jim Crow segregation, and the enduring structural racism endemic to our society. With the rise and normalization of white supremacist expression during the Trump administration, the discussion of H.R. 40 and the concept of restorative justice have gained more urgency, garnering the attention of mainstream commentators and illustrating the need for a national reckoning.

Slavery is America’s original sin, and this country has yet to atone for the atrocities visited upon generations of enslaved Africans and their descendants. Moreover, the mythology built around the Civil War has obscured our discussions of the impact of chattel slavery and made it difficult to have a national dialogue on how to fully account for its place in American history and public policy. H.R. 40 is intended to create the framework for a national discussion on the enduring impact of slavery and its complex legacy to begin that necessary process of atonement.

On Sept. 30, 2020, 401 years after human traffickers landed in Virginia and sold Africans to English settlers, California lawmakers passed Assembly Bill 3121. The legislation established a nine-person task force to “Study and Develop Reparation Proposals for African Americans, with a Special Consideration for African Americans Who are Descendants of Persons Enslaved in the United States.” On March 29, the task force voted 5-4 to limit the resulting reparations to Black people whose ancestors were enslaved in the United States, sparking a robust debate about who is deserving of reparations. While this may seem like the most straightforward solution, undoing the legacy and history of slavery is not that simple. As a descendant of Africans enslaved in America, I would benefit from this policy. But, as someone who has taught “Race as an Economic Construct” to college students, studied the history of Africans in America and has written extensively about reparations for two decades, I oppose this idea. It is my belief that the foundation of this argument rests on the precepts of white supremacy that created the disparities reparations are intended to erase. Instead of writing an entire treatise—which I’ve actually done a few times—here are the top 10 reasons why lineage-based reparations are a terrible idea. 10. It is based on white history. First of all, the bill states that “More than 4,000,000 Africans and their descendants were enslaved in the United States and the colonies that became the United States from 1619 to 1865,” which excludes the descendants of Africans who were enslaved in America by anyone other than English settlers who showed up a century after Europeans arrived on the continent with enslaved Africans. We still don’t know what happened to the Africans who revolted in the Spanish colony of San Miguel de Gualdape in 1526. Historians speculate that they may be living in North Carolina but are we to think, in 500 years, none of those people made it to California? It also rests on the tenuous definition of “descendant” and the actual definition of African-American, which doesn’t actually exist because race is just something white people made up. 9. …And white math. This entire concept of tying reparations to ancestry is based on a white supremacist construct used to demonize welfare queens, social programs and the MAGA form of racism known as “economic anxiety.” According to the “zero-sum” philosophy, if everyone gets a piece of the American pie, there will be less for everyone. Unfortunately, that’s not how math works. When wealth is distributed evenly, it generates more wealth and less poverty. This economic concept has been so widely accepted that we don’t even argue about it anymore. We are willing to use taxpayer money to subsidize white farmers, billionaires and wealthy corporations by reasoning that the money will have a positive economic impact.

Who Gets What? If the proponents of reparations take to the courts, it will be interesting to see their principle for determining who is entitled to what. For many reasons that will be a Herculean task. Because of centuries of migration, conquests, and intermixing, racial purity is more of a social construct than a biological fact. Intermarriage between whites and blacks in America over the past two centuries has produced a large population of individuals who defy the stark dichotomy. Racially mixed populations in other parts of the world, such as in Latin America, have created classifications to describe themselves based on racial portions as small as an eighth. However, the practice of racial classification has evolved differently in the United States. In an effort to deny inheritance rights to illegitimate progeny born by slave women, racist plantation owners in the antebellum South created the dreaded “one-drop rule” to discourage the courts from calling their miscegenational offspring anything but Negro. The nomenclature of this racist practice has survived to this day and is embraced by both blacks and whites, who for the most part are unaware of its discriminatory beginnings. Consider how Vanessa Williams and Colin Powell are labeled black despite their interracial heritage. With so much racial intermixture, will those who dole out the potential reparations demand certificates of racial purity? The thought is preposterous. Another quagmire in paying reparations is that a small percentage of blacks were free before slavery ended, having bought their freedom or having had it bequeathed to them by sympathetic slave owners. Are their descendants eligible for reparations? In antebellum New Orleans it wasn’t uncommon for freemen of color to own slaves. That blacks owned slaves has been a hotly debated point. It is true that a vast majority of blacks who bought slaves did so to emancipate relatives and friends. However, there are several well-documented cases of black slave owners in Louisiana who kept their slaves in servitude for life. Black slave ownership poses a serious conundrum in the equitable distribution of reparations. Few Americans, white or black, are familiar enough with their genealogies to know, with any certainty, significant details about what their ancestors were doing almost two centuries ago. Then there is the case of African and Caribbean émigrés from the post-Civil War era. It is estimated that this subgroup of the black community comprises between 3 to 5 percent of the total black population in the United States. Will they pay or receive reparations?

British abolitionists, who for the most part were evangelical Christians, championed the legislative revolution that brought about manumission in Britain and her colonies. In the West, once the abolitionist momentum was underway, there was no turning back. This was especially the case in the United States, where the ideological underpinnings of a constitutional republic made it increasingly difficult rationally to deny slaves their rights. The abolition of slavery in the United States marked a historically significant moral high point, not only for this country, but also for the entire world. By the end of the nineteenth century, slavery as an institution was non-existent in the West and only existed in small pockets of Africa, Asia, and the Middle East. Has Slavery Hindered the Economic Progress of Blacks? Economist Thomas Sowell, in his seminal work Civil Rights: Rhetoric or Reality, concluded after exhaustive statistical research that the vast majority of whites and blacks believe there are a higher percentage of blacks in poverty than there actually are. Indeed, when surveyed, most whites and blacks believe three-quarters of black Americans live below the official poverty line, when in reality only one in four do, according to the 2001 Census. Why is there so much confusion? Part of the problem is the perception that “black” and “poor” are synonymous. In the 1960s it was politically expedient to associate the state of being poor, uneducated, and oppressed with being black. The civil rights establishment found this association rhetorically necessary to focus public attention on the plight of southern blacks and to engage the emotions of the white majority against overt southern racism. However, this political strategy had an unexpected impact on the emerging black middle class. According to the black-equals poor logic, when the black middle class achieved more opportunity and became more educated and affluent, it essentially became less “black.” This perhaps explains the black establishment’s attitude toward Supreme Court Justice Clarence Thomas and national security adviser Condoleezza Rice. Essentially, black identity was hijacked and frozen during the 1960s. Unfortunately, the image of poverty stricken blacks in need of government handouts to get by is still perpetuated by race demagogues like Jesse Jackson and Al Sharpton, who stand to gain politically by fostering that stereotype. It is a truism of politics that charlatans in search of political power will always benefit from having a constituency with a chip on its shoulder. Is there a legacy from slavery that has hindered the economic progress of blacks today? Let’s consider the numbers. Major marketers have long constructed a black “gross national product” (GNP) from government statistics to gauge the financial power of black Americans. This is actually a misnomer since it tries to measure the total products and services consumed, not produced, by the black community. This statistic is often cited by black political leaders to persuade corporate America to produce more goods suited to the preferences of blacks. It turns out that if black Americans constituted their own country, they would have the 11th largest economy in the world. In addition to being a wealthy demographic group (richer than 90 percent of the people in the world), blacks in America have a longer life expectancy than African and Caribbean blacks, as well as whites in many parts of Eastern Europe and Latin America. Black Americans have higher rates of literacy and achieve more postsecondary degrees as a percentage of the population than blacks in Africa. Black Americans’ upward mobility from Reconstruction to the present is a testament to their creativity and ability to adapt. Reparations are not only unnecessary as a financial corrective, but they would also be an insult to the multitudes of successful black Americans who lifted themselves out of poverty before and after the civil rights movement.

The Reparations Claim Is One More Attempt To Turn African-Americans Into Victims. It Sends A Damaging Message To The African-American Community. The renewed sense of grievance -- which is what the claim for reparations will inevitably create -- is neither a constructive nor a helpful message for black leaders to be sending to their communities and to others. To focus the social passions of African-Americans on what some Americans may have done to their ancestors fifty or a hundred and fifty years ago is to burden them with a crippling sense of victim-hood. How are the millions of refugees from tyranny and genocide who are now living in America going to receive these claims, moreover, except as demands for special treatment, an extravagant new handout that is only necessary because some blacks can't seem to locate the ladder of opportunity within reach of others -- many less privileged than themselves

Now that I have provided a brief analysis of metaracism, current patterns of racial oppression and repression, and contemporary racist culture, I can return to an analysis of the reparations movement. This movement is occurring at the same time that racial oppression and repression are intensifying and racist culture is expanding. The success of any political movement depends on its ability to construct a counterideology, effective enough to undermine the legitimacy of the dominant culture/ideology and its ability to build a coalition strong enough to challenge the dominant power arrangement. Counterideology In developing a counterideology, the reparations movement suffers from two critical flaws: it focuses too little attention on current oppression and it is tainted by the very dominant culture it is attempting to oppose. Focus Too Much on the Past Most scholars writing on reparations emphasize not just the horrors of slavery past, but the effects of slavery on the present. The following passage from Robinson's book on reparations illustrates this point: Well before the birth of our country, Europe and the eventual United States perpetrated a heinous wrong against the peoples of Africa.... In 1965, after nearly 350 years of legal racial suppression, the United States enacted the Voting Rights Act and, virtually simultaneously, began to walk away from the social wreckage that centuries of white hegemony had wrought.... But when the black living suffer real and current consequences as a result of wrongs committed by a younger America, then contemporary America must be caused to shoulder responsibility for those wrongs until such wrongs have been adequately compensated and righted... (Robinson, 2001: 230). Robinson's book provides one of the most thoughtful and persuasive arguments for reparations. He focuses not just on African Americans and past slavery, but also on Africa and the rape of this continent during the Atlantic slave trade and the era of colonialism. He elaborates on the continual exploitation of this continent today. He discusses how racial inequality today is rooted in the past of slavery and segregation. He adds, American capitalism, which starts each child where its parents left off is not a fair system. This is particularly the case for African Americans, whose general economic starting points have been rearmost in our society because of slavery and its long racialist aftermath. American slaves for two and a half centuries saw taken from them not just their freedom but the inestimable economic value of their labor as well... (Randall 2001: 231). Randall Robinson expresses bewilderment over his former Harvard Law professor's (Derrick Bell's) view of reparations. He quotes Bell, "Short of a revolution, the likelihood that blacks today will obtain direct payments in compensation for their subjugation as slaves ... is no better today than it was in 1866 ..." (Bell quoted in Robinson, 2001: 203-204). No doubt Bell understood the problems as clearly as Du Bois: Racism is still deeply imbedded in American culture. Robinson largely ignores current patterns of racial oppression and contemporary racist culture. A Movement Tainted by the Dominant Culture The perspective of a few leaders of the reparation movement has been tainted by contemporary racist culture. This point is evident in two areas: the Million Man and Million More Marches and the reparations literature. The theme of the Million Man March of 1995 was the atonement of the black male. The whole premise of the march was that black men had not been responsible as individuals, fathers or community leaders, and that the black community was plagued with drug abuse, gang violence, welfare dependency, and other pathological behavior. Black men were urged to reassert themselves as men, as heads of their families and as leaders of their communities. Most speakers acknowledged racism. A few, most notably Jesse Jackson and Hadi Madhubuti, discussed specific aspects of contemporary racial oppression: racial discrimination in drug laws, racial profiling, targeted enforcement, cuts in anti-poverty programs, inadequate health care, and others. However, most speakers focused on the sins and shortcomings of black men and their need to rise up and assume responsibility for their families and communities. The leaders of the Million Man March were disconnected from the members of the Congressional Black Caucus (CBC). The leaders of the Million Man March were struggling for the atonement of black men. The members of the CBC were fighting against new drug laws that would target black males and contribute to the dramatic increases in their incarceration rates and against the efforts to substantially cut welfare and other social programs that benefited low-income families, particularly African American families. The leaders of the Million Man March were successful in getting black males to confess their shortcomings, seek atonement and pledge to be more responsible. The members of the CBC failed, as more repressive laws were passed and anti-poverty programs cut. The Million More March of October 15, 2005 had a broader coalition and a more extensive agenda. The organizers of this second March invited women, civil rights leaders, and others. Many speakers talked about the racist response to Katrina. Some leaders demanded reparations. The march was successful in terms of the large number of people who attended. However, it had little impact on the efforts to cut Medicaid, food stamps, and other anti-poverty programs. Like some of the leaders of the march, a few prominent black scholars who advocate reparations reflect aspects of the dominant culture. For example, scholars offer a compelling case for reparations, with passionate and moving descriptions of the horrors of the past, the brutality of the slave trade and slavery, and the atrocities of the colonial era, but then proceed to describe African Americans today as having negative attitudes toward work, being disrespectful toward property, and having the propensity to clown. Professor Nuruddin provides this summary: Psychologist Na'im Akbar adds to Karenga's litany of negative cultural values when he states that black people possess a set of pathological attitudes that are a legacy of slavery. Included among the eight attitudes which Akbar lists are negative attitudes toward work and property, and a propensity to play the clown role.... Note that both Karenga and Akbar attribute these values to the black community in general, not to any specific underclass (Nuruddin, 2002: 103). Akbar and Karenga are brilliant social scientists and strong supporters of reparations. However, the characterization of blacks as having negative attitudes toward work and property and having a propensity to play the clown, with absolutely no empirical data, is not much different than saying that everyone knows that blacks are lazy, don't respect property, and act like clowns. Advocates of reparations reflected aspects of the dominant culture's negative characterization of blacks, except that they attribute these characteristics to the impacts of slavery. For these impacts they ask for reparations. The Future of the Movement The reparations movement has been successful in exposing and attacking old racism, in mobilizing large numbers and in establishing a coalition of nationalist organizations. It has attracted some support from a few religious and traditional civil rights organizations. A small white organization supports it, Caucasians United for Reparations and Emancipation (CURE). The legal arguments for reparations are compelling (see Corlett, 2003). Nevertheless, the movement suffers from several serious and interrelated problems. The first problem is a matter of priority. It is like the analogy of a man who is being beaten to death, asking for compensation for his injuries. He deserves compensation, but the beating must stop first, not as an aftermath, but as an immediate moral imperative. There is something almost perverse about the call for compensation at a time when human rights violations against African Americans are mounting, racist repression intensifying, racial oppression expanding and civil rights violations growing. The demand for reparations is overshadowing the mangling of the black body and the call for ending the beatings. It has practically muted the utter outrage over the executions, especially the execution of Stanley Tookie Williams, the institutionalization of about a third of the black male population, the disproportionate sentencing of black teenagers to life without chance of parole, the unjustified police shootings and beatings, the dilution of the black vote, the growth of concentrated black poverty, the high infant mortality rates, the low life-expectancy, the blocked access to health care, the cuts in anti-poverty programs, the low minimum wage, and other aspects of oppression. The second problem is that the reparations movement is growing at the same time the color line is widening and racist culture expanding. Under diese circumstances, the movement has a choice. It can continue to push forward for reparations and fight for something that is opposed by 90 percent of whites in this country, partially because of the expansion of the racist culture, or it can launch a direct assault on that culture and on racial oppression. The former is doomed to begin with and the later requires a radical redirection of the movement into a true movement for social reconstruction and social justice. Redirecting the reparations movement into a movement for social reconstruction requires a deeper understanding of the dynamics of racist culture and the extent to which this culture dehumanizes poor blacks, legitimizes oppression, and normalizes repression. Social reconstruction can only come from an assault on the dominant racist culture and an attack on the prevailing patterns of racial oppression. The problem is that the reparations movement has failed to adequately address contemporary racist culture. This failure has made leaders of the movement susceptible to aspects of this culture and has impeded their ability to confront current human rights violations. The third problem is the weak reparations coalition. Even with its ties to CURE and a few traditional civil rights organizations, the movement is politically isolated. It has few ties with anti-poverty organizations, weak ties with labor, and few connections to the larger liberal religious community that made up the old civil rights coalition. It is almost as if the movement is lead by middle-class black nationalists who are cut off from the black poor. A connection with the black poor and the so-called black lumpenproletariat is necessary in order to develop a truly radical social movement. The final problem is the growth of the power of the dominant corporate class. This class has increased and consolidated its power through a strong alliance with the religious right. It now dominates both the political and ideological arenas. Thomas Frank provides an excellent discussion of how this alliance dominates the political arena and explains the rapid growth in policies benefiting major corporations and hurting the poor (Frank, 2005). David Brock offers a most insightful and well-documented discussion of how this alliance dominates the media and the construction of contemporary political culture (Brock, 2004). As Du Bois observed 100 years ago, the dominant power arrangements, the culture of racism, and the political isolation and powerlessness of African Americans make reparations a pipedream. Although reparations are justifiable, there are more immediate moral imperatives: the expansion of racist culture that promotes contempt toward the black poor; the growth of concentrated black poverty; the shifting of public resources from the poor to the rich and to major corporations; the intensification of state repression and human rights violations; the erosion of civil rights and civil liberties. Just as reconciliation came in South Africa after the fall of the apartheid regime, reparations must come after the end of the racially oppressive regime in the United States.

Reparations for the outrages of the past-the holocaust of the Atlantic slave trade, the atrocities of plantation slavery, the exploitation of the sharecropping system, the indignities of segregation and the horrors of over a century of lynchings-are long overdue. Over the past decade the movement for reparations has gained in visibility and popularity. Although the movement is stronger today than it has been in the past, as a movement for social justice it is most problematic. It is problematic because even the most symbolic reparations proposals are stalled and unlikely at this point to succeed. It is problematic because racial oppression persists and because the current, dominant racist culture and prevailing socioeconomic and political arrangements stand like a brick wall between the movement and the attainment of reparations. Moreover, there are problems endemic to the movement. It has failed to address the dominant racist culture, to construct an effective counterideology and to develop the type of coalition strong enough to challenge the dominant power arrangement. At its best, this movement explains current patterns of racial inequality in terms of the past history of slavery. This explanation shifts public attention away from current problems of racial oppression. At its worse, this movement not only fails to confront present forms of racial oppression, it is tainted by the contemporary racist culture. This movement has been gaining in popularity among African Americans and growing at the same time that civil and human rights violations against them have been increasing. The call for reparations today is like the odd cry of a slave who is being brutally whipped. Instead of crying out for the immediate cessation of the whipping, the slave demands compensated for the beatings that took place years ago. The beatings must stop first. That is, the current patterns of racial oppression and repression must stop before compensation can be paid. Current patterns of racial inequality are not simple artifacts of the past. The facts that there are more African Americans on death row, more African American in prison and jail, and more African American teenagers serving life sentences without any chance of parole than ever before in U.S. history are not artifacts of past slavery. These facts are functions of current forms of state racial repression. The growth of concentrated poverty in the inner cities of Detroit, Chicago, Cleveland, and other older industrial areas is not a function of past slavery, but the results of current processes of racial oppression. Just as racist culture in the past legitimized the institution of slavery, racist culture today legitimizes and normalizes current patterns of racial oppression and repression. Before there can be any compensation for slavery in the past, racial oppression must end in the present. The beating of the slave must stop first, before the slave can realistically expect any compensation. The cry for reparations muffles the call for an immediate end to racial oppression. This essay reexamines the reparations movement in the larger context of contemporary patterns of racial oppression and current forms of racist culture. It does this first by reporting on the status of the reparations movement. Second, it briefly outlines current patterns of racial oppression. That is, it associates these patterns with the emergence of advanced capitalism or post-Fordism, which explains the growth of concentrated poverty and the persistence of racial inequality. It outlines forms of state repression and briefly describes contemporary racist culture. Racist culture today, as it has been in the past, legitimizes racial oppression. Finally, this essay concludes with a reassessment of the reparations movement and makes recommendations for a redirection of this movement.

Booker’s proposal is entirely different. Being solely a public scheme, it amounts to pure redistribution — transfers from taxpayers to those on low incomes. As such, it has little to offer conservatives. The argument it will encourage saving or show children the power of investment is bogus. Saving is about deferring consumption — sacrificing today to fulfill other goals tomorrow. But this is pure taxpayer support: taxing or borrowing to take from Peter to pay Paul, with no sacrifice on the part of those enjoying the rewards. It’s actually worse than that. Precisely because it amounts to pure redistribution, Booker would naturally impose conditions on what the funds could be used for. He recognizes, correctly, that taxpayers would be loath to grant young adults a huge lump sum at age 18 to blow on a fast car or an around‐​the‐​world travel excursion. Yet by restricting what the “savings” from the accounts can be used for, the program really amounts to just a backdoor subsidy for home‐​buying, college tuition, or retirement. It would be one thing if such a one‐​time coming of age transfer replaced existing means‐​testing federal support elsewhere. But that is not what this is about. It is really just a whole new entitlement — an elaborate scheme, with a raft of new bureaucracy, which masks its effect: pumping $100 billion per year toward the same old usual liberal ambitions. As my colleague Chris Edwards and I documented in a report last year, low‐​income people really do often have little to no savings. Conservatives should care about their financial security. But rather than support Booker’s phony savings scheme, which will do nothing to change behaviors, conservatives should instead push for Universal Savings Accounts — innovations that have been extraordinarily successful in encouraging modest savings for those on low incomes in Britain and Canada. These accounts allow people to deposit after‐​tax income, which then grows tax‐​free, much like supercharged Roth IRAs. Crucially, they can be used for any purpose and funds withdrawn at any time. That flexibility overcomes one of the main reasons that poorer families do not save in tax‐​advantaged schemes: the fear they will not be able to access funds for unforeseen contingencies. The best way to give people experience of savings and investment is to remove risk barriers that currently prevent them from saving formally. Booker’s scheme operates under the veneer of encouraging frugality. But it really just amounts to expanding federal government subsidies through the back‐​door.

Critics of baby bonds say it would be extremely expensive—costing up to $60 billion, according to Booker’s own figures. 2 Some have also argued that receiving funding from the federal government might actually decrease the motivation of poor young people. “If you are a child receiving a baby bond, you might have less incentive to save, less incentive to get an education, knowing that this account is sitting there,” Rachel Greszler, a research fellow in economics at the Heritage Foundation, told The Washington Post. 8 Others argue that there is little evidence that this is true. In fact, many argue that the baby bond program doesn’t go far enough. Research from Columbia University showed that even in the most “extreme” versions of the program, it would do little to address structural wealth inequality in the U.S. The top 10% of citizens would still own much more than the bottom 90%.

Dylan Matthews has a  at Vox saying that Booker’s  would nearly close the racial wealth gap for young adults. Matthews’ piece is based on a working paper by  that uses the PSID to model the effect of providing means-tested demogrants to 18-year-olds. Under the flawed racial wealth gap metric commonly used, it is possible that Booker’s program would significantly reduce it. But under a comprehensive measure, it is hard to imagine how such a program would make much of a dent.

Booker’s Plan

1. Who is eligible for a baby trust, and how do you identify those people?

Because baby bonds are meant to address wealth inequality, it could be logical to base eligibility on a measure of wealth, with larger deposits for people from households with little wealth. Unfortunately, publicly available data on household wealth are limited at the local and state levels, making it difficult to identify eligible people. Urban and others are working to improve , which could help states better target their programs.

Payroll taxes are levied on the earnings, primarily wages and salaries, of people who work for an employer and on the net earnings of people who are self-employed. Unlike the individual income tax, payroll taxes are not applied to other sources of income, such as interest, dividends, or capital gains. The individual income tax also includes many deductions, exemptions, and credits; by contrast, payroll taxes are generally more straightforward and have few, if any, adjustments. A payroll tax can be paid by an employer or an employee, or by both. Typically, payroll taxes are set at a single uniform rate.

In the United States, payroll taxes are used to finance social insurance programs and are the second-largest source of federal revenues after the individual income tax. The two largest sources of payroll tax revenues are Social Security payroll taxes and Medicare payroll taxes. Social Security payroll taxes are the primary source of financing for Old-Age and Survivors Insurance and Disability Insurance. Only earnings up to a statutory maximum are subject to Social Security taxes. (That maximum amount is $147,000 in calendar year 2022.) The Social Security tax rate is 12.4 percent of earnings: Employees have 6.2 percent of earnings deducted from their paychecks, and the remaining 6.2 percent is paid by their employers. Self-employed individuals generally pay 12.4 percent of their net self-employment income. The primary source of financing for Hospital Insurance (HI) benefits provided under Medicare Part A is HI payroll taxes. The basic Medicare payroll tax rate is 2.9 percent of earnings. For employees, 1.45 percent is deducted from their paychecks and 1.45 percent is paid by their employers. Self-employed individuals generally pay 2.9 percent of their net self-employment income. Unlike payroll taxes for Social Security, the 2.9 percent Medicare payroll tax is levied on all earnings, and no taxable maximum applies.

A consumption tax generally applies to spending on goods and services. There are different forms of such taxes, including value-added taxes (VATs), retail sales taxes, and excise taxes. A VAT is a type of consumption tax levied on the incremental increase in the value of a good or service that occurs at each stage of the supply chain until the final point of sale. For example, a retailer would pay a VAT on the difference between the value of goods it sold to consumers and the value of those goods when it purchased them from manufacturers; the manufacturers would pay a VAT on the difference between the value of the materials used to produce a good and the value of the finished good it sold to retailers. Like a VAT, a retail sales tax is a form of consumption tax collected on the purchase of goods and services, but it is only collected when a consumer purchases the final product. An excise tax, unlike a VAT or a retail sales tax, is generally levied on a smaller set of goods and services and is usually assessed on each unit purchased rather than on the value of the purchase.

The United States does not currently have a broad consumption-based tax at the federal level, although it does impose federal excise taxes on purchases of several types of goods and services, including gasoline, air travel, alcohol, and cigarettes. In addition, most states impose a retail sales tax on many goods and services. By contrast, more than 160 countries—including all members of the Organisation for Economic Co-operation and Development (OECD) other than the United States—have adopted broad-based VATs. In 2020, the average standard VAT rate for OECD countries was 19.3 percent, ranging from 4.5 percent in Andorra to 27 percent in Hungary. Because a VAT is the most common form of broad consumption-based tax, this option focuses on approaches to reducing the deficit by imposing a consumption tax in the form of a VAT.

Medicaid is a joint federal-state program that covers acute and long-term health care for groups of low-income people, chiefly families with dependent children, elderly people (those 65 or older), nonelderly people with disabilities, and—at the discretion of individual states—other nonelderly adults whose family income is up to 138 percent of the federal poverty guidelines. The federal and state governments share in the financing and administration of Medicaid. The federal government provides the majority of Medicaid's funding; establishes the statutory, regulatory, and administrative structure of the program; and monitors states' compliance with the program's rules. As part of its responsibilities, the federal government determines which groups of people and which items and medical services states must cover if they participate in the program and which can be covered at states' discretion. For their part, the states administer the program's daily operations, determine eligibility, reimburse health care providers and health care plans, and determine which optional eligibility and service categories to adopt. The result is wide variation among states in levels of enrollment, the scope of services covered, payment rates for providers and health care plans, and spending per capita, among other aspects of how the program is implemented.

In 2021, the states received, in aggregate, $521 billion in federal funding for Medicaid and spent $260 billion of their own funds for the program. The Congressional Budget Office expects that, under current law, federal spending for Medicaid will increase faster than general inflation, in part because of continued growth in health care costs and in part because more states are expected to expand Medicaid coverage under the Affordable Care Act (ACA). (To date, 38 states and the District of Columbia have done so.)

Nondefense discretionary spending is controlled by lawmakers through appropriation acts, which specify how much money can be obligated for certain government programs in specific years. Those acts fund a wide array of federal activities that provide direct benefits to individuals, give grants to state and local governments and private entities, pay for federal employees' salaries, and fund contracts for goods and services provided by the private sector. Nondefense discretionary spending also includes outlays for certain highway and airport infrastructure and public transit programs whose funding is considered mandatory. The outlays for those programs are considered discretionary because annual appropriation acts limit the obligations that can be made from the mandatory funding.

Most nondefense discretionary funding is provided one year at a time; that funding translates to outlays when the money is spent, which can occur over one or more years. In its 10-year baseline projections, the Congressional Budget office projects nondefense discretionary spending in accordance with section 257 of the Deficit Control Act. That section requires projections of funding for discretionary programs to grow each year with inflation. For any program without an appropriation provided for future years, CBO projects funding in those years by applying an inflation factor to the most recently appropriated amount.

(Romina, director of budget and entitlement policy at the Cato Institute, where she specializes in federal spending, budget process, economic implications of rising debt, and Social Security and Medicare reform. Boccia was previously director of the Grover M. Hermann Center for the Federal Budget at the Heritage Foundation, “Cut Spending to Stabilize Debt: A Debt Limit Plan for the New Congress,” pg online @ https://www.cato.org/blog/cut-spending-stabilize-debt-debt-limit-plan-new-congress //um-ef)

Here are some commonsense benchmarks Congress should adopt before increasing the debt limit in 2023:

If we check our political ideology at the door and look at the facts, the problem becomes pretty clear. Let's roll the clock back to 2001, a short 11 years ago when we had a budget surplus.

Federal government revenues have grown to $2.5 trillion from $1.9 trillion in 2001 - a 27 percent increase even in the midst of a recession. However, spending by the federal government has skyrocketed to $3.6 trillion from $1.86 trillion in 2001 - nearly a 100 percent increase. Where would a sane citizen say the problem lies?

In 2022, discretionary spending reached $1.7 trillion, accounting for 27% of the overall $6.27 trillion spent, according to federal figures.

(Romina, director of budget and entitlement policy at the Cato Institute, where she specializes in federal spending, budget process, economic implications of rising debt, and Social Security and Medicare reform. Boccia was previously director of the Grover M. Hermann Center for the Federal Budget at the Heritage Foundation, “Cut Spending to Stabilize Debt: A Debt Limit Plan for the New Congress,” pg online @ https://www.cato.org/blog/cut-spending-stabilize-debt-debt-limit-plan-new-congress //um-ef)

Following a massive bipartisan increase in emergency spending during the COVID-19 pandemic that contributed to inflation reaching a 40‐​year high, the 118th Congress should shift fiscal gears. It’s time to cut deficit spending to spur economic growth and complement the deflationary actions of the Federal Reserve. Federal debt is at economically damaging levels and growing at an unsustainable rate. Additional deficit spending threatens to make inflation worse and burden the economy by misallocating resources from higher‐​growth projects toward politically‐​directed spending. The 118th Congress has a key opportunity to adopt responsible, pro‐​growth fiscal policy that controls spending and stabilizes the debt. Fiscal year (FY) 2022 ended with a $1.4 trillion deficit (how much Congress spent by borrowing) that consumed 5.5 percent of U.S. GDP. To put that in perspective: The first time ever the deficit exceeded $1 trillion was in 2009, when the U.S. was in the deepest economic crisis since the Great Depression. Not that Congress can cure a global financial crisis by throwing money at it, but they did try. The next time deficits exceeded $1 trillion we were in a 100‐​year pandemic and Congress tried to spend its way out of that, too. Now that the pandemic is over, why is it that trillion‐​dollar deficits go on for as far as the eye can see? Members of Congress worked so well across the aisle together to increase spending, certainly they should have no problems working together again. Only this time, their charge should be to stabilize debt with a credible fiscal plan and legislation that enacts it. Such a plan should achieve a firm target, such as freezing debt as a percentage of gross domestic product (GDP) or achieving primary balance (balancing non‐​interest spending with revenues) before the end of the decade. Congress’s plan should be backed up with concrete policy proposals that score sufficient savings to achieve the fiscal target. How hard could this be? It’s not like bipartisanship only works in the context of increasing spending. Or does it? Recent spending increases benefited from horse trading of “your pet project for mine,” as evident by the return of earmarks—parochial spending that was banned for a decade due to frequent instances of waste and corruption. A recent Peterson Foundation poll identified that 9 out of 10 voters expect members of Congress to work together to reduce the federal debt. Constituents are about to find out if bipartisanship will also work when it comes to making tough choices. The gross federal debt (including government trust fund debt for programs like Social Security) approached $31 trillion (120 percent of GDP), of which debt borrowed in credit markets reached $24.3 trillion (95 percent of GDP). Debt that’s this high, compared to the size of the economy, and growing from there, is bad. It hurts growth and makes a fiscal crisis more likely. The fiscal outlook is yet worse. After adjusting the most recent Congressional Budget Office (CBO) projections, federal debt held by the public is projected to grow to 138 percent of GDP by 2032. Adjustments include higher‐​than‐​expected inflation and interest rates, new deficit spending in late 2022, slower‐​than‐​expected economic growth, and the likelihood that middle class tax cuts will be extended past 2025. See figure 1 for alternative projections, compared to a scenario assuming tax cuts will expire (don’t hold your breath), and CBO’s original projections. And even these debt growth scenarios could be too optimistic if there’s a major crisis or prolonged recession. So, let’s not make things even worse. The federal debt limit specifies the maximum amount of government bonds that Treasury may issue. Treasury is projected to run up against this limit sometime in the summer or fall of 2023. When Congress confronts the federal debt limit this year, members should pair the inevitable increase in the debt limit with reforms that reduce spending and debt growth. Yes, I said it: Congress will eventually increase the debt limit. But before doing so, they should change the course of future spending. Whether to increase the debt limit or not is the wrong question. Lawmakers should instead grapple with “How will we slow the growth in the debt and avoid a fiscal crisis?”. Effective policies will reform health care and old‐​age entitlements, the main drivers of rising debt. Congress should also cut and cap discretionary spending for most government programs, including seizing such low‐​hanging fruit as eliminating parochial spending by restoring the earmark ban. With deficits in the trillions, just say no to that overpriced trolley extension in your downtown restoration plans that few people will ever ride. Hundreds of millions of taxpayer dollars would be wasted, except for the giggles and maybe the cute Instagram reel.

A spokesperson for U.S. Sen. John Thune indicated South Dakota’s senior senator would avoid “hypotheticals” until a deal is reached, though Thune used a recent floor speech to lend his support for a House Republican priority of reducing 2024 discretionary spending back to 2022 levels.

Several national news sources indicate the two sides are narrowing in on a deal, though sticking points, like exactly how much to restrain spending in the short and long-term, remain.