A Brief Introduction to the AntiTax Framework

By Popular Liberty 04/27/2021

Since the beginning of states thousands of years ago, states have funded their statecraft services through direct, usually annual, compulsory payments, which are called, “Taxes.” The AntiTax Framework seeks to make that classical system of compulsory taxation obsolete by gradually replacing it with a systematized framework of economic and archotropic incentives and disincentives based upon the concept of a sovereign wealth fund (hereafter referred to as “SWF” or as “SWF’s”), similar to what exists in Nordic social democracies. The basic proposal of the AntiTax Framework is that a state will create for itself a network of SWF’s, managed by the state’s multitude of counties and municipalities (hereafter referred to as an “LG” or as “LG’s”). 

There are over 3200 counties in the 50 states, DC, and the US territories, and each county has at least one, if not several municipal governments in it, all of which are under a constant state of natural selection pressure, competing and cooperating for power and influence. Being in a state of constant natural selection pressure, LG’s must compete very hard with each other to balance their quality and scope of statecraft services with the costs to the taxpayers of providing those statecraft services. If an LG does not balance the quality of service and costs, it will quickly lose business and individual taxpayers to its more responsible and competitive neighbors, who will gain from the irresponsible LG’s loss. Therefore, LG’s are incentivized to plan for the future, to receive and to carefully monitor feedback from the taxpayer, to provide higher quality to cost ratios of statecraft services relative to its neighboring LG’s, all relative to the total demand for such services from the population of taxpayers. This states in stark contrast to higher levels of government who face very little interstate competition from their fellow states due to the substantially higher costs of moving from state to state. The states that are competitive compete mainly for business taxpayers to move to their states by offering superior economic and regulatory environments. This, in turn, incentivizes workers from other states to “follow the money” of these employers and move to their state. Noteworthy examples of competitive states are Florida, Montana, North Carolina, Tennessee, and Texas.

From the list above, Texas and Florida are two large swing states that already delegate substantially more of the balance of power in their states to their LG’s, which can be proven by each state’s ratios of state vs local spending. Collectively, LG’s in Florida spend about 31% more money than their state government. In Texas, the number is 26%. Thus, these two states are the best candidates for introducing the AntiTax Framework in as they have already decided that it is in their best interests to delegate the resources and power of statecraft decision-making to their LG’s to encourage them to compete and experiment with their statecraft policies and services in order to provide the better quality of service at lower costs to each state’s business and individual taxpayers. The AntiTax Framework leverages this mindset and extends it by offering LG’s a new tool in their toolkit of competition.

Example One: Higher Time Preference Strategy

As mentioned before, the goal of the AntiTax Framework is to gradually make classical taxation obsolete by substitution and replacement, not by abolition. To illustrate this on a micro-scale, let’s imagine a single LG starts an AntiTax fund and seeds the fund with 1,000,000 from its reserves. In a normal year, the LG also raises and spends $750,000 in taxes and raises its taxes annually to match inflation at an average of 0.5%/year. The management of the fund is delegated to licensed and experienced investment professionals who meet the AntiTax Framework’s licensure and experience qualifications, who will receive compensation levels commensurate with the wealth management industry’s standards (usually 1-2% AUM and 10-20% above S&P500’s performance, assessed annually). They are all free to manage the portfolio as they see fit, within the confines of the state and federal investment laws and regulations. Since LG’s will certainly negotiate for lower management fees using their unique status as immortal governments, we will use the lower numbers of 1% AUM and 10% in an example. In an example year, say the fund manager grows the portfolio by 10% and the S&P500 returns its average of 10%. Then, the fund manager will only be compensated 1% of AUM as his return did not exceed the S&P500, leaving a net-total of 9% ROI to the AntiTax Fund. LG’s may add or remove taxes from their AntiTax funds as they see fit and agree to with their respective fund manager(s). It is up to each LG to be as competitive as they can be in order to maintain and grow their population of tax payers. For this example, let us say that the LG has elected to remove 3% AUM per year regardless of performance and to add no further taxes to the fund. Assume this same performance and actions are repeated for 24 more consecutive years. Thus, the output for the fund is as follows in Figure-1:

Thus, In the first year, the AntiTax cut taxes by almost 4%. Over 25 years of the fund, the higher time preference LG generated an extra $1,711,752 in tax revenue, with the AntiTax cutting the felt tax burden, slowing the rate of increases in taxes immediately, and turning the growth rate negative in Fiscal Year 16, while the LG’s spending levels still continued to increase. It ended with the AntiTax making up 14.36% of the LG’s revenue and continuing to provide small cuts every year. It is worth noting, that this is a static analysis which assumed the economy doesn’t grow from annual tax cuts.  Economic growth could be used to either add more funds to the fund, increasing its growth rate, or to pay for more direct cuts, assuming spending levels don’t increase.

Example Two: Lower Time Preference Strategy

To illustrate another example, let’s imagine a lower-time preference neighbor of the first LG also starts an AntiTax fund and also seeds the fund with 1,000,000 from its reserves. In a normal year, the LG also raises and spends $750,000 in taxes but only raises its taxes annually to match half of inflation to be more competitive at an average of 0.25%/year. The management of the fund is delegated to licensed and experienced investment professionals who are compensated the same way as the previous example. In an example year, say the fund manager grows the portfolio by 10% and the S&P500 returns its average of 10%. Then, the fund manager will only be compensated 1% of AUM as his return did not exceed the S&P500, leaving a net-total of 9% ROI to the AntiTax Fund. For this example of lower time preference management, let us say that the LG has elected to remove 1.5% AUM per year regardless of performance and to add no further taxes to the fund. Assume this same performance and actions are repeated for 24 more consecutive years. Thus, the output for the fund is as follows in Figure-2:
Thus, in the first year, the AntiTax cut taxes by almost 2%. Over 25 years of the fund, the higher time preference LG generated an extra $1,081,832 in tax revenue, with the AntiTax cutting the felt tax burden, slowing the rate of increases in taxes immediately, and turning the growth rate negative in Fiscal Year 8, while the LG’s spending levels still continued to increase. It ended with the AntiTax making up 11.09% of the LG’s revenue and continuing to provide small cuts every year. Again, it is worth noting, that this is a static analysis which assumed the economy doesn’t grow from annual tax cuts.  Economic growth could be used to either add more funds to the fund, increasing its growth rate, or to pay for more direct cuts, assuming spending levels don’t increase. It is also worth noting that the AUM fees for the asset managers were substantially larger in the LTP. This provides a direct incentive for the asset managers to lobby their LG clients for lower- and lower-time preference policies, providing needed counterbalance against any HTP impulses from the public. The total tax burden on the public was almost 4% lower than its higher-time preference neighbor, giving it a slight competitive advantage. 

The competitive advantage of this fund is seen most when compared to a similar LG without an AntiTax fund. Assume each of the previous LG’s had a mutual neighbor with the same time preference as the HTP LG, but did not start an AntiTax Fund. Immediately, it would have a 2-4% competitive disadvantage in its costs, while having no advantage on its quality of services. By the 25-year mark, that cost-disadvantage would be over 14-16% with its neighbors, likely resulting in it losing most or all of its tax base to them. The sales pitch to the taxpayers alone would be impossible to contend with. On one hand, a taxpayer has the option of an LG where his taxes go up every year no matter what. On the other hand, a taxpayer could live a few miles away in an LG where his taxes will stay relatively flat or go down every single year and he will receive the same level of statecraft services that he would’ve received in the other LG. The choice itself is compulsory because the taxes are not.