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A Whitepaper on Rationism
US Implementation
Property monopolized, or in the Possession of a few is a Curse to Mankind. We should preserve not an Absolute Equality – this is unnecessary, but preserve all from extreme Poverty, and all others from extravagant Riches.
Official Name
Rationism, “enforcing a maximum household net worth limit calculated as a multiple of median household net worth,” from Latin ratio, rationis + -ism.
Summary
Moderation in fortunes produces moderation in custom, in law, and in government. Stable democratic society is based on the wide diffusion of productive and earned wealth in a large and financially independent middle class. Extreme social stratification at the expense of the middle class, and the general precarity and dependency which follow, is the root cause of most of our current political problems, including polarization and civic unrest. Rationism is a historically-informed and forward-looking solution to these problems that avoids the defects of both untamed capitalism and indefinite socialism. And while rationism solves for both precarity and dependency, socialism, by contrast, may solve for precarity but increases dependency.
Rationism is a political theory that advocates benchmarking household outcomes against the median household net worth. Specifically, this doctrine advocates limiting or tethering the wealth of top households to a multiple of median household net worth in order to induce robust middle-class growth. A maximum ratio will be set (our proposal is 10,000:1) such that, going forward (existing wealth will not be affected) no household will be permitted to accumulate more than 10,000x the median household net worth. Rationists believe that conditioning future economic gains of top households on the proportional increase of median net worth will incentivize and deploy individuals with the most pecuniary interest and skill to efficiently diffuse earned capital into the middle and working classes without reliance on business regulations, corporate taxes, or special interest subsidies. Rationism applies no absolute wealth cap; unlimited household wealth accumulation is permitted, provided the prescribed 10,000:1 social aspect ratio is preserved.
It is clear that the political community administered by the middle class is the best, and that it is possible for states to be well governed where the middle class is stronger than both the other two classes.
Aristotle
Aliases
Vitruvian Economics, Vitruvianism (from the theories of architectural proportion advocated by the Roman architect Vitruvius), rationomics (portmanteau of ratio + economics), ratioism, proportionism, medianism.
Guiding Principles
First: our laws shall promote due process, individual liberty, and loyalty to our country.
Second: our middle class shall be the largest group in our country, subject to the first principle.
Third: anyone may accumulate unlimited wealth in our territory, subject to the first and second principles.
In many things the middle have the best. Be mine a middle station.
Phocylides
Historical Basis
The diffusion and reconcentration of economic wealth dictates the diffusion and reconcentration of political power. Democracy has only ever emerged where a middle class was established and has only lasted so long as a middle class was sustained. Mankind has experienced two great waves of democracy: (1) over 300 democracies rose and fell in the Mediterranean Basin between the 6th and 3rd centuries BC; and (2) over 100 democracies have emerged around the world since the American Revolutionary War. In both cases, the entrenchment of democracy coincided with the emergence of a large, financially independent middle economic stratum.
In order for a middle class to have political agency it must not be dependent on economic patronage. Any group requiring subsidies to survive is, by definition, politically and financially dependent and cannot meaningfully challenge the agency which sustains it. To maintain a financially independent and democratically potent middle class, economic incentives must be structured to promote growth of the median household net worth without reliance upon subsidies, political parties, or charismatic political individuals.
If one man be sole landlord of a territory, or overbalance the people, his empire is absolute monarchy.
If a few or a nobility, or a nobility with the clergy, be landlords, or overbalance the people, the empire is mixed monarchy.
And if the whole people be landlords, or hold the lands so divided among them that no one man, or number of men, within the compass of the few or aristocracy, overbalance them, the empire … is a commonwealth.
James Harrington
The Problems
Extreme economic inequality. Extreme social stratification. Overwhelming indebtedness. Labor-saving and job-destroying technology. Outsourcing. Gig employment. Pay disparities. Increasing financial precarity. Increasing economic dependence. Increasing political patronage. Extreme political polarization. Increasing social discord. Degrading democracy. Increasing demagoguery.
In 1776, the net worth of the top household was around 1,000x the median household net worth. Today, the net worth of the top household far exceeds 1,000,000x the median. The net worth of the top 1% of American households exceeds the net worth of the bottom 90%.
In 1965, the CEO-worker wage ratio was 20:1. Today, the wage ratio is around 300:1, but at many companies exceeds 1,000:1.
The Solution
Incentivize the most powerful and successful economic actors (e.g., top households and their advisors and agents) to nullify those economic factors causing precarity and dependency, by conditioning their future gains on achieving such an objective, thus: (1) reestablishing social stability; (2) eliminating demands for political patronage; and (3) resolving political polarization and democratic deterioration. Accomplish this by prospectively rolling back the social aspect ratio from over 1,000,000:1 to 10,000:1.
The Metric
The only viable metric for measuring middle class health is household net worth. This is because household net worth reports the cumulative impact of all economic effects, including: (1) income; (2) assets; (3) taxes; (4) debt; and (5) expenses. Household net worth also factors the outcomes of all households, making this metric sensitive to macroeconomic class-wide trends, including: (1) unemployment; (2) underemployment/gig employment; (3) outsourcing; (4) layoffs; (5) job-destroying/labor-saving technology; and (6) pay disparities. To raise the median net worth, these adverse forces must be nullified or mitigated.
By contrast, income measurements do not account for any factor other than income. For this reason, wage policies and subsidies, such as minimum wage proposals or universal basic income, neither negate any macroeconomic factors noted above, nor promote growth of a democratically potent, financially independent middle class.
After having pillaged the world as praetors or consuls during time of war, the nobles again pillaged their subjects as governors in time of peace; and upon their return to Rome with immense riches they employed them in changing the modest heritage of their fathers into domains vast as provinces.
Victor Duruy
The Method
Calculate a reasonable, permissible maximum household net worth limit, computed as a multiple of national median household net worth. We propose 10,000x. Going forward, let each household accumulate unlimited net worth, but no greater than 10,000x the median. Thenceforth, the top households will enjoy financial gains only in mathematical proportion to the increase of the median household net worth. Every $10,000 by which the national median is increased will raise the maximum wealth allotment (ration) by $100 million. Enforcement of this 10,000:1 social aspect ratio will enlist individuals with the greatest pecuniary interest and skill into the service of the middle class, thus deploying free market efficiencies to productively and efficiently raise the median, balancing the profitmaking objectives of capitalism against a socially beneficial imperative.
This 10,000:1 social aspect ratio will be enforced by means of a special excise tax, assessed on and equal to 100% of all future income, revenue, and capital appreciation in excess of the 10,000x limit, but shall not apply to any cash obtained from liquidation of assets prior to implementation of the tax.
For the avoidance of doubt, this tax will apply only prospectively, no existing wealth will be taxed and households which exceed the limit prior to implementation will be grandfathered.
The legislator should determine what is to be the limit of poverty or wealth. He who exceeds the limit must give up the excess to the state.
Plato
Why 10,000x?
Arguments can be made for a higher multiple or a lower multiple. 10,000x is our initial proposal for the following reasons:
Legal Form
The excise tax may initially be implemented through an amendment to the Internal Revenue Code. However, this policy should ultimately be enshrined into an amendment to the United States Constitution to guarantee that it is not subject to political manipulation by moneyed interests and special interest lobbyists.
Click here for our proposed Amendment XXVIII to implement rationism.
As each of the States are beneficiaries of the excise tax, an Article V Convention should be initiated at the State level by two-thirds (34) of the State legislatures. Each State’s commitment to the Amendment could be conditioned upon the mutual support of the requisite number of States required for final ratification of the Amendment, similar to the principle of conditional support used by States party to the National Popular Vote Interstate Compact.
There are three classes of citizens. The first are rich, who are indolent and yet always crave more. The second are the poor, who have nothing, are full of envy, hate the rich, and are easily led by the demagogues. Between the two extremes lie those who make the state secure and uphold the laws.
Euripides
The Purpose
The policy objective of the excise tax is: (1) prevent any households already exceeding the wealth limit from accumulating any further wealth (but not tax existing wealth); and (2) prevent any households under the limit from exceeding the limit going forward. Existing household wealth will no be taxed.
The primary objective of this tax is not to raise tax revenue or fund benefits programs. It is to align the financial interests of the top households with the middle class and deploy market efficiencies to diffuse productive wealth into the middle class.
Even if all proceeds of the tax were burned or cast into the sea the policy will still have achieved its objective by anchoring the top households to the median net worth. Nevertheless, this tax will generate significant revenues for the Federal government and State governments, as described below.
Affected Taxpayers
The excise tax is estimated to annually impact approximately 1,000 households in the United States.
The median household net worth is $97,300 in the United States, meaning there are about 650 covered households in the United States, based on publicly-available sources, assuming a 10,000:1 ratio. This would establish a wealth limit of approximately $1 billion. The aggregate net worth of these households is currently approximately $3.5 trillion.
Proceeds
Assuming that a similar number of future top households (650) maintain a similar net worth limit as current top households ($3.5 trillion), and assuming that such households accumulate such wealth over a period of 20 years, then this tax would generate $2.85 trillion in gross proceeds over 20 years, or $142.5 billion per year. (This estimate does not account for taxation of downstream stock transactions, which upon exercise of the liquidity option described below, should initially exceed $100 billion.)
Of these proceeds, 50% of the annual proceeds ($71.25 billion) would be allocated to the Social Security Administration (SSA) to fund Social Security, and 50% of the proceeds ($71.25 billion) would be divided equally among the 50 States.
The annual $71.25 billion allocated to the SSA would bolster its budget by approximately 7% over 2019 spending levels.
The annual $71.25 billion divided equally among the States would result in each State receiving $1.45 billion in value annually.
Cash proceeds would be distributed first to the SSA, and any securities and other illiquid assets could either be liquidated, or in the case of State appropriations, allocated to State employee retirement funds or public university endowments.
The private soldiers fight and die to advance the wealth and luxury of the great, and they are called masters of the world without having a sod to call their own.
Tiberius Gracchus, in Plutarch
Covered Activities
The tax will be assessed on all household revenues, from whatever source, activity, asset, transaction, or location derived, whether characterized as income, appreciation, capital gains, or otherwise. Household net worth will be assessed in respect of all household assets, whether liquid or illiquid, in whatever form, whether tangible or intangible, wherever located.
Liquidity Opportunity
During the 1-year period leading to implementation to the excise tax, all households within 20% of the net worth limit will have a unique and advantageous opportunity to liquidate (or commence the liquidation of) 100% of their securities listed on public securities exchanges on preferential terms, without causing market panic. The following terms will apply:
The most common and durable source of factions has been the various and unequal distribution of property. Those who hold and those who are without property have ever formed distinct interests in society. The regulation of these various and interfering interests forms the principal task of modern legislation.
James Madison
Covered Households
A covered household means any household meeting any criteria described below, whose net worth exceeds 10,000x the current median household net worth as reported by the most recent national census.
Trusts, investment vehicles, private foundations (but not public charities) and all other alter-ego entities will be aggregated with natural persons to determine whether a household is a covered household, and all such entities, when directly or indirectly majority owned or controlled by a natural person, are included within the term “household”.
The excise tax shall apply to all households whose net revenues and worth includes, consolidates, or is derived from any person or entity which:
The causes which destroyed the ancient republics were numerous; but in Rome, one principal cause was the vast inequality of fortunes.
Noah Webster
Exemptions
None.
Expatriation Limit
No self-reporting household, and no household subject to appraisal, may transfer more than 10% of its net wealth outside of United States territory, aggregated over any period of time.
Calculating the Median
Article I, Section 2 of the United States Constitution requires the United States House of Representatives to conduct a national census every 10 years. The United States Census Bureau shall be responsible for calculating and publishing the national median household net worth. The most recent published census calculation of such figure shall be definitive and binding upon the Internal Revenue Service (IRS) and all covered households.
Nothing requires the architect’s care more than the due proportion of buildings.
Vitruvius
Identifying Covered Households
Every household is required to annually report to the IRS whether their net worth equals or exceeds 10,000x the median as published by the Census Bureau. For virtually all taxpayers, such self-reporting shall be satisfied by not checking a particular box on Form 1040.
Every household which voluntarily self-reports covered status shall pay the excise tax. All self-reporting households are exempt from appraisal requirements but remain subject to IRS audit.
Every category of household listed below which does not self-report covered status shall submit to the appraisal process outlined below:
Appraisals
The computation of household net worth for non-self-reporting affected households will be conducted by nationally reputable third-party appraisal firms. All appraisals must be conducted in accordance with GAAP, determined pursuant to FASB Accounting Standards Codification.
Each covered household shall engage two appraisal firms and the average of their conclusions shall be the binding conclusion as to net worth, absent manifest error, provided that if one appraisal exceeds the wealth limit and another appraisal does not, the conclusion shall be that the net worth of such household equals the wealth limit.
No household shall be entitled to utilize the same appraisal firm in two consecutive years, or to utilize the services of the same lead appraisal partner twice in any 10-year period. Schedule 13D, Schedule 13G, Form 3, and Form 4 filers may not engage appraisal firms affiliated with audit firms retained by associated listed companies. Appraisal firms shall not owe fiduciary duties to affected households and shall have legal immunity from lawsuits against affected households except where fraud or willful misconduct is proven. Covered households shall be responsible for all fees to appraisal firms.
Appraisals shall take into account appreciation in securities values for any covered households which do not elect to liquidate their securities as described above, and any such annual appreciation existing as of the filing deadline shall be deemed income and subject to taxation (whether liquidated or in kind).
I am conscious that an equal division of property is impracticable. But the consequences of this enormous inequality producing so much misery to the bulk of mankind, legislators cannot invent too many devices for subdividing property.
Thomas Jefferson
Adverse Inference
Unless contradicted by competent proof, the IRS shall infer that every household subject to appraisal meeting any criteria described below exceeds the wealth limit, and shall apply the excise tax accordingly:
The exorbitant wealth of individuals has a most baneful influence on public virtue, and therefor should be carefully guarded against.
Philips Payson
Penalties
Any self-reporting household who underreported its net worth, as proven by audit, shall pay a penalty equal to 120% of any tax that would have otherwise been due, (consistent with the current executive compensation penalties under Internal Revenue Code Sections 409A and 280G/4999).
Any non-self-reporting appraised household who underreported its net worth, as proven by audit, shall pay a penalty equal to 150% of any tax that would have otherwise been due.
Any household who expatriates wealth in excess of the expatriation limit shall pay a penalty equal to 300% of the amount expatriated, or attempted to be expatriated.
Any willful, deliberate, or intentional violation or evasion of the excise tax may be treated as a criminal offense and may be subject to up to 5 years’ imprisonment.
The United States Treasury may enforce any penalty or offset any tax owed through:
The Treasury may offset any tax owed through cancellation of any outstanding treasuries, bonds, or other securities issued by the Treasury which are owned by any covered households.
For any household which evades or attempts to evade the tax in any three or more tax years (whether or not consecutive), the Treasury may direct the United States Patent and Trademark Office and the United States Copyright Office to cancel or assign to the benefit of the United States Government all patents, copyrights, and trademarks directly or indirectly owned by any such covered household, or by any business or other enterprise in which such covered household owns greater than a 10% beneficial interest.
Any amounts collected through such enforcement proceedings shall be distributed 50% to the Federal government, with the remainder divided equally amongst the participating States.
The man of great wealth owes a peculiar obligation to the state because he derives special advantages from the mere existence of government.
Theodore Roosevelt
Justification
Rationism promotes socioeconomic and demographic proportion and political stability by anchoring the top households to the middle class. Aside from the preliminary guarantees of due process and individual liberty, there is no higher political value than promoting an independent middle class, for there is no higher political value than a stable and moderate democracy. Rationism does not pursue utopia, but merely seeks to restore by law the modesty and moderation that once prevailed by custom.
The sufferings which revolution entailed upon the cities were many and terrible, such as have occurred and always will occur, as long as the nature of mankind remains the same.
Thucydides
Distinctions
Rationism is different from socialism and communism because it maintains all incentives for hard work, requires no central planning, no business regulations, no subsidies, no confiscation of wealth, and permits accumulation of vast wealth.
Inspiration
We are inspired by the experience of Classical Antiquity and resolve that America’s leaders, like America’s founders, learn and apply the lessons of history to American circumstance. In the realm of democracy, the supreme lesson is that power follows wealth, that democracy follows the middle class, and that revolution follows plunder.
Above all, we, like our namesake John Adams, are inspired to action by the lessons of Anacyclosis. This policy is indeed the product of long, hard, and careful deliberation about Anacyclosis, the doctrine that John Adams called the “Creed of my Whole life”.
Our Republic is ailing because our middle class is failing. America has no greater political priority than to restore our independent middle class.
To be ignorant of what occurred before you were born is to remain always a child.
Cicero
Rationism. The median household net worth is the measure of all things.
A project of the John Adams Institute
Based on the research of the Anacyclosis Institute
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