BJD 2040 Theory

A Revolutionary Plan to Balance the Federal Budget, Pay Back All National Debt and Establish Lower Federal Taxation Rates

Originally Submitted March 2019

Abstract

In 2019, the National Debt rose above 21 trillion dollars. The Congressional Budget Office estimates the National Debt will exceed 33 trillion dollars by 2028.

Imagine that by the year 2085, the human average lifespan has increased to 125 years and the average working years have increased to 65 years. This is likely to change our perspective, especially about working, retirement, and saving for retirement.

A direct result of increased working years is additional time to contribute to retirement savings. Just a few changes to 401K plan laws could enable retirement accounts to exceed 3.876 quadrillion dollars. Minimal taxation from these accounts would enable the government to balance the federal budget and repay trillions of dollars of past National Debt.

Using 2017 family earnings, a model was created based on a 65-year work history and a 125year lifespan with each family starting their retirement savings in 2020 and calculating earnings through 2085. A taxation model was created that calculated a .25 percent annual federal tax of retirement accounts over 10 million dollars. The taxation of .25 percent would apply to 3.731 quadrillion dollars and provide 9.329 trillion dollars in federal taxation in 2085. A 17.5 percent federal taxation rate was applied to all retirement account withdrawals from accounts with over 5 million dollars. By calculating the total retirement accounts with over 5 million dollars at 3.829 quadrillion dollars, and applying an 8 percent annually investment rate, the annual investment earnings would be 306.2 trillion dollars. Calculating that the family would withdraw 50 percent of the retirement account annual investment earnings for living expenses, the taxation base would be 153.1 Trillion dollars. A 17.5 percent federal taxation was applied to retirement account withdrawals that resulted in an additional 26.8 trillion dollars in federal taxation. Finally, A 17.5% Estate Tax was applied to the aggregate account balance of .8% of all accounts exceeding 30,000,000. The .8% represents the amount of 401K ccount holders that pass away each year (100% percent population divided by 125 year lifespan). This estate tax generated an additional 4.559 trillion dollars. Based on the calculations outlined in this paper, by 2085, the total federal tax revenue from retirement accounts would exceed 40.694trillion dollars. The 40.694 Trillion dollars is an annual federal taxation amount and is projected to increase each year after 2085. The data was calculated based on the longer lifespans and submitted taxation models. The data tend to support the hypothesis.

Statement of Problem

As of April 3, 2019, the National Debt exceeds 22.167 trillion dollars, a debt load of approximately $68,059 per United States citizen. According to the federal budget for fiscal year 2020, the interest on the debt will exceed 479 billion dollars. According to the Congressional Budget Office the National Debt is expected to exceed 33 trillion dollars by 2028. The interest on the National Debt in 2028 could exceed 783 Billion dollars. If the National Debt trend continues, deficit spending will saddle future generations with unsustainable debt.

Review of Literature

The federal budget is the government’s annual estimate of revenue and spending for a fiscal year, October 1 through September 30.

United States government revenue comes primarily from taxes. These taxes include family incomes, business profits, tariffs on imports, etc. The BJD2040 Theory proposed taxes that could generate trillions of dollars in revenue include income tax, estate tax and a capital or equity tax.

As related to the BJD2040 Theory, a capital or equity tax (also called a wealth tax) is assessed on the total value of 401K accounts exceeding $10,000,000. The tax would be .25% levied annually. The BJD2040 Theory also proposes a federal income tax on 401K withdrawals from accounts exceeding $5,000,000 of 17.5%. Finally, the BJD2040 Theory proposes that an estate tax of 17.5% is a tax levied on an heir’s inherited portion of an estate if the value of the estate exceeds $30,000,000.

The United States government spends tax revenue on activities that benefit the public good. This may include spending on public safety and defense, transportation, trade, social welfare programs, and more.

When the government spends more than the revenue that it takes in, it’s known as deficit spending. The government creates a budget deficit. Each year’s deficit is added to the sovereign debt also known as the National Debt.

The money is borrowed from the future. Borrowing to invest in the future can be wise; however, if poor policies are implemented, deficit spending will saddle future generations with unsustainable debt.

To understand if a country has a sustainable debt load, review its debt-to-GDP ratio. GDP stands for Gross Domestic Product and measures each year’s total economic output. A good debt-to-GDP ratio should be 77 percent or less, according to the World Bank. In the fourth quarter of 2018, the U.S. debt-to-GDP ratio was 105 percent.

The federal budget has two consistent categories. The mandatory budget pays for benefits established by past Acts of Congress. These include Medicare, Medicaid, Social Security, etc. This budget estimates the costs to implement the benefits of the fiscal year. The budgeting of these benefits cannot be changed without another Act of Congress.

Although it’s not part of the mandatory budget, the National Debt interest must also be paid. If the government can’t or won’t pay the interest on the National Debt, then the United States would default on its debt.

Discretionary spending is the other budget category. Most of the discretionary spending budget goes toward military spending, the second-largest budget category after Social Security. Discretionary spending is determined by Congress for each fiscal year.

Since 2002, the federal government has run a deficit. Five major factors contribute to the current large U.S. budget deficit:

1. Increased spending on Social Security, Medicare, and other social welfare programs
2. Increased military spending
3. The 2001 recession and 2008 financial crisis slowed growth and cut tax revenue
4. The 2009 Economic Stimulus Act that ended the Great Recession
5. Tax cuts proposed by presidents Bush, Obama, and Trump

As outlined in this paper, the key to paying off the National Debt will be creating, funding and taxing retirement accounts. There are six main retirement plans but I am suggesting the use of one, a 401K account.

A 401K retirement plan is a workplace retirement account. The account allows people to make pre-tax contributions. This type of retirement account reduces the amount of income used to calculate taxes. The 401K account investment gains grow tax deferred until the funds are withdrawn in retirement.

Employers may choose to match employee contributions to a 401(k), typically up to 6 percent, or a portion of the 6 percent.

The IRS imposes contribution limits each year, $19,000 in 2019. When people reach the age of 50, then they can increase contributions to $25,000.

Variations of the 401K account include the 403(b), offered to educators and nonprofit workers, and 457(b) plans, for some government employees.

Once people reach age 70½, they must begin withdrawing minimum distributions from their 401k savings. It does not matter if they need the money or not. If they do not take distributions, you could face a stiff penalty.

Based on the largest study ever conducted on wealth building, Chirs Hogan studied 10,000 U.S. millionaires. Chris published the book How to Become a Millionaire in 2019. He stresses that the number one way to achieve millionaire status is by funding a 401K account.

The BJD 2040 Theory suggests changes to the 401K type of account. First, there would be no required minimum distribution at the age of 70.5. The goal is for individuals to build very large accounts over a 65 year work history. In addition, individuals should not try to spend down their retirement. It can produce much more taxation revenue if the investment continues to grow. Second, the maximum 401k contribution will change from a set amount ($19,000 in 2019) to a maximum of 20 percent of an individual’s income. Finally, a 401K investment tool must be created that everyone would have the opportunity to utilize. This would mainly apply to many small businesses’ who do not offer 401k options to their employees.

Hypothesis

If 401K retirement account rules change and a high percentage of U.S. households participate and contribute to a 401K account and the average life span increases to 125 by 2085 allowing individuals to work an average of 65 years, then retirement savings will exponentially increase and generate trillions of dollars in federal tax revenue to balance the Federal budget, pay back the National Debt, stabilize retirement for millions of families and establish lower tax rates.

Procedure

A graph was created utilizing 2017 median family incomes. This graph divided all 118,825,921 United States household incomes into a single percent with all single percentages equaling 100 percent. The graph then applied an annual retirement savings percentage, an annual percentage increase in income, an annual employer matching percentage and an annual rate of return to a 65-year work history. Retirement savings rates were established for the top 80 percent of families. Annual retirement savings for families earning between 21-25 percent of the 2017 family income started at an extremely savings rate low rate, 0.5 percent. The annual retirement savings percentage gradually increased until reaching 20 percent for those earning 96-100 percent of family incomes. The total family retirement savings over 65 working years was calculated and then multiplied by all families within the single percentage rate. The aggregate savings of all single percentage columns were added to create a total of all 118,825,921 retirement saving households over the 65 year span.

A taxation model was created that showed .25 percent annual federal tax of accounts over 10 million dollars. The taxation of .25 percent on 3.731 quadrillion will provide 9.329 trillion dollars in federal taxation in 2085. A 17.5 percent federal taxation rate was applied to all retirement account withdrawals from accounts with over 5 million dollars. By calculating the total retirement accounts with over five million dollars at 3.829 quadrillion dollars, and applying an 8 percent annual investment rate, the annual investment earnings was 306.2 trillion. Calculating that the family would withdraw 50 percent of the retirement account annual investment earnings for living expenses, the taxation base would be 153.1 Trillion dollars. A 17.5 percent federal taxation was applied that resulted in an additional 26.8 trillion dollars in federal taxation. Finally, A 17.5% Estate Tax was applied to all accounts exceeding 30 million dollars. This tax was applied to an average of .8% retirement accounts annually. This estate tax generated an additional 4.559 trillion dollars. By 2085, the total federal tax revenue from retirement accounts would exceed 40.694 trillion dollars.

Results

Based on conservative estimations the retirement savings aggregate amount for all households saving over 65 years will exceed 3.876 quadrillion dollars. After applying a proposed taxation model that decreases the current tax rate, the national tax revenue will exceed 40.694 trillion dollars annually starting in 2085. This tax revenue will empower the United States government to balance the federal budget, and pay off the National Debt in just a few years. The 2085 estimated tax revenue will also allow for current funding of additional social welfare programs. Finally, an 80% family participation rate in 401K retirement plans will provide economic stabilization for millions of families in retirement.

Although the initial results were expected, after modeling a 65 year work history, unexpected results became a possibility. Increased lifespans, increasing work years and greatly boosting retirement savings could also lead to hyperinflation and a larger wealth gap divide between the lower two quintiles of household earners and the upper two quintiles of household earners. If the BJD 2040 theory was implemented and successful, the bottom 40 percent of households would gain an estimated 46.79 Trillion in retirement wealth by 2085. The top 40 percent will gain 3.619 quadrillion in retirement savings by 2085.

Conclusion

It is concluded that by the average lifespan increasing to 125 by 2085, individuals will increase work history to 65 years resulting in very large retirement savings. By changing only a few retirement account laws, a taxation of retirement savings will result in enough federal revenue to balance the federal budget and pay for past National Debt.

Furthermore, it is concluded that if the retirement rules change, a large majority of households will use retirement accounts to build wealth because it can defer the income taxation burden until retirement and tax withdrawals during retirement will be at a much lower rate than current tax rates. Building wealth for millions of families will stabilize the family throughout retirement.

It is also concluded that an increase in funding of current social service programs can be paid for by future tax revenue. If the BJD2040 Theory is implemented with success, law makers can pay for current social service programs with the projection of future tax revenue.

Finally, it is concluded that there may be two unwanted consequences. First, with almost 4 quadrillion dollars in retirement accounts by 2085, hyperinflation could be inevitable. Second, increased retirement savings will create a greater wealth gap between the lower two quintiles and the upper two quintiles of households in the United States.

Future Study

My original idea was not based on the premise of offering the BJD2040 Theory to be implemented in the future to balance the federal budget and pay back the National Debt. I just really wanted to be a trillionaire. I simply proposed an idea to my father in the summer of 2018 that I thought increased lifespans would lead to an ability to work longer and save much more money in retirement accounts in the future.

First my father asked why I want to be a trillionaire and my answer was not to buy more stuff but I wanted to help people in need. My father listened to me explain my ideas but stated that my goal might be a little too ambitious. He stated the richest people in the world have not even reached 100 billion in net worth. In addition, although he thought that with a college degree I could make a good salary, he did not see a way to save enough to be a trillionaire.

I then reminded him about Dr. David Sinclair from Harvard. Doctor Sinclair is working on reverse aging technology. My father and I had watched multiple programs and Ted Talks outlining his success. He had reverse-aged mice. Also at the Harvard Synopsis on Aging last year, it was proposed that by 2040 the average lifespan would be 250 years.

My father sat down at the kitchen table, opened up his computer and opened a retirement website. He calculated that if I would work until 176, and I invested 15 percent of my estimated income annually into my retirement account, that I could become a trillionaire.

I wrote this paper projecting the average life span would reach 125 by 2085. I do think lifespans may be higher but my father and I believe most people could not comprehend a lifespan of 250 years or more at the present time. However, indefinite lifespans may be something we have to consider in the future.

Evidence is overwhelming that technology will lead to longer lifespans. Think of all the medical breakthroughs in the recent past. We have just started understanding DNA from inventions in 1953. In 1967 we started to transplant hearts. In 1996 we started cloning mammals. In 2010 doctors completed a full face transplant. And in 2017 CRISPs were viewed in action for the very first time. CRISPR stands for “clusters of regularly interspaced short palindromic repeats.” It gives researchers the ability to easily alter DNA sequences and modify gene function. Its many potential applications include correcting genetic defects and treating and preventing the spread of diseases. Thus CRISPR technology will start extending lifespans in the near future.

Multiple Scientists are working with new technology to increase human life expectancy. The startup Rejuvenate Bio, cofounded by George Church, Professor of Genetics at Harvard Medical School, is attempting to implement multiple ways to bring age-defeating treatments to market. The company started with mice and dogs and is hoping to then move to humans. Church’s objective is to “have the body and mind of a 22-year-old but the experience of a 130-year-old.” Church predicts that reverse aging will be a reality within the next 10 years.

Dr. David Sinclair, Professor in the Department of Genetics at Harvard Medical School and co-Director of the Paul F. Glenn Center for the Biological Mechanisms of Aging, believes he’s discovered a way to stay younger for longer. It starts with a molecule called NAD which humans need to live. As we age, the level of NAD in our cells drops, leading to DNA damage and aging. Sinclair and his team at Harvard Medical School’s Center boosted NAD levels in the blood vessels of old mice. “Now those blood vessels are young again. We get more blood vessels, more blood flow and the old mice, even the young mice, can run up to 50 percent, sometimes two times as far on a treadmill without getting tired,” Sinclair said.

A scientific team led by Bruno de Jesus and Maria do Carmo-Fonseca, professors at the University of Lisbon, used a genetically modified mouse model to study cellular ageing and regeneration. The team found that cells derived from the skin of old mice produced higher amounts of a long non-coding RNA molecule named Zeb2-NAT when compared to cells from young mice. By reducing the amount of this specific RNA molecule, it was possible to efficiently regenerate old cells in the mice.

Although I have listed three separate groups working on reverse aging technology, there are hundreds more throughout the world. The question isn’t if, the question is when they will finalize their process of anti-aging.

The 2040 from the BJD theory represents two outcomes. The first outcome is the projected year in which lifespans will dramatically increase. The second outcome would be the end of a 20-year timeframe in which United States households could be encouraged to open a retirement account. It would be a goal to have 100 percent participation in retirement accounts by 2040. And participation would mean to open and consistently contribute to the account.

In the next 20 years, how will we encourage individuals to contribute to 401K retirement accounts to build wealth? Although ideas such as automatic enrolment will start people on the right tract, it will be lower taxes that result in higher retirement account contributions?

I model three future taxation rates for retirement accounts. The first is a .25% annual tax on retirement accounts exceeding $10,000,000 in assets. The second is a 17.5% income tax on all account withdrawals from accounts exceeding $5,000,000. The third is a 17.5% estate tax on retirement accounts.

Lower taxation rates are extremely important for the successful implementation of the BJD 2040 theory. It will immediately entice higher income earners to contribute larger portions of their salary. It will also be supported politically as a third option to today’s political argument. The current political argument is either to raise taxes or cut social programs to balance the federal budget and pay back the National Debt. The BJD 2040 is a third option in the argument that is incentivized by lower taxation rates.

If the implementation of the BJD Theory is successful, increased tax revenue could also fund current social service programs. Congress could temporarily increase the National Debt to help low –and moderate-income families in 2019 and pay back the debt with taxation on future retirement accounts.

Let’s explore paying for current social service programs with federal taxation on future retirement accounts. Please note that there are multiple proposals for each separate category listed below. Furthermore, the amount listed below predominately represents funding for future social programs affecting low –and moderate-income families. I have listed a few social service programs commonly debated at this time. I have also assigned annual funding amounts after studying multiple proposed programs.

Increased Tax Revenue = Potential Social Service Program Funding
Free Preschool                      12 Billion
Free College                         47 Billion
Healthcare Coverage            1.38 Trillion
Universal Income                 539 Billion
Total                                   $1.978 Trillion Dollars

We can easily calculate how much these programs would cost over 65 years by taking 1.978 trillion and adding an inflation rate of 2.25 percent (the average over the last 20 years is approximately 2.20 percent). Implementing these programs for 65 years would cost approximately 291 trillion dollars with the approximate cost being 8.5 trillion in 2085. Remember that the projected revenue from retirement account taxation will exceed 36 trillion in 2085. In addition, federal taxation revenue will gradually increase starting in the 2060’s. Also we would need to project the positive outcome of the social service programs being funded.

What happens if the BJD 2040 plan does not work as planned? The most conservative estimates in increasing lifespans in humans are lifespan projections of 95 years by 2085. In modeling retirement accounts, if we utilize a 50 year of work history instead of a 65 year of work history, it results in one quadrillion dollars being saved in retirement accounts. Although it will not generate as much federal tax revenue as the 65 year work history, the accounts still will generate an estimated 11 trillion dollars in federal tax revenue in 2085. Plus we have helped over 118 million households set up systematic retirement contributions that will help them be less dependent on assistance programs and instability due to lack of income in their retirement years; whether all or part of the BJD 2040 theory is implemented, the reward greatly outweighs the risk.

Many reading this report may cast doubt on the future 8 percent investment return of the retirement account. We are currently in a technologic revolution. This revolution will dwarf the industrial revolution. The amount of new inventions that will be released in the next 25 years will be overwhelming when compared with any time in history.

My father always commented how robotics, self-driving cars, hologram projection systems and toilets will be some of the new items that everyone will have in 10 years. Yes, he talks about toilets a lot. He says that multiple companies are working on inventing toilets that analyze everything about the body (waste, heart rate, temperature, etc.), and will have a direct link to your doctor. With over 136 million houses in the United States installing new toilets, it could result in trillions of dollars in sales. Inventions like robots, self-driving cars, hologram machines and new toilets are just the tip of the iceberg for the current technological revolution! All these inventions will spur the economy for decades.

There also may be future negative outcomes of the BJD 2040 Theory. The first negative impact could be hyperinflation. As my father and I ran numbers multiple times this past year it occurred to us that extended lifespans and extended work history could cause hyperinflation. Hyperinflation occurs when there is a continuing (and often accelerating) rapid increase in the amount of money that is not supported by a corresponding growth in the output of goods and services. What our research indicates is that no matter what tool high income earners utilize to invest, the money supply could greatly increase and there will be multiple trillionaires in the next 100 years. Having multiple households that have so much money will probably cause hyperinflation at some time.

The second negative outcome of implementing the BJD 2040 is an extreme wealth gaps between low income households, which are defined as the bottom 40 percent of household earners and upper income households, which we define as the top 40 percent of earners. So if the BJD 2040 theory was implemented and successful, the bottom 40 percent of households would gain an estimated 46.79 Trillion in wealth over the next 65 years. However the top 40 percent of households will establish 3.619 quadrillion in retirement savings.

As part of the BJD Theory I am proposing that the government consider opening a retirement account for every individual once they reach the age of 18. The average rate of return in the stock market is approximately 8 percent over the past 30 years. Even if an individual only contributes $1,000 a year to the account, the retirement savings after 72 (retiring at 90) years would be $3,310,860. Thus, the U.S. government retirement contribution would enable a majority of U.S. households to be millionaires upon retirement.

Variables

401K Law Change
This paper outlines the results of changing two 401K laws to enable larger 401K savings. The first rule change is changing the amount that you can contribute to a percentage of your income. The BJD Theory uses twenty percent of an individual’s annual income as the maximum contribution annually to their 401 K account. The second rule change would be to eliminate minimum distributions. The key to the BJD 2040 Theory is to increase 401K account savings during retirement and not to spend down the account.

401K Participation
It would be a goal of the BJD2040 Theory that 80% of families participate in 401K accounts. Because of tax incentives (lower income tax and estate tax), it is projected that a higher percentage of upper income earners will participate. The BJD2040 Theory suggests that 401k accounts are expanded to all who are working and to give consideration to the government funding initial accounts at the age of 18.

401K Investment Rates
The BJD 2040 Theory uses the approximate stock market return average from the last 30 years. The investment rate utilized is 8% and is comparable to the annualized returns from the S&P 500 and the Dow Jones.

Adaption of the BJD2040 Theory
Adaption of the BJD2040 Theory will be based upon the education of the public of the tax benefits and retirement stability benefits of the plan. Wealthier families will probably participate because of the proposed tax savings but the goal of the BJD2040 Theory is to provide a tool to stabilize retirement for 80% of all families of the United States.

Government Approval of Funded 401K Accounts
The BJD 2040 theory could be implemented in much less time if the government would fund retirement accounts for every American citizen turning 18 with a $1,000 contribution. If the initial account was funded at 18, with a 8% investment rate, and individuals contributing just $1000 a year to this account the account, the individual would have over 3.3 million upon retirement (at the age of 90).

Inflation
There is no crystal ball foreseeing inflation. However, based on multiple calculations from the BJD 2040T Theory, I project multiple periods of hyperinflation over the next 65 years. This is primarily based on massive growth, longer saving periods, and the aggregate of quadrillions of dollars being saved.

Future Lifespans
The average lifespan 100 years ago was 53.5 for men and 56 for women. In 2018 lifespans have increased to 76 for men and 81 for women. There are literally hundreds of predictions for the future and these predictions are based on thousands of variables. I have viewed multiple predictions ranging from 96 years to 250 years by the end of the twenty second century. Based on health innovation, the increase lifespan percentage of the last 100 years and technological innovation in reverse aging, the BJD2040 theory is based on a 125 year lifespan.

Negative World Events (War, Disease, Recession, Deflation, etc.)
No one can predict the next war, disease, recession, depression or even deflationary periods. These are important variables in any calculation of the future. Since they are unpredictable, I am not able to account for their future effect in the BJD 2040 Theory.

Social Service Program Success
In 2019 political sides debate whether to increase taxes to fund social service programs. Others debate whether to cut social service programs to balance the federal budget. What about a third option that can fund social services programs from projected future tax revenue. The key to the BJD 2040 Theory gaining full support from political entities is lowering taxes while supporting increased social service funding.

Taxation
The BJD 2040 Theory has established a process to lower taxation from the current 2019 income tax and estate tax rates.

Technology Advancements
Many scientist project that there will be more technological advances in the next 25 years than in all of history. Although we don’t know the exact impact on lifespan we can theorize that lifespans will be greatly impacted. And we know that hundreds of companies are currently working on reverse aging technologies.

Working Years
The BJD 2040 Theory predicts that the average working years will be 65 and on average, people will start working at age 25 and stop working at age 90. It is theorized that individuals will then retire at 90 and live an additional 35 years.