Category Archives: deficit

All Posts, deficit, economy, justice, north carolina, poverty, public education

WORK AND MINIMUM WAGE

A few days ago I came across what seemed like just one more preposterous claim littering our political landscape: that Australia has a minimum wage exceeding $15 American dollars per hour and an unemployment rate of about 5%. The stunning thing is that when I checked this one out I found that it is true. For me, that raised the questions, “How did they do that?” and “Could we do it too?” This column is about some of the answers that I found.

Australia’s achievement is not unique. There are 9 substantial nations with minimum wages higher than ours: Australia, France, Belgium, New Zealand, Ireland, Netherlands, United Kingdom, Canada, and Japan. Five of the nine have lower unemployment rates than the United States. They did not achieve this by running up their national debt. Of the nine, only Japan has a ratio of debt to GDP higher than the US. All the rest have less debt in proportion to their economic output. And although each of the nations is unique, they all have a stronger social safety net for human services than the US.

In my search for answers, I found that how they did it was not particularly relevant. They each found their own ways. The thing that distinguishes them is that they chose to do it. We have not made that commitment.

If we’re missing something, what is it? The surprising answer to that question may be that we are lacking Christian social values. When that thought occurred to me, I re-read Pope John Paul II’s “Encyclical on Work” which was published in 1981. While reading it, I recalled that Dr. Martin Luther King, Jr. was assassinated in Memphis while leading a campaign for economic justice. His concern about income inequality shaped his message that work must be respected with a fair and living wage. He famously said, “On the one hand we are called to play the good Samaritan on life’s roadside; but that will be only an initial act. One day we must come to see that the whole Jericho road must be transformed so that men and women will not be constantly beaten and robbed as they make their journey on life’s highway. True compassion is more than flinging a coin to a beggar; it is not haphazard and superficial. It comes to see that an edifice which produces beggars needs restructuring.”

Returning to the Encyclical I read that, “Work is a good thing for man-a good thing for his humanity-because through work man not only transforms nature, adapting it to his own needs, but he also achieves fulfillment as a human being and indeed, in a sense, becomes ‘more a human being’. … The key problem of social ethics in this case is that of just remuneration for work done. … Just remuneration for the work of an adult who is responsible for a family means remuneration which will suffice for establishing and properly maintaining a family and for providing security for its future.” He goes on to argue that the work of one adult should be sufficient to support a family and that society will suffer if children get inadequate nurture because both parents are working. Regarding the unemployed he added, “The obligation to provide unemployment benefits, that is to say, the duty to make suitable grants indispensable for the subsistence of unemployed workers and their families, is a duty springing from the fundamental principle of the moral order in this sphere, namely the principle of the common use of goods or, to put it in another and still simpler way, the right to life and subsistence.”

In my community the wages paid to a paramedic working full time and supporting a family qualifies the family for food stamps. Here in North Carolina, that is true for many hard working people in both the public and private sectors. I can only imagine the impossibility of supporting a family in any of our 50 states on a minimum wage job or “temp” employment with no benefits.

The other nations that I listed are providing a safety net for the unemployed and they have decided that anyone who is employed merits a living wage. Those nations have better overall school performance because fewer of their students live in poverty. For the same reason, they all have fewer of their number in prison. Too many of our underpaid and unemployed are unable to participate in our economy by earning or learning or spending. That brings up an important business lesson: It is easier to make a profit if your customers have money to spend.

All of this leads me to believe that the Christian social values taught by Pope John Paul II and Dr. King have merit; and if we adopt them we will find our communities, states and nation to be better and more prosperous places to live. Like the Australians, our choice will be driven by our values.

All Posts, budget, deficit, economy, justice, poverty, taxes

KEEPING MEDICARE SOLVENT

There is a straightforward way to keep Medicare financially solvent without reducing benefits, changing the retirement age, or raising taxes. Medicare should pay standard rates for each service to all health care providers and let them compete to see who can provide the best combination of cost and quality for that price. The payments should be enough to allow high quality and efficient health care providers to earn a modest profit but should not include special provisions for favored organizations or locations. Right now the rates vary to unjustifiable degrees and patients are not even aware of it.

Here is an example to demonstrate what is currently wrong. In Medicare’s diagnostic classification system, the most frequently occurring inpatient payment is for hip and knee replacement surgery on uncomplicated (otherwise well) patients. There are separate diagnostic categories with higher payment rates for complicated patients. In 2011 Medicare paid for 427,207 of these procedures and the average payment was $14,324. That adds up to over $6 billion. The best paid hospital in the country was the Baylor Surgical Hospital in Fort Worth, Texas which received $38,686 per surgery. The worst paid was Saint John Hospital in Broken Arrow, Oklahoma which received $9,130. Baylor got more than two and a half times the national average and more than four times the price Saint John Hospital would have received for the same service to the same patient. Here in North Carolina, UNC Hospital was paid the most, $20,610 while the North Carolina Specialty Hospital in Durham was paid the least, only $11,058. In the Piedmont Triad, the payments were $18,656 to NC Baptist Hospital, $14,045 to Forsyth Hospital, $13,758 to Moses Cone Hospital, $12,726 to High Point Hospital, and $12,412 to Randolph Hospital. The same pattern exists for other diagnoses and similar variances exist for medical practices.   Readers who want to explore the data in detail can find it at the CMS.gov website or Email me and I will send the link to you.

The hospitals that are paid more do not get better results for their patients. Nor do they have better patient satisfaction. Supposedly the payment variances are because of factors like regional wage differences and costs incurred in educating specialty physicians. That may sound reasonable but the net effect is that Medicare subsidizes high costs at expensive hospitals and penalizes those with lower costs – the exact opposite of a free market economy. The political clout of local congressional delegations has been a huge factor at times, with special rates being set for certain cities or states. Medicare’s proper role is to purchase good health care for beneficiaries regardless of where the patient lives or which health care provider they choose. If we taxpayers are to subsidize medical education (and I believe that we should) then money should be appropriated for that purpose and separate contracts should be established to fund the medical education that taxpayers are purchasing. Educational grants should not be hidden in Medicare.

Medicare pays extraordinarily high prices to a few organizations which often use the surplus to acquire other hospitals or medical practices at the expense of taxpayers and consumers. Then they raise the prices. The UNC system, which also gets preferential rates from the state’s troubled Medicaid system, has used its taxpayer subsidized profits to gain control of large medical practices and other hospitals. With the increased negotiating leverage of the UNC system, prices can then be raised to insurance companies and benefit plans. Private insurance markets, just like Medicare, pay more in large cities and to large hospital systems. The idea that large size brings economies of scale is mostly a myth in health care. If the myth were true, the biggest hospitals would have the lowest costs. They don’t. But they do get paid more just for being big. The American ideal of a free market in health care where high quality and low cost are rewarded can work if we will design our payment system to work that way.

If Medicare rates are set and periodically adjusted to levels that allow good quality hospitals and doctors to make a modest profit, the best hospitals and physicians will thrive. Poor performers will fail financially or be taken over by someone else. That is how competitive marketplaces work. Healthcare resources will be more evenly distributed across the country if payment rates are standardized. We will soon discover that it is less expensive and more convenient to deliver high quality care outside of the bureaucracies of huge medical centers. If payment rates for doctors were the same in extremely rural areas of North Carolina as they are in Raleigh, there would be plenty of doctors in the mountains and down east. The need for the federal agency that operates rural clinics would likely disappear.

 

A free and competitive market will bring more community based health care, less centralization around large medical centers, better quality, better accessibility and lower cost. It will also bring powerful opposition from the organizations now being paid the most.

All Posts, budget, deficit, economy, environment, medicaid, poverty, public education, taxes

THE REPUBLICAN PORCH STEP

I had an uncle old enough to be my grandfather who cleared land, cut lumber, and built the home on his Tennessee farm with his own hands. As visitors approached, he warned them not to use the steps on the side of the porch. “Those are Republican steps.” he would say, “They look solid but if you trust them they’ll let you down.” Since handing over the legislature and the governor’s office to Republicans, a lot of North Carolina voters are learning what he meant. Republican candidates said it was time for a change after generations of Democratic control, pointing out numerous scandals and sloppiness in governance by one party. Republicans promised openness in government, less intrusion on personal liberties, lower taxes, improvements in public education and more jobs. Governor McCrory ran a campaign based on economic development and less intrusive government. Sadly, their actions don’t resemble their promises.

The actual Republican agenda appears to have three themes. First and foremost, hold on to power, even if that requires depriving citizens of their rights. The second theme is to financially reward supporters and punish opponents. The third is to impose the social and religious values of their extreme base on all North Carolinians.

Republicans are cementing their grip on power. By gerrymandering our districts they won 69% of North Carolina congressional seats with 49% of the votes. Now they are proposing laws designed to discourage voting by citizens they think are likely to support the opposition. They have proposed laws to:

  • Take away the $2500 per dependent tax credit from parents of college students who vote where they go to college (and live for most of the year).
  • Eliminate early voting on Sundays, which is especially popular among African American churches.
  • Cut back early voting to one week.
  • Restrict the number of early voting locations.
  • End the practice of registering and voting on the same day.
  • Pass a voter ID law, designed to deter voters who don’t have a driver’s license.

Republicans propose to financially reward supporters and penalize opponents. They want to cut corporate taxes, estate taxes, and income tax rates and pay for the cuts by expanding the scope and amount of the sales tax. By taxing food and other necessities then cutting taxes for corporations and those with higher incomes they can redistribute income from the working poor to the Republican base. There are proposed laws to reward generous Republican contributors by legalizing sweepstakes cafe gambling and payday lending (sponsored by our own Senator Tillman).   They passed a law allowing hydraulic fracturing for natural gas while severely limiting the liability of companies for pollution of ground water and land, even if it is caused by intentional violation of safety regulations.

Then they punished the poor – perhaps with the notion that most poor folks either don’t vote or vote for Democrats. They reduced unemployment compensation for the long term unemployed and raised college tuition, making upward mobility for those with low incomes even harder than it was before. Their funding cuts increased financial problems for our public schools. Their solutions include allowing charter schools to hire uncertified teachers without even doing background checks (Senator Tillman again). They rejected $15 billion dollars of federal money to pay for Medicaid expansion through 2019. That punishes the poor who need health care along with the hospitals and doctors who are required by law to provide emergency services whether they are paid or not. The Medicaid expansion would create 25,000 new jobs, mostly in the private sector. Do Republicans think voters won’t miss those jobs or notice that we still have to pay our $15 billion in federal taxes? At one time we were fighting a “war on poverty”. Now it feels like Republican leadership is fighting an undeclared war on the poor.

 

The third element of the Republican agenda has been to impose the social and religious values of their extreme conservative base on the rest of the population.   Randolph County’s own Allen McNeill co-sponsored a bill to exempt North Carolina from the US Constitution and allow government establishment of an official religion. You can find it on the legislature’s website or just Google “HJR 494”. One proposed imposition on personal freedom is a requirement to provide written notice to a spouse two years in advance and attend state approved counseling before filing for divorce – even in cases of domestic violence. There is a bill requiring doctors to get written consent from parents before providing pre-natal care to a pregnant minor or answering questions from minors about STDs or birth control. And one of the first acts of the Republican majority was to encourage a constitutional amendment which prohibits the state from recognizing same-sex marriages or unions – even those performed in states where they are legal. Soon they will be spending our tax dollars to defend that useless amendment in court.

As candidates, Republicans promised less intrusion on personal liberties, lower taxes, improvements in public education and more jobs but they are delivering something quite different. Like my uncle’s porch steps, they looked reliable but they are letting us down.

All Posts, budget, deficit, economy, justice, taxes

TRUTH ABOUT TAXES AND INCOMES

Much is said and circulated on the internet about taxes during election season. How high is too high? Who pays a fair share and who doesn’t? I’m going to lay out some facts for consideration and then make a few suggestions. Some of the facts will be hard to believe so I supplied internet links. Please, if you don’t find my statements credible, check it out for yourself.

I’m counting all taxation regardless of which level of government collects it or how it is collected. As Americans our total tax bill is low compared to other developed nations. Among 33 developed nations studied by the OECD (Organization for Economic Cooperation and Development) our taxes as a percent of our GDP ranked 30th. Mexico, Chile and Turkey were lower. We collected 27.3% of GDP in all forms of taxes. The median among developed countries was 36.2%. http://www.taxpolicycenter.org/briefing-book/background/numbers/international.cfm

Practically everyone in the US pays taxes and the total tax burden is very close to flat regardless of income. The top 20% of the population had 60% of the income and paid 63% of the taxes. The middle 20% of the population had 11% of the income and paid 10% of the taxes. The bottom 20% had 3% of the income and paid 2% of the taxes. The top 1% of the population had 21% of the income and paid 22% of total taxes. http://www.ctj.org/pdf/taxday2012.pdf

 

Despite propaganda, the poor do pay taxes and we are not overtaxing the wealthy. We do however; have some monumental problems to address. We are spending far more than we are collecting and if we keep on doing that, our debt will consume us. The truth is that we need to cut spending AND raise taxes. The Simpson-Bowles Commission Report made that clear as has every other credible study of our situation.

 

For three decades, the incomes of the wealthy have grown much faster than incomes of the middle class and poor. Since the 1950s the top income tax rates have been cut by more than half and the rate for capital gains (investment income) is now less than one third of the top rate for wages. It does not seem right that those who work have higher income tax rates than those who invest; but that is the case. There was indeed a time when those with high incomes paid a higher share of it in total taxes but that time has passed. Today most of us pay about the same percentage of our incomes for all governmental operations; but the incomes of the wealthy have risen while the incomes of the middle class and the poor have stagnated. http://www.census.gov/hhes/www/income/data/historical/inequality/IE-1.pdf

Today we have a growing deficit and we have some elected officials who tell us that Medicare and Social Security must be cut to balance the budget. This same crowd wants to drastically cut food stamps and Medicaid too. They would have you believe that Medicaid goes to slackers but about two thirds of Medicaid payments go to nursing homes for care of disabled and elderly. Much of the rest goes to children. http://www.cbpp.org/cms/index.cfm?fa=view&id=2223 43 percent of Food Stamp recipients live at or below half the poverty line. Only 15 percent live above the poverty line. Children under 18 account for 47 percent of all food stamp recipients. Eight percent are seniors. Forty-one percent of beneficiaries live in households with partially or fully employed workers. Their numbers sometimes include enlisted military families, paramedics, and other public servants whose pay is below the poverty line. The share of Food Stamp recipients that also receives welfare benefits is at historic lows; in 2010 it was less than 10 percent. http://www.theatlantic.com/health/archive/2012/09/who-benefits-from-food-stamps/261993/

We can help pay for vital programs by eliminating some tax loopholes. One has to do with capital gains. A person who puts aside some income in a savings account or by purchasing stock has already paid income tax on the saved money and then will have taxable income from interest, dividends, or the increase in value of the stock. The person of modest means is likely to use a savings account and his interest income will be taxed just like his earned wages.    The person of greater means can purchase stock, real estate or other investments and the increase in value of the investments will be taxed at not more than the15% capital gains rate. Fairness demands that the wages of those who work should not be taxed at a rate higher than the rate for capital gains. We should tax capital gains at the same rate as wages.

The laudable purpose of the home mortgage deduction is to make home ownership possible. So let’s limit it to a maximum mortgage of about $300,000 and also cap the lifetime amount of tax deduction for any individual. That way it won’t be used for subsidizing the purchase of second and third homes or extremely expensive homes.

We can eliminate the law which grants fabulously profitable oil companies a lower tax rate than other businesses. We could add a very low (maybe one half of one percent) sales tax on all forms of securities. A contractor pays a sales tax when he buys tools to earn money. Why should a bank or investor not pay a sales tax on their tools, like credit default swaps? Other countries have done it.   The result seems to be less speculation and more investment; less volatility from computerized trading, and substantial tax revenue. http://www.imf.org/external/pubs/ft/wp/2011/wp1154.pdf

Candidate Romney wants to reduce taxes for the wealthy even more. That will require drastic cuts to programs or huge additional borrowing. I don’t enjoy proposing higher taxes and I would enjoy paying them even less, but it seems clear that increased revenue should be part of the solution. And it would be easier to stomach cuts to human services when everyone pays a fair share.

All Posts, budget, deficit, economy, justice, taxes, war

HOW TO BALANCE THE FEDERAL BUDGET

I’m going to try something different with this column, giving readers some rarely discussed information about where our American money goes and how that compares to other nations. I’ve chosen health care and defense because they are very large components of our spending. In business, this technique is called benchmarking. It tells us how well we are doing compared to competitors so that we can see where we have opportunities for improvement. That is important in a global economy where jobs are easily moved to places where goods and services can be produced inexpensively. The information can be useful in setting goals for our future. The choices to be made depend on our values, but if we all start with the same facts then agreement about goals may come easier.

First let’s look at health care. If you add together all of our health care spending, it is about 17% of our total economy. That includes taxes, insurance premiums, out of pocket expenses…everything. It amounts to $7960 per year for every man, woman and child. The second most expensive nation in the world at present is Norway. Their mix of insurance, personal expenses and taxes provides some form of coverage for everyone and they spend $5352 per person. If we can find a way to tie Norway for the most expensive health care and to match them by covering everyone, we would reduce our spending by $2608 per person. Multiplied by our population of 313 million people, that adds up to $816 billion in savings in one year. Savings would come in the form of reduced government spending, reduced insurance costs and reduced out of pocket spending. All savings would benefit families in one way or another. To get that gain, we have to tie Norway for most expensive in the world. Data to demonstrate this are available for download at http://www.oecd.org/dataoecd/52/42/49188719.xls Those who look it up will find that most developed nations spend less than Norway and that their health outcomes are equal to or better than ours.

Second, let’s look at defense spending. It is probably no surprise that we are number one in defense spending, but you may be surprised to learn the size of our lead. Our annual defense budget is estimated to be $711 billion. That is 4.7% of our total economy (GDP) and it is 41% of the military spending for the entire world. Number two is China, which spends $143 billion, 2.1% of their GDP.   If we were to reduce our defense spending so that we are only tied for spending the most, we would have $568 billion available for other priorities. To demonstrate what a competitive burden this is for our economy and our families, let’s look at it on a per person basis. There are a lot more Chinese than there are Americans. We spend $2273 per citizen (men, women and children) on defense. The Chinese spend $106 per citizen. That is one reason why it is often cheaper to make things in China. Defense spending data are from http://milexdata.sipri.org/ and more information at http://www.sipri.org/

Add $816 billion to $568 billion and we save $1 trillion, 384 billion. If we were to set and achieve those two goals, the savings would be sufficient to eliminate the federal deficit and possibly begin repaying the debt. If we want to leave defense spending and health care as they are, then we must pay for them. The annual cost will be about $10,233 per person and that is $4422 more than if we match Norway and China.

It appears that our general alternatives are:

  1. Leave health care and defense alone. That decision costs $4422 more per year for every man, woman and child or $17,688 per year for a family of four. Pay for it through reduced spending on other priorities and increasing our national debt (which someone is supposed to pay back some day). It requires drastically cutting spending on education, public safety, infrastructure and social security along with covering fewer people under Medicare and Medicaid. In essence, it will require telling many of the middle class and all of the poor that if they can’t pay for health care and first class education then they can’t have those things. Some of our elected officials are leading in that direction.
  2. If we leave health care and defense alone, the other alternative is a massive increase in taxes to pay for them.
  3. The third alternative is to adopt ideas from other developed countries which have learned to provide good health care for all of their citizens and keep themselves secure from invasion or attack for far less money than we are spending.

The comparative benchmarks are not world-wide norms. They merely tie us for being the world’s biggest spender on both health care and defense. We have not even addressed whether we can afford to be tied for most expensive in both of these categories.

One way to frame up the discussion is to ask, “Are we sufficiently committed to our current systems for defense and health care that we are willing to pay $4422 more than the second most expensive nations every year for every American?” What would you decide, knowing that you will have to write the checks?

Another way to discuss it is to ask, “If we could eliminate our entire deficit in exchange for accepting Norwegian health care and being as secure from attack as China, would we do that?” Then we would not have to write the checks and we would not be forced to cut other spending or raise taxes to balance our budget.

The numbers are plain. It is 6th grade math with a whole lot of zeros added. The hard questions are about values. Who are we as Americans, and who do we want to be? Those are questions for individual consciences and for public debate. We can take our answers to the polls.