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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, taxes

LET THE COMPETITION BEGIN

Most seniors can’t imagine life without Medicare. Before its passage in 1965, seniors often did without needed health care. Many suffered or died prematurely as a result. Some bankrupted themselves and their children to pay physicians and hospitals. Today, seniors are the only age group in our nation with guaranteed access to most of the health care that they need. Older Americans live longer and healthier lives because of the commitment that we made to them in Medicare. The problem is that Medicare is expensive. There are three basic ways of reducing the cost. One is to use less health care. Another is to reduce the price of health care. The third way is to reduce administrative costs so that more of the money goes to pay claims. There are opportunities in all three areas but conversations about how to improve quickly turn into shouting matches.

Paul Ryan proposes a Medicare Voucher system: http://paulryan.house.gov/issues/issue/?IssueID=9969. The value of the voucher would be set annually at the second lowest rate offered by any insurance company.   It is unclear what coverage the plan would offer because the private plans would not be required to match the coverage offered by traditional Medicare. If you want a better plan, you could add your own money to the value of the voucher. Mitt Romney says that he is in general agreement with Ryan. They plan to limit spending to a specific amount and then trust the insurance companies to manage health care costs. Seniors get to buy what the companies offer for the voucher and choose from a confusing array of plans (somewhat like the Medicare Drug Plan but worse). If the companies don’t match traditional Medicare for your voucher, it will be your problem and the risk of rising costs will be yours. The insurance companies will make a profit regardless of whether you have good benefits.

Since 1997, insurance companies have had the opportunity to profit by providing better value than traditional Medicare and they have been unable to reduce costs. Insurance companies sell “Medicare Advantage Plans” which are required to provide coverage equivalent to traditional Medicare. Advantage Plans have become part of the problem rather than the solution. Medicare pays an insurance company MORE than the cost of regular Medicare (http://www.healthaffairs.org/healthpolicybriefs/brief.php?brief_id=48 ) and the rates paid by the Advantage Plans to doctors and hospitals are often LOWER than the rates paid by Medicare. Medicare spends 2% of its revenue (tax dollars) on administrative costs. Insurance companies spend much more, typically more than 10% (also tax dollars). (http://www.kff.org/medicare/upload/7731-03.pdf) The bottom line is that government-operated Medicare provides more care for less money than the insurance companies.

First Romney and Ryan say that Medicare costs too much. Then they propose to turn Medicare over to insurance companies which have HIGHER costs than the government. Their plan relies on magical thinking. They would have us try what we are already doing with the belief that it will work next time.

Democrats fear that the voucher system will reduce the kinds of services covered by Medicare and increase the deductibles, co-pays and premiums required of seniors. They also fear that Republicans would totally privatize Medicare by eliminating the existing program and allowing only the plans offered by insurance companies. Since leading Republicans have proposed that in the past, the fear is understandable. Any plan to change Medicare should begin with a guarantee that the basic level of benefits now available will not be reduced and will be funded for all Medicare recipients. Revisions should be about improving service, efficiency, and quality while driving cost down. The Romney Ryan approach is to limit spending, turn the money over to insurance companies (which will profit whether they perform well or not) and let seniors fend for themselves.

Competition that benefits taxpayers and patients is good but we should not allow a giveaway to insurance companies. Participation in Medicare by insurance companies is ok but they should be required to match the coverage we have now. Let’s also have competition in the other direction by allowing Medicare to sell coverage to anyone, regardless of age, at rates that allow Medicare to at least break even. This would create the “government option” which many liberals wanted in the healthcare reform law and it would allow public-private competition across the board in health care.

The rules to govern this could be simple: Medicare benefits are not reduced. A Medicare recipient can choose private insurance covering at least what Medicare covers. Medicare payments to insurance companies are the same as the cost of covering an average Medicare recipient. Medicare and every insurance company must accept any person eligible for Medicare who wants to enroll with them. Insurance companies (like Medicare) must publish the rates that they will pay to health care providers and pay the same rates to everyone. Variance would be allowed for quality and cost incentives.

Medicare would design health insurance products for the private market in competition with insurance companies. Participation by health care providers would be voluntary. Payment rates would be determined as they are for Medicare.   This insurance plan could be purchased by individuals or by employers.

This proposal truly creates a marketplace and competition where healthcare providers, insurance companies and Medicare all compete to drive cost down while improving quality and satisfaction. It can readily be linked to the ACA (ObamaCare) provisions allowing health care providers and insurance companies to profitably collaborate to improve quality and cost performance.

We don’t need to make an “either or” decision between Democrats and Republicans. It will be better to insist on a “both and” approach. We can create a health services marketplace where the best ideas of liberals and conservatives compete head to head on a level playing field to serve the quality and cost needs of the public. In this kind of competition, it is likely that everyone will learn to perform better. The candidates and political parties should demonstrate the courage to test their ideas in the marketplace.

All Posts, justice

GUN OWNERSHIP AND THE SECOND AMENDMENT

We just experienced another heartbreaking mass homicide. The killer used a military-style semi-automatic weapon with a large magazine along with a semiautomatic pistol, a shotgun, and a (possibly homemade) chemical weapon. Many years ago, I was on a high school rifle team and kept up with new rifles and ammunition. The AR-15 style ammunition used in the Colorado shootings was new in the 1960s, with a small, very high velocity bullet. Because the bullet is so fast and because of its construction, it comes apart when it hits something. Some of my teammates got small “bounties” of 25 or 50 cents from local farmers for killing groundhogs on their farms. If you shoot a groundhog with a .22 it may run back into its hole and die – no body, no bounty. I still recall their vivid descriptions of how a groundhog would “explode” when hit with one of these bullets – a bounty for every hit. Armed forces use this kind of ammunition because it is so effective for killing people. The Colorado shooter had the ammunition and a semiautomatic (fires as fast as you can pull the trigger) assault rifle with a 100 round magazine. It was legal right up to the point when he shot the first victim. The bodies were not cold before “gun rights” activists were pointing out that “Guns don’t kill people. People kill people.” They knew the question of gun control would come up again. Well, here it is.

We are overdue for thoughtful looks at weapons in our society and at the second amendment to the constitution. Here is the actual wording of the amendment. “A well regulated Militia, being necessary to the security of a free State, the right of the people to keep and bear Arms, shall not be infringed.”   Note that the amendment is about “arms” not just guns. At the time it was written, arms would have included single shot, muzzle loading firearms: pistols, muskets, cannon, blunderbusses, etc. Swords, bayonets, knives, longbows, crossbows, bombs, and some other weapons were also in existence. In the past 200 years, we have added nuclear, chemical, and biological arms, along with automatic weapons (machine guns and assault rifles). Hand-held arms include rocket launchers, flame throwers, hand grenades, surface to air missiles, and probably some things that I have not thought to include.

Few, if any among us would argue that any individual or organization other than the military should be allowed to possess some kinds of arms. And the courts have upheld laws prohibiting private ownership of some of them. That being the case, let’s get over the idea that no legislative body can restrict the private right to keep and bear arms. We’ve been doing it for a long time and we need to do it. Do you really want private citizens to own land mines, surface to air missiles or nerve gas?

Someone has to have the authority and the responsibility to draw the line somewhere and we all have to live with the consequences. That responsibility rests with the congress or state legislatures. To be effective, a law should be national. Weapons are easily transported across state lines. Clearly the congress has the right (and I would argue they also have the responsibility) to draw the lines. The difficult question for the Supreme Court is to determine how far the congress can go without violating second amendment rights. That answer is necessarily going to evolve as weapons evolve. Pepper spray did not exist in the 1700s. Now it does and it is clear that you can own it. Mustard gas did not exist in the 1700s. Now it does and I hope it is clear that it is not legal for you to own it. Many of us want this kind of law with the safety and the clarity that it brings.

The second amendment does not talk about self defense. If it did, that might make this discussion easier. The amendment is about “A well regulated militia being necessary to the security of a free state…” The idea seems to have been that it might be necessary for the people to organize themselves into a militia to defend their “free state” against threats. It was a realistic concern. The British invaded in the early 1800s and the militias were needed. There were also French, Spanish, and Native American nations or territories adjacent to us from which invaders might attack. There were Native Americans who did not recognize the authority of U.S. citizens to occupy land which the Native Americans saw as their own. The militias were called up and used and they often brought their own weapons to the battle.

My own conclusion is that each of us should be able to own and use appropriate weapons for personal self defense, hunting, and recreation. There should be places where arms are prohibited. Bars top my list. Some weapons (and some kinds of ammunition and magazines) which are very useful for gang wars, assaults on law enforcement, and mass homicides should be banned from private ownership.

I have my own thoughts as to what the limits should be and many readers probably have thoughts on the subject too. This is an issue which the congress should address in order to protect the security of citizens. We need only look to the drug wars and gang violence in Mexico and Central and South America to see how unrestricted access to arms can affect a society. Any semi-organized group in the US can get similar weapons and do similar things. In fact, they already have.

Congress should drop the partisan bickering and think this question through in an intelligent way. We should support legislators who are willing to work through the complex problem then pass wise and enforceable laws for the benefit of public safety. If we keep on doing what we’ve been doing, we will keep on getting what we’ve been getting.

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.

All Posts, justice, north carolina, religion

North Carolina Amendment banning gay marriage

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Let’s try having some thoughtful conversations about the proposal to amend our North Carolina Constitution to ban gay marriage. The current debate does not make much sense to me and I’m trying to understand why anyone wants state government involved. When I try to think it through, I start with the history of marriage. As best I can tell, it exists in some form in every culture and often, but not always, it is solemnized in a religious ceremony. There is monogamous marriage, polygamous marriage, straight, gay and bi… Marriage may be for love or for political alliance or for convenience. It may be arranged by the family or based on the choice of the marriage partners. It can be intended as a lifelong commitment or a temporary arrangement until the kids are grown. If we look across different cultures and different eras, it becomes clear that marriage is not just one kind of arrangement and it evolves over time.  Several years ago a friend who is a Hindu from India was planning to return there to be married to a bride selected by his parents. He had not met her. When I asked him about this custom that was so strange to me, he asked me what the divorce rate is in the US. I don’t recall the number, but it was high. Then my friend asked, “Why should I think that I can do a better job picking a wife than my parents can do?” I prefer doing things my own way, but my friend did have a valid point.

Laws that try to define or govern marriage eventually run afoul of social changes. They become irrelevant or worse, they interfere in the personal freedom of individuals. We have experienced plenty of that within our own nation and our own lifetimes. Many of us can remember when it was illegal for people of different races to marry in some states. That changed gradually then finally our courts recognized inter-racial marriage as a basic civil right which states could not prohibit. Some states recognize “common law marriage”. If a couple live together for some period of time or if they have children together or whatever other criteria are set in the law, they are deemed to have entered an enforceable marriage contract whether they intended to or not.   If they move to a state without such a law, are they still married?

We’re headed for an interesting mess with more government intrusion into the personal values and religious persuasions of individuals. There are religious institutions (including Christian Churches in North Carolina) which perform same sex marriages today. They are going to continue regardless of what is in the constitution. Any attempt to stop them will create a head on collision between the State Constitution and the free practice of religion which most of us value highly. There are established churches in our state which now refuse to fill out the State’s paperwork for marriage licenses. The church performs the marriage and leaves it up to the individuals to decide whether to get a license and officially register the marriage with the State. Some of the folks so married claim married status on their tax returns, cover each other as family under insurance benefits and sign up for social security as husband and wife. They view themselves as married in their own eyes and in the eyes of their God.

Today we have an attempt by evangelical Christians to impose their personal view of marriage on everyone else. They stand in the tradition of their Christian predecessors who successfully banned inter-racial marriage and sexual relationships outside of marriage on biblical grounds. These laws were very serious matters. People were jailed for violating them. Why do we need a constitutional ban on same sex marriage? It won’t make homosexuality go away any more than a ban on blue eyes will make them disappear. I can’t see a benefit in this amendment to justify restricting anyone’s personal freedom.

To my evangelical friends, I pose this question, “What would Jesus do?” I have read the New Testament cover to cover in more than one translation. Assuming it to accurately report what Jesus taught, I find a great deal about how people should treat each other. I cannot find one occasion when he proposed enforcing any of his teaching through civil law. Not once. Never. As best I can tell, the idea never arose in Christianity until the Roman Church became a political power and began to impose its beliefs on others. There is, perhaps, one pertinent statement from Jesus that ought to be considered. The Jews of Jesus’ time had many (sometimes conflicting) religious laws governing daily life. Many religious and political leaders did not approve of Jesus’ teaching and one day he was interrogated publicly about the laws. At one point, a lawyer asked him, “Teacher, which is the great commandment in the law?” Jesus replied to him, “You shall love the Lord your God with all your heart, and with all your soul, and with your all your mind. This is the great and first commandment. And a second is like it, you shall love your neighbor as yourself. On these two commandments depend all the law and the prophets.” He made it clear that he was teaching values about respect for others; always teaching and never imposing his teaching on anyone else. That is what Jesus did.

I can’t find any justification for the State of North Carolina imposing evangelical values on people who do not share those values. I want to live in a North Carolina which fully respects the rights of every individual to live as he or she sees fit as long as they do not harm others. Live and let live. We are far better off not imposing the values of any religion in our constitution.

 

1/28/2012