When the facts change, I change my mind. What do you do? -- John Maynard Keynes

Thursday, March 7, 2013

Our Debt, Ourselves, and the Future

Our Debt, Ourselves - NYTimes.com: " . . . Treasury bonds are not squeezing finance for investment out of the market. On the contrary, debt-financed government spending adds to the demand for privately produced goods and services, and the bonds provide a home for the excess savings. When employment returns to normal, we can return to debt reduction. In the long run we need a clear plan to reduce the ratio of publicly held debt to national income. But for now the best chance to reinvigorate the economy, spur business investment and encourage consumer spending is through public borrowing and spending. Instead, we’re heading into an ill-advised, across-the-board austerity program." (author: Robert M. Solow, a Nobel laureate, emeritus professor of economics at the Massachusetts Institute of Technology.)

Here's the problem. We really need comprehensive tax reform. The present tax code is unfair, too complex, and hurts the economy by its uncertainty, regressive tax features, and complexity.  Here's a solution--

1. 20% flat tax on all income (of whatever nature or kind) with an exemption from tax of the first $20,000 of annual income. This rate and exemption would apply to all taxable entities--individuals, corporations, etc.

2. Eliminate entirely the employee portion of the "payroll tax." All employers would pay 10% payroll tax. Self-employed individuals would pay 5% self-employment tax (Why half of the payroll tax rate? Because the other half is treated like a corporation's dividends--after all self-employed individuals compete against corporations everyday, and there is no reason to give big corporations (or its shareholders) a break, that self-employed businesses don't get; also, we need to encourage new businesses, most of which start small as self-employed entitities). The 10% payroll tax would apply to all remuneration received by employees (wages, stock, options, and other "remunerative benefits") all without a cap limit (unlike the current system). Treat everyone the same is better than our current regressive--yes regressive!--tax code.

3. Personal deductions? None except charitable (cap limit of 20% of gross income).

4. Extraordinary income tax? Perhaps, if needed (after calculating the revenue from above), on all income above a certain amount (e.g., additional 5% rate  on all income above $2,000,000).

Once you have the above in place, you know what revenue to expect, and slowly bring spending and revenues into alignment. Of course, the big problem is health care. Obamacare, fiscally, is a disaster. We probably need some kind of medicare for everyone, with government setting clear rules, peer review standards of care, exclusions, deductibles, etc.).  If nothing else, require every health care provider to publish their rates--no deviations or special deals for insurance companies or anyone else.

Social security reform? Of course, introduce means testing. Over time, increase retirement age, etc. Public pensions? Good bye (pensions are a dinosaur and are going to bankrupt local, state, and federal entities). Those benefits should be replaced by the social security program, self-funded retirement funds (like 401K programs) but open to everyone, see suggestion here) and long-term severance programs for employees in special categories (police, firemen, military).

What is lacking to get the above done? A lack of political will and leadership--dysfunctional Washington.


The Big Picture

Financial Crisis - The Telegraph

JohnTheCrowd.com | The Sailing Website

Craig Newmark - craigconnects