If I were President: ! TAXES !

Every time I think about taxes, taxation, and the IRS I think of something new. In some ways I think a flat tax would be a lot cheaper to manage, but if a flat tax is installed one would have to count all income. The example I used was Lee Iacocca in the 1970s with Chrysler. Mr. Iacocca took a salary of $1 for the first years of his contract. Under a flat tax on income, should Mr. Iacocca have gotten the same servies as others in his neighborhood who make $20,000? $40,000?

All wage statistics are taken from the US Department of Labor.

Interesting poverty statistic: 25% of African-Americans and 20% of Hispanics are living in poverty. The overall rate is 12.5%. I do not believe this means whites are better workers or that non-whites are lazy. I do believe this is a subtle form of racism (more on the negative affects of this in my next post).

Suppose I install a flat tax of, say, 15% on all income. To be fair (see the Iacocca question), all income must be taxed, including dividends and capital gains. Welfare and unemployment insurance is not income, nor is Social Security above a certain minimum (more on that in a bit). Currently capital gains are taxed at 15%, so its inclusion as income would have no effect on investments.

Interesting poverty statistics: for one person, the US defines the poverty level as roughly $10,500 per year. For a married couple with no kids, the level is $13,500, which isn't much of a gap. For a married couple with two kids (my situation), the poverty level is about $20,500. Now, for a rent of $900 a month (a typical two-bedroom apartment in a suburb), that means roughly one-half of the family's income is spent on shelter. This to me seems unreasonable; it certainly puts home ownership beyond the means of most people.

Some people say taxing dividends as income amounts to double taxation. They're right; a company pays dividends out of its profits. Profits are taxed, and then the dividends are taxed again as income when a person declares them on their income tax. I can say three things in response to that. One, that is the current situation; making dividends subject to a flat tax doesn't change the current tax structure. Second, companies routinely make more money than their profit margins appear to be, as they get tax breaks we individuals do not get. I am not personally against these tax breaks; their purpose is to encourage businesses to keep doing business where they are rather than move to a cheaper location. However, it does weaken the argument over double taxation because not all company income is taxed. And finally, it is reasonable to ask companies employing thousands of people and making millions of dollars (sometimes billions!) to pay more taxes than does a single, four-person family. This is one of the reasons I sometimes lean toward a flat tax on everything.

Interesting poverty statistics: a minimum-wage job at the current US minimum wage is $6.55 (it is different in different states, so I'll use the overall average), which amounts to a salary of $13,600 per year. This is not substantially above the poverty level; an extra $3,000 a year is only $58 per week. You can barely buy a decent pair of sneakers for that. If a family has children and they both work, where can they find daycare for $115 a week? If they alternate shifts, one parent will not see the other except on weekends. That's almost like having a divorce. They might be able to save a few bucks on daycare, but then they need insurance... and what if they do not work for a company providing insurance?

One last flat tax comment. This is how it would work. I have not checked these calculations with an economist, so I have no idea if it would work; this is just a "fer instance" exercise. My "flat tax" would have the following attributes.

• 15% tax on all income (dividends, capital gains, salary, commissions, everything).
• Below two and one-half times the poverty line (based on filing status and indexed to inflation) the individual will pay no taxes at all.
• Social security income over five times the poverty line (again based on filing status and indexed to inflation) would be taxed at normal income rates.
• Personal deductions will remain for one home, one home equity loan, local and state tax payments, day care expenses (say, $7,000 per year per child under 15, indexed to inflation, limited to $28,000 per year), student loan interest, and certain savings programs (with an upper limit on income to be eligible) such as 529 plans.
• Paycheck deductions for 401-K, 403-B, and other retirement and IRA will remain as well.
• Tax credits I have yet to work out, but at least one would be for teachers spending their own money for school books etc.
• Company profits will be taxed at the same 15% rate, with certain (to be worked out) deductions for R&D. Further, money paid out as dividends will not be taxed.

There are some incentives to work out. I would like to see people work for a living and not be on welfare. I think I stated (in an earlier post) I would create a federal jobs program. I would like to see everyone be able to afford housing, food, clothes, and companionship (essentially Maslow's basic needs). I would like to cut down on corporate welfare; they don't really need it. It does not seem fair for the US government to limit profits or prices; however, it is perfectly fair (and expected!) to collect a fair and reasonable share of the companies within its borders. Governments exist for the good of all, not just the good of corporations.

Interesting poverty statistics: a person in the US cannot get insurance unless that person is rich or working. This means a large number of people in the United States cannot get health care of any kind. To me this is backwards; the people most in need of preventive care are the poor. Health insurance should be a basic right, not based on your job.

It's probably hit you already: I said I was going to tax Social Security income. To clarify, I am going to tax some Social Security income. This is to prevent people who earn a lot of money and collect Social Security from gaming the system. In addition to the above taxation, people earning Social Security with additional income greater than five times the poverty level would have their Social Security checks reduced by 5% for each multiplier they are above the poverty line. For example, today five times the poverty line is $67,500. If a person was receiving non-Social Security payments totaling, say, $95,000, they would receive 85% of their expected social security check each month (five percent times three). Naturally all of this would be indexed to inflation.

If a flat tax can't fly, then we need to revamp the current system. Did you know the IRS rules now run to over 1,500 pages? Are we kidding? Many of those pages are tax loopholes or outright breaks for corporations, or limits on income so individuals cannot get tax breaks they may need. I'd certainly roll back some of the Bush tax cuts; re-evaluate the business tax situation; install a higher Federal minimum wage (starting at, say, $10 an hour) and index it to inflation; and look to overhaul the government's budget through GAP (general accounting practice) and the GAO (government accountability office).

One last comment on taxes. These sound like either really good, or really bad, ideas. The big problem I see is politicians are now so concerned with getting re-elected they will never vote to raise any taxes, or even talk about it. As I said in my first post, when I pick my cabinet members I will make sure to immediately start a knowledgeable task force to study our current tax and budget situation to improve all of our standings relative to the companies and their CEOs making astonishing amounts of money most of us can only dream of.

If I were President 4: some social programs

In earlier posts I said I would stop the War on Drugs. I would do so because it hasn't worked. We've spent a great deal of money on the "war," and yet drug use is higher than before the War on Drugs was declared. If I remember correctly, in Economics 101 we are taught "the quantity supplied is related to the quantity demanded" such that price will act to equalize the quantity demanded and the quantity supplied, also called an economic equilibrium. If we want to reduce the usage of drugs in the US, there are two ways to do it: limit the quantity supplied or reduce the quantity demanded. The War on Drugs failed to do the first, and the jailing of people for minor drug offenses did not reduce demand, so where does that leave us?

It turns out there have been pilot programs which reduce the likelihood of teens and young adults getting involved with drugs. These programs cost a fraction of police enforcement of drug laws. Further, if the number of drug offenses is reduced, prison overcrowding would be reduced. According to the Bureau of Justice, 21% of state prisoners and 55% of federal prisoners are in for drug offenses. In numbers, this is half a million people... and most of those are either users or low-level dealers, and a large majority are minorities. The US has the largest per capita incarceration rate... even higher than China's, odd considering that country's regular jailing of dissidents.

One other contribution to the high rate of incarceration is minimum required sentences and the so-called "three strikes" laws. If judges had more leeway in sentencing there would be fewer people in jail, even if they sentence the same number of people they did before, just because of the shorter terms many of these prisoners would get.

So far this has been a lot of talk. What I would propose in a budget is a reduction in the drug enforcement agency and a commensurate increase in the number of prevention and treatment programs. In addition, I plan a number of reforms to improve the overall standard of living, which will also act to reduce the number of drug users. Such reforms include government works projects, particularly for infrastructure improvements (modeled after FDR's WPA projects); an increase in the minimum wage to place incomes of those workers above the poverty level; a more equitable tax structure (which I will discuss in the next post); and other improvements I have not fully thought out yet.

Next are two social programs I'll touch on: Social Security and Medicare. Please read this post. In that post I wrote:

... the real fix to Social Security is to eliminate the cap on taxable income for Social Security taxes, or at least make it a reasonable number (say, $1,000,000) and then index it for inflation....

Finally, the real social program in trouble is not Social Security but Medicare. To fix both problems, the Social Security tax should be lowered to 4%, the Medicare tax raised from 1.7% to 4%, and have no caps on income subject to these taxes. Today the combined weight of these two taxes is 7.8 percent, so the change I suggest would retain about the same weight (it's actually a 0.2% tax increase, which is very slight) but resolve both problems for the foreseeable future.

As a final comment in this post, I draw your attention to evidence-based social programs that work. Please give that website a read.

Next post: taxes.

Today I received the below email forwarded from my mother. The original sender of that email was a Nettie Attili, but I have no idea if she was the originator. Here's the text of the email; I've done some slight editing to remove excess blank lines, but otherwise the text is untouched.

WOULDN'T IT BE GREAT TO TURN ON THE TV AND HEAR ANY U.S. PRESIDENT, DEMOCRAT OR REPUBLICAN GIVE THE FOLLOWING SPEECH?

'My Fellow Americans: As you all know, the defeat of the Iraq regime has been completed. Since congress does not want to spend any more money on this war, our mission in Iraq is complete. This morning I gave the order for a complete removal of all American forces from Iraq. This action will be complete within 30 days. It is now time to begin the reckoning.

Before me, I have two lists. One list contains the names of countries which have stood by our side during the Iraq conflict. This list is short. The United Kingdom, Spain, Bulgaria, Australia, and Poland are some of the countries listed there. The other list contains every one not on the first list. Most of the world's nations are on that list. My press secretary will be distributing copies of both lists later this evening.

Let me start by saying that effective immediately, foreign aid to those nations on List 2 ceases immediately and indefinitely. The money saved during the first year alone will pretty much pay for the costs of the Iraqi war. THEN EVERY YEAR THERE AFTER IT'll GO TO OUR SOCIAL SECURITY SYSTEM SO IT WONT GO BROKE IN 20 YEARS. The American people are no longer going to pour money into third world Hell holes and watch those government leaders grow fat on corruption. Need help with a famine? Wrestling with an epidemic? Call France.

In the future, together with Congress, I will work to redirect this money toward solving the vexing social problems we still have at home. On that note, a word to terrorist organizations. Screw with us and we will hunt you down and eliminate you and all your friends from the face of the earth. Thirsting for a gutsy country to terrorize? Try France or maybe China.

I am ordering the immediate severing of diplomatic relations with France, Germany, and Russia. Thanks for all your help, comrades. We are retiring from NATO as well. Bonne chance, mezamies. I have instructed the Mayor of New York City to begin towing the many UN diplomatic vehicles located in Manhattan with more than two unpaid parking tickets to sites where those vehicles will be stripped, shredded and crushed. I don't care about whatever treaty pertains to this. You creeps have tens of thousands of unpaid tickets. Pay those tickets tomorrow or watch your precious Benzes, Beamers and limos be turned over to some of the finest chop shops in the world. I love New York.

A special note to our neighbors. Canada is on List 2. Since we are likely to be seeing a lot more of each other, you folks might want to try not pissing us off for a change. Mexico is also on List 2 its president and his entire corrupt government really need an attitude adjustment. I will have a couple extra thousand tanks and infantry divisions sitting around. Guess where I am going to put 'em? Yep, border security. Oh, by the way, the United States is abrogating the NAFTA treaty - starting now.

We are tired of the one-way highway. Immediately, we'll be drilling for oil in Alaska- which will take care of this country's oil needs for decades to come. If you're an environmentalist who opposes this decision, I refer you to List 2 above: pick a country and move there.

It is time for America to focus on its own welfare and its own citizens. Some will accuse us of isolationism. I answer them by saying, 'darn tootin.' Nearly a century of trying to help folks live a decent life around the world has only earned us the undying enmity of just about everyone on the planet. It is time to eliminate hunger in America It is time to eliminate homelessness in America. To the nations on List 1, a final thought. Thank you guys. We owe you and we won't forget.

To the nations on List 2, a final thought: You might want to learn to speak Arabic.

God bless America .. Thank you and good night.'

---

I post this as a reminder we all do not think alike. My answers to the various points are as follows.

- ... our mission in Iraq is complete.... I gave the order for a complete removal of all American forces from Iraq. Whether we like it or not, we've screwed up that poor country to the point where an immediate removal of troops would be a disaster. The big problem there has always been the lack of direction and plan for Iraq after removing Saddam Hussein. (We don't belong there anyway, but since we went, we're stuck with it.) Assuming we were right about Hussein, the plan should have been to prepare the Iraqis from the start to take back their country, including a goal-oriented, gradual withdrawal of our troops. I agree a timetable based on dates would be irresponsible; however, we must set goals like "When X number of Iraqi police are trained, Y number of US troops will be withdrawn." I have worked on or run too many projects in my job where the project fails when adequate goals are not set.

- Before me, I have two lists. It is generally useless to classify such things as governments into only two lists. Understanding and working with governments is not a black-and-white proposition; each government has its pluses and minuses, including ours. Bad move.

- ... foreign aid to those nations on List 2 ceases immediately and indefinitely. Another bad idea. One of the reasons the United States was so well-liked years ago was our generosity. That includes not only financial aid but other types of assistance.

- The money saved during the first year alone will pretty much pay for the costs of the Iraqi war. THEN EVERY YEAR THERE AFTER IT'll GO TO OUR SOCIAL SECURITY SYSTEM SO IT WONT GO BROKE IN 20 YEARS. To answer the first question, no it won't, because the cost has been borne now for seven years, plus interest. Also, the war isn't being paid for out of the budget but is an off-budget expense (thanks, Mr. Bush!). To answer the second comment, the real fix to Social Security is to eliminate the cap on taxable income for Social Security taxes, or at least make it a reasonable number (say, $1,000,000) and then index it for inflation. Also, Social Security is not going to go broke in 20 years. 2047 is the year Social Security will start losing money, not go broke.

Finally, the real social program in trouble is not Social Security but Medicare. To fix both problems, the Social Security tax should be lowered to 4%, the Medicare tax raised from 1.7% to 4%, and have no caps on income subject to these taxes. Today, the combined weight of these two taxes is 7.8 percent, so the change I suggest would retain about the same weight (it's actually a 0.2% tax increase, which is very slight) but resolve both problems for the foreseeable future.

- The American people are no longer going to pour money into (the) third world ... In the future, together with Congress, I will work to redirect this money toward solving the vexing social problems we still have at home. A couple of them are taken care of by the above. The health insurance crisis can only be solved when we determine coverage based on people, not based on having a job. That is why we have so many un- and underinsured people in the US: there are many people without jobs or their jobs have no health coverage. The email writer doesn't want to line the pockets of foreign despots, and I agree with that, but let's not turn around and line the pockets of our corporations, either. The money belongs to the people according to need and hard work, not selfishly hoarded by the top 1% of our nation.

Finally, one problem we still have is bias. There are, surprisingly, people out there who will not vote for Barack Obama for president simply because he is black. There is no way to resolve this issue through money; we need education. Education is the way out of many problems, so let's make college (or a trade school) mandatory as we made high school mandatory a hundred years ago.

- I am ordering the immediate severing of diplomatic relations .... OK, this is stupid. Being in the United Nations and a member NATO nation helps keep the peace. If we dislike what someone is doing, ignoring it is not going to make it go away. On the contrary, it gets worse. This is what we are all taught as children, to talk out problems instead of trying to punish those who don't think the way we do. Besides, who said we're always right? It's jingoism if you believe that.

- Oh, by the way, the United States is abrogating the NAFTA treaty - starting now. I don't know enough about economics to know whether NAFTA is the best solution; however, I do know enough to know not to just throw the thing away. We in the US have to get with the program: the coming economy is global, not "every country for themselves." The sooner we can adjust to that the better off we'll be.

- Immediately, we'll be drilling for oil in Alaska- which will take care of this country's oil needs for decades to come. Wrong. There is not that much in Alaska. It may, in fact, be in our best interest to leave the oil there for now, in case we are desperate for it.

What we really need to do is focus the money we're using for these insane drilling projects (and the ethanol business) and put it into researching alternative fuels we do not have to burn. There are electric cars now that'll go about thirty miles on a charge. If we learn better storage methods, we could come up with a car that'll go the same distance as the cars currently burning gasoline. Using electricity generated by hydro, solar, and wind power, we would almost eliminate our carbon footprint and stop worrying about human-caused climate change.

- Nearly a century of trying to help folks live a decent life around the world has only earned us the undying enmity of just about everyone on the planet. Wrong again; in fact the exact opposite is true. It is the Bush administration's (and the email writer's, apparently) desire to stand alone in the world that did it. Clinton was not the greatest president, but at least during his administration most countries liked us. The reason people don't like us is two-fold: fears of a pre-emptive strike by our current administration, and the fact we are a hypocritical country who orders people to stop torturing people but engages in torture itself.


One message I left off of the email is the writer's thanks to the military. I would like to echo that sentiment. Our military volunteers do a great job; it is not their fault this administration ordered them into unwinnable and disagreeable battlefronts. In point of fact, the top generals back in 2002 warned Bush not to invade Iraq, and were either shouted into submission or pushed out.

One last point: our government treats the military badly once they've been discharged. Our veterans have been getting the short end of the stick since Vietnam. We of the United States love our veterans, and it makes us sick how badly funded the government agencies assigned to help them are. The VA is not at fault; they are simply not supported by our government.

The main problem with emails like this one is they contain just enough truth and make just enough sense to allow many people to believe they are all true. This is where education comes in; the more you know, the better you can understand what's going on around you.