Vacation break

I am on vacation for a few days, so this blog will be a couple of days behind. In the interim, some thoughts have come up.

• In a broadcast from NPR, a university professor made the statement "Poverty cannot be cured by the current method (motivate lazy people) nor can it be cured by throwing money at the problem (the old welfare system). To eliminate poverty one must eliminate the causes, which means not providing opportunities alone but providing the opportunity to seize those opportunities. In other words, poverty begets more poverty, and the best way to eliminate it (or at least reduce it) is to provide programs such that people do not have to worry where their next meal is coming from or if they have a roof over their heads. In the prior post I talked about Maslow's needs; in a subsequent post I'll list them and discuss how the government can help.
• On another NPR program, a question was raised as to what the new president will do about President Bush's (and de facto president Cheney's) grab for executive power. A former Reagan aide says not only does the next President have to promise not to abuse the power, he has to repudiate the current administration's attempts as unconstitutional, in fact illegal. I'm all for that, and I'll explain in another post.
• Last but not least, there are a couple of things I've learned in the last day about taxes and the US budget, again on NPR. I will discuss them and make some changes to my "! TAXES !" post.

Stay tuned!

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.

Interim thoughts: Bush and the Russians on Georgia.

Hello, please accept my apologies for being a week behind in this blog. Obviously it isn't offending anyone as there are no comments. I have been really busy with work around the house and haven't had the time to add more posts. Therefore, for this post I'll place a short rant, and then restart the presidential blogs Monday.

I see in the news President Bush is complaining about Russia's "invasion" of Georgia. President Bush is right. Unfortunately, we've lost all credibility with the rest of the world to be indignant when Russia treats Georgia as we have treated Iraq. The interesting thing is, Georgia used to be part of the Soviet Union; Iraq has never been part of the US.

The rest of the world must be snickering behind their hands at Bush as he hypocritically chides the Russians for doing something we've been doing for the last 7 years: invading a soverign nation without cause. How ironic.

If I were President 3

Yesterday I talked about democracy as an open form of government. I said I would be far more open with the press, no more lies. I also said I'd re-declassify previously non-classified documents, and open up some investigations into some of the policies of the Bush Administration. One of the worst is the enemy combatants issue and the people we are keeping in Guantanamo Bay (and elsewhere) indefinitely.

Even a conservative court, with many of them siding with the ideology of George Bush, said the keeping of criminals without trial, without access to council, or even knowing what they did wrong is unconstitutional. The Bush administration said, "Fine, good idea" and kept right on ignoring the law of the land, the law of the world (as delineated in the Geneva Convention) and the Constitutionally-granted rights to a speedy trial, the right to council, and the right to confront their accusers. What kind of justice is that? No wonder nearly the entire free world thinks we're hypocritical and is afraid of us.

As Commander in Chief, I would first take us off a war footing with these nations and eliminate the "enemy combatant" label. I would then have the case of each person in Guantanamo, and those rendered to other countries, examined as any criminal case. I would ask the military if each may still have useful information, find out who is actually innocent of the "charges", and immediately release those who were either innocent or those for whom their "crime" would have been paid for by the length of their incarceration (i.e. "time served"). Of course, repatriation may be a problem. This is a problem I have not given full thought to. Perhaps some of them have family to return to. Perhaps some would like to become US citizens (although I doubt that; we've abused them so much I consider the possibility unlikely). I'm not sure what other answers to give until I knew more about the problem, and it would be different for each person.

Once Guantanamo has been emptied, I would return it to the Cubans. It is, after all, their land.

During this process I would have the military, CIA, and FBI re-evaluate their interrogation techniques versus standard practice in the free world, the Geneva Convention, and a general concern for human rights. As I said in an earlier post, terrorists need to be dealt with on a criminal basis, not a war footing. This means going back to the UN and work with the major powers to begin the long, slow process of regaining our status in the world regarding basic human rights.

Of course, human rights within the US are of great concern to me as well. We have some housecleaning to do, such as eliminating the warrant-less wiretapping and other spying on people of the US. The FISA provisions work well for those cases where there is an imminent threat. We don't need the government to be Big Brother; that's so 1984. Orwell would be "proud" of the Bush administration.

Speaking of human rights, I consider the right to health as a basic right. While there is nothing specific in the Constitution about medical care, there wouldn't be anyway; medical care in the late 18th century was just about non-existent. The Founders did not write about it because it simply didn't occur to them. As I've stated before, I am not a strict constructionist; that is a foolish position, in my mind. There are so many new concepts and technologies developed over the last 230+ years which the Founders could not have known about, and to assume because they didn't write about something it can be ignored. That's not logical.

Because I've written a bit about this before (see my post Single Payer Healthcare) I won't go into much more detail here. I will just remind people the three countries with the best health care are France (the best in the world), Taiwan (modeled after our own Medicare system), and Canada... and all three have national health care. Are these systems perfect? No, nor do I expect any healthcare system designed by the US to be perfect either. The big difference between those countries with a national health plan and the United States is the fact we require people to have jobs before they get insurance, while the other countries set out to insure everyone at a basic level and allow those with jobs to purchase better coverage. We have to learn the way to better care is not to line the pockets of corporations but to care about the individual. This is a major paradigm shift, but will have to be made not only for healthcare but our energy policy, safety, climate change, and so on. The big mistake was considering a corporation to be the same as a single person in regards to who can petition the US government to do what they want. There is no possible way one person, or even a million single individuals, can compete against a powerful lobby backed by deep corporate pockets. This practice must end.

Well, that was quite a soap box speech. My next post may be just as interesting: social programs other than national health care. See you then!