A Progressive Foundation for America's Economic Future

A Progressive Foundation for America's Economic Future

 By image - September 28, 2010

I believe that the United States is at a critical turning point in history, and specifically that the American economy has reached a point of development where significant and fundamental changes are needed to the foundational structure of the American economy in order to ensure continued growth and prosperity. I believe that without major changes to the core structure of the American economy, the American economy is destined to enter a period of prolonged stagnation and decline.

Both the American economy and the world economy have changed dramatically over the past sixty years. The policies, structures, and institutions that were successful in promoting economic growth and providing economic security in the past will not be sufficient to do the same going forward. What we have to recognize today is that we are at a point where the past is not longer a model for the future. This has been the key failure of leading economists, investors, and business leaders over the past decade. Time and time again economists and pundits have continued to use the past 60 years of economic patterns as a predictor of future economic trends, but the problem is that the future now looks fundamentally nothing like the past.

In the run up to the housing market crash, we heard economists and pundits repeatedly claim that "history shows that housing prices never drop significantly at a national level", and yet they did. Why? Because the conditions of the housing market in 2002-2007 were significantly different than they were at any time from the end of World War II up to 2000. Today we still hear economists and pundits claiming that investing in the stock market is a good idea, because "historically, the market has gone up by 10% a year". That may well be (it is actually not true), but as the disclaimer given by every investment institution says "past performance is not a predictor of future results".

Fundamental changes in the American and global economy mean that the past and present way of doing things are simply not going to work in the future, at least not very well.

A progressive agenda for transforming the American economy is not only the right approach from a moral and ethical perspective, but it is also the most effective way to ensure stable and continued strong economic growth. The regressive economic agenda of the past thirty years has led to a dramatic increase in debt and economic disparity in America, which is exactly what is currently undermining the American economy. Increasing economic disparity is a road that always eventually leads to a dead-end and economic stagnation. It is inevitable. There is no economic model in which there can be both long-term economic growth and increasing economic disparity, because broad based consumption is always the engine of economic growth. If the majority of people are unable to afford to either purchase commodities or to invest in their own new businesses, then the economy has no basis for growth.

And thus, a progressive agenda that works toward reducing economic disparity and ensuring economic security is in fact the only way to ensure long-term economic growth. The reality is that the economic growth of the past thirty years, the Reagan and post-Reagan era, has been fueled by debt and cost cutting on long-term investment for short-term gain, with the vast majority of the economic growth that has taken place being realized by the wealthiest 0.5% of the nation. This strategy has led us to the dead end that our economy is now facing today.

And yet, while the need for a strong progressive agenda is great, and the evidence of failure of the so-called "conservative" economic agenda is overwhelming, at present in America we face a strongly resurgent "conservative" movement with no signs of any significant progressive leadership or policy agenda to deal with the fundamental problems facing America today, and so, with that, I would like to outline what I believe are some major steps that should be taken in order to put the American economy on track for both long-term economic fairness and growth.

  1. Replace tariffs with international production standards
  2. Federal Tax reform
    • Eliminate distinctions between types of income
    • Overhaul tax brackets, creating brackets for very high incomes
    • Eliminate virtually all tax deductions
    • Create new type of corporate entity
  3. Fix Social Security
    • Index future benefit increases on the rate of inflation, not on average wages
    • Remove the cap on the Social Security tax, so that the tax will apply to all income amounts
    • Apply the Social Security tax to all forms of income, not just payroll income
    • Reduce the tax from 12% to 5%-6%
  4. Implement a National Individual Investment Program
  5. Real health care reform
    • A Single Payer system
    • Address the root causes of health problems
    • Increased funding for Medicare
  6. Overhaul employer compensation practices
    • Move hidden taxes from employers to employees
    • Require reporting of employer financials to employees
  7. Create a permanent Office of Job Creation
  8. Dramatically reduce Military spending
    • Reduce the global American military footprint
    • Eliminate earmarks and virtually all contractors; Create government entity for production of military hardware
    • Reduce the ranks of the enlisted, especially top brass
    • Implement a new military funding tax on imported fuels
Replace tariffs with international production standards

When Adam Smith wrote in favor of free trade in the 18th century, he did so based on a number of assumptions which are no longer true. Adam Smith believed that producers would never outsource production to foreign countries under the reasoning that that any decent producer would understand that the accumulation of capital within their home country benefited the nation and would thus not export capital to foreign countries. The purpose of free trade, in Smith's line of thinking, was to allow nations to exchange goods with other nations that could not be domestically produced, or could not be domestically produced as well due to lack of expertise or due to lack of materials. The purpose of free trade was to exchange goods among nations that other nations lacked. The notion of mass exportation of production to foreign countries due to dramatically lower labor costs is not present in Adam Smith's economic writings, because such a condition didn't really exist during his time.

Today, however, the primary driver behind international trade is not an exchange of goods that can't be produced domestically, rather the primary driver is production costs, and all across the developed world capital is exported to foreign countries where production costs are lower, not because those countries possess goods or materials or methods that are lacked domestically, but because they provide laborers who will work for less pay and governments that don't enforce environmental or safety standards as protective as those in developed nations.

This current system of international trade is highly inefficient and dominated by producers' pursuit of the cheapest labor and lowest taxes and regulatory requirements. The result of this is that material goods are transported all over the world, thousands of miles, wasting fuel, shipping materials, and time, just due to discrepancies in production costs. And the discrepancies in the production costs are not even products of efficiency themselves, in other words, they are not a product of production in China or other producing nations being more timely or using fewer resources, the discrepancies are products of lower compensation in those countries and lower regulatory requirements, leading to higher overall pollution output and overall environmental degradation.

Today, for example, timber, cotton and other materials are harvested in the United States, shipped to China, where they are processed and turned into furniture, then shipped back to the United States where they are sold and consumed.

The primary means of regulating international trade today is tariffs, however tariffs are a fundamentally bad method of controlling international trade. The way that tariffs basically work is that governments place import taxes on certain products coming from certain countries. The system is fraught with problems and abuses, but even more than that, the tariff system fundamentally undermines the long-term economic goals of the both the nation issuing them and the nation subject to them.

The tariff system works through treaties and trade agreements whereby certain duties are placed on items from individual countries, and based on agreements some countries or products may be exempt from such tariffs, etc. This greatly politicizes international trade on the one hand, and it also lumps all businesses together by country on the other hand.

But worse than this is the fact that, from a cost competition point of view, tariffs drive behavior in the opposite direction of the desired outcome. There are multiple reasons for employing the use of tariffs, but one of the major reasons is simply to protect domestic producers from foreign competition by placing an import duty on items from foreign countries where production costs are lower so as to increase the cost of bringing the foreign goods to market in the domestic market in order to make the cost of bringing them to market comparable with the cost of bringing domestic goods to market.

The problem with this is that the reason that it's cheaper to brining foreign goods to market in the first place is typically that the wages paid to the foreign workers are significantly less, the regulatory standards are lower, and in some cases the taxes at the point of production are lower, and by placing an additional fee on top of the production cost of the items in order to import them, all it does is actually provide an incentive to keep the wages low, and for the country of origin to resist increases in regulatory standards and taxes.

Ultimately, however, what is in both the best interest of both the importing and the exporting country is that wages go up, regulatory standards increase, and potentially that taxes increase. The natural tendency in a true "free market" is price stabilization, but what tariffs do is they actually interfere in a way to impede that natural tendency toward stabilization. In some cases agreements are made such that tariffs are tied to conditions, such as saying that the tariff will be reduced, eliminated, or re-evaluated if certain environmental standards or wage standards are met, etc., but even in these cases, the exporting nation has to work against the natural pressure of the tariff to make changes and it just makes making those changes more difficult than it should naturally be.

So what is the solution here? What we want is for wages, environmental standards and safety standards to go up in developing countries so that the populations in those countries can become potential consumers of American goods and services, and so that the cost/benefit of producing goods in those countries instead of America is reduced or eliminated, all while facilitating raising living standards of people in developing countries.

The way to do this is to eliminate tariffs, and instead implement production standards that are enforced on a per-producer basis instead of a per-nation basis. There are certainly complications to this, and it wouldn't be entirely easy and it wouldn't be without its own potential for problems and abuse, but I believe that the costs would be worth the benefits.

Here is how it could work.

Anyone importing over $X amount of goods would have to provide a statement of wages from the producer of the goods, for each producer involved in the production of the goods, i.e. if the good had parts manufactured by one producer and it was assembled by another, etc., you need a statement of wages from each. Foreign producers would also be able register with a department in the US so that their information would simply be on file, and thus the practical reality is that for most of the goods that are imported all of this information would be on file. Certain countries could be classified as exempt, and thus have full free trade, if it is deemed that their overall production standards meet or exceed certain guidelines. For example, countries like Japan and Germany would likely meet these standards and thus have full free trade without producers from those countries having to provide paperwork.

The statement of wages would show the average compensation for all non-management positions employed by the producer, including contractors. The importer would then be taxed based on how far those wages fall below certain standards. What would end up happening is that there would be job classifications, and those job classifications would have average wages associated with them based on American wages. The difference between the average American wage for that job classification and the average wage paid to the foreign workers would be used to calculate your import tax. The tax would be logarithmic so that the farther the foreign wages are from domestic wages, the greater the percentage the tax is, eventually making it actually more expensive to import from producers paying wages below a certain amount.

This would end up providing an incentive to raise wages at the point of production, because from the importer's standpoint they are going to pay roughly the same thing either way, they are either going to pay the money to the worker in the form of passed-on wages, or they are going to pay the money to the US government in the form of an import tax. Foreign producers would then raise wages (to a point) as a way to attract business instead of suppressing wages to do so.

There would also be an environmental and safety component, but this data would probably end up having to come from more generalized reports where industries from a region would be evaluated together. The total tax paid on imported goods would be calculated based on a combination of the wage data, environmental data, and workplace safety data. The more the wages, environmental standards, and workplace safety practices are in line with US standards, the lower the tax would be. Importing from countries with wages and standards that exceed those of the US would of course result in no import fees whatsoever.

The net effect of this on imports would effectively be the same as tariffs in the short term, but the difference is that the long-term effect of such a policy would be to encourage wage growth and environmental and safety improvements in developing nations, instead of inhibiting them, as our current policies largely do. Our current policies are filled with contradictions, with some policies that offer incentives to foreign countries to improve wages and working conditions, while other polices have the opposite effect.

Given the fact that America enjoys ample trade with Japan and Europe, two regions where compensation, regulations, and taxes are comparable to America, or indeed exceed American standards, it's obvious that genuine trade can exist when it is not driven primarily by drastically low wages and lack of safety and environmental regulation. This is the type of trade that we should be working to foster, not trade that drives a race to the bottom, as our current system does.

Getting control of American trade, and encouraging improvements in international working and environmental conditions, are essential first steps in securing the American economy, genuinely improving the global economy, and improving America's international standing among the citizens of the world.

Fix Social Security

The first thing to understand about the Social Security system is that it is not an investment system, it is an insurance system, and it operates like an insurance system. It is designed to insure against disability prior to retirement, to insure against the death of a primary provider for dependents, to insurance against outliving your savings and investments, and to insure against losses of savings and investments in retirement.

The first question to ask about the Social Security system, however, is is it worth preserving at all? The answer to that is a resounding yes, and provided below are the reasons why.

First of all, because the system is not market based it provides a significant amount of stability to the American economy. The Social Security system provides a significant counterweight to market forces, such that when investments such as the stock market or the housing market crash or dip, retirees still have at least some minimal stable form of income. This stability has an effect on the entire economy, as seen below in the graph of 20th century business cycles, which can be seen to smooth out significantly around the time that a significant number of people began drawing Social Security benefits.

Secondly, the Social Security system is a fail-proof system. The system is based on taxation of current income, so as long as people have income there will be benefits to pay retirees. Even if those benefits do have to be reduced for some reason, the benefits will never go away or be reduced significantly, unlike investments, which can indeed go to zero.

Thirdly, the Social Security system, by virtue of the fact that it is different from other aspects of our economy, and by virtue of the fact that it isn't tied in with the stock markets, provides a type of economic diversity to the economy. If we were to "privatize" the Social Security system and move those assets into investment markets, this would just make our economy less diverse and more brittle and more susceptible to shocks.

Fourthly, unlike an investment system, the federal government can borrow money to make up short term deficiencies in the Social Security system if needed, and this is a good thing. Obviously what has to be addressed is the potential for long-term deficiencies, which are a bad thing, but as we shall see, this isn't actually a problem.

Lastly, by virtue of the fact that the Social Security system is actually an insurance program, not an investment program, it means that beneficiaries actually get a larger benefit for a smaller cost. This is one of the big misconceptions about Social Security. The Social Security retirement program is actually funded through the OASI system, which is the Old-Age and Survivorship Insurance program.

That's what Social Security really is, an insurance program that insures against old age (in addition to disability and early death for surviving dependents). Discussions of "return on investment" in regard to Social Security completely miss the whole point of the program. It's not an investment program, it's an insurance program. The "return on investment" for Social Security varies wildly based on how long you live. If you only live to be 60 years old, then your "return on investment" is zero, unless your spouse or children claim your benefit, but if your children claim your benefit it only goes to age 18, and if your spouse claims your benefit then they have to give up their own benefit (you do this if your spouse's benefit is greater). However, if you live to be age 105, then your "return on investment" is huge, and its likely that you would also have exhausted any savings you would have had by that point since most people can only save enough, even with successful investing, to last them for 15-20 years of retirement.

And that's entirely the point, this is "insurance", not an investment. It's just like car insurance. If you pay $80 a month for car insurance for 15 years and you never file a claim, then what is your "ROI"? Obviously its horrible right? You paid out $14,400 in insurance fees, and you got nothing in return, other than "peace of mind" and compliance with the law. But, the fact that you paid out $14,400 in fees and collected nothing is what allows your fees to be $80 a month, because the losses, or costs, are averaged out over all policy holders, so someone else may pay out $14,400 over 15 years and end up "collecting" $100,000 in "benefits" if they have a major claim. Their "ROI" in that case would be excellent. That's how insurance works.

In the case of Social Security, what you are insuring against is old age, investment losses, and in the case of the disability and survivorship components of Social Security, you are insuring against disability resulting in inability to work before the age of retirement and against what happens if you die early and leave dependents behind.

If you die early and you leave no dependents then you didn't use your insurance. If you die late then you do. So the Social Security system works properly now, and is an excellent complement to personal savings and investment. Not only is it a form of insurance against out-living your retirement savings, but it is also a form of insurance against retirement savings losses. It should not be replaced with a different type of investment program, as those who call for the "privatization" of Social Security call for. As with all other areas of risk, the best approach is to have both savings and insurance. The same is the case with retirement.

Having said all of that, there are real problems with the Social Security system, but they are in fact relatively easy to address.

Currently American workers pay a roughly 12% income tax on the first ~$100,000 of payroll income. As a worker you see 6% come out of your pay check, with your employer paying an additional 6% behind the scenes. The self-employed pay the 12% directly.

The Social Security system faces two major problems. The first issue is the fact that as the "baby boomer" generation retires there will be an enormous burden put on the system. This was anticipated a long time ago, and thus for the past 30 years Americans have been paying significantly more into the system than was required to meet current payments in order to build up the so-called Social Security Trust fund. The trust fund is a "reserve" to be drawn upon to pay for the benefits of the baby boomer generation.

But what really is the "trust fund"? The money from the trust fund has been borrowed by the federal government. In other words, when a dollar has gone into the trust fund, the federal government has borrowed that dollar from the trust fund, and issued an IOU to the trust fund. In order to repay the IOUs, the federal government will have to raise money from general taxation in order to repay the trust fund.

Sounds somewhat like a shell game, but it's really not much different than how government bonds work either, where the government borrows money by selling bonds, then has to repay those bonds with interest by raising the money from taxation. The reality today, however, is that the money paid into the trust fund has come entirely from middle income payrolls, since from the beginning only payrolls up to a certain amount have been taxed by Social Security. The taxes collected to re-pay the trust fund come primarily from the federal income tax, which is more progressive than the Social Security tax, and so contributions from low and middle income wage earners will be be repaid by higher income tax payers.

But the real issue is, once the baby boomers start to retire, in order to meet the obligations of Social Security, taxes will surely have to go up in order to repay the trust fund, or the federal government will have to borrow more money via bonds to do so.

There is good news to this actually, because the period for which the baby boomers will put an increased demand on the Social Security system, drawing down the trust fund, is a defined period of about 30-40 years, from roughly 2010 to 2050. After that, the Social Security system will be able to operate on a largely cash-in cash-out basis, with a very small reserve, thus eliminating the problem of having to even deal with a trust fund. Not only that, but once we pay out the Social Security benefits to the baby boomer generation, that will also eliminate a significant portion of the federal government's debt. You see, much of the federal government's debt is actually debt owed to American retirees.

Even if we made no changes to the Social Security system today, the "problems" of the Social Security system would effectively end with the passing of the baby boomer generation, which is why talk about phasing the program out for future generations makes so little sense. Future generations aren't a problem for Social Security, only the upcoming retirees are. Once the baby boomer generation passes, even with no other reforms, the Social Security tax would be able to be significantly decreased. The Social Security tax was increased purely for the purpose of building up the trust fund, which won't be needed in the future. This is why the idea of paying out Social Security for upcoming retirees and creating private accounts for those under 30 makes no sense at all, since those under 30 aren't a problem, it's the people between age 50 and 65 that present the biggest challenge.

However, there is a problem with the way that current benefits are calculated. One of the proposals by opponents of the Social Security system is to reduce the benefits paid out to retirees and/or raise the retirement age for drawing Social Security benefits. Raising the retirement age is a horrible idea for multiple reasons, not the least of which is that all it would do is increase unemployment programs. The reality is that what would really happen is most people over 66 wouldn't be able to find a job so they would end up just going on other forms of government assistance anyway, thus doing nothing to reduce the overall burden on the federal government.

However, there is merit to reducing the benefit paid out by Social Security, more specifically in changing how future benefits are calculated so that they stop increasing above the rate of inflation. Unfortunately this issue has become a hot-button topic among so-called liberals, who generally oppose the idea of so-called "reducing" Social Security benefits, but the reality is that the way benefits are currently calculated is simply wrong, and it is wrong in such as way that it causes scheduled benefits for the future to increase faster than inflation, meaning that as of today, we are scheduled to pay out more to future retries in real terms than we pay to current ones, which really makes no sense.

The reason for this is because the Social Security benefits are based on "average-wage" indexing. This means that the base payment is adjusted by the average wage for a given year. The problem here is that "average wages" are determined by looking at all wages, including wages above the Social Security taxation cap of roughly $100,000, so the "wages" of CEOs with "wage" incomes of $5,000,000 a year get put into the average, even though only the first $100,000 of that income is taxed to pay into the system. In addition to that, there has been growing income disparity over the past 30 years, so while median wages have been essentially flat for 30 years, high end wages have gone up, bringing the average up, causing benefits to rise faster than the rates of the incomes that are used to actually pay into the system. The problem with Social Security is that over the past 30 years virtually all of the growth in the national income has been above the Social Security cap, and has thus been exempt from the tax, so what has happened is that a smaller and smaller portion of gross national income has been subject to the tax with each passing year, while the benefits paid out grow faster than the rate of inflation.

So, there are multiple things that can be done to "fix" Social Security:

  1. Index future benefit increases on the rate of inflation, not on average wages
  2. Remove the cap on the Social Security tax, so that the tax will apply to all income amounts
  3. Apply the Social Security tax to all forms of income, not just payroll income

If these three steps are taken, the current 12% Social Security tax could be reduced to roughly 5% or 6%, and more money would still be collected. By doing this, it would not only insure the solvency of the Social Security system in the future, but it would also make paying Social Security benefits for current and baby boomer retirees more affordable. The overall result of doing this would be a significant tax cut for the poor and middle class, and a modest tax increase on those with high incomes.

Doing any one of these measures by themselves would be helpful, but doing all of them together is what allows the overall Social Security tax rate to be dramatically reduced, while still meeting the current benefit levels of the Social Security system.

If we look at the tax receipts for 2009 we see that receipts from Social Security taxes roughly equals the tax receipts from individual income taxes, and the Social Security taxes are regressive, placing the burden almost entirely on the poor and middle class. This is why the cap on the Social Security tax should be eliminated and the overall tax rate reduced.


source: http://www.nationalpriorities.org/node/6919

For more on Social Security see:

The Truth About Social Security

Getting a grip on Social Security: The flaw in the system

Implement a National Individual Investment Program

The objective of the National Individual Investment Program would be to ensure a more equal distribution of capital ownership in America, and to allow the American economy to become increasingly less dependent upon labor, so that an increasing amount of national income can go to capital instead of labor, without leading to growing income inequality or economic unfairness. Today we face a situation where increasing amounts of production are capable of being automated by computers and machines, but because the vast majority of people depend on wages from working for income, efficiency increases actually lead to economic problems because as efficiency increases fewer people are needed for production, which contributes to unemployment, which then reduces overall incomes, which reduces demand for goods and services. This circular feedback problem can only be solved within a capitalist framework by ensuring that capital ownership is widely distributed and that the entire population receives a growing portion of their income from capital investment.

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The single greatest root cause of economic and political problems in America today is concentration of capital ownership and control, and the growing economic disparity which results from it. The natural tendency within an industrialized capitalist economy is for capital ownership to become increasingly consolidated and concentrated, and yet this concentration of capital ownership ultimately undermines the entire economy, which is exactly what we are seeing in America today.

Share of capital income received by top 1% and bottom 80%, 1979-2003

source: http://sociology.ucsc.edu/whorulesamerica/power/wealth.html

The incomes of the wealthiest people in America, and around the world, are overwhelmingly from investment income, i.e. a product of capital ownership. Roughly 50% of the personal income of those in the top 1% comes from investment income, and yet essentially all investment income is a product of "other people's work". That investment income represents in real terms, redistribution of wealth from poor and middle-class workers in America and around the world, to the wealthy.

When the United States of America was founded it was the most egalitarian Western nation in the world, with the exception of slavery. For free citizens of European dissent, America was the most egalitarian country there was. Without getting into issues of racism, slavery, Chinese labor, etc., it is still important to understand why America had such a relatively egalitarian system among the free white citizens and how and why that egalitarian economy system has changed.

The reason that the American economy was so egalitarian initially was that America had an agricultural economy, where 85% of Americans were farmers, making land the primary form of capital in America, and land was effectively free. (After it was taken from the native population)

The policies of the United States for the first 100 years of our nation's existence, were to acquire land by whatever means, using government power to do so, and then to redistribute that land to the free citizens at little or no cost to the citizens. The reason that this was the policy is that there was a relatively small population living on a large land mass, and the government wanted to encourage immigration in order to populate the country and to encourage people to make productive use of the land, i.e. "available capital".

What this means is that people were able to acquire significant capital in America for very little personal cost, since it was abundant and it's acquisition was subsidized by the government, and as a result 90% of the free American population owned and controlled their own capital, and thus capital ownership in America was the most egalitarian of any major nation in world history. What made America great was the relatively equal distribution of capital ownership, while in places like Europe, China, Japan, India, etc. land ownership was largely concentrated in the hands of aristocracies and religious organizations.

However, obviously the "free land" couldn't last forever, as eventually the nation became relatively highly populated and patterns of ownership developed, thus the land available to just give to people for little or nothing disappeared. In addition, around the same time, immediately following the Civil War, industrialization began. With industrialization land was no longer the primary form of capital. The American economy changed from an agricultural economy, where almost everyone owned and controlled their own capital, to an industrial economy, where fewer and fewer people owned their own capital and more and more people became wage laborers.

This is when economic disparity began to dramatically increase in America. That process has continued on for over a century now. The first big shift came at the turn of the 20th century, when many people left farming to work in cities. But, even with this change small businesses remained a prominent part of the American economy. There were fewer farmers, but there were still a large number of individuals and families that owned their own stores and businesses. Small business ownership remained fairly steady, though it was continuously declining up to the 1980s, when it began to dramatically decrease due to the rise of large national chains, "big box" stores, and the outsourcing of manufacturing to foreign countries.

As is the natural tendency in a capitalist economy, capital has become concentrated over time. Capital ownership was once widely distributed in America, and over time it has become increasingly consolidated. This pattern of capital ownership consolidation has taken place in every industrialized capitalist economy around the world, and different countries have reacted to it in different ways. The point of the Socialist and Communist movements was to address the problems raised by this tendency toward capital ownership consolidation within capitalist economies, but for a wide variety of reasons, these movements have failed to deliver on promises of fairness and economic prosperity. Yet, in many ways, the approaches taken even in moderate capitalist welfare-state economies, such as are common throughout Europe, follows the line of thinking set out by the socialists.

This approach generally takes three tracts: nationalizing certain segments of the economy, using heavy taxation to re-distribute the wealth that was re-distributed from the workers to the capital owners back to the workers, and limiting the growth of capital in order to preserve the roles and compensation levels of workers.

There are significant problems with these approaches however, and yet, something has to be done to address the issue of concentration of capital ownership and the fact that capital ownership is a means of re-distribution of value from workers to capital owners.

This is where a national investment program comes in. The way it would work is that the government would distribute shares in a total market index fund to virtually everyone in the country. The shares would be paid for via a dedicated income tax, similar to how Social Security is done now. The tax would be a defined flat tax of roughly 8%, with the first $30,000 of income being exempt. Shares would be paid out based on the number of hours an individual worked, with a cap of 2,080 hours a year (40 hours a week over 52 weeks). The cap would be applied on a yearly basis so that those who work overtime in seasonal jobs would not be unduly penalized. Salaried employees would be counted as working 40 hours a week.

Someone with a total income of $50,000 a year would pay $1,600 in taxes and, assuming that they worked 40 hours a week all year long, and given the national income from 2007 of $12.5 trillion, they would receive roughly $3,500 back in the form of shares. Someone with an income of a million dollars a year would pay $68,600 taxes and, assuming that they also worked 40 hours a week, or were salaried, they would get the same roughly $3,500 back in the form of shares. Someone with an income of a billion dollars a year would pay $79,997,600 in national investment taxes and also get the same $3,500 back in the form of shares, assuming that they worked full-time.

The break even point, using these figures (which may need to be adjusted) would be around an income of $75,000 a year (adjustments could be made to move the break even point up if needed). At that income level someone working full time would receive about $3,500 a year in shares and pay about $3,500 in National Individual Investment Program taxes. It is important to note here that the benefit would not be a defined benefit, the way that Social Security currently is, it would fluctuate based on the economy. The tax would be constant, and the amount of the benefit received would go up and down based on the amount of revenue collected from the tax. Thus the program would never run a surplus or a deficit.

Who would get shares, and how?

  • Everyone would get a starting amount of shares when they are issued a Social Security Number; for most this would be at birth. You would receive 1,040 hours worth (half a full time year) of shares when you get your SSN.
  • When you graduate high school you would get 2,080 hours worth (a whole full time year) of shares.
  • Workers would receive shares based on the number of hours they worked, with full time salaried workers receiving credit for 40 hours a week. A full-time worker would receive about $3,500 worth of shares a year based on current national income levels. Benefits would be capped at 2,080 hours a year.
  • People who are of working age, but who cannot work due to disability, would receive 1,040 hours worth of shares a year.
  • Non-citizens working in the US would still have to pay the tax, but would not receive the benefit.

The shares would be credited to an account on a monthly basis, or perhaps some scheme would have to be developed to credit them in an evenly distributed manner so as not to have huge purchase blocks at the same time every month.

Prior to turning 18 years old the shares would be held in trust and could not be accessed by you or your parents. Once you turn 18 the shares would be yours to do with as you wish and would be treated like shares in a normal mutual fund. The national whole-market index fund would be held and managed by the federal government in order to reduce the costs of administration. The index fund would pay out a dividend based on the market, like a normal fund. Income from dividends or the sale of shares would be normal taxable events. Individuals would be allowed to transfer their shares to accounts held at private institutions if they wished, and would be allowed to exchange them for qualifying private mutual funds, bonds, money market accounts, stocks, etc., as non-taxable events.

Importantly, this would not be a retirement account, these shares would be accessible by individuals the moment that they are issued, from 18 years of age on.

What a national investment program like this would do, is it would ensure that every working citizen, and those that can't work due to no fault of their own, would share in the growth of the economy. It would ensure that everyone could, and actually would, become capital owners. This is a means of ensuring a more fair distribution of capital ownership, while working within the traditional capitalist framework. Capital ownership would remain private. This would also stabilize the economy by ensuring that all workers would have increasing levels of investment income. By doing this, income from wages would become increasingly less important to the economy, though still the dominate form of income for the foreseeable future, which would mitigate the impact of unemployment events and reduce the burden on other government assistance programs, such as food stamps and housing assistance, etc. This program would lay the foundation for developing an economy in which income from capital would become an increasing portion of national income, without leading to increased income inequality, which is essential for promoting greater growth and economic efficiency.

Federal Tax reform

Individual income tax reforms

The federal taxation system of the United States is quite a mess. It is too complicated, there are too many loop holes, and it isn't nearly progressive enough. What most Americans fail to realize is that when you take the entire tax burden into account, the America taxation system is already essentially a flat-tax system. Yes, the national income tax system as applied to "earned income" is moderately progressive, but there are multiple loop holes in the earned income tax system. Capital gains taxes are effectively flat and lower than income on high wages while higher than income on low wages, sales taxes are regressive in their effect, as are registrations and "user fees" generally, and some states actually have flat or regressive income taxes as well as property taxes that can be flat or regressive. And the largest taxes that the poor and middle class pay are the payroll taxes for Social Security and Medicare, of which the Social Security tax is distinctly regressive.

One of the major sources of complication and rift in the federal taxation system is the varying classifications for different forms of personal income. There are different taxes applied to "earned income" (wages) vs. "unearned income" (investment), different taxes applied to capital gains vs. income from dividends, different taxes applied to gift income and prize income, as well as income from inheritance, etc.

The first step is to eliminate all of these different classifications and just treat all income the same. Yes we can finally get rid of the so-called "death tax", just eliminate it and treat inheritance the same as normal income.

The second step is to eliminate virtually all personal income tax deductions. The only deductions that should remain are deductions for contributions to charities and contributions to retirement accounts. That means eliminating the home interest deductions, the student loan interest deductions, the child tax credit, the various deductions for this or that type "green" investment, etc.

In conjunction with steps one and two the entire personal income taxation structure would have to be completely revised. The various deductions should essentially become baked into the overall taxation levels.

Today, for example, earned income from $0-$8,375 is taxed at 10%, and income from $8,374-$34,000 is taxed at 15%, yet the effective federal income tax rate for someone with an income of $25,000 a year is actually below 10%.

Likewise, income over $373,650 is taxed at 35% currently, yet people with incomes of half a million dollars a year can have effective earned income tax rates around 20%, even though the tax rate on income over $34,000 is 25%.

This all stems from years of special interest groups trying to get various advantages for themselves written in to the tax system, as well as genuine attempts at trying to "guide" the market with incentives to make things like buying a home more affordable, etc. But generally, the income tax code is a very poor way to try and manipulate the markets, which is what all of these deductions amount to, attempts to manipulate markets. Furthermore, these types of deductions can actually do harm and undermine markets as well as being unfair in their application.

For example, the home interest deduction, while intended to help Americans afford to own a home, ends up being an unfair tax increase on people who can't afford to own a home or simply don't want to. The reality is that most Americans who don't own a home are poor and/or retired. Since the overall budget is in deficit, it means that regardless we will have to raise a certain amount of taxes, so if we are giving cuts to some people it means by definition that others have to pay more to make up the difference. In reality every tax deduction can be seen as a tax penalty on those that don't get the deduction. In the case of the home interest deduction, this basically means that we penalize the poor and the elderly for not owning homes.

But it's worse than that, because ultimately the home interest tax deduction ends up affecting the market itself, so that this tax deduction gets incorporated into the price of a home, so that in reality the deduction doesn't make homes any more affordable, all it does is cause the price to go up by the amount of the deduction, so it actually makes homes less affordable because the initial purchase prices are inflated beyond the normal market values due to the tax code. The same goes for education, etc. What happens is that credit becomes subsidized by the government, and then the subsidized credit just causes inflation.

Now, of course, eliminating these types of deductions would not be easy, especially in the current economy. Eliminating the home interest tax deduction would cause home prices to fall further, which ultimately needs to happen, but not now and not in an uncompensated way. So, what I would propose is actually a phased federal government buyout of tax deductions. Elimination of tax deductions would be phased in over 5 years, with tax payers getting a payment each of those five years for the reduced amount of their tax deduction.

The way it would work is that the new tax system would be phased in over 5 years. Assuming that your income was the same over the five years what would happen is that the amount your taxable income would be reduced by deductions would go down every year, meaning you would pay taxes on a larger and larger portion of your income every year over those 5 years. However, depending on your tax bracket, your overall tax payment should stay about the same, because while your deductions would go down, so too would the tax rate. Instead of being taxed at 25% income tax rate, and then using deductions to bring that down to an effective 15% tax rate, your tax rate would just get lower and lower each year until it reached around 15% with zero deductions at the end of five years. However, for people with student loans and home mortgages, they would get additional payments on top of any potential tax returns, for the amount that they would have been able to deduct under the old system, each year up to the end of the 5 years. This would compensate home owners for the loss of home value due to market correction for the loss of the deduction, and it would compensate people with student loans for the inflated prices of their loans, which they could use to pay down those loans.

The restructuring of the personal income tax system around the elimination of distinctions between different types of income and the elimination of virtually all deductions would also involve major restructuring of the income tax brackets themselves. Determining the exact brackets and tax amounts would require a full analysis of the budget and national income details, but generally the federal income tax needs to be much more progressive and needs several additional tax brackets on the high end.

The current tax brackets for 2010 are shown below:

Marginal Tax Rate Single
10% $0 – $8,375
15% $8,376 – $34,000
25% $34,001 – $82,400
28% $82,401 – $171,850
33% $171,851 – $373,650
35% $373,651+

Keep in mind that the tax brackets above are based on the existence of a large number of available deductions. The tax brackets that I propose are as follows, and again would need to be tweaked based on real budget and income analysis:

Marginal Tax Rate Single Filer Income Total Paid w/o Deductions
at Marginal Limit
Total Income Tax Rate
at Marginal Limit
0% $0 – $25,000 $0.00 0.00%
10% $25,001-$50,000 $2,499.90 5.00%
15% $50,001-$100,000 $9,999.75 10.00%
20% $100,001-$250,000 $39,999.55 16.00%
25% $250,001-$500,000 $102,499.30 20.50%
30% $500,001-$1,000,000 $252,499.00 25.25%
35% $1,000,001-$10,000,000 $3,402,498.65 34.02%
40% $10,000,000-$100,000,000 $39,402,498.25 39.40%
45% $100,000,001-$500,000,000 $219,402,497.80 43.88%
50% $500,000,001+ N/A ~49.00%

What this shows is that, for example, someone with $100,000 of income would pay a total of $9,999.75 in personal income taxes, which comes out to 10% of their income.

There are important things to remember here. The first is that there would be virtually no deductions, with the exception of deductions for charitable giving and deductions for retirement account contributions. The second is that federal income taxes are not the only federal taxes paid on income, and there are also state taxes on income as well.

The other current major taxes on income are Social Security and Medicare taxes. The Social Security tax is currently around 12% on the first ~$100,000 of payroll income (employees pay 6% and the employer pays 6%), and the Medicare/Medicaid tax is around 3% on all payroll income. Based on the changes that I'm proposing to Social Security, the Social Security tax would drop to around 6% on all income (there would be no employer contribution), and the Medicare/Medicaid tax would stay about the same, but be applied to all income, not just payroll income.

In addition, the National Individual Investment Program tax would be around 8% on all income over $30,000, however you would also be getting shares back worth around $3,500 a year (based on current national income levels) in exchange for that 8% tax on income.

The resulting total federal taxation rates on all income are shown below. This is what the total income tax rate would be, with no deductions, for someone with the maximum income for each of the brackets below, taking into account the income tax, Social Security tax, Medicaid/Medicare taxes, and both the National Individual Investment Plan tax and return compensation.

Single Filer Income Total Marginal Tax Rate
$0 – $25,000 7.02%
$25,001-$50,000 18.88%
$50,001-$100,000 30.14%
$100,001-$250,000 38.97%
$250,001-$500,000 47.45%
$500,001-$1,000,000 54.46%
$1,000,001-$10,000,000 55.92%
$10,000,000-$100,000,000 57.29%
$100,000,001-$500,000,000 63.46%
$500,000,001+ ~67.00%

This would be a net tax cut for people with incomes of roughly $200,000 a year and less, a moderate tax increase for those with incomes of around half a million dollars, and a significant increase for those with incomes over a million dollars a year.

By eliminating the various different types of income taxes, i.e. the separate tax on wages, on capital gains, on dividend income, on gifts, on inheritance, etc., it makes the entire income tax system progressive and eliminates issues with things like raising taxes on dividends eating into the income of low and moderate income retirees, etc. What this would also do, is it would facilitate broader capital ownership. Currently, the poor and middle class can pay higher taxes on their capital gains than they do on their wage income, which provides a disincentive to investment, while those with high incomes pay lower taxes on capital gains than they do on wage income, which of course provides a further incentive for concentration of capital among the wealthy. By treating all forms of income the same, the incentives for concentration of capital in the hands of a few would be significantly reduced. In addition, the implementation of a National Individual Investment Program would result in a growing portion of the nation's income being realized via capital income, which means that without eliminating the distinctions between payroll income and investment income the income tax system would become increasingly ineffective. Facilitating an expansion of capital income necessarily requires eliminating the differences between capital and wage income.

Create new type of corporate entity

There is some argument to be made for reducing corporate taxes in the United States. Corporate taxes are at least one of the reasons that companies chose to move production over seas. However, corporations should pay taxes, because corporations are distinct entities which make use of and benefit from public resources. Corporations clearly are beneficiaries of public education systems, public infrastructure, financial regulation and support, etc., etc. the list goes on and on.

So, while there is a case to be made for reduced taxes, these reductions should come with conditions. New types of corporate legal entities should be created which would be defined legally differently than current corporations. These legal entities would not be recognized as persons, as current corporations are, they would not have the same rights under the Constitution as persons, they would not offer the same types of protections to owners and executives that current corporations do, and these corporations would not be allowed legally to lobby the government or make any campaign contributions to politicians.

But, these corporations would by law always pay half of the corporate taxes that normal corporations do.

These limited types of corporations would not be allowed to be owned by normal types of corporations nor would they be allowed to own normal corporations. This would be to prevent parent corporations from setting up tax shelter subsidiaries, or lobbying subsidiaries, etc.

These entities would have to be designed in such a way that wasn't completely onerous so that companies would actually want to organize under in this way. What this would do is it would create a market force against lobbying and undo government influence by corporations. Is it more profitable to lobby the government or if it better to just pay lower taxes and move on with business? If competitors in an industry switch to the new type of entity that could provide and competitive advantage, encouraging others to follow suit, etc.

This would address the issue of both reducing corporate taxes and reducing the influence of corporations on the government, while not forcing anyone to do anything. The adoption of the new type of entity would be a matter of choice.

Real health care reform

The health care reform legislating signed into law by Barack Obama, a.k.a. Patient Protection and Affordable Care Act, falls far short as a plan to reduce health care costs, improve health care delivery, and make health care more accessible.

The most significant failing of the Patient Protection and Affordable Care Act is that it completely fails to address the root causes of America's excessive health care spending. The Patient Protection and Affordable Care Act focuses on "health insurance reform", but health insurance isn't the root cause of America's health care problems. It is one of the components of the problem, but it isn't the root cause. The root causes of America's health care overspending are firstly the American lifestyle and secondly the overall for-profit manner in which the health care system operates.

Before laying out a health care reform proposal it is first important to establish the philosophical underpinnings of how health care should be provided and paid for in a modern civil society. It is my view that there are basically two factors which contribute to an individual's health care needs during their lifetime, things that an individual can do nothing about, and things that an individual is responsible for.

The things that an individual can do nothing about are their age and their biology. The things that an individual can do something about are the lifestyle choices that they make and activities that they engage in. In other words, the types of foods they eat, their exercise habits, the types of high risk activates that they engage in, etc. In addition to these things there is one other aspect of health care risk, which is an individual's occupation. Technically this is a choice of the individual, but due to the fact that for the sake of society high risk jobs still need to be done, these types of risk have to be treated differently than other lifestyle risks, and will also be addressed.

My view is that every individual in society should pay the same costs for insuring the risks associated with the things that they cannot control, and that individuals should personally  pay a premium for risks associated with their own lifestyle choices.

What then, would be the best way to implement a system where everyone paid an equal amount for the base coverage of non-lifestyle related medical care, while being able to charge a premium for lifestyle choices that increase an individual's risk of requiring medical care?

The best way to do this would be via a single payer system, where everyone under age 65 is charged the exact same amount for coverage per year, and where fees on goods and services would be charged at the point of sale of such goods and services. This proposal would eliminate Medicaid (public insurance for the poor) altogether and bring those on Medicaid into the same health insurance pool as everyone else under age 65. Medicare would be preserved, for now, as a system for those who are retired.

This means that if you were to take all health care expenses for people under age 65 and subtract out expenses related to specific lifestyle choices and activities, such as lung cancer cases in smokers, broken legs among snow boarders, heart disease and diabetes among the overweight, etc. then you would arrive at a base cost for medical care, and if you divide that among all of the people under age 65 in America you arrive at an average health care cost per person per year. Granted defining exactly what people can control and what they can't can be challenging, for example: people's weight is a factor of both their eating habits and genetic predispositions, but some reasonable determination can be made.

Under the single payer system, every individual would have to sign up for a federal health insurance plan. The cost of the plan would be the same for everyone, roughly $2,000 per year per person based on current health care costs. Children and dependents would be covered by a head of house hold, so it would work just like private insurance does now in that regard. An adult would have to add their children to their insurance plan. The adult would then pay the additional amount for coverage of the child, in this case an additional $2,000 per child. Spouses could chose to have their coverage under their partner's plan, meaning that the partner would pay, or they could have their own individual insurance.

There would only be one plan in terms of coverage, but there would be three pricing structures based on your income. Those with income at or below the poverty level would qualify for free coverage, those with incomes up to 2 times the poverty level would quality for a reduced rate.

Payments would be setup to be paid voluntarily via monthly bills, but those who were behind on payments by 6 months or more could have their pay garnished by the federal government in order to stay current.

However, funding for the federal health insurance program would only come partly from the base federal rate that everyone would pay. The remainder of the funding would come from the insurance risk fees applied to goods and services. The way that this would work is that state level actuaries would determine the risk associated costs with the consumption of goods and services in their state, at a state level, and then those fees would be collected at the point of sale for each of those goods and services, much the same way that sales tax is collected today.

This would require investments in technology and it would require development of new point of sale systems, which would be able to charge these fees. The fee rates would be published once a year and could be updated just once a year in point of sale systems. The primary subjects of the fees would presumably be (would actually have to be determined by actuaries) foods and beverages, tobacco products, sporting equipment, entertainment vendors (i.e. fees could be associated with ski lift tickets, or white water rafting events, etc.). If this proved to be overly difficult, these insurance fees could be charged at the wholesale level, so that they would be paid by retailers up front and passed on to consumer, instead of being paid directly by consumers, or barring that, they would be applied as a VAT (Value Added Tax) style tax, however the preference would be to charge these fees at the point of sale to consumers.

The beauty of a system like this is that it both makes it possible to accurately charge people for the real health care related risks that they are taking, and thereby the likely costs that they will incur, and it also serves as a way to price in the true cost of consumption of goods and services up front, so that people can make more informed decisions and better choices.

For example, if you buy one type of potato chips and you get charged a 30% insurance fee on it when you check out, you may think twice about consuming that product in the future and look for an alternative with a lower, or with no, additional health insurance fee added to it. And by doing so, you would be reducing your risk of future health problems, and thus actually reducing the burden on the overall health care system and reducing the cost of health care in the country. On the other hand, there is nothing to force you to do that, so if you chose to keep eating the bad chips you can, but you will be paying appropriately for your likely future health care costs, instead of pushing those costs off on to other people.

People who don't buy a lot of junk food won't pay much in additional fees, and people who do will. It isn't being a "nanny-state", it is simply a matter of more accurate pricing. This approach actually enhances the power of markets, it doesn't try to hinder them. The reality is that right now markets aren't working in people's lifestyle choices because the true costs of consumption choices aren't known up front and isn't fully factored into buying decisions. By placing the full cost up front, it allows the markets to be more accurately representative of the choices that the consumer is actually making. And the important thing to note here is that this type of system could only be implemented with a true single payer health insurance system.

Junk food could be taxed without using a single payer system, but the overall approach would have to be crude, and ensuing that those taxes were used to pay for health care costs would be more difficult. With a single payer system the fees can be appropriately set by actuaries via the use of studies and provider reporting, and the fees can be a direct component of paying for health care, thereby directly offsetting the cost of insurance for everyone.

One area of concern here is the potential impact on the poor, who overall are larger per-capita consumers of junk food and tobacco products. This should not be a concern, since the poor will be paying a lower rate for their base coverage, and since the objective here is to change behavior, and thus the preferred outcome would be to reduce the rate of smoking and junk food consumption among the poor.

The third component of the single payer coverage system is that of employer contributions. Overall, the cost of health insurance to employers would go down dramatically under this system, as most of the costs would be shifted to individuals, under the umbrella of the federal government. But as mentioned initially, there are three major components to an individual's health care risks, their inherited biology and age, neither of which they can do anything about, their lifestyle choices, i.e. the goods and services that they consume, and the third component is workplace related risks. It is simply a fact that working in a coal mine is harder on one's health than working as a sale's clerk. Employers would be required to pay into the single payer system based on the type of work performed and the associated risks. This would be accomplished by using the existing worker's compensation classification system. Employers would not only pay rates set by actuaries for worker's compensation insurance, but they would also pay fees based on those same job classifications, using independent rates for general health insurance, into the single payer health care system. Worker's compensation insurance covers medical costs for employees who are injured in the course of employment. The employer contribution to the single payer health insurance fund would cover health risks related to the line of work, other than the risk of injury on the job, such as long-term health risks and indirect, but associated health risks, for example the risk of lung cancer for employees who work in smoking environments, etc. If you work in a bar for 10 years and then then 10 years after you worked in the bar you develop lung cancer, that isn't covered by worker's compensation insurance. An additional fee for workers would go toward covering those types of risks.

The important thing to note here is that employers would then only be paying for the portions of risk associated with the work being performed by the employees, as opposed to the way in which employers now often pay for the entire health care policy or for some portion of the policy based on what the employer feels it can pay or what unions demand they pay, etc. The portion paid by employers under this system would essentially always be less than what paying for full coverage costs currently, and some employers would likely pay nothing at all. Jobs that have no special health risks associated with them would have no health insurance fees either.

A system like the one proposed here would have many advantages over the current health insurance system. For one thing it would be cheaper for employers overall, thereby increasing American global competitiveness.

Secondly, such a system would completely eliminate problems associated with "genetic discrimination", a mounting potential problem in the area of health care and health insurance. By adopting a single payer system, and by shifting the cost of increased risk based on individual choices to the point of sale, numerous potential privacy issues are avoided. With a single payer system that charges a flat base fee to everyone, the potential for misuse of genetic information or of potential ethical problems with the use of genetic information by insurers is eliminated. This is important because there is a real risk that both growing genetic information could undermine the entire private insurance system, and that the advancement of genetic screening for use in potential treatment and preventative care could be negatively impacted due to the potential for such information to undermine the long-term economic interests of patients by making them "uninsurable" in the private market if such information indicates that they carry high-risk genes. This would also mean that the issue of pre-existing conditions would go completely out the window. It's not that you would no longer be denied coverage for pre-existing conditions, the issue of pre-existing conditions would simply cease to exist altogether.

Thirdly, by completely separating individual coverage from employers, this provides many benefits for individuals. This would mean that your insurance would no longer be tied to your job, and you would no longer have to worry about losing your insurance if you lost your job or changed jobs. It would also eliminate the potential for employer discrimination based on medical conditions, because the employer would no longer have any direct financial incentive to discriminate, as they do now. Currently, since individuals with medical problems can cause rates to go up for the entire insured workforce, employers have an extra incentive to discriminate based on medical conditions. Not only that, but they also have incentives to monitor employee's behavior and to infringe on employee privacy in the name of controlling health care costs, for example holding anti-smoking polices that make smoking, even outside the workplace, grounds for termination.

Fourthly, by having a universal single payer system, one of the most complicated and wasteful aspects of the health care system could be eliminated, which is the complication of dealing with filing insurance claims and the processing of payments. The America system of payment processing is the least efficient in the industrialized world, because of the maze of private insurers that we have in America, each of which uses different systems for processing, has different rules, different paper work, etc. The diversity of insurers is a barrier to standardization, while a single payer system would be able to provide highly standardized and predictable systems of payment and claims processing.

Fifthly, by having a universal single payer system individuals would no longer have to worry about changing insurers when moving to different locations, and insurers would be able to become much more familiar with the use of their insurance. Health care providers would also, due to having one single standard and set of rules, be able to know exactly what the coverage guidelines were for treatment, etc.

While many other reforms are also needed in terms of health care delivery, equipment and drug costs, etc., what I'm presenting here is just a framework for meaningful insurance reform, that not only changes health insurance itself, but which also addresses the root causes of America's out of control health care costs. By incorporating risk related pricing to the consumption of goods and services at the point of sale, not only does the system become much more fair by ensuring that individuals more accurately pay for the risk burdens that they place on the system, but it is also reasonable to expect that such a system would allow and encourage people to make better lifestyle choices, resulting in an overall reduction in demand for health care services, by reducing unhealthy lifestyle choices in the first place. And thus the system is not just a system designed to pay for health care, but a system designed to reduce the demand for health care as well.

Increased funding for Medicare

With the elimination of Medicaid and the rolling of Medicaid recipients into the general insured population, Medicaid funding would go away as would the taxes used to support Medicaid. As for Medicare, the Medicare tax is currently only applied to payroll taxes, it does not apply to other forms of income. As with other similar proposals, the proposal here would be to apply the Medicare tax to all forms of income, not just payroll taxes. This would increase funding for Medicare and address the long-term solvency issues. In addition, with the implementation of insurance fees at the point of sale for goods and services that contribute to increased medical risks, obviously some of these goods and services would be purchased by seniors and thus seniors would be paying these fees. Not only that, but due to the fact that some health effects from lifestyle choices don't manifest themselves until old age, it is furthermore appropriate that Medicare receive a portion of the revenue generated from the point of sale fees.

The additional revenue from applying the Medicare tax to total income, not just payroll income, and from the point of sale fees, should more than adequately fund the Medicare system, and may even allow the Medicare tax to be reduced.

Overhaul employer compensation practices

One of the problems with the American labor market, and labor markets around the world in general, is that they are not very transparent or easily understood by employees. In addition, one of the problems faced by employers in America is that the cost of employing an employee is significantly higher than simply the wages that they pay to the employee.

Currently, employers typically have the following expenses for an employee on top of the wages paid to the employee:

  • A "hidden" roughly 6% Social Security tax on the payroll of each employee, up to the roughly $100,000 limit.
  • A roughly 1.2% "hidden" Medicare tax.
  • Worker's Compensation Insurance (which varies by the type of job)
  • Unemployment Insurance
  • Health insurance costs (decreasingly so)

These fees alone can add up to roughly 30% or more of the direct costs of employment. In other words, if your gross pay for a year is $50,000 it is probably costing your employer about $72,000 to actually pay your wages, benefits, and taxes.

This doesn't even count things like training costs, the cost of the capital used by the employees, the cost of safety compliance, the cost of administration of the employee's files and payroll, etc.

This is problematic on multiple fronts, for both the employer and the employee. The first thing to do is to eliminate "employer paid" portions of all taxes, federal, state, and local. Instead, whatever taxes would be paid should be added to the employee's wages and then taxed directly from the employee, so that the employee can see fully the cost of the taxes.

If the changes to Social Security that are proposed above were adopted, the result would simply be the elimination of the employer contribution to Social Security and Medicare, with likely a 1% reduction in the amount of Social Security taxes currently taken out of employee paychecks and a 1% increase in the amount taken out for Medicare as the total Medicare tax would remain roughly the same, but the total cost of the tax would be seen by the employee.

However, even if those changes to Social Security and Medicare were not adopted, the full cost of the taxes should still be shifted to the employee, with the stipulation that employers would have to increase employee compensation by at least the amount of the tax burden shift. In other words, if the employer would pay $3,000 in Social Security taxes for an employee with an income of $50,000, the employer would then have to pay the employee $53,000 at the time of the implementation of the taxation change.

If the health care system changes that are proposed above were adopted, then clearly there would be no more employer provided health insurance at all. In that event, again, employers should be required to pay employees whatever amount they were paying for health insurance prior to the adoption of the single payer system. This is critical because the single payer system would be paid for purely by taxes on individual income, plus taxes on goods and services, so the cost would be shifting to individuals.

However, if a single payer system were not adopted then we should still move to a system there health insurance costs are paid purely by individuals, and eliminate employer provided health insurance altogether. The first thing to understand is that the reason that employers provide health insurance is that health care benefits provided by employers are not taxed like normal income, so it is a way for employers to provide a form of compensation at a lower cost than regular wages. So basically $3,000 given to the employee in wages or bonuses is not as cost effective as $3,000 given in health insurance benefits, because for $3,000 in health insurance benefits you get $3,000 worth of benefits (sort of), but for $3,000 in wages the employer has to pay Social Security and Medicare taxes, plus the employee pays taxes on it, so the real benefit to the employee is more like $2,700, at a cost to the employer of $3,200.

So, despite the fact that many progressives have traditionally opposed taxing health care benefits, health care benefits should actually be taxed like income in the absence of a single payer system. The way to do this is for employers to be required to pay the employee the amount that would go toward health insurance, and then automatically deduct the amount needed to pay for the insurance from the employee's paycheck. Under this scenario, if we made no other changes to the current health care system, the result would be that employees would be able to get in on group plans via work, but they would see the entire cost of the insurance themselves. This would allow employees to better judge the costs and benefits of employer provided group plans and other possible alternatives, such as buying their own insurance on the private market or via the to-be-established insurance exchange laid out in the Patient Protection and Affordable Care Act.

This would likely result in the phasing out of employer provided health insurance, which is actually a good thing.

In addition to dealing with those direct costs, employers should be required to provide employment cost and financial statement reports to all employees, both at the time of hire, and at least once a year. These should be statements that show the employers' costs for the individual employee for things like worker's compensation insurance and unemployment insurance, in addition to total revenue, total revenue per employee not counting executives, total company profitability, profitability per employee not counting executives, and full details of all executive compensation.

This should be required for all employers with total revenue of more than $5,000,000 a year. The IRS could provide forms on-line that would either automatically be populated via the company's reporting, or the forms could be filled out by employers directly. The important thing here is that there would be standard reports which would make it easier for employers to know what to provide and how to do it. Employers would be allowed to use their own custom reports as long as they included at a minimum the required elements. Employers would be encouraged to provide additional information at their own discretion.

This type of reporting would not place any undo burden on businesses, as most businesses already track this kind of information internally, they just don't report it to employees.

The point of all of this is to make labor markets more transparent, and for workers to have a better understanding of how much value they are actually creating and how much they are being compensated, and where that compensation goes.

Create a permanent Office of Job Creation

Today workers who lose their jobs can collect unemployment benefits for over a year, with increasing pressure on congress to extend unemployment benefits even further.  During the Great Depression, however, the government put unemployed workers to work instead of simply paying them wages for doing nothing. Today many progressives believe that we should do the same, but ironically, conservatives favor simple unemployment benefits to government run works programs because works programs expand the role of government.

The clear fact is, however, that paying people to do nothing in these circumstances is not as beneficial to the economy or the unemployed as putting them to work, given our current economic circumstances.

What we should have is a permanent Office of Job Creation within the Department of Labor, which would provide short term contract jobs to anyone out of work who wanted to work. The Office of Job Creation would be charged with constantly monitoring the unemployment rate and creating temporary government jobs to satisfy demand for work from the unemployed.

All of the jobs would be directly run by the government at the federal, state, and local levels, via funding from the unemployment insurance program. They would not be contracts for private jobs with government funding. Compensation for the positions would be roughly comparable to unemployment benefits, and none of the positions could pay in excess of 20% more than the maximum allowed unemployment benefits.

The contract duration for the positions would range from 1 day to 1 year. These would be jobs doing things like data entry, environmental cleanup, roadway and park cleanup, construction, janitorial services, substitute teaching, nursing assistance, website development, Peace Corps positions, positions helping the needy, etc.

Obviously people would be paired with jobs that matched their experience and skills. These positions would not be allowed to compete with private sector jobs and they would not be allowed to compete with full-time government jobs either. These jobs would only be created for needs that existed, but for which there was no budget available to fill the needs.

Unemployment benefits have currently been extended to a maximum of 99 weeks, or roughly 2 years. What I would propose is that unemployment benefits should be capped at 6 months. After 4 months of drawing unemployment benefits individuals would be allowed to apply for jobs with the Office of Job Creation. At the end of 6 months unemployment benefits would be stopped, at which point individuals would have to work for either a normal employer or work at positions via the Office of Job Creation for at least 1 year before becoming eligible for unemployment benefits again.

The positions at the Office of Job Creation would be visible to everyone all the time, however you could only apply for those positions after having drawn unemployment compensation for 4 months. This would give you a 2 month window between when you could begin applying for positions and when your unemployment benefits would be cutoff.

Everyone capable of working would be guaranteed a job that paid at least 80% of your unemployment benefit by the Office of Job Creation. You may not be guaranteed a good job, but you would be guaranteed some job in your local area (in rural areas "local" could mean up to 100 miles away, etc.).

All of the jobs with the Office of Job Creation would be designed to be fluid, and would be designed for people to quit them at any time. They would also be designed to allow people to continue applying for other jobs and going on interviews. The jobs would be limited to a range of 4 to 6 hours a day of work time. This would be done both to make it easier to employ numerous workers if needed and to make it easier for people to continue looking for other work. Thus, the hourly pay for these positions would be relatively high, going into the $20+ an hour rate at current compensation levels. This fact would also help to ensure that these positions were not competing with full-time positions, as they would not necessarily be cheaper than using full-time employees.

While individuals would be guaranteed a job, they could also be fired from these jobs for poor performance and failure to show. If an individual is fired from an Office of Job Creation job, they would still be able to reapply for a new position with the office.

Yes, many of these positions would be highly inefficient, however inefficient work is better than no work. At least people would be creating some value for the unemployment benefits they were receiving instead of doing nothing at all. In addition, this would also create additional private sector demand, because the projects being done would require the use of resources, which would increase demand for goods and services from the private sector. Not only that, but it would also expose people to new opportunities and people, perhaps increasing people's chances of finding new job opportunities.

As long as our economy is depended upon the wage incomes of individuals, it is necessary to ensure that individuals will remain capable of acquiring wage income. Under the influence of programs like the National Individual Investment Program outlined above, the economy would trend away from dependence upon wage income, and when significant dependence on wages is eliminated a program such as this one could be eliminated.

Dramatically reduce Military spending

In 1953 President Dwight Eisenhower made the following comment about the rise of military expenditures during the Cold War.

Every gun that is made, every warship launched, every rocket fired signifies, in the final sense, a theft from those who hunger and are not fed, those who are cold and not clothed. This world in arms is not spending money alone. It is spending the sweat of its laborers, the genius of its scientists, the hopes of its children.

The truth of Eisenhower's statement has never been more relevant than today. Roughly 20% of total federal spending is officially budgeted for current military spending, with an additional 5% to 7% spent on associated military costs, such as veterans benefits, "civilian" research and development that is actually geared toward military use, interest paid on military debt, etc., which means that overall roughly 24%-28% of the budget has gone toward acknowledged military spending on average over the past five years. The pie chart below shows the published federal budget for 2009.

In fact, however, actual military spending has vastly exceeded the budget over the past decade. The pie chart above is based on the published $782 billion Pentagon budget for 2009, but based on an analysis of actual military spending, the US spent 1.5 trillion in 2009. This puts actual military expenditures at close to 40% of total federal spending.

See: Military Budget of the United States

Below we see military spending in relation to the discretionary budget. This is, in many ways, a more accurate picture of our military spending, since Social Security and Medicare and Medicare have their own dedicated and separate taxes, although there is some use of general funds as well by those programs. What this excludes generally is unemployment payments, retirement benefits for government workers, Social Security, Medicaid and Medicare, and interest on the debt.

The United States accounts for roughly half of all military spending in the world. However, a part of reducing American military spending, will be working with allies to encourage then to increase their military spending and shifting the burden of global defense from largely American shoulders to a more balanced burden, shared by the US and our allies.

source: http://www.nationalpriorities.org

Clearly current American military spending is unsustainable, out of control, and is using up significant resources that could better serve Americans by either being spent domestically, or by being used to reduce the overall budget and thereby reduce or eliminate the deficit. Since the national debt can reasonably be considered a national security threat, as the chairman of the Joint Chiefs of Staff recently stated (calling it the single biggest threat to national security), it is reasonable to use the budget from the Department of Defense to reduce the deficit and pay down the debt. The purpose of the defense budget is to use it to guard against threats. If the Joint Chiefs of Staff have identified the national debt as the single most significant threat to American security, then we should use the defense budget to address that threat.

The issue is fundamentally quite simple. In what way are American tax dollars most effectively used to improve the quality of life of Americans? I argue that the spending of tax dollars on the military, beyond what is needed for basic self defense, is one of the the least effective uses of tax dollars, especially since a large portion of current spending does not directly benefit Americans in the first place. Much of the spending is on unneeded weapons systems, which were designed decades ago during the Cold War. The American military already so far surpasses every other military in the world technologically and in capability that there is little real incentive to continue development of new large scale weapons platforms, such as new bombers, new fighter jets, new submarines, new aircraft carriers, etc., and yet these types of weapons system and more are still being developed. The American military is also currently deployed all over the world, with thousands of American troops on every continent except Antarctica. This all comes at significant cost to American tax payers, at a time when the country is running massive deficits.

What is more important, keeping American troops deployed to South America or maintaining Medicare? Building the newest largest most powerful submarines, when no one else in the world has submarine capability even close to what we already have, or improving our schools? Spending has to be cut somewhere, so what are we going to cut, things that directly benefit Americans, like schools, health care, roads, our obligations to retirees, or can we cut military spending instead?

Presently Secretary of Defense Robert Gates in engaged in an effort to cut wasteful spending in the military, and his efforts have garnered much attention and praise from across the political spectrum, but Secretary Gates has openly stated that his efforts to cut military waste are part of a strategy to ensure that the military budget remains relatively unchanged. His fear is that without cutting some of the obvious waste, much larger cuts could be requested down the road, so he is engaged in a "preemptive strike" in order to stave off further cuts in the future.

See: Newsweek: A War Within

But simply preventing further increases in military spending is not enough, what we need is a reduction in military spending, and not simply modest reductions over time, but a massive reduction, on the order of cutting the military budget in half over 15 years and cutting real military spending by as much as a two thirds over that time.

How could such dramatic cuts in military spending be achieved? There are four basic courses of action:

  • Reduce the global American military footprint
  • Eliminate earmarks and virtually all contractors; Create government entity for production of military hardware
  • Reduce the ranks of the enlisted, especially top brass
  • Implement a new military funding tax on imported fuels

There is a lot more to each of these steps than simply cutting back. Cutting back can only be achieved if other things are done to offset the vacuum created by taking these actions. What it all really comes down to is the need for the United States to share more of the global defense responsibilities with allies. This requires building increased trust and cooperation with allies and increased systems for shared military responsibility.

Reduce the global American military footprint

All of these steps basically have to work together and be taken in concert. The very first part of the process, however, is to begin working with allies to shift the burden of global defense from America to allied forces. One of the primary reasons that the United States spends so much more than the rest of the world on military, is that many of our allies take advantage of the protection provided by our military, without shouldering the cost. American troops are currently deployed to over 150 countries around the world, with one quarter of America's 1.5 million active duty personnel stationed outside of the United States. Roughly 10% (150,000) of America's active armed forces personnel are serving in Iraq or Afghanistan. We have roughly 30,000 troops in Japan and 30,000 in South Korea, and about 85,000 stationed in Europe.

The first places that America should begin scaling back are of course Europe and Japan. Much of our footprint in Europe and Asia is a product of World War II and the Cold War, and we no longer need to maintain forces in these locations. In Europe, America now has military bases in Germany, Italy, Spain, Portugal, Greece, Britain, Norway, Sweden, Belgium, Turkey, and Poland.

America should begin negotiating the terms of our withdrawal from most of the countries. In some cases we may be able to sell American bases to the host countries to recoup some of the costs. Some presence could be maintained, for example keeping some bases in Germany, Britain, and Italy, while closing down the rest. This would require that European countries increase their own military spending and capabilities.

When it comes to Japan, Japan is currently prevented by their constitution (drafted under the guidance of the US after World War II) from having a meaningful national military. We should begin negotiations with Japan and other allies to encourage Japan to adopt changes to their constitution, with the blessing of the United States and allies, to change their constitution and begin the buildup of their own military and to return to Japan the right to declare war. This has many potential benefits, both for Japan and for dealing with North Korea and China, as well as handling some other international issues.

For example, Japan is currently the primary country that still engages in whaling and it is widely acknowledged that to a large extent this whaling effort is perpetuated and propped up by the Japanese government as a source of nationalistic pride. Engagement with Japan on the military issue should make total ceasing of whaling a condition of supporting the development of a Japanese military. Then Japanese nationalism can be redirected from whaling to their military to satisfy their patriotic urges.

By having an armed Japan, this could make dealing with North Korea and potentially even China much more manageable. Of course China and North Korea wouldn't like having an armed Japan one bit and it would cause certain disruption of the current status quo in Asia, but the point here is that it would take some focus of the United States, and I believe that North Korea would be much more intimidated by Japan than they are of the United States. China would be outraged, but this is something that ultimately needs to happen, and it's better to do it now than later. By aiding Japan in the redevelopment of its military the US could further cement its relationship with Japan and garner much support from Japanese conservatives. With the growth of the Asian economies, Japan is being pulled into the the Asian sphere somewhat and away from its relationship with America and this would be a way to add additional support to that relationship. The regional politics of dealing with an armed Japan are obviously very complicated, but overall I think it would be beneficial to both American and regional interests for Japan to field its own military and assert its right to declare war. It would certainly make Japan a more meaningful partner in the region.

As Japan's military comes on line, American forces could be withdrawn from Japan.

The biggest challenges in terms of reducing the American footprint would obviously come in the Middle East and Eastern Europe/Central Asia. Certainly we should not be expanding our footprint in the Middle East or Central Asia, and over the next 15 years we should be withdrawing completely from Iraq and Afghanistan and reducing our troop levels in other Middle Eastern nations. It is doubtful that we could fully withdraw from the Middle East, especially due to the situation with Israel. Like it or not, if for no other reason, as a major ally America has to remain committed to some protection of Israel, which likely requires some on-the-ground deployment in the region.

With the winding down of American involvement in Iraq and Afghanistan, and the buildup of European militaries, American deployments in Central Asia can be reduced and eliminated in many countries.

Other bases around the world also need to be closed down and troops withdrawn from many countries, but the most important changes here are in regard to the American footprint in Europe and Japan, places where the United Sates is providing military protection at great personal cost, to allied nations which can afford their own protection and should shoulder the burden themselves.

Eliminate earmarks and virtually all contractors; Create government entity for production of military hardware

One of the most significant challenges we face in getting American military spending under control is the combination of private for-profit military contractors and the lobbying of Congress by these very contractors to get more profit-swelling funding from the American government. This is facilitated by the fact that a relatively small but significant portion of federal military spending occurs through the earmark process and is not even budgeted for. In some cases earmarks are doled out by congressmen for projects that the military doesn't even want and in some cases has actually requested be terminated. This is because these projects aren't being driven by need, they are being driven by greed, the greed of the corporations seeking the earmarks and the greed of the congressmen who benefit from donations made by the corporations seeking the earmarks. Even though the direct cost of earmarks for military projects is relatively small, once those projects are completed they often require additional revenue to acquire and maintain long-term.

This is yet one more aspect of American military spending that former president Eisenhower warned us about, in his famous Farwell Address to the Nation in 1961.

This conjunction of an immense military establishment and a large arms industry is new in the American experience. The total influence — economic, political, even spiritual — is felt in every city, every statehouse, every office of the federal government. We recognize the imperative need for this development. Yet we must not fail to comprehend its grave implications. Our toil, resources and livelihood are all involved; so is the very structure of our society. In the councils of government, we must guard against the acquisition of unwarranted influence, whether sought or unsought, by the military-industrial complex. The potential for the disastrous rise of misplaced power exists and will persist. We must never let the weight of this combination endanger our liberties or democratic processes.

It is quite obvious today that this potential has been realized and that Eisenhower's predictions came true decades ago. Today American tax-payers are held hostage to hundreds of private contractors, and nowhere is that more true than in the area of military spending. These contractors spend millions of dollars a year paying congressmen and others to direct billions of dollars a year into their pockets. One of the single largest obstacles to reforming military spending is the fact that so much military spending can be engaged in without explicit approval from Congress, the Pentagon, or the President. Without a line item veto (which has its own problems) earmarks are a way for congressmen to circumvent the system and funnel money to donors and pet projects.

For examples see: Defense Bill, Lauded by White House, Contains Billions in Earmarks

All in all, earmarks only account for roughly 2% of overall federal spending, and about 4% of military spending, but the larger problem with earmarks is the corruption that they can foster and the lack accountability in budgeting and spending, and this problem is perhaps most pervasive when it comes to military spending. The use of earmarks helps to perpetuate the system of entitlement and dependence of private for-profit businesses on the federal government. Even though earmarks only account for a relatively small portion of overall federal and military spending, they make budgetary reforms more difficult across the board, in part by further rewarding lobbying and in part by making cuts more difficult since they can be circumvented with earmarks.

Earmarks are often defended by noting worthy projects that are funded with earmarks, and there are some worthy projects funded with earmarks, but most of those worthy projects could still get federal funding without the use of earmarks if they are truly worthy, they would just require congressional debate and votes. Because a disproportionate amount of earmarks go toward military spending, completely eliminating the earmark process is an important step in reigning in military spending. It is doubtful that additional restrictions on earmarks, while not completely eliminating them, would be successful long-term, as ways to circumvent the rules would surely quickly develop, as is already the case with the recent earmark reforms passed in 2006, which have had little or no impact on earmark spending.

Earmarks are only part of the problem however, and can perhaps be seen as a type of gateway drug that facilitates the larger overall problem of government contracting with private for-profit corporations, providing a profit motive for inducing ever greater government spending. The driving factor behind this is a extensive use of contracting with for-profit corporations in the first place.

Hundreds of billions of dollars a year are funneled from American tax payers to high-profit private companies for the production of ever more weapons and ever more military services. It is well known that this is one of the most out of control aspects of the federal budget, because the influence of lobbying from these companies, and associated sponsored think-tanks, is the most powerful lobbying block in Washington. The lobbying efforts of the arms industry in America are very powerful, but there is also public support for continuing large scale federal acquisitions of arms from private for-profit companies because so many jobs are dependent on this industry.

Today, the arms industry is one of the few remaining strong points of American manufacturing, supplying roughly 5 million jobs to the American economy. Not only are numerous jobs a product of military spending, but military spending tends to produce high paying jobs, employing many engineers, scientists, and skilled manufacturers. While much of American manufacturing has moved over seas, military manufacturing remains largely domestic because of the sensitive nature of the work, and laws governing it, which require in many cases that research, development, and production to be done here.

However, the reality is that every dollar of government military spending produces fewer jobs than equivalent spending would produce if those dollars were spent in virtually any other industry, from education, to health care, to infrastructure construction, to new energy technology development, etc. Not only would equivalent spending produce more jobs in those other industries, but the products of those industries would produce real tangible benefits to Americans, directly improving our quality of life, unlike much military spending, which produces goods that are often sold to foreign countries (America is still the top weapons supplier to the world), are often not needed, and in many cases are used to provide global security for foreign countries, such as our capable allies in Europe and Asia.

So what is the solution here? In addition to completely eliminating earmarks, the larger and more difficult step is to create a new government entity, similar to NASA, which would be responsible for engaging in the primary research and development of new military hardware, as well as the manufacturing. Currently NASA does outsource a lot of its production, so this would not completely eliminate the issue of contracting, but there would be multiple benefits and it would be the means of reducing contracting and gradually taking over the role production of military hardware by the federal government itself.

Why should the federal government get into the business of producing its own military hardware? The financial reason, of course, is because it would eliminate the profit motive for the production of military hardware. Once private for-profit companies are cut off from the supply of tax-payer money, the push for unneeded military spending would be mitigated, and those companies' influence on the federal government would be dramatically reduced.

But there are other benefits as well. One of the on-going problems with America's armed forces is lack of hardware integration across the armed services and even within each branch. This problem has been reduced in recent decades, but it still persists. By creating a single governmental organization, charged with the design, development and production of all military hardware for the armed services, the military would actually get much greater control over weapons platform design. This could lead to much better integration of hardware across service branches and a much more consistent approach to future hardware planning. It could also lead to more fluid integration of military personnel into the design, engineering, manufacturing, and maintenance of military hardware.

As this new governmental organization comes on-line, it would begin hiring individuals from many of the private for-profit companies in the military industry. The government could even buy out some of the private companies. There would be a substantial upfront cost to doing this, but in the long run, this would provide a much greater degree of military control over both production of new hardware and the military budget. In addition, due to economies of scale and the ability to make broader use of production capacity, it would be possible to produce more hardware at lower costs per unit. Currently the military contracts with hundreds of different suppliers and is required by law, for competitive purposes, not to get all of their hardware from the same suppliers. This means that, for example, some aircraft are made by Boeing, some are made by Northrop Grumman, some are made by Lockheed Martin, etc. This leads to a lot of redundancy and waste of productive capacity due to unnecessary duplication.

Taking over military hardware production  would lead to a significant expansion of federal payrolls and responsibilities, but it would actually lead to reduced spending. Once military production is taken over by the government, there is no longer any profit motive to perpetuate unneeded military production, and fiscal conservatives would then be more clearly motivated to reign in spending.

At the same time, while there would be a transition from private military hardware production to public production of military hardware, the federal government would also help transition private for-profit companies that currently contract with the US government for military hardware to civilization production both by helping to foster a return of high tech manufacturing to America through other economic policies, some of which have been outlined in other sections of this paper, and by subsidizing their transition to civilization private sector manufacturing, and by hiring some as contractors for interim civilian projects, such as renewable energy production, infrastructure development, health care, civilian space projects, etc.

There are literally hundreds of domestic needs that many of the resources directed to the military industry could be redirected to, at lower costs and for a much greater impact on society.

For more information see:

THE U.S . EMPLOYMENT EFFECTS OF MILITARY AND DOMESTIC SPENDING PRIORITIES

United States Budget FY 2011: Department of Defense

Missouri Economic Impact Brief: US Department of Defense Contract Spending

Earmarks in Appropriation Acts

List of United States defense contractors

Military budget of the United States

Reduce the ranks of the enlisted, especially top brass

Reducing the ranks of the enlisted, with a focus on high ranking officials, is something that is currently part of Secretary Gates' agenda for controlling military spending. Generally speaking, the focus of Secretary Gates' actions is appropriate, but further reductions could be achieved if the American military footprint were reduced as outlined above.

The defense secretary’s deeper complaint is about what he calls "brass creep." Roughly translated, it means having generals do what colonels are perfectly capable of doing. Generals require huge staffs and command structures: three-star generals serving four-stars, two-stars serving three, each tended by squadrons of colonels and majors. This sort of elaborate hierarchy may have been called for in Napoleon’s day, but in an era of instant communication, Gates thinks the military could benefit from a much flatter, leaner management structure.

These entourages are symbolic of a military leadership that, in the view of its civilian leader, is suffering from an inflated sense of entitlement and a distorted sense of priorities. If Gates has his way, the top brass will have to shed old habits and adjust to leaner times. Some of them will become civilians. The number of generals and admirals has increased by more than a hundred since 9/11, to 969 (and counting Reserves, roughly 1,300).
- Newsweek: A War Within

With a reduced global footprint, there simply is no need for the size military that we currently have. Reducing the global military footprint will allow America to both reduce the overall size of the military and have more troops available for deployment on specific missions when needed, because fewer troops will need to be stationed around the world on an on-going basis. On top of that, as Secretary Gates has already outlined, the current number of high ranking officials currently in the military isn't needed even under current conditions and needs to be cut. These high ranking officers receive not only large salaries, but their very existence consumes multitudes of resources.

However, simply cutting these positions from the ranks is not the answer. One problem with reducing the number of high ranking positions is that this can take away advancement opportunities in the military, which can lead to talented service members leaving the military due to lack of advancement opportunities. What I would suggest is that a new command structure be developed, or new positions be created which are actually not a part of the command hierarchy, which could provide advancement opportunities, but though into positions that are not quite as highly compensated and which don't require the supporting apparatus of current officers.

One area of opportunity for this involves the newly created government run military hardware development and production organization proposed above. This organization would provide non-command advancement opportunities for military personnel. This would allow military service members to have a career advancement path that does not involve becoming an officer, but rather would transition them to engineering and manufacturing positions, which would transfer them from combat personnel to productive personnel. These personnel would be neither enlisted soldiers nor officers, and would have completely separate pay grades.

They would still be members of the military, and could be called into active duty during times of war, but they would have jobs working in research, design and manufacturing of military hardware, having first come up through the ranks of the military. The pay would not be as high as colonels and generals, for example, but would provide many benefits that those positions do not, such as greater home life stability, the opportunity to work in a more desired career, lower risk of being called into active duty, etc.

What this does is it provides continued career advancement opportunities for service members, at lower costs and while transitioning these personnel into more productive roles.

Implement a new military funding tax on imported fuels

In addition to simply proposing reductions in military spending, however, changes in military funding are needed as well, and these changes can be designed to help encourage reductions in spending. The primary proposal here would be to place a military funding tax on imported fuels. Given that leaders like Secretary Gates openly acknowledge that a driving factor behind global American military deployment is protecting American access to foreign fossil fuels, it then stands to reason that these imported fossil fuels should be taxed in order to pay for military services.

One way to do this would be to say that 25% of the military budget times the percentage of energy supplied from foreign sources should be raised via taxes on imported fuels. When the budget is set out each year, you would take 25% of the total military budget and then multiply that amount by last year's percentage of energy supplied from foreign sources. Currently roughly 58% of America's oil consumption comes from foreign sources. In terms of the overall dependence on foreign oil in relation to total energy usage, it's roughly 20%.

So for 2009 if we look at oil alone (the primary imported fuel), you would take 782 billion * 25% = 195.5 billion. You would then take 195.5 times 20% which gets you $39.1 billion. America imported roughly $300 billion worth of oil in 2009, so in order to raise $39.1 billion a tax of 13% would have to be added to imports of foreign oil.

That tax would then be applied when the fuels are imported, and would be passed on to consumers. The American public would then have an incentive to support both reducing the amount of foreign fuels being imported into the United States and to reduce military spending, because as either of these things goes down, the amount of the tax would go down.

Summary and Conclusion

The objective of the reforms outlined here is to reshape the American economy in such a way as to insure that all contributing Americans share in the prosperity that we as a society work together to create, and to do this in such a way that will strengthen American businesses and the economy as a whole, while laying the foundation for the development of a new type of economy that will become increasingly less dependent upon wages. This is essential in order to allow continued technological development and continued increases in productivity and efficiency.

By no means do the preceding reforms make up the extent of a progressive agenda to bring prosperity and social justice to America, but these reforms are foundational economic reforms that would have a broad and fundamental impact. What is certain is that shared prosperity is an essential component of long-term economic growth. The shared prosperity of the 1940s through 1970s in the United States was an essential component of the growth and success of the American economy. Ensuring continued sustainable growth and success for the American economy, which ultimately benefits all Americans, requires correcting the economic disparity that was allowed to develop in America over the past 30 years, and insuring that such economic disparity will never develop in this country again. Not only that, but the United States can and should use its policies regarding international trade and relations to reduce economic disparity around the world. Not only is reducing economic disparity a matter of justice and fairness, but it is also a practical concern. Economic disparity breeds conflict and leads to wasting resources dealing with conflicts that could have just as easily been used to reduce disparity, thereby avoiding conflict in the first place. Reduced economic disparity doesn't just reduce conflict, it also promotes economic growth, as the more opportunities that people have, the more individuals contribute on their own.

Essential to addressing issues of economic disparity is first recognizing the role of capital ownership and corporate control in creating vast disparities of income, which are not due to the greater contributions of those receiving high incomes, but are rather due to redistribution of value that is created by workers and redistributed to capital owners and capital controllers. Equally essential for addressing issues of long -term economic growth is understanding that technological advancement and increasing efficiency and automation will happen, and must happen in order to make continued improvements in the standard of living possible.

This means that systems which address the issues of economic inequality by slowing the development of capital and by protecting the "jobs" of workers are doomed to reduce living standards long-term. The objective of an economy is not to create jobs, the objective of an economy is to create value. This is why it is essential for long-term economic growth to develop economic systems that enable both the development of capital and the sharing of capital ownership.

Equally important is insuring that capital development is responsible and that our productive capacity is used to create economic and social "goods" (goods as in things that re good, not bad). Doing this requires the elimination of profits reaped via the off-loading of externalities. This means pricing social costs into the price of commodities, so that the real costs of goods and services are paid for by the consumers and producers of the goods and services that they consume and produce, instead of those costs being pushed off onto others.

At present the wealth and power of the world's wealthy is derived largely from redistribution of value created by workers to capital owners, and by externalizing the costs of their goods and services such that the true costs are shouldered by public institutions and vulnerable individuals. As such, our economic system is not optimized for producing "goods", but rather our economic system provides great rewards for leaches and the producers of social ills, which is evidenced, for example, by the sky-rocketing health care costs in America today. There are many millionaires and billionaires who are benefit from the goods, services, and systems that are leading to declines in American health, and this simply should never be the case. When an economy rewards social destruction, social destruction is what will occur.

Reward in America's economic system today is not sufficiently aligned with the creation of real value, rather the American economy has become an economy that largely rewards ownership at the expense of labor, manipulation, and the production of social ills, and until the economy is fundamentally changed so that this is no longer true the American economy, and American society, will remain in decline.

As our country continues to struggle with unemployment and a stagnating economy, it is important to look at new ideas and to understand what a truly progressive agenda might look like. Clearly no meaningful actions have been taken since the onset of the "Great Recession" to actually change the American economy. While there are likely many other possible progressive solutions to today's economic problems, the purpose of these proposals is largely to provide a contrast to the current economic agenda and to show what actual progressive policies might look like, so that we can stop pretending that the policies of the current administration are in any way progressive at all. The way forward for the American economy will require radical new ideas and actual changes to the structure of the American economy. In order to insure that those changes will be effective and will lead to growing shared prosperity, progressives need to be leading the way with innovative proposals for resolving America's economic problems and developing new models for America's economic future. Simply defending the programs of the past, like Social Security and Medicare, and backing unions is not enough. Radical changes are needed, and progressives must be the ones leading the way.

 

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