A Progressive Foundation for America's Economic Future
- 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
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.
- Replace tariffs with international production standards
- Federal Tax reform
- Eliminate distinctions between types of income
- Overhaul tax brackets, creating brackets for very high
- Eliminate virtually all tax deductions
- Create new type of corporate entity
- Fix Social Security
- Index future benefit increases on the rate of inflation, not on
- 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
- Reduce the tax from 12% to 5%-6%
- Implement a National Individual Investment Program
- Real health care reform
- A Single Payer system
- Address the root causes of health problems
- Increased funding for Medicare
- Overhaul employer compensation practices
- Move hidden taxes from employers to employees
- Require reporting of employer financials to employees
- Create a permanent Office of Job Creation
- 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
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
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
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
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
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
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:
- Index future benefit increases on the rate of inflation, not on
- 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
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.
For more on Social Security see:
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
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
The incomes of the wealthiest people in America, and around the world,
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.
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
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
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
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
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
$0 – $8,375
$8,376 – $34,000
$34,001 – $82,400
$82,401 – $171,850
$171,851 – $373,650
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
|Marginal Tax Rate
Single Filer Income
Total Paid w/o Deductions
at Marginal Limit
Total Income Tax Rate
at Marginal Limit
$0 – $25,000
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
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,
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
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
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
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
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
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
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
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
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.
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.
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.
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
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
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
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
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
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
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
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
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
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
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
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
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.