Topic: Semi-random Thoughts
Unfortunately it doesn't seem that any of the presidential candidates, even Obama and Edwards, have good ideas for economic reform in America. Having said that, here is what I would like to see done:
Healthcare Reform : The primary goal should be eliminating employer provided health insurance. The second goal should be universal or near universal basic care.
Tax Reform : Move to a single income taxation system, basically eliminating the discrepancy between wage, capital gains, and inheritance taxes. Also dramatically reform the income taxation rates. Increase tax collection to pay down debt.
Government Spending Reform : Completely eliminate the current earmark privileges. Reduce the military budget (after ending the war in Iraq). Fully adopt PayGo at the Federal level.
Trade Reform : Eliminate all tariffs. Require labor, environmental, and safety standards for trade with the US. Use fines for violations instead of tariffs. Open trade with every country in the world. Enforce standards on a per-trader basis, not per-country basis.
Social Security Reform : Change how benefits are calculated to use a combined median-wage and inflation index instead of the current average-wage index. Reduce the Social Security payroll tax by 1%.
Those are the basic policy positions I would take, but lets look at them a little more deeply.
I really don't know why the Democrat haven't figured this out, but it is a shame that they haven't. Healthcare reform can be billed as, and can in fact be, the greatest pro-business move in America in 50 years. We have to get employers out from under the burden of providing health insurance. This is the single biggest selling point of a national healthcare system. By removing health insurance from employers this helps both employers and employees.
This would eliminate a huge burden from employers and it would make things much easier for employees. You would no longer need to worry about losing your health insurance if you lost your job, you wouldn't have to worry about health insurance when switching jobs. This is an opportunity for real tangible change that would make everyone's life easier, so I can't figure out why politicians haven't picked up on this. The current growing trend, and what several of the candidates are proposing, is mandatory health insurance. This is a horrible idea, it is the worst of all worlds, and the only reason that this approach is even being proposed is because the health insurance companies like it, of course. This is where Edwards is right, it doesn't seem that Obama has the backbone to stand up against these corporations. Mandatory coverage just puts even more strain on the employers to provide coverage and more strain on people who lose or switch jobs. Employers provided health insurance is horrible. It provides an incentive for employers to discriminate against good workers who have health problems, and it gives them an excuse to pry into employees personal lives. This is an abomination and must be gotten rid of.
The solution is a national health insurance system. This needs to be clear, we aren't talking about government run health care, but rather government run health insurance. In fact, I wouldn't even recommend a truly government run health insurance system either, but rather I would recommend a quasi-government system, where the government acted like a broker, to give government the ability to drive down prices and make demands, but keep the actual insurance in the actual insurance in the hands of private industry. Everyone's healthcare would be provided through the government, but would be held and run by the private insurer, just like it works now with employers. Your employer provides you the insurance, but they aren't the insurer. Same idea here, except the insurance is paid for via taxes, and is provided to everyone who pays taxes. There would still have to be a separate system to deal with people like the homeless, etc.
The tax code needs to be simplified, no question there. The main reason it is complicated in the first place is due to corporate and special interests. Most of the deductions need to be simply eliminated, including things like the deduction for interest on a home mortgage, etc. Why should renters, generally poorer people, be subsiding the people who can afford to buy a house? It is popular, but it makes no sense. Eliminate deduction for dependents also. Why should without dependents subsidize those with dependants, typically children? Its basically a tax on being childless. There are many other much more complicated rules, most of which are popular, that also need to just be eliminated.
As a further simplification, eliminate the different types of income, and just have income. There are some valid arguments for the different classifications, but they are more trouble than they are worth. The Republicans have been wanting to get rid of the so-called "death-tax", the estate tax, then fine, let's get rid of it, and just count inheritance as normal income, problem solved (not the way they wanted to, but hey). Right now the wealthy a pay lower tax rate on capital-gains than they do on wage income, but the poor and middle class typically pay a higher tax rate on capital-gains than they do on wage income. This further skews investing in America to favor the wealthy.
After we simplify the code and simply count yearly income as income, next the tax brackets need to be radically overhauled.I have tinkered with taxation brackets several times, but here are my latest views. First we have to look at the current income tax brackets for 2007:
$0 - $7,825 - 10%
$7,825 - $31,850 - 15%
$31,850 - $77,100 - 25%
$77,100 - $160,850 - 28%
$160,850 - $349,700 - 33%
$349,700 and over - 35%
Keep in mind that these brackets are cumulative, i.e. we all pay only 10% on our first $7,825 of income, then 15% on our next portion of income, etc., thus what you actually pay is much less than simply looking at the percentage next to you yearly wage income.
The problem with these brackets is that they have way too much to do with low levels of income and don't address income at the really high levels. This was not typically the case in American history, when usually the tax brackets dealt most with the very high income levels.
What I propose is to eliminate most of the brackets at the bottom end and dramatically reduce taxes there, while adding many more brackets going up into the millions. Here is what I would propose:
$0-$30,000 - 0%
$30,001 - $100,000 - 10%
$100,001 - $300,000 - 15%
$300,001 - $500,000 - 20%
$500,001 - $1,000,000 - 25%
$1,000,001 - $3,000,000 - 30%
$3,000,001 - $5,000,000 - 35%
$5,000,001 - $10,000,000 - 40%
$10,000,001 - $50,000,000 - 45%
$50,000,001 and over - 50%
Some things to keep in mind here are that most people with an income under $30,000 today pay almost no income tax anyway, due to deductions. I would eliminate the deductions and just have these people file a simple form saying their total income was under $30,000 and move on with it. We waste tons of money dealing with the nonsense in this tax bracket, and usually it ends up that they pay no taxes anyway, but why waste time with the filing and processing instead of just calling it a simple zero?
The numbers are a little hard to compare since I would eliminate many tax deductions, but generally this would be a tax cut for everyone with an income under half a million. The average income tax rate actually paid by those in the top 1% in 2006 was 19.4, per the Congressional a Budget Office (see blog post from Dec. 18th below).
The percentages I provide here would be much closer to what would really be being paid, whereas due to deductions the current percentages greatly overstate the payments in those brackets.
Keep in mind also that under the current income tax system these percentages are applied only to wage income. Under my system these percentages would be applied to ALL income, including inheritance and capital gains. This means that capital gains for people with an income under roughly $500,000 a year would be taxed less than they are now. For people over that level of income they would essentially be taxed more.
Adjustments to these numbers would have to be made to ensure that enough taxes were being collected. Tax revenue would generally have to be increased over current revenue in order to, combined with cutting spending, be able to operate without a deficit and pay down the debt.
Government Spending Reform
The biggest and most direct spending reform would be the complete adoption of PayGo, where any bill that cuts tax revenue or that incurs a cost must pay for that cost in the same bill. Congress has already adopted PayGo, this was done in 1990, but the Republican controlled congress, under the leadership of Tom Delay, then developed ways to work around the PayGo rules. These ways need to be removed and PayGo needs to become solidly enforced again.
In addition to this, earmarks need to be completely eliminated as they currently are. There were $29 billion worth of earmarks in 2006, for projects considered to be unnecessary "Pork" projects. In 2007, under the Democratic Congress, that number dropped to $13.2 billion, but this is still way too high. There could perhaps still be some earmarking system, but not the current system whereby individuals can add earmarks on their own without any review, to an already established bill. At the very least a committee should be setup to review earmark proposals before they can be added, or a whole new process should be setup for the funding of projects of interest to a given state. I would perhaps favor a standing 6 person bipartisan committee, with an additional 7th person that has to be a Congressman from the same state as the Congressman requesting the earmark. This committee would review and approve earmarks before adding them to current bills. The committee would have to support the earmark by a simple majority.
Trade is the area where America interacts most with the world, and this is greatly overlooked as one of our greatest public relations tools. Firstly, I do favor free-trade, but I also favor-fair trade and safe-trade and think that these things are immensely important for addressing everything from terrorism to global warming to immigration.
Firstly we should stop, as well as we can (this depends on cooperation as well), from dealing with countries and start dealing directly with corporations. There are many advantages to this, though it also can make things more complicated. When we negotiate trade deals at the national level to reward and penalize companies for things that they aren't directly responsible for, and also this drives companies to move around from country to country based on trade deals, but there is no need for all that, and its a waste of resources and everything else.
We should very simply come up with one set of rules, any anyone who wants access to American markets has to follow those rules. As long as you follow the rules then you get free and unfettered access to the American markets, no tariffs. If you don't follow the rules you can be fined or, if the infraction is bad enough, barred.
The biggest problem with tariffs is that they punish the wrong people. Tariffs typically drive down wages in the country of origin, because in order to stay competitive while still paying the tariff it gives an incentive to pay workers less. This is the opposite of what we should be doing. What we should do instead is require compliance with a given set of pollution regulations, minimum wage, and employee rights. These rules would be the same for everyone. If you can't obey the rules then you pay a fine or are barred. This would move what is currently being paid in tariffs to the US into wages and improved working conditions in the home country, which would in turn also eventually open up more foreign markets for American companies as well, without adversely affecting consumer prices in America. At the same time, it would reward good corporate stewards for being good stewards no matter where they are. This would help to foster better relations with places like Iran and even perhaps Cuba, which could be opened up to trade as long and the proper conditions were met and of course as long as the home country allowed it. This would do more to promote progress and democracy than shutting off interaction with such places as we do today.
Likewise, poor stewards in good countries would be penalized more than what they are now or instead of simply relying on the home country to penalize them. There may be problems getting other countries to agree with these terms, that would remain to be seen, but basically any country that didn't agree would simply still be under a tariff. Regardless, we should work towards removing all tariffs and breaking down the barrier to trade, while at the same time focusing much more on ensuring the quality and fairness of that trade.
Social Security Reform
I have written about Social Security several times on this website and already covered what really needs to be done with it here:
Getting a grip on Social Security: The flaw in the system
Basically, Social Security is really not that bad off and with just a minor adjustment can easily be made solvent. In fact, with the minor adjustment so much money will be saved that it would be possible to reduce the Social Security tax, making it effectively another tax break for the middle class.
All that really needs to be done is to stop using average wage indexing. I think a good way to do would be to use a combined median-wage and inflation index instead. This would currently reduce the rate at which Social Security payment would be projected to increase. Some people complain about this, but there is no need for complaint. Currently Social Security payments are scheduled to increase dramatically above the rate of inflation, so people 30 or 40 years from now are schedule to get as much as 40% more per paycheck, after adjustment for inflation, than people today. This really makes no sense. Why should people in the future be getting paid more than people today? There is no reason why, and it wasn't even understood that this would happen the way that it has when the legislation was passed, because what has happened is that since wage discrepancy has dramatically increased over the past 20 years, the average wage has gone up much higher than the median wage, yet, the people making the high wages in the top 1% that are pulling that average wage up are not paying Social Security taxes on those wages. Thus, the poor and middle class are having to pay for increasingly higher payments even though their wages aren't going up. This is a hugely unfair tax on the middle class, and its really unnecessary.
I think that these economic reforms would strengthen the American economy, simplify the tax system, be more fair, and help the poor and middle class, while not harming American businesses, indeed the overall effect would be beneficial to business.