Wednesday, March 27, 2013

Random Thoughts on Taxation and Entitlements

A friend of mine recently asked "I`ve been hearing a lot of talk about how cutting spending will hurt women`s health, or kids well being, or social security for seniors who were promised it a long time ago. What I don`t understand is why can`t SS or Medicare/Medicaid programs be split-up in such a way that we can see where the money is going? Planned parenthood for example… Dems say if we knock out PP we will be hurting women’s health care. Why can`t we just cut out the abortion funds and leave the “female testing stuff” alone? Why are so many spending problems linked together? I guess adding these things in at the last minute is stuff gets shoved down our throats? Divide and conquer, I say!"

He urged me to blog my answer and so here goes.

Means testing for government benefits - something no one wants to invoke but it should be. At least for a set of demographics or a generation until we allow opt in or opt out or reform the plans to put retirement, etc, back to personal responsibility. More to requiring each individual to set aside his/her 7.5% pre-tax dollars into a retirement fund and also pay 1% into social security to cover all those who will fall through the cracks. The 1.45% Medicare is an acceptable tax for now until some sort of premium or policy on individual coverage can be better vetted out. Eliminate drug and alcohol support programs in Social Security. This is society as a whole paying for the sins and bad decision making of a few, not the providing for those to live out their lives with dignity and with a basic level of comfort who could not otherwise afford to do so. Graduated means testing based on age - very high threshold of say $60K annual income or more for 50 year olds and older to start. Then lowering the threshold to which Social Security payments are withheld down to where today's 20 or 30 year olds better be putting away 15% for their own retirement.

End employer matching of the 7.5% and thus eliminating the "Self-Employment tax" where an individual with his/her own business pays 15%. And many companies, not all, would hire another person with the accumulation of several 7.5% savings, of which 2 or 3 x 7.5% would hire an entry level person. That's more jobs.  More jobs or folks being employed is growth. Growth solves many of our revenue and debt problems! Growth stimulates the economy. Growth means more discretionary spending, more money for retirement plans.

I don't know about the whole medicare/medicaid situation. It is so big a mess, so depended upon. My folks survived with it. But it also points to the fact there is little "family" sacrifice or involvement as a result. I'm sure there are millions without family resources and therefore these programs in and of themselves are good programs. They have been expanded to the point to include folks that don't really need them. The voucher to pay for a premium is a good idea IF there is proper oversight without burdensome, overinflated government bureaucracy, to insure that the insurance plans actually pay out and take care of the folks.  But the shortcomings and looming financial crisis of Medicare/Medicaid plans needs addressed. There are many good, correct answers that would work.

There is talk of "can't you just eliminate the funds that go to the abortion services" for Planned Parenthood. Technically, yes. But when you fund one side, Planned Parenthood has more money to fund and use for abortions.

If Planned Parenthood had to do it all with private donations or fees, their abortion business would go down because of inability to pay for the service by most folks.  I'm sure the backlash to this idea is that Planned Parenthood would step up their propaganda to these women about how "they have a life threatening medical problem jeopardizing their lifestyle" or that they should abort rather than carry to term or possibly give up for adoption.

There is no "health care" in killing. Planned Parenthood has turned pregnancy into a disease or crisis condition rather than the miracle of the normal reproductive condition that it is.

While on the subject of healthcare - there is not one word or regulation prior to or included in Obamacare that I have seen that stipulates that insurance companies must cover well child checkups or visits such as physicals required for school and by the state, for immunizations, etc., or that the costs can be applied to the policy deductibles.  Most of the time, the cost would not exceed the deductible thresholds, so actually, the insurance companies are not out anything but what it cost them to process the paperwork. But the customer gets the benefit of the visits being counted toward an annual deductible in the chance the child might develop something serious enough to go beyond the deductible. And it would be very cheap, good PR for any insurance company, I would think.

I have heard that if 100% of individual income was taxed, it would still take years, decades, to pay for the national debt but it might end annual deficits.  What is missing in this statement is no mention of all the corporate tax. But then many companies have lobbied loopholes so they don't pay anyway.  Do they Jeffrey Immelt?  He's Chairman of the Board and CEO of General Electric.  GE didn't pay any corporate taxes in 2011.  He sat on President Obama's Economic Recovery Task Force.  But his company pays no corporate taxes.  Insulting, isn't it?

Now here comes some ideas for solutions.

I am NOT a "Fair Tax" proponent. While it sounds good on the surface - tax only when you purchase, there are HUGE demons in the details.  For one, the Fair Tax group wants a 19 or 20% sales tax.  Secondly, they want to literally write checks to anyone under a certain income level.  Can you say "expanded welfare"?!  They decry that income taxes are immoral and unethical and that taxation on economic activity is proper and the way we first did it.  Yes, and the USA had to borrow money like crazy to fund our defense.  It would give folks a very tangible feel for how much taxes they were paying if they paid $100 in groceries but the bill was $120.  And there is a salient point - what do you not tax to keep it from being a very regressive tax and inequitably hurting the poor even more?  Thus the Fair Tax proponent's welfare check solution.  It is true, it isn't really fair to simply exempt all groceries from sales tax, thereby the wealthy get a break intended to relieve the poor of some tax burden.  And isn't working, being productive, producing a product or service that the market demands considered "economic activity"?  I believe a 20% national sales tax (likely on top of state and local sales taxes) would stymie the economy as folks would not purchase as much even though, if by some miracle, the income tax was completely replaced with a sales tax.  But rarely (or never) would one tax replace another and it would surely come to pass that an income tax or additional tax schemes would be instilled.  What about property and personal taxes?  What about corporate taxes?  How many times will that manufacturing dollar be taxed?  Once for the raw material?  Again for the parts from the raw material?  Yet again in the finished product from the parts?  Again in the sale to the wholesaler, and another time in sales to the retailer and maybe lastly in the sale to the end user?  That is in the very least that same dollar being taxed 7 times.  And it is the consumer that will pay for it.  Thus a 20% tax rate is exponentially larger than it appears to be.

How about NO sales tax and a flat 5% on ALL revenue. Notice I did not say "earnings". If you earn a $1 working - you owe a nickel.  Earn $1 on savings interest - 5¢. $1 on an investment - 5¢. $1 on sale of a product or service - 5¢. No deductions. No determining what is "exempt" or "write off deductions for cost of doing business". No mortgage deduction. Nothing. Let it all be included. And perhaps even tax EVERYONE's FIRST DOLLAR. Then EVERYONE is participating in the system. Not one class living off of another class. It now becomes a very predictable productivity tax. But one that will rise in actual dollars while the percentage remains constant. And predictability is LOVED by those who invest money, borrow money, budget money, plan and expand businesses. No surprises at the end of the day (or year) as to what you owe in taxes. And all entities should be given until April 15 to pay their previous year's tax bill in full. The form would be one page or the size of your W-2. Simply state all revenue, multiplied by 5% and voila! Tax liability total.

I do think there are unavoidable exemptions but they all need seriously looked at and thoroughly debated before allowing them. Example....what to do about folks receiving benefit of a food pantry? Is that "income" from receiving a service/product or do you simply not require it to be reported? What about welfare or Social Security checks? Frankly, that would be easy - any government funding would be exempt because it comes from the government, not including of course the salaries paid to government employees. But there is the catch - now write that into legislation to discern a government benefit vs a government salary? And what about defense and government contractors who have corporate revenue from government contracts? This is a debate of whether you tax those distributed tax funds. Personally, I would not, but the salaries or distributions to individuals of those companies I would tax. Again, it is more of a "productivity" tax. This keeps money from simply being shuffled around.

And why not have the collection points for this 5% at the county level and then each county writes a check to any city within the borders, to their state and to the Federal Government? Local politics at its finest. Directly elect the commissioners/judges that oversee the collection and distribution of funds. Yes, I can see great potential for local political bosses, machines, and brute force control of elections and control of the power of that money. But to some extent it wouldn't matter. The feds will clearly state they get X% of that 5%. State governments will do similar. Millions are collected and spent by each county and with elections, we generally and eventually weed out those abusing their power.

Now, with that funding and distribution scenario, do you still have an IRS? Maybe but now they are for sure a "REVENUE" service. In charge of collecting from the 50 states and our territories, not from 300+ million individuals and millions of businesses. How much does that save? Oh sure, we'd have to absorb the unemployed from just that one Federal Agency, but even that could be done by retirement and resignation attrition.

We have so many taxing entities presently that it all needs to be folded back down to the minimum number and then distributed as need is justified. Allow each individual (and companies perhaps) to keep 85 - 95% of their revenues as discretionary funds to provide, save and spend as they see fit for themselves and their families. There are many other rules, regs and policies applied to healthcare, insurance, self insuring, retirement fund distribution and inheritance taxation that I feel could put the power and incentive back into the individual to decide what level of care and lifestyle they want to plan on and attain. And simply take a hard line that if you don't prepare yourself, you must face the consequences.


Society has an obligation to take care of each other. But society is not obligated to take care of those who refuse, not those unable, but those who refuse to help themselves.

I hope to expand on many of the topics presented here and more topics not touched upon. This is a rapid overview of my own thoughts and observations. Perhaps I will find that many of our programs are exactly what I desire, only they have been expanded beyond original intentions and no longer provide the solution to make society work. But we all are affected by over governance. Government should be there to protect and to put the power in the people.

My blessed late wife used to join me in saying after we pontificated the solutions to the world's problems that "we are perfect and flawless" and then laugh at such a bizarre notion!

May lightning only strike me twice and not thrice.

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