This is the companion blog to the website.

Monday, April 18, 2011

A GREAT TOP TEN LIST! Our perspective on CRFB's tax debate list

The Committee for a Responsible Federal Budget takes great pains not to alienate either of the bipolar political viewpoints lest it seem to be playing favorites. 

It's no surprise that they don't always succeed.  This CRFB piece focuses on taxes. Since budget balance is their overriding goal, it favors tax increases. If you're a fiscal conservative, don't pout. When CRFB talks expenditures, big spenders squeal.

10.       Record low federal revenues as a % of GDP, tax breaks were higher. Federal tax revenues ran just a smidgeon under 15% of GDP in 2010, the same as 2009. comment: The recession cut revenues, stimulus did, too..  Federal taxes historically have averaged 18% of GDP.

9.         The first round of tax reform since Reagan is in gestation.  Senators Wyden (D) and Coats (R) are working to simplify the tax code. comment: Arthur Laffer pointed out today in the Wall Street Journal that compliance adds 30% to the cost of taxes. In one accepts that, the $28,000 all-in taxes that an average family generating $70,000 of cash income is really a tax burden of $36,000. Ouch.

8.         The 2010 tax deal gave everyone something and charged it on the national credit card.  
   comment: The SWAG (slang for promotional freebies) came under the banner of stimulus. Ostensibly, these goodies will be withdrawn at the end of 2012.

7.         Estate Taxes disappeared, then re-appeared. comment:  The 2001 tax killed estate taxes.  They were brought back at the end of 2010. 

6.         Value Added Taxes (VAT) get voted down. comment: VAT are a type of sales tax levied at every level of production through an economy. They are credited with quietly boosting the tax take of governments across the world. In the US  the left complains that they do not ding the rich enough, and the right worries VAT revenues will be added to existing revenues. VAT off the table for the moment.
5.         Spending cuts are labeled tax increases. comment: Here is a lovely example of both semantic infiltration and the distance of Washington from its citizens. 

Fiscal folks have taken to renaming tax deductions and credits as tax expenditures. It applies to mortgage interest deductions, charitable contribution deductions, child tax credit, etc... The idea is that these items are spending through the tax code - that money not collected by politicians is equivalent to money spent.  It seems reasonable.

Or is it.  It reflects a power-centric viewpoint, that government has first claim on the money citizens earn.   Pushed a bit further, the concept implies that any money people take home from their paycheck after taxes is a tax-expenditure - money the government has not collected.  Therefore it is the rightful property of government. 

Taxpayers are more likely to think of taxes as the expenditure, not the absence of taxes.

4.         Non-Story of the Year. Politicians patch the AMT. comment: The Alternative Minimum Tax is tax code running parallel to the Form 1040. It was originally designed for people who took advantage of too many tax breaks. Now it is snaring many decidedly non-rich taxpayers. Rather than fix it permanently, Congress duct-taped it for another year.  

3.         CUTGO cuts out the PAYGO. comment: This is the latest attempt Congress has made to appear to be fiscally prudent while leaving enough loopholes that it can act as it pleases.

2.         "Make Work Pay" tax credit expires. comment: This $400 tax credit was designed to be explicitly stimulative and temporary.  It turn out that it actually is temporary.

1.         Simpson-Bowles "Zero Plan". comment: Obama's Fiscal Commissioners Erskin Bowles and Alan Simpson turbo-charged the tax debate by proposed to wipe out all tax breaks - even the best loved - then lowering tax rates.  Overall, they targeted a revenue increase with larger spending reductions. 

The Bowles-Simpson Commission put radical tax reform on the table for the first time in a generation. A huge step forward. Finally.

Friday, April 15, 2011

Big Government Needs Big Reforms

(This article was first published in Smart Girl Nation online magazine in March 2011)

Only humans with heartbeats pay Washington's enormous tab. Real people pay every nickel. Even corporate taxes are ultimately paid by flesh and blood people.

Take an ordinary, every-day American family; one that averages $70,000 of income during its earning years.  It will spend a stunning $1,300,000 in taxes during its lifespan. 

After extracting that sum, in an act that has been characterized as governmental child abuse, politicians push fresh debt equal to $11,000 per family onto politically undefended youngsters. 

The Government Accountability Office notes that the federal government will have to raise its taxes 50% simply to stabilize the national debt. Or it can cut spending 35%.

Certainly, portions of government provide vital functions. Nonetheless, it is vulnerable to charges of widespread inefficiency, special interest control, and financial negligence. Look at the money lost by the Post Office and Amtrak; a formidably mediocre public education system; the empty Social Security trust fund; and a Defense Department that cannot pass a basic accounting audit.

Naturally citizens are looking for ways to save tax money. The biggest programs deserve the closest examination.

Social Security and Medicare together consume a whopping 8% of the economy. They are large public policy mistakes. The $2.9 trillion trust funds are empty and the programs are short by a stunning $225,000 per family. 

Two keys to a realistic understanding of reform: First, the money that trusting citizens paid into Social Security is gone. Disappeared. Spent. Flushed. Second, the social injustice of raising taxes on younger people for a political "oversight" of this magnitude is profound.

Benefit cuts are not the end of the world. Many Social Security beneficiaries do not need it.  In 2008, 25% of families headed by someone 65 or over had income of more than $75,000.

US health care offers more low hanging fruit. It is twice as expensive as that of other rich countries. Singapore's patient-centered, free-market model is four times more cost effective than the US. Vast healthcare savings of 8% - 12% of GDP are within grasp, enough to solve much of the looming retirement shortfall. 

Defense and education, the second and third largest programs, are nearly equal in cost. Each burn through 6% of GDP.  For decades, the US has performed the bulk of the globe's security work. Perhaps the current arrangement is optimal, perhaps not. In light of the mounting financial pressures, a thorough re-evaluation is in order.

Federal, state and local governments will spend $880 billion on education in 2011, but struggle with quality. Productivity has fallen in half. Per-pupil K-12 funding doubled since 1971 while reading and math scores have remained flat. In 2009 international comparisons, American 15 year olds posted a mediocre 14th ranking in reading and struggled at 25th in math.  

A flick of a policy switch would greatly lessen a critical difference between the rich and the rest - high quality education. Less-than-wealthy families cannot escape the public K-12 system. It is a tool of financial repression. Watch quality increase and costs fall after freeing parents to use their tax dollars to shop for education in a truly free market.

Of course, government is necessary. Of course, collecting taxes is necessary, as well. Necessity, however, does not make tax collection less coercive. And coercion should be held to an minimum in any society purporting to be free.  

A government that extracts $33,000 in cash and liberty annually from middle income families to fund a sprawling, inefficient, and often venal government - then borrowing $11,000 per family more - is increasingly difficult for taxpayers to justify. 

Fire up your imagination. It's time to re-think government.  Completely.

Tuesday, April 12, 2011

David Walker on the federal budget and Health Costs

Hooray! David Walker, former comptroller general of the US Government Accountability Office, is proposing something akin to Singapore's health care system. That country's exemplary system costs 4% of GDP, compared to our 17%.

In Singapore, most health care is paid for from citizens' mandatory health savings accounts. The truly poor are subsidized, and there is a layer of insurance for the big risks that might deplete that account.

The key is that patients control most of the dollars directly. Providers respond with efficiency gains, much lower costs, and great quality.

It's way past time to try it here.