Gas Tax: Congress Becomes Socialists

The tax on gasoline is a user tax. Revenue from this tax goes into the Highway Trust Fund, which uses this revenue for road maintenance and road construction.  The gas tax has been held constant at 18.4 cents per gallon for 22 years.  In the meantime, cars have improved miles per gallon by 25% during this period.  The Highway Trust Fund is running out of money.  The United States now ranks 11^th in quality of highway infrastructure.

In a market driven economy, the gasoline tax should be raised so that the users of the highways pay for the maintenance and construction of the highways. This is capitalism.  This is normal procedure in a market driven economy.

Members of Congress, however, have become die-hard socialists on this issue. They do not want users of the highways to pay for maintenance of the highways.  They wanted to find some other source of funds so that users of the highway get a free lunch.

Grover Norquist and Americans for Tax Reform have also become socialists on this issue, opposing increasing the user tax on gasoline.

Increasing the gas tax would improve decision making in our market economy. Some people might choose more fuel efficient cars.  Others might choose public transportation.

People who support capitalism and a market driven economy should support an increase in the Federal tax on gasoline. Congress did not.  The Bipartisan Budget Act of 2015 did not raise gasoline taxes, but did provide 233 pages of tax breaks for those who could afford lobbyist.

The Capitalist

 

Guns:  36 Countries Have Found Solutions

Since 9/11/2001, more than 400,000 Americans have been killed by guns.  That is four times the number of Americans killed in the Korean War, the Vietnam War, the 1^st Gulf War, the Afghanistan War and the Iraq War all combined.  In 2014, 92 people per day were killed by guns in the United States, according to the CDC.  According to the American Academy of Pediatrics, over 10,000 children are killed or injured yearly with guns.   Is the gun lobby’s de facto motto, “Children’s lives don’t matter?” 

In the first nine months of 2015, there were 294 mass shootings of four or more people. Terrorists killed less than 1% of the Americans killed by guns since 9/11/2001 and most of those were on 9/11. 

Among the developed countries, the United States has the highest death rate per capita from guns.  A person is five times more likely to be killed with a gun in the US than in Canada, nine times more likely than in Germany, 42 times more likely than in Great Britain and 177 times more likely to than in Japan.  Australia, which cracked down on guns, now has a gun homicide rate that is one-twentieth of the United States. 

Massachusetts and New York have some of the most restrictive gun regulations and they have three to four gun deaths per 100,000 per year.  Alaska and Louisiana have some of the least restrictive gun regulations and they have more than 19 gun deaths per 100,000 per year.

The US ranks first in guns per capita.  Yemen is 2^nd, Serbia is 3^rd and Iraq is 4^th.  The US has 5% of the world population and 50% of the guns in the world.

Thirty-seven countries make up the developed world including United States, Canada, Western Europe, Japan and Australia.  Thirty-six developed countries have found solutions to reducing gun deaths.  Hence, it is an undeniable fact that solutions exist.  The United States is the only developed country that has failed to find a solution.  Unfortunately, the United States Congress has largely taken the position of the famous line in the movie, Gone with the Wind, “Frankly my dear, I don’t give a damn!”  This is unlikely to change until members of Congress suffer deaths from gun violence in their own families.

 

 

Reducing Terrorist Attacks

The United States could take five steps to reduce the risk of terrorist attacks against Americans.  The first three should be easy to implement.  The last two will encounter political resistance.

Do Not Announce the Killing of 10,000 Muslims

On June 3, 2015, Deputy Secretary of State, Tony Blinken, announced that the US-led coalition killed more than 10,000 ISIS members.  For some radical leaning people, that is an announcement that the U.S. killed 10,000 Muslims.  It motivates some to justify the killing of Americans in the U.S. and around the world.  Consider how Americans responded after Japan killed 2,403 Americans at Pearl Harbor.  The U.S. entered World War II.  Also, consider how Americans responded after 2,996 people were killed on 9/11.  The U.S. entered wars in Afghanistan and Iraq.  The announcement that the U.S. killed 10,000 Muslims unnecessarily motivates certain people to kill Americans.  These types of announcements should be discontinued.

Allow Americans to Leave the U.S.

American citizens who want to leave the U.S. to go to the Middle East and join terrorist groups should be allowed to leave on the condition they give up their U.S. citizenship and have their U.S. passports revoked upon their arrival.  Keeping them in the U.S. increases the risk that they will engage in terrorist attacks in the U.S.  Letting them leave reduces the risk that they will kill Americans in the United States.

Use Information Technology to Change Minds

ISIS is effectively exploiting social media to reach potential recruits to their cause.  They are winning the information technology propaganda war on YouTube, Twitter and other sites.  The Federal Government should create and fund a committee of information technology experts in the field to social media to counter the ISIS in the information technology propaganda war.  Experts in Islam must serve on this committee. 

Make it Harder for Terrorists to Purchase Guns

United States is one of the easiest places in the world for terrorists to purchase guns.  The U.S. could require background checks for all gun sales, including gun shows, and not allow sales until backgrounds checks are completed.  Congress could re-establish the Federal Assault Weapons Ban, which expired in 2004.  This might have saved the lives of five Marines in Chattanooga.  In addition, the U.S. Government could use Federal purchasing power to demand that gun manufacturers distribute guns through responsible dealers.  Guns recovered at crime scenes come from a disproportionately small number of less reputable gun dealers.

Allow People in the Middle East to Solve Their Own Problems

The U.S. was fully engaged in the Iraq war, which has become a failed effort.  The U.S. used limited engagement in Libya, which was a failure.  The U.S. adopted no engagement in Syria, which is a failure.  The U.S. cannot solve current Middle East problems.  People in the Middle East should be allowed to solve their own problems.  Their most important division is the religious divide between the Shia, led by Iran, and the Sunni, led by Saudi Arabia.   The U.S. has entered this conflict largely on the side of the Shia, which has upset leaders is Saudi Arabia, an American ally.  During the Reformation period, Christians killed an estimated 30 million people before resolving differences.  Americans should try to understand that there is little the U.S. can do to solve the religious differences in the Middle East.  This requires a change in thinking among both Shia and Sunni in the Middle East, which may take a long time.

Tax Reform & the Deficit Problem

To solve the deficit problem, Congress is focused on entitlements for the elderly and the poor.  They should also focus on entitlements for the wealthy – tax expenditures – which are comparable in size to Social Security and Medicare, combined.

Tax expenditures are entitlements for upper income individuals and corporations.  These entitlements are listed in “Estimates of Federal Tax Expenditures for Fiscal Years 2012-2017” published 02/01/13 by Congress’ Joint Committee on Taxation.  According to this report, 87% of tax expenditure entitlements go to people earning more than $100,000 per year.

Tax expenditures include entitlements for NASCAR, the tackle-box industry, farmers, oil companies and multi-billion-dollar benefits for hedge fund managers plus hundreds of other entitlements.  Tax expenditures cost the US Treasury about a $1 trillion per year, which is more than the Federal deficit.  And, tax expenditures are a transfer of wealth from the vast majority of middle income Americans to a small minority of upper income Americans.

Approving a bill to repeal all $1 trillion in tax expenditures would produce a $300 billion surplus in the Federal Government budget in 2014, but it would create a few undesirable results.  Consequently, the highest priority tax expenditures (such as tax deductions for charitable contributions) should be restored after the blanket repeal of all tax expenditures.

A blanket repeal is necessary because every tax expenditure entitlement has a lobbying group supporting it and these lobbies contribute to political campaigns.  The healthcare industry, as an example, has 2,374 registered healthcare lobbyists, 23 lobbyists for every member of Congress.  Any attempt to repeal individual tax expenditures would fail.  Only a blanket repeal of all tax expenditures will work.

While Congress has focused on reforming Social Security and Medicare, tax expenditure entitlements represent a more important fiscal challenge.  Currently, the revenue from Social Security and Medicare taxes pay for the cost of these programs.  Tax expenditures have no specific taxes to pay for their costs.  Like Social Security and Medicare, future tax expenditures should include a corresponding tax to pay for them.

In an article on American tax issues, The Economist magazine (Jan. 21-17, 2012, page 14) argued:  “It would be far better to close or limit loopholes and deductions, currently worth 7% of GDP, which distort behavior and mostly benefit the affluent.”

This is not to suggest that Social Security and Medicare should escape reform.  The qualifying age for Social Security, as an example, needs to be raised continuously as long as life expectancy continues to rise.   But, tax expenditures are a significantly greater problem.  Many American are uninformed about the magnitude of tax expenditures and their impact on the Federal deficit.  The print and television media has done little to enlighten anybody, possibly because they receive advertising revenue from the beneficiaries of tax expenditure entitlements.

The primary solution to the deficit is to repeal tax expenditure entitlements.

Much of the focus on reducing Government spending is directed at two entitlement categories – Social Security and Medicare.  Virtually absent from this discussing is the revenue generated from payroll taxes that supports these entitlements.  And, far too little attention is focused on Tax expenditures, which, in the aggregate amount to $1 trillion and have no tax designated to support them.

Social Security in 2011 cost $736 billion.  Income was $805 billion, including $691 billion from payroll taxes and $114 billion in interest earnings, as reported by the 2012 Annual Report of the Board of Trustees.  Hence, for the year, Social Security had a positive cash flow of $69 billion.

Medicare total expenditures were $549 billion in 2011.  Income totaled $530 billion, including $515 from payroll taxes and $15 from interest earnings, according to the 2012 Annual Report of the Boards of Trustees.  Hence, Medicare had a negative cash flow of $19 billion.

The two combined had a positive cash flow of $50 billion.  A positive cash flow of $50 billion is not a crisis.  The problem with Social Security and Medicare is in the future; it is not today.  One solution is to raise the payroll taxes that support Social Security and Medicare.  This solution allows citizens to pay for the programs they like, but discussions of the problem have focused mostly on cutting these entitlements.  (The age for starting Social Security needs to be increased, but that is another subject.)

Tax expenditures include a thousand or so tax deductions, credits and subsidies that in the aggregate amount to $1 trillion.  If they were all eliminated, they would nearly eliminate the annual deficit, which is about $1.2 trillion.

Perhaps the most egregious of these tax expenditures is the earmark that entitles hedge-fund managers to pay a maximum tax rate of 15% on their income.  Last year, the 25 highest paid hedge-fund managers earned, in the aggregate, more than the aggregate of the 500 CEOs of the Fortune 500 companies.  Nobody would argue that these hedge-fund managers contributed more to America that the CEOs of the Fortune 500.  Nevertheless, they are entitled to tax breaks not available to other Americans.  Hedge-fund managers make significant contributions to the campaigns of members of Congress who are involved in taxation.

The list of tax expenditure entitlements very long and very poorly publicized.  For example, the list includes entitlements for Nascar, the tackle-box industry and Eskimo whaling captains.

In an article on tax policy and tax expenditures, The Economist magazine (Jan. 21-17, 2012, page 14) argued:  “It would be far better to close or limit loopholes and deductions, currently worth 7% of GDP, which distort behavior (by, for example, encouraging people to take out big mortgages) and mostly benefit the affluent.”

The American public, in general, does not understand the significance of tax expenditures and the television media has done little to enlighten anybody.

Major countries among the developed nations have found healthcare solutions that cost
less than the American system of healthcare and produce longer life expectancies.  Most spend half or less per capita than the US.  All have longer life spans. Statistics from these countries appear below.  The table below show the per capita healthcare expenditures and the life expectancy for selected countries.

United States          6,096                                       78.5

Canada                      3,173                                       81.5

Germany                   3,171                                       80.2

Australia                    3,123                                      81.9

France                       3,040                                      81.4

United Kingdom     2,560                                     80.2

Italy                           2,414                                      81.9

Japan                        2,293                                     83.9

Spain                        2,099                                      81.3

Healthcare Expenditure source:  United Nations Human Development Report, 2007

Life Expectancy source:  CIA World Factbook 2010

Reuters reported (6/13/2010), “Americans spend twice as much as residents of other developed countries on healthcare, but get lower quality, less efficiency and have the least equitable system, according to a report released on Wednesday.  The United States ranked last when compared to six other countries — Britain, Canada, Germany, Netherlands, Australia and New Zealand, the Commonwealth Fund report found.”

According to World Press (6/20/2009), the US ranks 37^th in healthcare quality and efficiency.  According to a Harris Poll, Canadians are more satisfied with their healthcare than Americans.  The Harris Poll (June 2009) of Canadians found that 91% believed their healthcare system was “superior” to the U.S. system.  Another Harris Poll (July 2008)
revealed that only 45% of Americans believed they had “the best healthcare system in the world.”  The Harris Poll found that 70% of French adults and 59% of British adults believed their countries’ healthcare systems were “the envy of the world.”  Among the ten nations polled, the U.S. had the highest percentage of respondents who felt there was “so much wrong with the healthcare system, we need to completely rebuild it.”

Some evidence supports the statistics.  A 2012 Novartis/McKinsey study revealed that the French population has a higher rate of lung disease than Americans due to higher smoking rates.  Yet the French spend one-eighth as much on treating lung disease and have severity and fatality rates one-third of those in the US.  Early detection is the key.

There are examples of cost-effective healthcare in this country.  The Mayo Clinic is one of the lowest cost healthcare providers in the nation.   They achieve low costs through extensive use of technology and demanding application of “best practices.”   Unfortunately, many American healthcare providers have resisted technology and do not want to be forced to use “best practices.”

When Americans are polled on how satisfied they are with their health insurance,
people on Medicare are more satisfied with Medicare than people with private
healthcare insurance.  The “Death Panel” concept argues that government bureaucrats decide what procedures are approved and what are denied.  Currently, insurance company bureaucrats make this decision.  The salaries and bonuses of insurance bureaucrats
are improved by denying procedures, since denial improves the insurance companies’ profitability.  Government bureaucrats base decisions on medical information; profitability and bonuses do not enter their decision-making.

Clearly, other countries have found better solutions to healthcare.  Recent polls show that 70% of French believe they have the best healthcare system in the world, while only 45% of Americans believe they have the best.  In addition, 91% of Canadians believe they have a better healthcare system than the US.

In this country, the healthcare industry has vested interests in keeping healthcare costs high and well-funded lobbies supporting these vested interested.  In 2012, the healthcare industry spend $3.3 billion on lobbying, four times as much as the defense industry.  There were 2,374 registered healthcare lobbyists, 23 for every member of Congress.

The organization, Public Citizen, reported that the pharmaceutical industry and HMOs
spent $141 million and hired 952 individual lobbyists to push Congress to pass the Medicare Prescription Drug Act of 2003.  The lobbying worked.  The legislation passed and included a provision that requires Medicare to pay full retail price for prescriptions.  The Veterans Administration has negotiated a 42% discount on drugs, but this is not
available to Medicare.  As result, the Medicare Prescription Drug Act of 2003 costs more than Obamacare, the TARP and the Stimulus combined according to the Congressional Budget Office.

The biggest barriers to reducing healthcare costs in the U S are the lobbies, corporations and special interests in the healthcare industry.  They fund the election of representatives in Congress who will support their positions.   Consequently, any significant reduction in healthcare costs remains the impossible dream.

The concept of the healthcare mandates evolved from conservative Republican thinking.  That fact is indisputable and generally understood.  Self-reliance and personal responsibility were core Republican values.   Requiring that all citizens take responsibility for their own healthcare through healthcare insurance flows from these core Republican values.

History of the Mandate

In 1974, President Richard Nixon proposed the Comprehensive Health Insurance Plan.  The plan would mandate that “every employer” provide a “Comprehensive Health Insurance Plan” to all full-time employees.

The Emergency Medical Treatment & Active Labor Act (EMTALA) was passed in 1986 by a Democratic House and a Republican Senate and signed into law by Ronald Regan.  It was
an unfunded mandate that required hospitals participating in Medicare (nearly all) to provide emergency care to anyone who needed it, including illegal immigrants, regardless of ability to pay for the service.  It was the first step in universal healthcare.

In 1989, Stuart Butler of the conservative Heritage Foundation published a plan called, “Assuring Affordable Health Care for All Americans.”  This plan mandated that all
households obtain adequate health insurance.  Butler believed that healthcare protection is the responsibility of individuals, not businesses.

In 1991, the renowned conservative economist, Milton Friedman, advocated, in a Wall Street Journal article, “a requirement that every U. S. family unit have a major medical insurance policy.”

In 1991, economist Mark Pauly created a proposal, which included a mandate, for President George H. W. Bush.  His proposal was turned into a Congressional bill two years later.

In 1992, the Jackson Hole Group (Paul Ellwood, Alain Enthoven & Lynn Etheredge) published the “Jackson Hole Initiatives for a 21^st Century American Health Care System.”  It included employer mandates and was an alternative to the Clinton healthcare
proposal, which the group strongly opposed.

In 1993, Republicans in Congress introduced the Health Equity & Access Reform Today Act (HEART Act).  It proposed an individual mandate and health insurance vouchers for low-income people.   The 19 Senate Republican co-sponsors included John Chafee, Bob Dole, Chuck Grassley, Orrin Hatch, Richard Lugar, Alan Simpson and Arlen Specter.  House Minority Leader, Newt Gingrich supported the HEART Act.  Republicans believed that the individual mandate was more market friendly than an employer mandate.

Mitt Romney’s healthcare plan for Massachusetts was developed with assistance of the conservative Heritage Foundation (Bob Moffit & Ed Haislmaier).  It included both
an individual mandate and an employer mandate, although Romney opposed the
employer mandate.  Romney told reporters, “It’s the ultimate conservative idea, which is that people have responsibility for their own care, and they don’t look to government if they can afford to take care of themselves.”

The first irony is that when the individual mandate, conceived by Republicans, was proposed by a Democratic President, Republicans reversed their position and opposed it.  Suddenly, the mandate became a violation of individual liberty.  In this case, Republicans abandoned their core values of self-reliance and personal responsibility.

Consequences from Lack of Health Insurance

A 2009 Harvard study linked deaths of Americans to the lack of health insurance. The New York Times (9/17/09) reported, “Researchers from Harvard Medical School say the lack of coverage can be tied to about 45,000 deaths a year in the United States.”  The
study suggested two primary reasons for the deaths.  The first was the difficulty in finding
healthcare services for the uninsured.  The second was the fact that uninsured people rarely receive treatment for chronic conditions, such as high blood pressure and diabetes.

More people have died from lack of healthcare coverage in the US each year than have died in the Syrian civil war.  Ironically, critics of Obamacare often argue that the US should do more to save Syrian lives, while allowing Americans to die in greater numbers.

A study released by the American Journal of Medicine reported that 62% of bankruptcies were tied to medical expenses.  That amounts to approximately 900,000 bankruptcies per year due to medical bills.   The study’s lead author, Steffie Woolhandler, MD at the Harvard Medical School, stated, “Unless you’re a Warren Buffett or Bill Gates, you’re one
illness away from financial ruin in this country.  If an illness is long enough and expensive
enough, private insurance offers very little protection against medical bankruptcy, and that’s a major finding in our study.”

Insuring Pre-Existing Conditions

Some health insurance is available in some states for people with pre-existing conditions, but it is very expensive.  This health insurance generally does not cover the pre-existing conditions, such as heart disease, diabetes, cancer, stroke, back problems, AIDS and many others.   Implementing a mandate increases the size of the insurance pool and
includes younger people who have fewer claims.  This helps offset the cost of insuring people with pre-existing conditions.

Congressman Paul Ryan has recommended replacing Medicare with a voucher that would allow senior citizens to purchase their own healthcare insurance.  Most people over 65 years old either have a pre-existing condition or will have one before they die.  Insurance will be unavailable to this group at any reasonable price.

The Probable Solution

In most of the developed world, healthcare is considered a right rather than a privilege.  Eventually, a majority of Americans will also come to view healthcare as a right instead of
a privilege.  Germany, as an example, has had universal healthcare since 1883.  Germany
pays half as much for healthcare per capita as the U S and Germans have a longer life expectancy than Americans.

Essentially, there are two realistic approaches to provide universal healthcare for everyone:  (1) tax everybody, healthy & sick, and use this money to provide healthcare,
e.g., Medicare & Medicaid, and (2) mandate that everyone to buy insurance.

Repealing the Affordable Care Act would deny health insurance coverage to 30 million Americans.  The alternative for universal healthcare becomes, by default, the single-payer system, i.e., Medicare for all Americans.

While it would have to be paid for with taxes, some cost benefits occur.  According to the
Congressional Budget Office, Medicare’s administrative costs are less than 2% of expenditures, while private insurance has administrative costs of 11% plus a profit of 7%.  Private insurance companies have certain costs that Medicare does not incur.  These include:  marketing costs, sales expense, lobbying, executive bonuses, etc.

The most improbably irony is that the political conservatives may be the driving force in bringing about the healthcare solution that political liberals desire – Medicare for everyone.

 

Education, Immigration & American Competitiveness

The United States, unquestionably, has the best higher education system in the world.  In 2010, the US attracted 690,923 students to American universities from foreign countries.  American immigration laws require that most of them must leave the United States after they complete their education.  The US has an annual limit of 140,000 green cards per year with a quota maximum of 7% from any one country, i.e., 9,800.

The countries with the highest percentage of students who must leave the US are China, with 127,628 students studying at our universities, and India, with 104,897 students in the US.  India has a backlog of 210,000 applicants in one green card category (EB-3).  It would
take 70 years to clear if no new ones were added.  Chinese immigrants would take 20 years to clear.

There is a critical shortage in this country of people with advanced degrees in science, technology, engineering and mathematics (STEM).  In most fields of engineering,
more than half the people who earned PhDs are foreign nationals.   Most of them are required to leave the United States after graduation.  This immigration policy is accelerating the rise of China and India and reducing America’s competitiveness.

American companies, like Microsoft, have created research centers in Vancouver, British Columbia, because Canada accommodates immigration of people with technical degrees.  More than 40% of Vancouver’s residents are now Asians.  American companies have also created research centers in India and China.

The Financial Times (10/13/11) stated. “If you had to devise a perverse economic policy, it would be difficult to do much worse than this.  First, invest heavily in research – the NIH alone ploughs $32 billion annually into medical science – and build world-class universities with state-of-the-art facilities.  Second, lure the brightest young scientists
to the USA to study at the cutting edge.   Last, send them home with that knowledge.”

To help retain skilled foreign nationals in the United States, Congress should establish an exemption from the employment-based green card quotas for individuals who earn a master’s degree or higher from an American university.

 

 

Debt, Deficits & Alternatives

There are three means of reducing deficits:  (1) reduce spending, (2) increase taxes and (3) expand economic growth.  Discussions on the debt ceiling and the resulting legislation focused on the first two and completely ignored the third.

If taxes and spending remained unchanged and the US economic growth rate was 3.9%, the deficit would drop from 100% of GDP to 83% of GDP in ten years.  If the growth rate were only 1.8%, deficits would increase to 144% of GDP in ten years.  The economic growth rate has enormous impact on the deficit.  The US growth rate was 0.8% in the first half of 2011.

The primary factor in balancing the budget during the Clinton presidency was an economic growth rate of 4.0%.  The greatest threat to the US Government deficit
is a sustained period of slow growth.  The debt ceiling package passed by Congress this month increases the probability of a sustained period of slow economic growth.

Despite what some politicians say repeatedly, TARP and the Economic Stimulus Package prevented the recession from becoming worse and unemployment becoming higher.  Credible econometric models predicted that the unemployment rate would have risen to more than 15% without those programs.  Dan Akerson, GM’s CEO, said TARP saved over one million jobs in the auto industry and GM is again the largest auto producer in the world.  The Stimulus Package saved millions of jobs, particularly at the state level.

Unfortunately, the Stimulus Package was far too small for the magnitude of the economic problem.  Also, unfortunately, President Obama said the Stimulus Package would keep
unemployment under 8.5%.  Despite his forecasting error, the Stimulus Package had positive results.  Nevertheless, another Stimulus Package is unlikely because so many politicians called the first package a failure.

Asian countries responded the recession quite differently.  To counteract the recession
they engaged in massive fiscal stimulus programs in transportation, education,
energy and housing.  The resulting economic growth rates in 2010 were as follows:

• China grew 10.3%
• India grew 8.2%
• South Korea grew 6.1%
• Taiwan grew 10.8%
• Singapore grew 14.5%

A significant fiscal stimulus program would stimulate US economic growth, reduce unemployment and ultimately shrink the deficit.  Instead, we are on the path of cutting
spending, which will keep unemployment high and revenues low, and, therefore, perpetuating large deficits.

Unfortunately, we are led by people who engage in static, two-dimensional thinking, while we live in a dynamic, three-dimensional world.  The debt ceiling agreement increases the
probability of another recession.  We may be repeating the political mistakes of 1937, which will prolong the Great Recession.  This time, there is little prospect for a large
fiscal stimulus package, like World War II, to solve the problem.