Friday, January 25, 2013

Piece of Cake

How easy would it be to save our future?

I often laugh at the silliness played out in government theater.  I wonder, like everyone else, why elected officials cannot see the obvious issues in front of their face and make good decisions.  So, I often catch myself day dreaming about what would happen if politics were not an obstacle and we could really be honest about fixing the problems plaguing our future.  Or just put me in charge for a day and you would get the following "tweaks":

1) Change to a flat tax and eliminate ALL special deductions.  I did some back of the napkin math that says you could tax every dollar of personal, corporate, and investment income at 25%, give every man, woman, and child a $10,000 deduction and the government will collect 20% of GDP in income.  This would be progressive, fair, and simple.  I could drone on for days about details, but if we want to treat people 'fairly', why not move to a tax code that treats all Americans the same way, and quit trying to force behaviors with tax incentives.

2) Raise the Social Security Age to 70 and change to chained-CPI indexing.  When the program was created people only lived to be 65 and now live to be 78.  Due to our current inflation adjustments, the benefit for each generation gets BIGGER than the previous one.  In other words, new and current retirees get a much bigger benefit than their parents, and their kids and grand kids pay the tab.

3) Raise Medicare age to match Social Security.  Why are these two ages decoupled?  One retirement age should suffice for everyone.  Further, arguments that raising the eligibility age will not help the deficit are silly.  Detractors say it will cost more for Medicare because the healthier "young" retirees will be off the system.  That may be true if we look at costs per person, but we are looking at total costs, and taking away any portion of patients lowers that cost. People of course now may need to work until 70, but alas I am not selling unicorns, nothing comes for free.  However, you can phase in these things to make sure people can plan and save accordingly.  But this phasing window is closing with each passing day.

I would implore you to go to this blog (you, as I am, will be shocked I'm sending you to the NY Times). This blog spells out very clearly what is driving our spending growth and is very clear and easy to follow.

4) Frack.  Allow as much drilling on federal land as possible.  About half of our trade deficit comes from importing oil and the other half comes from importing other goods (mainly from China).  By greatly increasing energy production, we both reduce our oil imports AND lower our domestic manufacturing costs.  This would be a silver bullet in raising GDP by increasing exports and reducing imports.  Higher GDP = More Jobs = More Tax Revenue.  Pretty simple stuff.

Notice I really don't give a damn about short term budget problems.  The real problem in our country is economic growth, which when moving ahead full steam tends to fix everything else.  Flattening the tax code, reducing LONG-TERM projected debt, and lowering energy costs would unleash an economic boom like we saw starting in the early 80s (oddly, look at what Reagan did and I may have stolen from his playbook).

Also, what I suggested above comes at minimal sacrifice as retirees only have to accept the same benefit levels their parents got.  Tax reform and fracking are on the whole very cheap to the American taxpayer, with suspect cost fears generated by environmentalists and special interest groups wanting their tax incentive handouts. 

Sadly, our President has chosen to focus elsewhere.  He hiked take RATES with little long term deficit reduction attached, expanded the entitlement state with the Affordable Care Act, and of course stands in the way of increased oil production and refining (i.e. Keystone).  I would like to believe that the actions of the President are purely about helping Americans and are not about inflating his party's influence, but no matter his motives, he clearly has no issue letting our children pay the price while he expands the power and reach of the federal government.   

All I would need is one day as King...


Ryan B said...

I believe we are in a drastic situation. I would call for government reform. It has to start with the lawmakers. It should be a duty to your country and not a profession. 4 year term for president. 2 years terms, no re-election. Force them to get things done and quickly. Eliminate lobbying. They would have to fund their own retirements, like the rest of the US. Hell have a draft or's crazy, but I figure we are 5 years away from being Greece.
1. Flat tax with no loopholes or deductions.
2. total Welfare reform with drug testing
3. raise social security and no benefits to anyone with 5 million net worth
4. government programs to have a bottom line...USPS looses money every year, yet USP and FEDEX makes money (and to be honest is a much better service). Cut the fat and get out of the red at all costs

Ryan B said...

3. raise the age limit (like your proposal)

Anonymous said...

Another nicely written post. I think flat tax is the fairest way to approach taxes. That said, it is amazing what some people consider fair these days. I am blown away by both parties who think preserving their own legacies is more important than sustaining the financial health of the country.

Right now the biggest obstacle to growth in our economy is our own government. That is absolutely shameful. Keep up the good work and let's hope some "adults" show themselves in Washington and do the right thing.

Go Bucks!!!!


Brian Scott said...


First off, you did great job forwarding the link to Nate Silver’s 538 blog on NYT. He is one of my favorite bloggers because he speaks in data and facts. So, this is a great start for us to have the conversation on how to get our fiscal house in order. And now to your points:
1) TAX: I think flattening the tax system will actually make the entitlement problem worse because it would shift the tax burden to the lower incomes. Households making under $50k are the ones we need to worry about. They are on the bubble of getting government assistance and keeping more dollars in their pockets will improve the chances that they get/stay off of welfare.
2) SS: I do think we need to make some reforms to social security. So means testing, chained CPI, and raising the age limit are all options. BTW, Obama believes this too (he was chastised by the left for admitting this in his woeful Presidential debate in Denver). So let’s put together a plan.
3) MEDICARE: This needs to change too. What we need is a “Medicare for all” that is means-tested and effective. BTW, Obamacare helps this problem because it moved some money from Medicare to cover some of the costs. Also, Obamacare is paid for by projected savings and revenue increases. The real problem with healthcare is that it is a byzantine system where the costs are hidden and disparate. We need more transparency and consumer responsibility. See this article here for an example:
4) ENERGY: I agree, as does Obama, that we need an “all of the above” approach. If natural gas and oil is extracted in an environmentally responsible way, I’m all for it. But even if we don’t get the Keystone pipeline, the oil will still flow via trucks and railcars. It may even be a bit cheaper to do this anyway.
I think we can find some middle ground here! We need to form bi-partisan commission.

Andrew Blankenship said...

Hey Brian,

Hopefully, you actually read the link I put in to Nate Silver's blog. If so, you then understand that entitlement spending (Soc Sec, Medicare, Welfare) accounts for ALL the growth in government spending since 1972. Everything else (including Defense) has stayed flat as a share of GDP.

Assuming you agree with your guy's analysis, then you can agree the true solvency issue facing our country has little to do with defense spending (though I'm happy to see the sequester cuts).

Too your points:

1) Taxes: You should look into a flat tax more closely and see who would benefit. If we have a flat tax like the one I described above, the biggest thing that would happen is that the rich who currently take advantage of numerous tax breaks, like mortgage interest deductions, state tax deductions, and charitable donations would now not be able to avoid taxation on many of their tax dollars and could not keep their effective tax rate so low.

In other words, lower income folks would see their relative tax burden go DOWN. At the same time instead of the rich being encouraged to buy bigger houses due to deductions, they would be encouraged to make more income due to lower rates which would grow the economy.

2) SS: Good glad you agree. You claim the president is on board, but he is only on board with some reforms IF he gets a huge tax rate hike in return. Kinda like me saying I'll buy you a new car as long as you buy me a new house first.

3) Obama-care is paid for for the next 10 years. Soc Sec and Medicare were paid for in full for many years as well. I intend to be alive in year 11 so it should weight in out thinking. The "real problem" with Medicare is that it tries to avoid the laws of economics. You have a scarce good (health care) and tell everyone they can have as much as they want and then you try to hold down the price.

You hit the nail on the head when you said consumer responsibility. There is ONLY ONE WAY to force a consumer to be responsible. PRICE. And there is only one way to force providers to be responsible, COMPETITION. So we must introduce free markets into the system to get costs down. I know you were not born yesterday so you know asking the government to just be more efficient or to manage the system better is a farce.

4) Energy: I think you agree with me, but Im not really sure. Your idea of environmentally responsible and mine are likely quite different. And the Keystone thing is an abomination, Why the president held this up is beyond explanation. Its pandering at its finest.

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