OpEdNews.com August 24, 2008

The 2008 race for president is up for grabs, making it impossible to predict who will become the 44^th president of the United States. Irrespective of whether it’s John McCain or Barack Obama, he will preside over the greatest economic disaster ever faced by the American people, and it is increasingly clear, based on the polices being proposed by the candidates, that neither of them has a clue about what to do.

The platforms of the two major parties attempt to address the dozens, if not hundreds of issues comprising the related economic problems facing the next administration and both propose similar band-aid solutions offering little likelihood of success. Neither party offers anything new or different.

The risk of economic collapse is so great, and the consequences to ordinary American voters are so devastating, that we must take a hard look at where we are and to think about where we want to go and how to there.

We cannot look to the past for solutions because that’s how we came to be on the crumbling edge of the economic abyss. Rather, we have to imagine a dynamic shared vision of the future, one in which we undertake bold new initiatives and demonstrate the greatness of our heritage. Otherwise, our 44^th president will go down in history as having presided over the implosion of our uniquely American society – those of us who have gathered from all over the Earth to offer hope for all humanity.

In A Vision for Change: An American Energy Policy we dreamed about an America that solved its energy crisis by generating the energy to power its national highways from outer space. Successful implementation of this vision within a democratic free enterprise system requires that we also solve the interrelated issues of taxation, social security, retirement, health care and economic stimulus.

Taxation

When Eisenhower was president, corporations paid a quarter of all federal taxes – now they only pay about 10 percent. The Government Accountability Office just reported that almost two-thirds of all companies in the U.S. pay no income taxes, including one in four of the largest corporations earning billions of dollars a year. These corporations avoid having any taxable income by deducting “expenses” such as the highest executive salaries in the world and massive overpayments to foreign subsidiaries for products and services.

The Congressional Budget Office recently concluded that, while income tax rates for middle-income earners are going up, the rates for those at the very top continue to come down. The tax rates of those with an average income of $1.25 million dropped 5 percent between 2000 and 2004, saving them an average of almost $58,000. Individuals earning more than $10 million saved an average of $500,000 in taxes on their investment income.

Wouldn’t it be more sensible and much fairer to simply tax the movement of money, rather than “income,” in our economy? Not a sales tax, not a value-added tax, not a flat income tax, but rather by a simple toll on every financial transaction that occurs within our economic system. Not just every time you fill up your tank with gasoline, but every time stocks and bonds are bought and sold, every time currencies are traded, and every time money moves to an offshore subsidiary.

Since the working-, middle- and small-business-classes have far fewer and much smaller financial transactions, the wealthy and the multinational corporations, who spend a ton of money every year to avoid having any “taxable income,” would have to share proportionally in paying the toll for their traffic on our economic highway and their use of our courts and institutions to enforce their contracts and to facilitate their profits. Why should so many of our largest corporations completely escape the payment of any taxes?

Based upon our $13.8 trillion annual economy, it is likely that the federal government could operate on the revenues produced by a simple transaction tax of much less than 10 percent on the movement of money. In addition, the payment of taxes would largely shift from individuals to the corporations that most benefit from the services of our government.

Envision the effect of a slight touch every time money moves, a tiny ka-ching in the U.S. Treasury’s cash register, which in the aggregate would add up to billions of dollars each year. Imagine the debate in Congress as to whether the tax rate should be 6.25 or 6.27 percent for the next year. The difference could be significant.

Most of us would only have to pay an annual tax rate of as little as 5 percent on our spending (income). The transaction tax would result in a slight increase in the overall cost of the goods and services we purchase; however, the toll would apply to all financial transactions, including the purchase of limousines and spas by the wealthy, who rely on every imaginable scheme to avoid having any “income” upon which to pay taxes. Those who enjoy luxuries would pay more for them, and those who gamble in the money markets would have to pay for their visit to our economic casino.

Let’s say a married couple earns $100,000 of joint income and receives no government support. Employers would still be required to file 1099 and W2 reporting forms, and the couple would file a return setting forth their “income.” The “income” would be reduced by standard deductions for providing their own housing and medical insurance and by the amounts paid into social security, IRAs, 401k plans, and into federally insured savings accounts. They could also claim a standard deduction if they sent their children to private schools, and they could further deduct the amount they gave away (to be taxed when spent by the recipient). When all the authorized deductions are added up and offset against their “income,” the difference would be what they had actually “spent” for the year. That small difference would be the amount taxed – at a very low rate!

There would also be great benefits to businesses and corporations. To the extent they are owned by Americans and that salaries are paid to American citizens, businesses, corporations and other organizations should not have to pay a transaction tax on their payroll, as salaries would be directly passed through to their American employees to spend – and to be individually taxed.

If the stock of a corporation is owned 100 percent by American citizens, the corporation should not have to pay any taxes on the salaries paid to its American workers; however, an American corporation that moves its work to other countries should have to pay the transaction tax on its foreign payroll. Wouldn’t this policy slow down the current trend of outsourcing American jobs offshore to other countries?

Benjamin Franklin said that following birth, the only certainties are death and taxes. Nonetheless, we do not have to willingly endure government corruption and unfair taxation. We, the ones who pay the taxes, must make the essential decisions about the methods of taxation and the level of payment. Otherwise, we live in slavery and our freedoms are illusionary.

Health Care

Sound economic policy must take into account the present high cost and low availability of medical care. A healthy economy requires healthy workers; however, the American model of individual responsibility, employer-provided health insurance, and for-profit medical care has not only failed to deliver high-quality health care for everyone, it has resulted in a great disparity of care between wealthy and working people.

From an economic point of view, the high cost of health care places American companies at a competitive disadvantage, worldwide, and the gigantic profits earned by health care providers and drug companies drain off enormous sums of capital better spent on other things.

The bottom line is that we pay far more for much less health care than is provided by any other industrialized economy. In 2007, we spent $1.3 trillion, or $7,600 per person, for health care – more than 16 percent of our gross domestic product. By 2016, the cost is projected to rise to $4.2 trillion, or 20 percent of GDP. Since 2000, employers’ health insurance premiums have risen 100 percent to an average of $12,100 last year for a family of four. During the same period, the share paid by individual workers has risen by 143 percent. This year, American companies will probably earn less than they spend for health insurance.

Hundreds of thousands of workers with “good” health care benefits will be laid off this year at the same time that the cost of health care is rising along with food, fuel and all other essentials. Two out of five people have had a problem paying for medical care in just the last year. When life and death situations occur, working people must use their reduced savings, borrow on their overextended credit cards or fail to pay for other essentials, such as housing, food or heat.

Neither of the presidential candidates proposes an effective solution to the health care crisis. Obama wants to impose a tax on employers who do not provide health insurance and to ensure “affordable” health insurance to all others. However, the only real guarantee of his “universal” coverage is that insurance companies, medical care providers and drug companies will continue to siphon their enormous profits out of the economy. McCain’s solution is even more simple minded. He thinks we have too much medical insurance and wants to do away with employer-provided health insurance entirely. McCain wants to force employers to pay taxes on all health care costs and to require all of us to purchase individual policies in a “free” market dominated by unregulated and predatory insurance companies.

One alternative increasingly supported by the medical profession is a single-payer system similar to that operated in Canada, much like universal Medicare; however, since the single-payer system subsidizes for-profit health care, its cost in comparison to its benefits would continue to be a substantial drain on the economy.

Let us envision a nonprofit National Health Corps whereby we decide as a matter of public policy that it is just as important for us to enjoy good health as it is to be free from a military attack. Let us envision that we can pay for universal health care for all citizens and reduce individual federal taxes.

Perhaps we should establish a National Health Academy, along the lines of our military academies, whose graduates will become professional Health Corps officers. Although the task would be gargantuan, the Health Corps could assume responsibility for the operation of all public health, veteran’s and military hospitals; for every county and community hospital; and ultimately for most major medical centers across America.

Most of these hospitals should be dedicated as teaching centers to ensure that we have an abundant supply of highly qualified doctors, nurses and medical technicians and that we receive the very best medical care that is available in the world.

The Health Corps should also be responsible for the operation of medical and dental clinics in our public schools. Health, vision, and dental care could be provided at neighborhood schools during and after classes, both for students and for their neighborhood families. Importantly, preventive medicine could help ensure that every child arrives at school ready to learn.

The Health Corps could assume responsibility for providing medical care within the military and for teaching medical corpsman skills to every military recruit. Properly trained and equipped, our military personnel could become revered lifesavers at major disasters such as the Indian Ocean Tsunami and Hurricane Katrina.

Rather than to naysay the possibility of high-quality national health care, envision the liberating effect such a project would have on American businesses. They would be finally freed from the cost of providing medical benefits to their employees and from the medical costs of workers’ compensation insurance.

The Health Corps could also establish medical, dental and vision clinics on the premises of major industries. The increase in productivity attributed to a healthy workforce could be enormous, and we would become far more competitive with all other industrialized nations, particularly those that provide national health care to their workers.

The birth of a national health care system would not result in the demise of private health care. We should be able to determine the average cost of national health care on an individual basis, and those taxpayers who opt out of the national health care system should be entitled to a standard spending tax deduction equal to the average cost.

We will never achieve our potential as a society until every pregnant mother, every infant, every student, every worker, and every disabled and retired person has equal access to the most advanced health care in the world. This is something we can do together, for ourselves, and for each other; there is no good reason why we shouldn’t.

Social Security

On August 14, 1935, in the midst of the Great Depression, the American people entered into a contract with our government in which we collectively bartered a percentage of our wages to pay for an insurance policy ensuring that none of us become destitute when we are no longer able to work.

We have kept our side of the bargain, and each time we receive our paychecks most of us see that 6.2 percent of our wages have been withheld and turned over to the Social Security Trust Fund. Our employer is required by law to match our contribution with another 6.2 percent. Thus, if not for Federal Insurance Contributions Act (FICA) taxes, we could receive an additional 12.4 percent in our salary. However, our employers might not be so generous in the absence of legal coercion, and we might not be so faithful in putting aside the increase for hard times.

It has been a good bargain, a win-win situation. For the oversight of our contributions, we only pay one-quarter of the amount paid by private pension funds to their money managers. Overall, more than 99 percent of our premiums go to benefits and less than 1 percent is spent on overhead.

Our Trust Funds have been wisely and conservatively invested in the interest-bearing obligations of federal government bonds (as required by law), which has benefited the overall operation of our government. While we may have missed out a little bit on the booming stock market of the 1990s, we also didn’t see our trust funds reduced or wiped out by the current economic meltdown.

Today, more than 90 percent of all employees and the self-employed are covered by Social Security, and one in seven Americans, or more than 44 million of us, are receiving a benefit. Most beneficiaries are receiving a return on their contributions that is far greater than they would have received if they had invested the same funds in the private financial markets.

Since benefits are primarily paid out of current contributions and since the population is aging, there is a predicted shortfall of $3.5 trillion at some distant point in the future. However, there is a present surplus, and there are sufficient assets to pay 100% of benefits until 2042. Even then, without any further increases, the Fund could pay more than 70% of benefits for many decades after that. Other estimates, including that of the Congressional Budget Office, allow for sufficient existing reserves to pay full benefits through 2052, and perhaps into the 2080s.

Should we increase our contributions to ensure the long-term solvency of the current Social Security system? Currently, because of the annual cap on contributions ($102,000 in 2008), lower- and middle-income workers pay a higher FICA tax rate (as a percentage of income) than those who earn more than the annual cap.

One way to balance the Trust Fund beyond 2042 (or 2052, or 2082) is to simply raise or eliminate the annual cap. Since only 83 percent of all wages paid are subject to social security taxes, elimination of the cap would increase annual social security revenues by almost 20 percent, or roughly $100 billion per year, more than enough to take care of any foreseeable future “shortfall.”

Or, perhaps the law should be changed to establish the cap at the president’s salary, which is presently $400,000 per year. Shouldn’t we all share the burden to “save” Social Security?

Many of us will never have the sophistication, discipline, or excess capital to consistently make good investments in a personal portfolio. For most workers, the bargain we made with our government back in 1935 remains the best deal we can hope for when we retire or should we become disabled. We do not have to worry that our retirement or a serious accident will coincide with an economic recession when the stock market is in decline, or that we will outlive the value of our private investments.

Retirement

In addition to Social Security, other opportunities exist for interested U.S. workers who are willing to increase their retirement contributions and to take some additional risks, such as 401(k) plans and Investment Retirement Accounts (IRAs). However, there is another way to extend the “ownership” of personal retirement plans in a way that is beneficial to society and is even more secure for workers.

Imagine an alternative personal investment plan as a supplement to traditional Social Security, in which employees make additional tax-free contributions to personal accounts in a National Bond Fund that invests its assets in the obligations of local and state governments, rather than the federal government.

Employers could agree to match Bond Fund contributions as a job benefit; employees could take their accounts with them from job to job; workers could negotiate the level of each subsequent employer’s contribution; retirees could decide for themselves whether to invest their savings in a lifetime annuity at retirement; they could choose to spend their entire nest egg as they please, or they could leave it to their heirs.

The stability of investments in state and local bonds would require minimal management costs, increase the rate of returns, and would allow the principal placed in personal accounts (which could be withdrawn at any time to meet emergencies) to be guaranteed by the federal government just as it does for bank deposits.

Bond Fund accounts could be established by parents at the birth of their children and grow throughout an individual’s lifetime until they choose to retire. There could be survivor benefits similar to those provided by traditional Social Security, and the personal accounts could mature as early as age 55, allowing workers to transition into other, and perhaps more interesting secondary careers.

America would benefit as a whole from an alternative personal savings plan by having a readily available, domestic source of investment funds to restore and improve its state and local infrastructure and public facilities.

Economic Stimulus

If the American economy is swept away in a financial tailspin, it will carry millions of us with it. Our homes and SUVs are becoming increasingly worthless, our banks won’t or can’t lend us any money, our working hours and benefits are being reduced, and hundreds of thousands of us are being summarily fired. At the same time, we are having to pay more and more for food, fuel, health care and other essentials.

The same ole, same ole attempts to stimulate the economy have failed. Reduction of interest rates by the Federal Reserve has not increased the money market supply, and the government’s $80 billion “stimulus” program also failed, mainly because most people were smart enough to either save the money for harder times or they used it to pay down their overwhelming debt, rather than to waste it on immediate gratification.

Both candidates are talking about additional tax reductions to stimulate the economy; however, the most effective way to increase demand in the economy is to immediately put money in the hands of those most likely to spend it. Evidence shows that couples earning less than $70,000 have to spend almost every penny they earn.

Imagine the effect on the economy if the government declared a one-year jubilee on the employee’s share of social security payments on incomes up to $50,000. The result would be a decent increase in disposable income for working people and an immediate boost to the overall economy. Particularly, if the cap on contributions was simultaneously raised to the president’s salary, the Social Security Trust Fund would survive without a hiccup.

The meltdown in the home and commercial mortgage market has also affected the ability of students to borrow money to pay for their education, leading to suggestions that the government purchase student loans through an entity such as the Federal Financing Bank. Although students obtain their loans from Sallie Mae (originally created as a government-sponsored entity) and other private lenders, most loans are ultimately guaranteed against default by the federal government.

Many of those who owe money on their student loans are the same people most affected by the economic crisis and for whom there is no relief – not even in bankruptcy. They bet their future on the American economy; they worked and studied hard, obtained their degrees, and now find that they are barely surviving.

Imagine the immediate effect on the economy if the government purchased and paid off all existing student loans. Envision the liberating effect on our society if our best and brightest young people suddenly found themselves capable of fully participating in the American dream. Not only would they be the consumers most likely to spend the money, they would also be the entrepreneurs most likely to spend it on starting up small businesses.

Conclusion

Let us dream of a society in which we are able to prosper and enjoy the full fruits of our labor. Let us dream of a society in which we can retire in comfort and security without worrying about shelter, food and medicine, or that we will become a burden on our families or communities. Let us dream of a society motivated not by greed, but by the social needs of those who create it. We can make these dreams come true. We only have to trust and believe that we collectively have the common sense and courage to change nightmares into visions and hopes into reality.