Category Archives: tax related issues

the cost of our system

Short vs. Long Term

Short vs. Long Term

One significant issue that has kept us from maintaining our elite status, as a country, is that we have had a very short-term focus. Most public companies tend to make decisions that maximize their performance from one quarter to the next. Many political decisions are made to support special interest contributors’ short term profits ignoring the consequences to the longer-term cost to the economy and resource availability.

One good example is the low price of fuel, which ignores the cost to maintain the transportation infrastructure. Does it make sense to encourage the sale of fossil fuels when all of the experts recognize that this resource is limited? The only disagreement is just how much time remains before exhausting this resource. Would longer-term thinking dictate that higher fuel taxes with proceeds dedicated to infrastructure improvements make more sense?

Another example is the out of control Federal spending that tends to satisfy current political agendas but which mortgages the future for many generations to come. The facts are that our internal population in both aging and is declining. Our total population continues to grow slightly via immigration, but our workforce continues to decline even with the addition of folks from other countries (both documented & undocumented). The decline means there are fewer workers to pay taxes to support spending, especially as it relates to social security & Medicare. The fact that healthcare costs have accelerated out of control and many times faster than wages adds to the problem.  Average wages have only increased slightly since 2000, from $30,756 to $33,229 or less than 9%. For that same period, the median cost of a new house has increased from $165,814 to $315,815, or over 95%. During that same period, the cost of healthcare and advanced education have almost tripled! We started mortgaging the future several decades ago, and we are already experiencing the results.

There are many other examples, but one of the most recent was the tax reduction. It was deficit funded and is currently adding $150 Billion of red ink every year and will continue to do so for the next ten years. Not only will future generations have to pay the price, but the middle class did not receive their fair share of this redistribution of income. Our National debt is well on the way to $23 trillion and will reach that level early in 2020. Currently, we are adding $1 million to our debt every 35 seconds! Two years ago, we were running an annualized deficit of approximately $800 Billion. Today that is running $990 Billion. Believe it or not, that is the good news. The level of unfunded liabilities for all the budget area commitments now exceeds $125 trillion. These are costs that we have committed to pay but which we have not identified any revenues to support the costs. The unfunded liability for just one item, Medicare, exceeds $30 trillion.

Healthcare Revisited – A simple solution to 2 problems

  • Healthcare Revisited – A simple solution to 2 problems

As the Democratic contenders vie for the nomination “Healthcare” is again one of the more significant topics. Medicare for all, private option and other variants are being proposed. My view is that no candidate is willing to confront the real issue with our broken healthcare system. I strongly believe that healthcare should be a right of citizenship and permanent residency. However, as a fiscal conservative I cannot support a solution that adds to our out of control National Debt.

When searching for solutions to any problem I favor two approaches. First, start by working “upstream”. By this I mean search for the cause of the problem. Once you determine that cause keep working on additional factors that are contributing to the it. The US has by far the highest cost of healthcare, per capita, of any country in the world. Our costs are almost three times the average for the EU countries without the corresponding benefit of better quality of care. What is causing the problem and why are we not addressing solutions?

There are several factors that contribute to out of control costs. Among them are the role of insurance companies, drug costs, hospital costs, physician compensation, obesity rates and legal factors. These areas have been thoroughly addressed in several earlier posts on this topic.

The second method that I advocate for problem solving is a technique called “base-lining”. What this means is to investigate other systems that are yielding positive results and learning how to benefit from the experience of others. There are several countries’ systems that are worth investigating that have a higher quality of care at less than half the per capita cost.

Solving the cost issue would more than cover the cost of proving healthcare for all and would also significantly reduce the out of balance national budget deficit. One solution to improve, if not solve, two problems.

Who pays taxes & who should

Who pays taxes & who should

I admit that I am a bit addicted to the National Debt Clock. While the growth of our debt is alarming and our unwillingness to manage it unconscionable, that web page carries quite a bit of useful information. Anyone can access that information at: https://www.usdebtclock.org/

Before I get to that it is also alarming to know that the currently stands at over $22 trillion and is on target to add over another $trillion in the next 12 months. Putting that into perspective the taxpayers’ average potion of this debt is over $180,000!

What this page contains that pertains to this post is a general breakdown of the sources of the tax revenues: 51% comes from taxes reported on personal tax forms, 35% from payroll taxes. 7% from Companies & 7% from misc. other sources. What is interesting to me is that only 7% is being paid by companies. Prior to the recent tax code change the company portion stood at 9%. While there are those that were appalled by that redistribution of income I am not. I will not repeat what is contained in an earlier post which contends that our economy would benefit in the extreme if there were no corporate taxes, since in the long term all costs eventually are reflected in consumer pricing and become, in effect, a regressive tax.

I am much more concerned with the impact of taxation on the middle class. There are numerous financial definitions of income to describe the middle class. In 2013, Congress quoted its own definition of a middle-class income during the fiscal cliff compromise. It said the middle class is anyone making less $400,000 or couples making less than $450,000. This seems too high for me and does not define a range (no lower boundary). I prefer to be a bit more conservative and will use the range of $30,000 to $300,000 annual family income as a definition.

Family incomes above $300,000 represent only 1% of the population. Family incomes below $30,000 represent 50% of the population. By this definition the middle class represents about 49%. Also using this definition, the middle class (the primary consuming class) bears 63% of the tax burden. My contention is the middle class should be paying no more than their fair share (no more than 49%) and the rich should be paying the amount required to make up for the lack of lower and below poverty families to pay tax (currently at about 4%). This bottom group struggles just to survive.

Again, I will not regurgitate how to achieve this since my approach is contained in previous posts.

One more comment related to companies. I do not think that dividends (the reward for capital investment) should be taxed. We should encourage capital investment!