Medical Care, Is it a RIGHT?

The first question must ask oneself, and the voters and taxpayers of the country; is  medical care a guaranteed right for every citizen of the United States? That is a fundamental question that must be answered before a reasonable approach for the government's involvement in medical care can even be discussed. Until recently it is clear that the answer was, no it's not.  Medical care was the responsibility of each individual to provide for themselves.  The government had little or no role in that process. People dealt with their family doctors on their own terms, bought insurance from private companies if they so desired, or could afford to, and depended on private charities to take care of the indigent.


Lately however, it seems to me, the dynamic has changed. First the government stepped in to require that emergency rooms treat anyone showing up at their doorstep, with or without the ability to pay. Emergency Rooms became the family doctor for so many people without insurance and indigent folks, especially illegals. Somewhere along the line we decided that us old folks needed to be provided with quality health insurance, so Medicare came into being. Now almost everyone sixty five and older is covered by Medicare, replacing previously private insurance provided by their retirement benefits package. Or self funded in some cases. An interesting thing to note is the cost of medical care has sky rocketed with the advent of sweeping changes in the number of people covered by insurance. Don't know whether they're related, but I have my suspicions.


Something new has entered the field; Dubbed Obamacare.  This legislation provides that everybody be forced to obtain health insurance.  As one might expect, this bill is under heavy attack by many states as being unconstitutional.  At least part of the act will likely be so ruled.  What is also becoming clear is this act will increase the cost of medical care (due to higher insurance premiums) to the consumer. At least that is what all the cost analyses I have read concludes. It solves little and creates all kinds of problems. It probably should be repealed and a better health plan devised to replace it. But, what this act and any subsequent acts cement, is the notion that medical care is the RIGHT of every  citizen of the country and that right should be codified into law by enacting sweeping legislation providing some form of universal health care. It should be noted that almost every advanced nation, outside the US already is on that approach. That RIGHT is certainly not written into the constitution but, like so many of our perceived rights, it has grown into being with the evolution of our dependence on government from cradle to grave. 


It is true that medical care is being paid for now, one way or another.  Much by private insurance, some by self insurance, many by Medicare and Medicaid, some by charitable organizations, etc.  The hospitals are required to treat anyone who shows up at the ER, and the cost is passed on to the paying patients who use the hospital.
As was been pointed out; there is no such thing as a free lunch.  Someone pays. Eventually the consumer pays for all the medical treatment.  Much of the costs are hidden from the consumer, but they pay the bill anyway.  They just don't see it up front.  


The government will continue to gobble around with various approaches to universal health care.  I have no doubt about that.  I don't know whether the American public at large is really for this intrusion into the lives of everyone or not.  But, I do believe it will become a linchpin of the Democratic Party's platform. They will try to force a method down our throats that will be the least onerous to to the core of their party and will burden the middle class workers, or the so called rich, with the bill. It can't help but be expensive, but that won't really matter as it will cement a larger block of votes to their party by the passage of another in a long line of entitlements.


I am going to cave in to the inevitable, that some form of universal health care is coming, like it or not, and I would like to look at an approach that is both simple and may be most cost effective. It is simple to implement because the mechanism is already in place.  I think that serious consideration should be given to just simply put everybody that falls under the Social Security mandate to be enrolled in Medicare, i.e. they and their dependents would be eligible for SS benefits upon retiring (they likely have a SS card). Look at this as being the best alternative to any other type of universal health coverage.  We know the Social Security and it's Medicare component are in deep trouble. Some form of adjustment must be made or the entitlement program will literally go bankrupt carrying the national economy with it. Private insurance has some options to hold down the risks that a government program doesn't enjoy. That will help keep their cost down in the future, but it isn't clear that they will ever be able to provide the kind of coverage offered by Medicare at anything like the costs to the consumer.  


I know this goes against the grain for all those who rightfully fear the growth of big government.  It kind of rubs me the wrong way too. But, if the Republicans don't want to be left at the starting gate, I fear that they must address the overall problem and get behind a program that will provide health care for almost everyone.  They must tailor it in such a way that doesn't increase the reach of government any more than is necessary and does so with the least cost to the taxpayer. 


I found that getting a handle on the necessary data to make this study meaningful is not so easy. I have had to assume (guess) at some of the numbers in order to come up something, that at least approaches reality.  Where these assumptions are made I will point them out.  


This would be a radical departure from our present situation where private insurance dominates the market and would be loath to give up this highly profitable business.  You could bet that the lobbying and the propaganda put out by that industry would be intense if this approach ever moved to the floor of the legislature. 


Let us look at this approach in more detail. There are pluses and minuses.  

• The mechanism is already in place to administer the program.  It will not require any new bureaucracy to to be created.  Most of the kinks have been worked out of the Medicare program and it runs pretty efficiently.

• Most people who are now on Medicare are quite satisfied with the program.  It allows a lot of flexibility in the type of medical care to choose from.  Most HMO's now participate in the Medicare line up of options available to the insured as Part C. Most doctors accept Medicare, even highly trained specialists. I've never heard of a hospital or medical clinic that doesn't participate in the program. As most private insurance allowable fees follow Medicare's lead, the private practitioner and medical  facilities have little choice but to continue to do so.  Medicare constitutes a significant percentage of their revenue.

• A study by Mark E. Litow showed that the administrative costs of Medicare vs private, for profit, insurance companies is significant.  The total administrative costs for Medicare was 3.3% in 2010 and 16.7% for private insurance. The study projected that the total administrative costs of Medicare would decrease in the future to 1.6% in 2025. Private insurance is not likely to go down.  How this applies exactly to a broader scope, everybody on Medicare,  isn't clear. But, my sense is that it will only go down if more, healthier people are brought into the program. You can look at the numbers in several ways and reduce the gap between private insurance and Medicare, but in the end, Medicare always comes out as having lower administration costs. 

• Today Medicare covers about 42 million individuals.  That allows a significant economy of scale. Private insurance covers about 165 million people spread over hundreds of companies. So, today about 1 in 4 people covered by any kind of insurance are already on Medicare.  And, the baby boomers are just beginning to enter the age grouping for Medicare and most of them are eligible for Social Security which enrolls them in the plan automatically. I would think that 1 in every 3 Americans will be on Medicare 10 to 15 years from now if nothing is changed. Medicare has four main components to the program. Two "Original Programs" called Part A and Part B and two newer Part C and Part D add ons.  Part A covers "in hospital" expenses while Part B covers other medical expenses such as labs, regular doctor visits, etc.  Part C incorporates private insurance, typically HMO's or the like, into Medicare. The consumer has the option of enrolling in either the "Original Program" or in an Advantage  Plan (Part C). Part D is new and for an additional fee covers Prescriptions. Part D participation is optional.

• The current (2010) breakdown of government payouts among the four plans are:
•       Part A ------36%
•       Part B-------29%
•       Part C-------23%
•       Part D-------11% 

• These ratios are not likely to change very much as the costs of medical services increases in the years ahead.  The costs for  2010 were approximately 519 billion dollars, projected to be around 929 billion dollars by 2020.

• The patients on Medicare at the present time are older and much more likely to be afflicted with serious and costly medical problems.  According to the study the estimated costs per year is about $12,357 per person per year for Medicare patients in 2010.  The average costs for privately insured patients is a little over $6,000 dollars per year. This primarily reflects the fact that private insurance covers a younger, healthier population. If you bring that younger group into the Medicare umbrella the average costs per person would go down significantly.

• My brief research shows that private insurance premiums range from around $200 up to more than $1500 per month per person, depending on deductibles, co-payments and the like.  Some of the plans feature deductibles of $5000 and huge co-payments, wow. However, the private insurance plans also cover both Part A  and Part B type benefits, which make the comparison more dicey. Many are HMO's as well a Pay Per Service PPS type insurance organizations. Some include prescriptions in their plan

                                              PART B

•  Medicare part B covers 80% of the allowable fees for a private medical provider. The balance could be covered by supplemental insurance provided by the individual or as a company perk. There are a lot of such plans already in existence. 

• The current premiums for Medicare Part B is $99.00 dollars per person per month for taxpayers earning less than $85,000, $170,000 for a couple. The plan is already in place for an increase in these premiums in the future. They are progressively higher for the larger income earner. Part B premiums are withheld from the Social Security benefits on a monthly basis. Currently the premiums cover about 26% (134.65 billion) of the costs incurred under Part B coverage. The balance is heavily subsidized from general revenues to the tune of about 74% of total expenditures or about 384 billion dollars. Although expenditures involved in Part B coverage would go down if everyone were included in the program, in terms of cost per patient, the number of patients covered would increase about 5 to 6 times from the 42 million now covered. This will mean a larger increase in the premiums withheld, or a larger raid on the general fund, or both. 

• Today Part B premiums are only paid by Social Security recipients (deducted from the SS check).  Expanding the program to include everyone would necessitate some modification, such as payroll deductions, so that the premiums could be paid.  That is, if we keep the same formula. Part B expenses amount to about 29% of the total Medicare payouts or about $3,400/patient.

• It is assumed that the present costs per patient for the age group covered by Medicare would remain the same in any event. The age group now covered by private insurance (the under 65 age group) would be less, but not by much for the type of services covered under Part B insurance. If everybody is covered by insurance they would go to the doctors more often, have preventative procedures done more often, just as seniors do.  But it's hard to get a handle on just how much private insurance companies pay out in expenses that are equivalent to Medicare Part B. They pay out only about one half as much as Medicare for all patient care, but that number includes both expenses that are equivalent to both Part A and Part B of Medicare. I'm going to assume that the payout for the younger crowd will be slightly less than that incurred by Part B Medicare per patients.  To take a stab at the number of people that would get wrapped  up in a full implementation of Medicare a couple of data points are necessary.  

• The population of the USA is around 310 million.
• About 7% of employed people are exempt from SS and Medicare (railroad workers and some states teachers mainly)
• There are about 12 million illegals in the country.
• Therefore about276 million folks will join the party.
• Using these numbers you can calculate about what the total costs will be: The present medicare group of 42 million plus             the new group times the per person cost of the under 65 age group--assume that this age group will cost  25% less than the            3400 dollars for the over 65 age group   

•      (42M X $3400) + (276M - 42M) X ($3400 X .75)= $739.5B      .
• There are about 162 million legally employed people in the US.  If  7% are not included, then that would leave 156 million workers contributing to Medicare Part B. The average wage earner would then pay for 1.8 dependents, including him or her self.  Let's suppose that the program is structured to provide enough funds so that total funding from the Part B from premiums paid by everybody does not gouge the general fund any deeper than it does now( 384 billion dollars).  That would mean that the premiums would need to raise 355.5 billion dollars. 

• To raise that money from the receivers of Social Security and the wage earners of the country gives: 

                       P X(4.7M +156M X 1.8) = $355.5B

                       P= $1240 per year or $104 per month

                      where P is the average premium.  

• It is likely congress would choose to scale the premiums such that the higher wage earners would pay a greater share. 

• If however, we wanted to make Medicare a fully funded, stand alone program, then the premiums would need to be increased to cover the total Part B costs of 739.5 B dollars.  In that case:

          P X (4.7M + 156M X 1.8) = 739.5 B
          giving an average premium of 2,784 dollars per year or
          P=$234 per month. 

•  Again congress would likely scale the premium payments so the higher income folks would pay a greater share..  But, the average would have to support the program. 

• This is of course, is predicated on the 2010 Medicare expenditures.  They will increase in the future.

                                                 PART A

• Part A insurance, which covers most hospital related expenses is funded primarily from two sources.  A tax of 2.9% on earnings is levied, half paid for by the employer, on each worker. That amounts to about 85% of the Part A expenditures. Most of the balance is again financed by the general fund.  Part A insurance consumes the largest part or 36% of the Medicare payouts . 

• The bill for Part A amounted to 183.6 billion dollars a year or $4371 per person in 2010 .  With the population bubble now entering the Medicare age group, it is expected that this figure will grow, with or without modification to the plan. Higher income wage earners are already scheduled to pay more in the future. 

• Considering the age group that would be included with the expansion of Medicare Part A, it is clear that the cost per patient would not be nearly as high for the new recipients as it for the current aging group.  The new plan would cover 267 million total (or 225 million more) people.  Hospital costs would be  much lower on a per person basis than the older generation.  I am going to assume that these types of costs, for the under 65 age group, will be about 1/3 of those incurred by today's participants.  This factor is really based primarily on the fact that total private insurance costs are so much lower than medicare (about 1/2) primarily due to the younger ages of it's policy holders not needing nearly the hospital care. In addition all one has to do is visit your local hospital and get a sense of the ratio of older patients to the general group,  Part A costs would then be:

              The current Part A costs of the over 65 age group

              + the costs for 225 million at 1/3 the per person costs

               of those on Medicare now.
  

            $183.6B + 225M X ($4371 X .33) = $511.4 B

•  This gives a average monthly hospital cost per person spread of 276 million policy holders of $2000. As one might expect the costs per person went down when the younger, healthier group is brought into the fold.

•  The new payroll tax rate that would need to raise  85% of 511.4 billion dollars, if it is to cover of the  costs of Part A insurance without dipping  further into the general fund.  The new tax rate would roughly be the old tax rate of 2.9% factored by the increase in total revenue necessary to cover the bill.  

•                Factor is 511.4 X .85/183.6 = 2.367 
•               Tax Rate would be  2.367 X .029 = 6.86%

• If the employer pays 50% then the worker would pay 3.43% payroll tax for Part A insurance. This would have a middle income employee earning $100,000 and supporting 1.8 dependents  paying 1.8 X $100000 X .0343=$6,174/year

                       or $514/month --

•  For the employee earning $25,000 per year the deduction would be $1543.50 per year or $128.63 per month.

• Whether this is acceptable or not depends on the individual.  How much do they pay for insurance now and what does it cover.  And, if the employer pays 50%, does that  increase their insurance costs. My feeling is that it's a godsend to the lower income group and the employers who hire them.  For big companies with many upper income earners it might create a problem.  I guess a little further research is needed to determine how much. Of course self employed people would not get the 50% sharing of the employed wage earner, so it will be twice the ding for them.  It will mean little to retiree's as they have no earnings to tax. Just as today, the workers will be subsidizing the older and retired generation. Of course this could be mitigated by a partial support from the general fund, but all that means is we'll be paying for it in another way. Just remember, there is no such thing as a free lunch. 

                                      Part C 

• Part C insurance is an option to the "Original Programs".  The recipient may chose to have an HMO, a PPO or other private insurance plans cover them.  Several advantages to many of these plans is that they offer additional services not covered by the Original Programs.  A common addition is subscriptions, some with eye glasses. 

• The draw back for Part C coverage is the limitations on the choices of medical treatment options available.  Except in emergencies, the recipient is limited to the doctors that they can see, and the medical facilities they can use.  Kaiser, for instant, is a totally locked in plan. Most of the plans require that you be referred to a specialist by a primary doctor acting as a gate keeper. 

• Advantage Programs (Part C) that can enter into contracts with the government must supply, at least, the services provided by the "Original Program" benefits. The private providers are given a monthly fee to supply the services. But, the private insurance providers may ask for additional fees to offer more services than is covered in the basic contract.  There is myriad of  choices one can make for this option. 

• In any event the Medicare Program spends 23%  of it's total costs on Advantage Programs. The Part C program is funded from the same sources as Part A and Part B.  So to the recipient there is really no additional charge, except any that is levied by the private insurance company.

•                                  PART D

• Part D insurance is a very new addition to the Medicare family of plans.  It covers prescription drugs as an option.  There is a fee associated with this plan and, if selected, is deducted from the Social Security check. 

• Part D consumes about 11% of the total Medicare expenditures.  Whether that will increase in the future, as more company backed prescription plans move their retired workers from their plan to Medicare Part D, isn't clear. But, I suspect it will.  Of course the fees charged for this service add to the income into Medicare, but is largely self financed as far as I can determine.  The premiums vary widely depending on many factors, each of which is chosen by the recipient upon entry in to the prescription plan.  

 Most large companies and even some smaller ones provide the insurance for their workers, in whole or in part. That includes insurance coverage for workers retired before age 65. This is often a union negotiated perk. Most salaried personnel are covered also.  We need to lower the cost of doing business and producing products, enhancing their affordability, especially in the overseas market where we must increase our exports or we will owe America to foreign powers.  Right now we probably owe China more that we can pay.  The people who work for smaller companies, which by the way employs the vast majority of American workers, likely have little company financed medical insurance.  If they have it at all they are, at least partially, self financed usually through a group policy contracted by the company. But the premiums are high in any event.


Whether this plan is good or not depends on the vantage point of the beholder. If congress is going to mandate full insurance coverage then it seems to me that this plan may be the best alternative.  Further study is likely necessary to refine the numbers. Comments are welcome to any of my blogs. 

  

National Sales Tax - A complete evaluation

I have spent some time gathering data to refine my estimates of the sales tax rate that would be necessary to raise the money required to fund government operations as they are shown in the budget. One can argue at great length about the desire to cut federal spending so the we are living within our means, rather than raise taxes.  But, with a budget of 3.456 trillion dollars and income of only 2.4 trillion dollars it seems that is a chasm that is not going to be spanned easily without significant impact on programs vital to this country.  We are running a deficit of slightly over trillion dollars a year at this time.  The lions share of the budget is taken up by social insurance (SS, Prescriptions, Medicare/Medicaid) and other entitlements, 43% and 12% respectively.


 One of the problems is that the social insurance programs are running in the red. While these programs cost about 1.5 trillion dollars a year at this time, only about 960 billion dollars are collected in taxes, or premiums if you prefer. Anybody who thinks that the congress is going to significantly change this picture is not facing a brutal fact.  The Democrats need those programs. They're the bait the keeps a lot of their constituents in line and loyal to that party. Interest on the national debt must be paid (6%) so that leaves only defense (20%) and other discretionary funds (19%) to play with.  It is my opinion that we must not sacrifice defense on the alter of entitlement programs.

There are some things that could be done to balance the books for the social insurance programs, but that would be a really tough sell for any congress, let alone a Democratic congress. Just a hint that Social Security could be on the table for some change to make it more viable from a cost standpoint, causes a storm from the AARP and it's millions of members, as well as all the seniors who are now on SS or approaching that age. I don't think the congress has the guts to tackle the problem in a meaningful way. Messing around with the social insurance programs is the third rail of politics for any politician. So, it seems to me to be a fact of life that the Social Security, Prescription  and Medicare/Medicaid programs are going to continue to run in the red, in fact escalating as more and more as baby boomers become eligible for the benefits. Exacerbating the problem is the ever increasing life span of the population due to advancements in the standard of living and medical science.  Of course as we get older the cost of medical care goes up significantly.  The deficit funding for the social programs is going to get larger and larger with time in the foreseeable future. When the eligible age for SS was set at 65 years the average life span of the population was about 68 years.  Now the average life span has increased into the high 70's.  The individual that has reached near retirement age can expect to live in retirement almost as long has they worked.


In a sane world the social insurance programs would be separated from the general budget and revised to make them self sustaining.  We tried that with the US Postal Service and you see where that got us.  Congress will not be willing to allow the program to make the changes that would make it financially viable. So, one way or another we, as taxpayers, must shoulder the burden of supporting these programs; they are here to stay.


As a result of that thinking, it is my belief that any tax program must raise the money equal to the budget, including the social insurance programs.  We can not continue to dive deeper and deeper into debt until the interest on that debt becomes so overwhelming that the country moves into bankruptcy. It can happen.  Look at the now defunct Soviet Union and the present situation in Europe, especially Greece and Italy. The Soviets spent their way into bankruptcy funding a military at a rate they couldn't afford and many of the European countries have saddled themselves with social programs they can't afford and are unwilling to support by higher taxes. They want all the government benefits without paying. Sound familiar.  Sweden presents a little different view in that they tax themselves at around 50% of their income to support their social programs.  I don't think that is path a highly industrialized country can travel.


No taxing program is going to be levied  on the citizens without some pain.  The question is what kind of tax program  gives this country and it's citizens both the fairest distribution of the burden and at the same time strengthens our financial picture and enhances our position in the world global economy. It is my belief that a national sales tax, along the lines I have discussed in earlier posts, fits the criteria better that the current model.


Let us reiterate the advantages of a national sales tax as opposed to the current model and perhaps brush against some of the possible consequences of this model.

• All taxes would paid at the point of sale for all purchases made in the US. There is no IRS forms to fill out at the end of the year, you pay as you go. Contract for work would be treated as a sale.  If an individual want's some service, they can either take on the service provider as an employee and pay the SS and Medicare taxes as appropriate, or obtain the service via use of a legitimate contract and force the contractor to pay the appropriate sales tax.
• 
  
• Having no taxes on corporations and business, the cost of American made products would become a lot more competitive in the global economy as well as cheaper for internal consumption.  We need every advantage we can get in this world of cheap labor overseas and the consequent flight of manufacturing to these foreign countries.
•     
• By exempting certain items that are "essential to life" you end up reducing the tax burden on the lower earning  citizens of the country.  Such items as Groceries, Medical Care and Housing  are examples. If the so called poor citizen  buys designer shoes, that 46 inch LCD TV or an IPad, and they do,  then they would be taxed like everybody else.
•   
• Let's be clear, every item that is bought, except those deemed essential to life is taxed.  That includes the purchase of stocks and bonds.  The exception here would be US Treasury and Municipal bonds and purchases made by government and charity organizations. All stocks,corporate bonds, and other financial purchases would be taxed at the current sales tax rate upon purchase.There would be no capital gains tax on stocks or bonds bought on the American markets and the sales tax paid. You pay your money going in and take your chances. If you win, great; but if you lose that's your problem.  Uncle Sam gets his money going in, win or lose.  After all, what the stock market likes to call investing is really nothing but speculating, i.e. gambling. When you buy a stock from a broker you are not investing in the company, that was done a long time ago.  You're taking a piece of ownership and gambling that it will pay you back for your bet.  Much like Vegas. The liberals among us will really like this one, except the rich liberals of course.  Poor people don't gamble in the stock market, even though they do go to Vegas.  So these taxes will fall mainly on the wealthier members of our society.
•   
•  The wage earner, the guy who can not  take advantage of the many tax dodges in the present system, gets an immediate raise in pay of something like 15 of 20 percent; depending on how much they deduct as withholding. After all, its the worker who gets a W2 form reporting their income and has few tax loopholes to crawl into. This is really significant and offsets the increase in costs at the checkout counter due to the federal sales tax. The downside of course is that there are no more tax loopholes, for rich or poor.  About the only ones available to the middle and lower class now, interest on the mortgage and excessive medical expenses, will be gone.  That will impact the average taxpayer very little.  The poorer classes not at all because they generally don't buy property and they use the other available means for medical help.
• 
  
• While the upper 1 or 2 percent pay about 40% of all the taxes collected by the federal government, their impact on the overall economy is really rather small. Even though it sounds like the taxes are heavily weighted proportionally against the top tier of the wealthy, they in fact pay a much smaller percentage of their true income to the government than the great unwashed masses (the rest of us).  But the middle classes are the ones who support the economy by their consumption of goods and services. How does a sales tax even the field then?  For the simple fact that money is not put under a mattress. The wealthy buy things. Lots of things.  Clothes, cars, stocks, bonds, and so forth. They buy a lot more than the average man on the street.  And everything they buy is taxed. When the government no longer has to sell bonds in order to pay it's bills, then that avenue to escape taxes will be closed. Only short term bonds will be sold. No need for long term government paper. Under the current system the wealthy can hide earnings through a myriad of tax loopholes, but they can't hide consumption. That gets taxed. Many very wealthy people, living in ultra luxury, pay little or no taxes at all. The common bloke however, does not enjoy the use of the many tax loopholes built into the complex taxing system now employed.  
•  
• The downsides, at least potential downsides.  This system might discourage the frequent trading  of stocks and bonds, at least the short term in and out trading that takes place in order to get a small gain on every buy and sell.  It would encourage the "investment" for the long term. Buy and hold would become more common.  Buying stocks and bonds which return dividends, interest and long term appreciation  would become the basic strategy. To my mind that's a good thing, even though the brokers who depend on the traders won't like it.  It would add stability to the market and discourage speculation to a large extent.                     

In order to compute the required tax rate to meet the budget, some basic information is readily available, but some of the adjustments to that data estimated.  I would hope to refine these estimates later, or maybe someone reading this posting will have better data.


I have said that we want to raise enough money to meet the current federal budget of 3.456 trillion dollars. I would like to plan on raising a little more in order start paying down the federal debt.  But, that is not realistic. Give congress a little extra money and they would spend it.
The government will raise .96 trillion direct from social programs taxes and 26 billion directly from tariffs.
              In trillions of dollars needed to fund the government:
                 3.456 - .96 - .026 = 2.47


The source of taxable sales are:
GDP  of 15 trillion per year.  I estimated that 50% of GDP falls in the non taxable sales category. This is hard to determine.  It is known that 70% of the total economy is due to consumer spending. Not all of that is taxable however, so I used an estimate of 50% as being taxable.


We import about 2 trillion dollars per year to be sold in this country. After taking into account exports which are not subject to sales taxes the trade deficit amounts to 408 billion dollars/year.
                 (50% x 15x10\12) + .408 x 10\12 dollars = 7.9 x 10\12 dollars


The total value of stocks and bonds sold on the US stock market are:
         Stocks            NYSE 19 trillion dollars/year
                               NASDAQ   13 trillion dollars/year
                               AMEX       10.7 trillion dollars/year
                                OTC         4 trillion dollars/year
       Bonds          84 trillion dollars/year  --- We are currently selling about 1 trillion dollars to finance the government.  I haven't found a good figure how much the accumulated municipal bonds would amount to but I would think they would be on the same order.  So total taxable bond sales would be about 82 trillion dollars.
             Total taxable sales in trillion of dollars are:
             7.950+19+13+10.7+4+82=136.65trillion dollars


Direct income from tariffs is about 26 billion dollars.


To compute the required tax rate (TR) then
           ( TR x 136.65x10\12) +.000026x10\12 = 2.47x10\12
                                              TR= 1.8%


This will mean a tremendous tax break for the average American. Only those people that consume big ticket items on a regular basis, and the wall street speculators will likely come out worse off. But, if a buyer of stocks doesn't expect to realize at least 1.8% return on their stock purchase within a fairly short time, they likely wouldn't put up the money to start with.  Just leave it in the bank.


The obvious concern will be that American money will flee "investment" in the American stock market and will use the European and Asian markets to serve as their casinos. I honestly don't think that is likely.  American companies stocks will continue to be traded on the American markets and, I believe, will get a shot in the arm from this tax policy and will thrive. Making American companies more attractive, due to reduced costs, will be an even more attractive place to bet your money. And with no capital gains tax on American market traded stocks and bonds.


What about American money put into foreign paper?  It is my plan that foreign purchased" investments" would be taxed just as if they were bought on the American market. That may take a little work to figure out how to keep people from trying to cheat on paying the appropriate taxes, but I'm sure it can be managed.  The biggest problem of course is that money which is earned overseas and re-invested there will not be taxed.  That is really no different than it is now. 

This would reduce the IRS role significantly, their principle task would be monitoring and collecting taxes on the capital gains on foreign investments.  Of course that bureaucracy won't like that very much.  It would mean a potential work force reduction; something that doesn't sit well with any government agency. Some agency would have to oversee the collection of the sales taxes and enforce their payment.  I suppose that would be a role the IRS would assume. Most states have a sales tax and have mechanism in place to deal with those taxes.  That could be the model for the federal tax.






         

The Race for the Republican Nomination

I, like most Americans, even the Republicans, have not closely followed the debates of the candidates for their parties nomination for President of these United States.  But, we do read the newspapers, watch Jay Leno and the other comedians that appear nightly on our TV screens, and obtain our impression of these candidates from their perspective.  Although it is clear that there is a  bias in the media toward the Democrats in the said media, it also clear that a candidate can not pull a goof that provides a humorous sound bite that can be played over and over again and again by the media.  It is sad that such a moment can sink a presidential hopeful but, that's the way the modern system works.


Good examples of such a slip up is reflected in the rise and fall of Perry and Cain.  Both at the top of the polls at one time, but now sinking rapidly.  And the loss has nothing to do with their policies, which the average voter doesn't understand, or care too, but largely on the embarrassing sound bites that were generated in the debates and in TV interviews.  These brief lapses can be used to make the candidate look stupid, or at the least not very knowledgeable, about various subjects which confront the nation.  Of course the sexual harassment charge against Cain hasn't helped either.


Remember Sarah Palin.  She was sunk in an interview on TV during the last presidential race.  Whether it is justified or not, she came off as totally unprepared for national responsibility as VP. She was sort of sandbagged by the interviewer ( I think it was Dianne Sawyer).  For the Jay Leno types she provided fodder for the humor mill for months, and still does now and then, based almost completely on a few sound bites that she uttered when caught on camera. In reality, that experience sunk any presidential aspirations she ever had.

Michelle has kind of gone the same route.  Opening her mouth too often and putting her foot in it. Remember her. She was once high in the polls, but has sunk like a rock lately.  Tune in to Letterman or Leno and you will get a dose of anti Michelle jokes, that is when they're not bashing Cain and Perry. 

 The two candidates that seem to have dealt with this issue best are Newt and Mitt.  Although both have records that can be attacked, (Newt's is personal, Mitt's is the perception of flip/flopping on issues), and they are attacked almost every night on the late night shows, they haven't provided the sound bites that the comedians love to air.  At least so far.  They are probably experienced enough to understand the problem a national election entails and have managed to not provide grist for the humor mile.  As a result they are now moving to the top of the leader board. Likely one of them will end up with the Republican nomination.  That is if they can keep their respective noses clean.  Of the two candidates Newt has the most consistent record.  You know where he stands and he articulates it well.  So, maybe that will propel him into the nomination.


 Both of them have political records that they can stand on in a run against Obama, if they get a fair shake from the media. But, that is not likely to happen.  So, they need a lot of money to carry a message of their positions to the voters and somehow to overcome their past shortcomings from vicious attack ads that we all know are coming.  Especially if the race develops so the Democrats feel threatened.


Of course it's still a while before the primaries in the various states gets under way, so anything can happen. The question; can they beat Obama in the general election?  Not clear to me at this point that either of them can. Obama has a built in advantage that will be hard to overcome.  But, that's the subject of another post.


Update: 
It seems that Newt is slowly fading in the wind. He just doesn't seem to have the money to spend, or the organization, to overcome the bad publicity being generated by Mitt's backers.  I'm not sure, but it really looks like, at this point, that Newt is dead meat.  But, the same could have been said for Rick Santorum just a few weeks ago. But sudden victories in the last primaries have suddenly raised him up as the true conservative challanger to Mitt.
  


One thing is clear, this is turning into an interesting campaign.  Of course Obama couldn't be more pleased as the Republicans tear each other apart seeking the nomination.
The field is narrowing. There really only seems to be three viable contenders remaining.


From this perspective I don't see any of the candidates overcoming the well financed drive by Mitt Romney to capture the Republican nomination.  He has been ahead in the polls from the beginning and still holds that position.  Right now he leads in delegates and is projected to capture a lot more in the coming primaries. 


The question for Republicans comes down to which of the candidates can win in November. I believe that the support for Rick Santorum is not widespread enough to capture the voters that stand on the middle of the road, especially on social issues. The female vote (over half the voters) seems to hang, rationally or not, on the candidates position on abortion (labeled "choice" in order to take the sting out). They seem to equate the right to an abortion on demand as fundamental to their very overall rights in our society i.e. "Women's Rights".


I just don't see an outspoken social conservative  having enough of a wide spread appeal among the middle of the road voters to carry Santorum to the White House. I believe that the majority of the voters are fiscal conservatives, but much more liberal in their view on social issues. Any candidate the rests their campaign on conservative social issues might win the Republican nomination, but will not win in a national election.  


Of course, it is essential these days to be a television star.  By that I mean the candidate must come over like gang busters on TV. Think of John Kennedy, Ronald Reagan, Bill Clinton and currently Obama. People like Jefferson, Lincoln, Madison, and many other former presidents would never have been elected in today's media driven campaigns. Even Lincoln with his purported raspy voice likely wouldn't have made it against the fiery oratory of Douglas.  


John Paul keeps hanging in there.  Primarily to just get his message across. At least that's the only reason I see.  He is essentially a Libertarian, not a Republican at all. While that approach to government is really much more aligned to the concept of our founding fathers, and the actual constitution, it just doesn't play in today's environment. Like it or not, I just don't believe that the Libertarian philosophy would make a very effective approach to government in today's world and the voters are much too acclimated to government as everybody's caretaker to buy into the almost hands off approach by government embraced by the Libertarians. 


The written constitution almost doesn't exist anymore. Today this nation is ruled by common law more than by the constitution. Court decisions down through the years, especially post WWII, have expanded the role of the federal government way beyond what could reasonably be allowed by the written constitution. Essentially, the constitution has been amended by court decree. The tenth amendment is almost completely ignored. If one reads the constitution you would be hard pressed to find justification for the federal government involvement in education, reproductive issues, gas mileage dictates for cars, how the states handle their prison system, the endangered species act and a host of other federal decrees. Section 8 Article 1 of the constitution spells out the specific powers of the federal government and the first 10 amendments specifically limit that power. 


Let us admit. The next election is all about Obama.  It really doesn't matter who the Republicans run, the issue will be whether the voters are happy or not with Obama. Right now I think Obama is holding his own.  The economy is slowly improving, whether he had anything to do with it or not, he will get the credit. Nothing earth shattering has happened in the world at large that jars the American People to any extent, some talk radio talk show pundits not withstanding. Baring some catastrophic event in the future, my crystal ball says that the Republicans will have to wait another four years to make a legitimate run at the White House. The race against any incumbent president boils down to a referendum on the president and not any real comparisons between the two major candidates. If the economy turns south, then Obama could be in trouble. I'm not sure what the general public feels about Obamacare, but I sense it isn't a big enough issue to get him cast out of office.    


  



   

Regulatory Bodies

One thing you have to admit, Governments love to pass laws regulating the citizens behavior, environment, and limits to what they can do. The general method is for congress to set up an agency to define and enforce these regulations.  Thus we have the FDA, EPA, OSHA and a whole host of other bureaucracies that regulate what we eat, the drugs we are allowed to purchase, working conditions, the limits on land use to avoid impacting some species or other, the standards for the environment in which we live, the contents of materials that we use to make items for sale, the standards for education of our young people, relationship between independent companies and the labor unions, and a myriad of other limits on our choices and freedoms to act on our own.
Are all these agencies really necessary?  Likely not, but one must agree that a whole host of them perform a necessary function that would not be accomplished otherwise. Why?  Simply because private industry, for all it's positive virtues, has no motivation to increase their costs in order to implement procedures that will clean up the environment, assure that drugs should not be prematurely dumped on the open market before adequate testing to assure they are safe, assure that the food on your grocers shelves are not contaminated by deadly microorganisms and disease, and so forth. History has shown clearly that the private sector does contain companies that worship the bottom line to the extent of cheating their customers, putting unsafe products on the market and other nefariousness activities. Right now we are seeing examples of that following the financial meltdown, although the government shares some of the blame, and examples of  questionable  practices played out on the nightly news. Practices that could impact the health of the people on a large scale.
So what's the problem?  The problem is inherent in the workings of any bureaucracy.  That is true whether part of a private organization of one on the public payroll.   Eventually the main goal of any bureaucracy will be self preservation, whether it's function has anything meaningful to accomplish or not. In fact preservation and expansion of the agency will always be at the forefront of the agencies agenda from it's very inception.  This is due to a few factors that exist.

• The importance of a manager is largely determined by their budget and/or the number of people reporting to them. This encourages the manager to look diligently for tasks and additional scope within their charter to expand the influence of the bureaucracy, thus requiring bigger staffs to cover the work load. A perfect example of that is played out in the Endangered Species Act.  At first the emphasis was on the bigger animals (wolves, mountain lions, American bald eagle, etc.) that most people envisioned as the reason for the act to begin with.  But, now the scope is being enlarged to include such animals as rats, in spite of the economic impact of including them in the endangered list and that the species isn't really being impacted all, just in a particular region. There is no end to the number of species that will be found that need protection from "extinction" so that the bureaucracy can continue to live and even grow. You can see this syndrome being played out in the EPA mafia, and any number of government regulatory bodies. 
• Parkinson's Law applies.  "In any organization the work will expand to fit the funds available". The conclusion and "law" as reached by the titled study has been shown to be true, over and over again. This implies that even after all the goals of the agency have been completed, or no longer exist, internal procedures will generate work loads that will keep the personnel busy, even hiring new people, when there is no input or output.  Strange, but shown to be true. Studies have shown that the government is loaded with agencies that really have no function, or that their function is duplicated many times over by other agencies created by congress. And yet they continue to exist as independent agencies, with no motivation to combine their functions to reduce the burden on the taxpayers.  There is no one to step in and decide that the agency is no longer needed or at least should be combined with other agencies to increase efficiency and reduce costs.
• The typical bureaucrat knows that it safer to say NO to any request for change.  Having no responsibility for the bottom line they have no motivation to move anything along.  It is better to make the mistake of being overly cautious than to move things along by quick action and later to be proved wrong. Thus, they become a large bottle neck in accomplishing anything that requires speedy action, or is not following the manual developed by the bureaucracy.  Make sure all the i's a dotted and t's are crossed becomes the mantra. This characteristic is common in private industry, but much more pervasive in the public sector.  The private sector does have overall  leadership concerned with profit, which tends to keep the bureaucracies under control.  The public sector has no such motivations.  In the public sector the employee serves their time, keeps their nose clean,  is advanced up the line in management by seniority and finally to a very lucrative retirement package unmatched anywhere in the private sector.  And, you don't really want to tangle with a government agency to do anything out of the ordinary.  You will likely get stonewalled to death.  

It would be nice if the citizens could do something about all this.  But, unfortunately there really isn't. The bureaucracies are so entrenched in the government that rooting them out, once established, is next to impossible.  Every one of them have a legion of  supporters to jump to their defense at any hint that they should be dissolved or significantly modified. 

Republican vs Democrat

      Sometimes in all the mud, muck, political posturing, power games and poison thrown around in the political arena one forgets that there really is a difference in the basic approach to what is best for the people of the US between the two major parties. We read all the time, especially in vehicles such as the letters to the editors feature almost every newspaper carries, that the legislators should stop the political games and just work for the good of the country, state, city or whatever. The thing the letter writers don't seem to get is that the representatives are really doing just that in their own mind. The fighting that occurs is due to the fact the the two parties are coming from two opposing directions in their pursuit of a what's best for the people of the country. It also obvious that the two parties are subject to being hijacked by special interest groups with an agenda that only loosely aligns with either parties basic beliefs.
      The basic differences between the two parties really is kind of simple.
      One could reduce the differences between the two major parties down to a simple thought.  Republicans tend to believe that the health of the nation comes first, while Democrats believe that the health of the individuals in the nation supersedes. These differences lead to the Republicans fight against higher taxes, as it drains money from the private sector where the financial health of the nation is determined, even if it means that that we have to forgo funding of some social welfare program that is perceived to be needed. They would basically object at the idea of borrowing money to pay the nations bills; would rather forgo the purchase. Democrats, on the other hand perceive a wrong and believe the nations taxpayers have an obligation to correct that wrong by spending money on appropriate public programs, paid for by taxes.  And, if there isn't enough money in the treasury, then it's perfectly alright to borrow the money to pay for it. And there you have the basis of the war in congress.
      Republicans are more aligned with the idea of individual initiative and opportunity for all of the citizens of the country. With individual initiative comes individual responsibility also.  Each person not only has the opportunity to pursue their goals but, the responsibility to not become a drain on their neighbors.  The government should basically get out of the way and let individuals and the free market place decide what is the best course for the economy.  It is a basic tenet that large government with far reaching powers, approaching a socialist state, is not in the best interest of the people in the long run.  All one has to do is look at Europe to see the consequences of too many entitlements handed out by governments. Entitlements that they could not afford.  Taxes should be minimized and government should only take on those areas of responsibility clearly outlined in the constitution and only those entitlements (read welfare) that can be afforded.  That means most public welfare programs are the responsibility of the local (state, county, city) governments. Republicans are more likely to favor a balanced budget amendment to the constitution to force the federal government to limit it's spending to it's income. A feature that most states seem to have written into their constitutions.
      Republicans are stronger on national defense, and are willing to put a much larger share of government spending into the army, navy, and air force. This follows from the basic idea that the health and safety of the nation is paramount. For the same reason they tend to favor infrastructure building and maintenance to assure that the nations highways support the movement of goods and services and that the water, power and other utilities support the population and the nation.
     If you think about it almost all of the social welfare programs were initiated by the Democrats while the Interstate highway system and other projects favoring the private sector (think trans-continental railroad) were  Republican initiatives.  The republicans, under the leadership of Ronald Reagan, actively pursued policies that brought down the USSR and ended the so called Cold War..
      The Republican Party tends to attract the socially conservative individuals, including the ultra right fringes, in our nation. That is a two edged sword but, one the party has to live with. All too often the fringe groups can gain an inordinate amount of power within the party, due primarily to way our elections are held.  The religious right is but one example, not the only one.  Exactly what the issue of homosexuality, for example,  has to do with the either of the two major parties is hard to imagine.  But, that issue has become a major factor for both parties, driven from the splinter groups within each party. You see that now in the Tea Party movement.  The party was founded on basic Republican principles but the religious right is trying too hijack it.
      Democrats are much more bleeding hearts. That isn't a bad thing, it's just the way it is (in spite of the fact that the Republicans have tried to make that a derogatory term). They tend to see the misery and inequality of the citizens and move to eliminate the problem, even if we have to spend borrowed money to do so. The mantra of spend, spend, spend attached to the party is all too true. They are the authors of Social Security, Medicare, Medicaid and whole host of entitlement programs to aid the poor, the sick and others not so well off. They tend to want to regulate individual and business behavior to achieve a perceived better goal.  Thus, we have the EPA, the endangered species act and a host of other regulatory legislation. The problem with entitlements and the regulatory agencies is simple.  Once enacted, they produce a whole host of people that become dependent on them.  That makes it almost impossible for them to be cancelled or even to be changed significantly. Look at Social Security.  Any change to make the system viable over the long term is viewed with horror by the current recipients, even though it has been promised repeatedly that they would not be affected. It is very doubtful that the expansion of our country to the west, including the building of the trans-continental railroad would have proceeded at all under the current rules and regulatory agencies that are geared to say NO to every initiative that effects the status quo.
     Democrats tend to attract the socially left groups. Thus, such groups as the pro-illegal immigration forces tend to gravitate to the democrats as do the other social liberal groups. And, they also can exercise a lot of power within the party due to the election process.
     Neither party is above catering to special interest groups to strengthen their power in congress. The Democrats pander to the illegal immigration lobby (lots of votes there and growing by the year), labor unions, especially public employee unions (lots of money), and the very liberal entertainment industry (lots of star power).
     Women seem to gravitate to the Democratic Party due to one issue.  The so called "Freedom of Choice", a nicer way of saying abortion on demand.  Most middle class women are really aligned with the Republican basic ideas, but the abortion issue overrides all other concerns for a lot of women, especially younger women.
     Most minorities seem to favor the Democrats.  The Mexican-Americans, a large and growing segment of the population, would normally line up on the Republican side of the isle except for one issue, illegal immigration. Most of them are in this country and are now voting citizens due to the fact their parents or grandparents came to this country illegally and got  pardoned by several bills that found their way through congress or they were born here. The past flood of illegals coming across the border in the present, and in the recent past, is tipping the make up of the voters more and more toward the Democrats. Witness California, once a Republican stronghold, now a sure electoral vote for the Democrats.  In a short period of time California has become a minority dominated state, driven largely by the large Latino population.  . 
      The Republicans are much more attuned to the needs of business both small and large, and are supported heavily by them (lots of money), as well as the religious right (lots of votes) and the middle class wage earner.