Debt and what to do.

America is in an unsustainable economic situation regarding government revenue and expenses. There are plenty of ideas out there of what to do. The conservatives want to kill all social programs and eliminate as many government agencies as possible. The Republican response to the State of the Union address said as much. But that is not a wise choice either. So what must we do? Well here is my two cents worth.

You have to approach the situation by looking at both sides of the ledger, increasing revenue and decreasing expenses.

Revenue:

On the revenue side there needs to be a complete overhaul of the tax code.

• First by drafting a new tax bill that contains all the new tax code and simultaneously eliminates the old code entirely.
• Eliminate all personal deductions, including interest on home mortgages, deductions for dependents, and all other special deductions an individual can claim. Then lower the tax rate relative to the loss of the deductions after equalizing the rates between those who have kids and those who do not. Government should not help support the raising of kids in this way. Society should support them through programs like free public schools and free higher education, not deductions to the parents.
• Eliminate all special credits and deductions to businesses. Create a new accounting code of what business expenses are deductible as a cost of doing business. These allowed expenses must be the same for all businesses and no special interest deductions that other companies do not get to take. Also lower the corporate tax rate to a level competitive with other nations so as to attract foreign businesses to set up in America. 
•      This will ensure that ALL corporations will pay the minimum tax and not use loop holes to get out of paying any taxes, as is the case now for most high yield for profit companies, both domestic and foreign. This could raise several hundred billion dollars a year in new revenue without impacting the middle class.
• Create incentives or regulations that either encourages businesses or forces them to retain research, development and manufacturing here in America. If there are any tax breaks given for them to keep their plants here, then they automatically expires as soon as they move any operation out of country. This would reduce unemployment and increase tax revenue paid in, even at a lower tax bracket.
• Index more tax brackets for those who make over $350,000 income from all sources. Therefore those making one million would pay say 45% and those who make 1.5 million 48% and 2 million 50% and so on.
• Reinstate the inheritance tax for assets of one million dollars or more. This tax would not effect the middle class, as they do not have net worth assets of one million dollars. If a study suggests I am wrong then raise it to 1.5 million or 2 million. But the assets of the very wealthy should be taxed when it changes hands.
• For Medicare, increase the individual and employer matching insurance premium payroll deduction from 6.2% to 7.0%. That would greatly reduce the budget shortfall of financing Medicare. At that rate it is still a very good buy.
• One of the biggest ways to increase tax revenue is by lowering unemployed. One reason we had a tax surplus at the end of the Clinton area is that we had very low unemployment. This will also extend the life of Social Security and increase the funds into Medicare, as there would be more people paying into each system.
• We must become the world's innovator and manufacturer to become the biggest exporter of durable goods. Today our major export is food and energy, not durable goods. This would greatly reduce our national debt and reduce our massive trade deficit we have with most other countries. We are importing too many goods.
• We need higher wages to increase tax revenue. With wages nearly flat the past decade and more of the wealth moving to the top 5% of the wealthiest, the middle-class consumer has been forced to be more price conscious, which opened the door for retail discounters like Wal-Mart, Target, Costco, and Sam's Club to grow, thus the demise of the department store and small retailers. They in turn must buy from out of country to get the price point that the consumer needs and wants. That in turn further reduces wage earning power with lower wages paid by these companies, hiring mostly part-time workers and providing few benefits, thus pushing wages in America in a downward spiral. The only ones that benefit are the wealthy who own these discount outlets. Until the growing middle-class in China and India start receiving wages in par with American workers, either by American wages continuing to decline to the level of China's or China's increasing to our level or both, this pressure to lower wages will continue. But once China and India wages are on par with America, then it will be less attractive to purchase from those countries, with the added cost of transport and pirates on the high seas.

Lets be clear. Social Security is not a budget item. It has never been. It is entirely separate and does not take one dime from the budget as a line item. There is some confusion of how much money from the SS trust fund has been borrowed by the general fund. From what I understand, it is not that they have borrowed with a simple IOU, but that the trust fund buys government bonds from the treasury and that is how it receives its interest income, like any other bond purchaser on the open bond market. Most likely your mutual fund owns some of these treasury bonds as does China who holds about a trillion dollars of them. So the interest payment paid on the bonds to the holders, including the Social Security trust fund has to be paid out of general tax revenue, thus the technical statement that the treasury borrowed the money from the trust fund. The interest paid to the trust fund is paid on the dollar amount of bonds held by the trust fund, and that is equal to the amount of money paid into the trust fund by employers and workers over the years. Of course the bonds are guaranteed with the faith and credit of the country from any loss.

        However, if the debt ceiling is not raised and the interest payment on these bonds are not paid into the trust fund, then the trust fund would not have interest income revenue and would have to pay recipients with the principle of the bonds when and if they sell them on the open bond market. But who would want to buy them if the interest payments are not paid by the government? So the net effect is the trust fund would become empty with no money to pay recipients. If the country goes bankrupt, then social security will also go bankrupt as the bonds they hold become worthless, as well as the bonds held by pension plans, 401(k)s, IRAs, and any other retirement plans, as well as China and any other countries holding these bonds.
  
        However. there needs to be some modifications to keep Social Security going through the baby boomer drain and for future generations. So there needs to be an increase in the premium paid by individuals and employers up to 7% also. The last time this was increased was by Pres. Ronald Reagan who saw the need to raise it to keep it solvent through to 2010. Eliminate the cap or ceiling on the income the premium is paid and maybe means test for how much an individual will receive relative to their independent income from other sources after retirement. Yes those who are independently wealthy may not receive any benefit from Social Security, but it is a way for them to pay back to society for the opportunity to earn such large sums of money from their hard work or just good luck.

     Most of the blue collar workforce do not live longer, so moving the age to receive benefits to age 70 is not right.  It is insane to abandon this great program just because the numbers are ominous for the future at the current very high unemployment rate at the same time the baby boomers are drawing their benefits. The system was designed that the current workforce generations pay the benefits of the retiring workforce.

     Additionally, if we created a legal work permit for foreign workers to work in US, and they are required to pay Social Security and Medicare premium payments, then that will increase the revenue into these funds, that is being lost with under the table cash payment for labor from illegals.

     Any privatization would also be insane. As Republican Conservative Congressman Ryan said in his economic proposal, 50% of Social Security funds would be put in financial instruments on the open market, but will be guaranteed from any loss by the government. That is exactly what got us in this financial mess on Wall Street, high risk instruments with no potential loss because the bankers will be bailed out by the tax payer. WHAT! How does that help reduce the budget if we are guaranteeing high risk investments that might collapse as they did in 2008? Another huge multi trillion dollar bailout of these social security investment portfolios operated by private investment firms, who are skimming huge profits from the management of these funds? What is the logic of creating such high risk and a future bail out eclipsing the funds needed to extend social security beyond the baby boomers retirements? It's a great deal for Wall Street, but not for the average working American.

For conservatives, President Eisenhower, a Republican, stated very clearly that the very wealthy should pay a much higher tax to reduce the national debt created by WWII and to finance the largest public works project ever, the Interstate Highway System. He established a tax rate of up to 92% on the very  wealthy. It quickly reduced our debt that if adjusted into today's dollars would be over 36 trillion dollars, double what our current total debt is today. Should we not heed the same logic as Eisenhower and raise the tax on the very wealthy?

Expenses:

• Government agencies must be remodeled to meet the new century. Most agencies are from the 20th century and with today's technologies and changes in society, are in need of updating. Many can be eliminated, many can be consolidated because of redundancy of service by several different agencies. Regulatory oversight needs updating, eliminated unnecessary regulations that harms free enterprise. But it is important that there are regulations that protect consumers and the environment, however enforced more effective at a lower cost of oversight by the government. 
•      There has to be an effective management and evaluation systems to monitor all the agencies to ensure they are evolving as needs evolve and not become bloated as they have become today. This would be vital for the White House to manage the government and congress for oversight of the Administration. Today, it is near impossible for any president's administration to actually manage our government. The information is not easily available to make assessments by the administration.

• Defense spending has to be brought under control and lowered. Now that we are ending our two wars, we need to redesign our military for the 21st century. Our new potential large scale military enemy more likely will be China. But most of our battles are going to be small hot spots like Yemen, Somalia, Lebanon, etc. 
•        We do have to be careful about China's rapid navel buildup. My assumption is that they would like to control the Pacific trade routes, rather than the US right now. They also want to be able to force Tibet and Taiwan into the fold of the main land and completely under their control. Why they want Tibet is unclear as it has little resources for the cost of maintaining it. However, Taiwan is a major economic center that they want revenue from, as well as just the idea of finishing off Chiang Kai-shek's legacy. 
•        Since Ronald Reagan our defense budget has soared and that's not counting the off budget cost of two wars. Why the annual budget deficit is much higher than under George W. is that George keep all the costs of the wars out of the budget and was financed with emergency off balance sheet funding, therefore it was never calculated in the annual budget deficit. Pres. Obama has stopped that practice and has included all the costs into his budget so that Americans understand the real cost of the wars. The Republicans are disingenuous when they compare the two side by side by claim Obama's budgets deficits are larger than George W's. If you took the emergency spending for the wars and added it to George W's deficits, they would exceed Obama's by hundreds of billions of dollars.

• We must work with the international community to reduce farm subsidies.The original intent was to increase output of certain commodities to keep the retail price lower, such as wheat and dairy products. But it would be better for all countries to slowly faze out these subsidies to normalize the market value. This may be more difficult now that demand of most commodities around the world are increasing, thus driving up retail prices for them, there may be more pressure to increase subsidies to keep food prices affordable. So you will pay for it in taxes or by increases in the prices you pay for the products.

• New rules and regulations regarding multi-national corporations need to be drafted. Currently there are too many regulations that actually benefit companies that move their manufacturing out of country, besides the lower labor costs.

• Instead of bashing labor unions for causing higher wages in American than China, thus uncompetitive as a workforce, we should push China and India to allow labor unions to organize and thus would improve the working conditions of those laborers and increase their wages and benefits to match those of Europe and America. Then we would be on a level playing field and all workers would have more money to spend on consumables to help everyone's economy and quality of life. Right now there is a push by the Chamber of Commerce to drive American wages down to the China and India levels. Those are not a livable wage here in America or in Europe. It is the wrong long term solution. It only provides higher profits for the corporations and share holders, not for the workers. Labor Unions helped create the large middle class in America.

• We must use new technologies to reduce operational costs of each government agency. We need to reduce the number of federal employees with new technologies. Therefore more of the money they consume are for direct benefit of the people.

• Increase the use fees charged for national recreational parks, national parks and monuments, national forests, BLM areas. They need to be self sustaining with little or no subsidy from the general fund.

• Every government contract needs to be reviewed and evaluated to determine if outsourcing the service is in fact cheaper than performed by a government agency and is the quality of service equal to or better than that of government.If the evaluation shows that it is either more expensive or of a lesser quality than government, then terminate the contract.

• We must stop buying foreign loyalty. We are spending too much money supporting foreign governments, from Israel, Egypt to Japan, and Columbia, plus Iraq and Afghanistan, etc. It is one thing to help people in very poor nations to survive; build schools in places that have none. But we also need to spend money on our own infrastructure to keep up with the rest of the industrialized world. We are no longer the riches nation in the world. We have some of the riches individuals in the world who hold onto their money, with the exception of Bill Gates.
• All research and studies prove that if we create a single payer health care system by expanding Medicare and eliminating private health insurance companies, we could reduce the total cost of health care relative to GDP. 
•         America's model of health care delivery is not a system, but a patchwork of different interests in an unorganized and very inefficient model to deliver quality health care. In conjunction with this must be tort reform to reduce liability costs. If we had an expanded Mediare program, then an injured patient would automatically have their care taken care of. To reimburse Medicare for an injury, we should establish a No Fault insurance pool paid into by health care providers. When an injury claim is validated by an administrative judge and profession committee, then the value of the cost to treat the injury would be assessed against the pool and paid to Medicare. There would be no Pain and Suffering paid to the patient or family. If the committee determines that the injury was due to negligence. then the state regulatory agency licensing doctors would be notified to take action against the doctor under whatever policy each state agency establishes.
•       President Nixon proposed a national single payer health plan, but it was quickly dismissed by congress -- you know the appearance of that voodoo doll called Socialism that is in the minds of Americans means Communism, even though they are not the same.

We were in a similar situation at the end of WWII with a huge debt. We also had a huge labor force needing jobs from all the discharged military after the war. Eisenhower knew he had to stimulate the economy further to generate needed tax revenue and get all these men back to work. What did he do, started the most expense public works project in American history, the Interstate Highway System. He spent what would be today about 3 trillion dollars building the system. However, the return from its success was profound -- high employment in the construction sector building the highways and all the needed private enterprises such as truck stops, gas stations, motels and restaurants at the new freeway intersections,   By coupling the increase in tax revenue from all those employed and with the added high tax on the very wealthy he paid down the debt to a record low. And guess what, America prospered like no period of time before.

Unfortunately these measures will take several years to accomplish and only if there is the political will within both parties to approach this situation pragmatically and not ideologically. However, with more arch conservatives in Congress, pragmatism is not meant to be. They only want to eliminate government, not recreate it into an efficient and effective government. So in the end, we will face another economic crisis more severe that the recession we are in now.