Recommended Goals and Policies for United States Tax Reform

I recently had a phone conversation with a staffer for Senator Murkowski, who specializes in tax issues.  Here are my talking points for the conversation.  A few graphs can be found at the end of this article, showing basic facts regarding American tax policy.

Goals of tax reform, in priority order

1. Increase Federal tax revenue; run a surplus until gross Federal debt is less than 75% of GDP.
2. Simplify the tax code. 
3. Reduce the burden of Social Security and Medicare on young workers and their families.
4. Create a tax system which is generally acknowledged as fair to all.
5. Eliminate subsidies and market-distorting tax incentives.
6. Tax capital that replaces labor.
7. Tax unrealized capital gains, if estate tax is repealed.
8. A tax policy that reduces wealth inequality.

Wish List

1. A greatly simplified tax system.
2. Collect more Federal tax revenues; run a budget surplus.
3. Higher tax rates on the wealthy, to raise total tax revenues.
4. Make investment income subject to Social Security and Medicare taxes.  Eliminate the tax cap, and have a progressive tax to raise rates on the wealthy.
5. Make minimum SS benefits standard for all elderly people. 
6. Broaden the income tax base to include everyone, so that everybody pays some Federal tax.
7. Eliminate the Bush investment income tax exemption, and raise taxes on dividends and capital gains.
8. Reduce Social Security and Medicare taxes for the working poor.
9. Compensate for any revenue lost in reduced business taxes with additional taxes on something else.
10. Stop using rhetoric that suggests that the United States has high personal or business taxes.  It isn’t true.
11. Implement a carbon tax.
12. Eliminate business subsidies, especially agricultural and ethanol subsidies.
13. Institute a tax on businesses which do not provide enough good jobs (full-time, well-paying jobs) relative to the amount of capital employed

Discussion and Talking Points

Sufficient Tax Revenue

Tax rates are too low.  We have undergone a 37-year experiment in underfunding the Federal Government.  In some ways, the experiment has been a success; the American Federal government is arguably the most efficient in the world.  But the consequence of underfunding the government is a gross Federal debt that exceeds GDP.  In a number of other nations (e.g., Greece, Italy, Ireland, Portugal) that level of debt has represented a tipping point marking a breakdown in the economy, markets, and in the ability of the government to govern. 

We now have a national debt that threatens our security and stability.  We might argue whether the reason for the debt is too much military spending or too much social spending, but the spending is now history.  The scale of the problem exceeds any solution through cost cutting, except drastic cuts to the military, which is not going to happen.  To raise more revenue, higher taxes need to be placed on the wealthy (because that's where the money is).  The wealthy have benefitted from 37 years of under-taxation; it is time to pay back some of the gains.

We also have a situation of rising wealth inequality, especially impacting young people.  We shouldn't make problems worse for the next generation -- which is what we are doing by not paying our bills.  We are stealing from our children to leave such a massive government debt.  

There are times when deficit spending is necessary.  Deficit spending is one of the best policies for pulling the economy out of recession.  (The proposed balanced budget amendment is economic stupidity.)  However, the converse to deficit spending is that budget surpluses are necessary during good times, to avoid ratcheting up debt over time.  Deficit spending without ever running surpluses leads to crippling debt, which impairs the ability to deal with future crises. 

Most Republicans argue that low taxes are necessary to stimulate the economy and create jobs, supply-side economics, Laffer Curve, yada, yada, yada.  This can be true when the economy is significantly underperforming, but is not true when the economy is at full employment.  Also, to be successful in stimulating the economy, tax cuts need to apply to the lower middle class, to increase consumption and demand.  Tax cuts for the wealthy are not effective in stimulating the economy; these only produce asset inflation, followed by a crash, as we have seen twice in the last 20 years.  If tax cuts were going to produce an economic miracle, don’t you think it would have happened by now? 

Social Security and Medicare Taxes

Social Security and Medicare taxes have more than tripled since I was a young man, placing an unreasonable burden on young working families and businesses.  Wage-earners pay significant payroll taxes on the first dollar of income; these taxes disprove Mitt Romney’s myth that 47% of Americans pay no tax. 

We should abandon the illusion that the Social Security system is an insurance program with benefits scaled to payments.  The truth is that the program will take from wage-earners whatever it takes to pay the scheduled benefits for retirees.   And those benefits have been too high.  Republican Senator Ben Sasse stated, “There are good and bad reasons to be unpopular. A good reason would be to suffer for waging an honorable fight for the long-term that has near-term political downsides – like telling seniors the sobering truth that they’ve paid in far less for their Social Security and Medicare than they are currently getting back.”

The structure of Social Security taxes is completely backwards.  The first dollar of earnings is taxed, there is a cap on taxable income, and there is no tax on investment income.  Instead, Social Security taxes should be structured so that both wages and investment income should be taxed to support the program, with no cap on taxable income.  A lower tax rate should apply to the working poor.

We should recognize that not everyone has an equal opportunity to earn income, and to pay into Social Security.  Some people are like my sister, who gave up a promising high-paying career, to spend her life caring for disabled relatives: first her severely disabled child, and after the death of her child, cared for our elderly aunt, and now my parents.  We should break the link between taxes paid and benefits.  We should provide a living income to old people, because we respect and honor old people.  Period.

Fairness

I think most people would agree that our tax system is too complex, which leads to widespread perceptions of unfairness.  High-income people think that poor people don’t pay their fair share, largely because of Mitt Romney’s myth that 47% pay no taxes.  Romney is ignoring payroll taxes, excise taxes, and sales taxes, which hit the poor harder than the rich.   Poor people think that rich people do not pay their fair share, because of the $75,000 income exclusion of the Bush tax cuts, low tax rates for investment income, and tax-avoidance strategies available only to the wealthy. 

A persistent belief in the unfairness of the system encourages widespread cheating.  It will be important in tax reform to make sure everybody pays something.  And it will be important to eliminate the low tax rates for investment income and eliminate tax loopholes and avoidance strategies.  

Business Taxes

The nominal tax rate for business taxes is 35%, but actual tax paid is much less. Using the President’s Report on the Economy and data from the Federal Reserve database, I calculated that the actual tax paid in business income tax is only 17.8%.   Looking at the OECD database, the United States has the 10^th lowest business tax rate of the 35 member industrialized countries, as a percentage of GDP (2015).  OECD countries with higher corporate taxes include Greece, Spain, Canada, Austria, Italy, France, Ireland, United Kingdom, Mexico, Netherlands, Portugal, Denmark, Sweden, Japan, Korea, Israel, Belgium, Luxembourg, Slovak Republic, Iceland, Czech Republic, Chile, New Zealand, Australia, and Norway. 

I agree with Republicans that businesses might do better with lower business income taxes.  American companies could be more competitive in international markets, and successful companies could put more of their profits into business growth.  But the loss of these tax revenues must be compensated by raising other taxes.  The Bush tax cuts were justified on the basis of double taxation of business income.  If business income taxes are cut, will personal taxes on investment income be restored?

Carbon Tax

Certain businesses produce externalized costs which are borne by all of society.  It is appropriate to levy specific taxes on those businesses to compensate for the damages and costs they incur for others.  An example of such a tax is a carbon tax.  It is appropriate and timely to implement a carbon tax on fossil fuels and cement manufacturing, directly scaled to the amount of carbon emissions caused by the business.  A carbon tax allows the market to reduce the damaging emissions in the most efficient way, through fuel substitution.  The carbon tax would be much easier to implement than other schemes, such as “cap and trade”, and importantly, easier to repeal or adjust, depending upon results.

Subsidies

Certain subsidies, such as ethanol fuel requirements, make no sense whatsoever.  Congress should work to eliminate market-distorting subsidies as part of any tax reform.

Tax reform should eliminate much of the use of the tax code for social engineering.  The main purpose of the tax system is to raise enough money to fund the government.

Unrealized Capital Gains and Retirement Plan Tax Deferrals

Unrealized capital gains are one of the simplest ways to avoid taxes; compounding of unrealized capital gains contributes to wealth inequality.  If the estate tax is eliminated, how will unrealized gains every be taxed?

Retirement plans, such as 401K plans and IRAs, allow workers to save for retirement.  But these plans discriminate against lower wage workers, who do not have enough discretionary income to save into those plans.  Also, fewer and fewer businesses are offering or supporting such plans.  Given the popularity of the plans, and entrenchment in terms of established value, it would seem impossible to modify or eliminate these plans.  But these plans complicate the tax code, and offer tax advantages that only the wealthy can take advantage of, leaving the rest of the workforce to make up the difference.

Taxing Capital

A few months ago, I undertook an effort to calculate the total Federal tax paid by Capital and Wages.   Capital pays tax through business income taxes; capital gains, dividends and interest, personal income taxes; business’ contribution to payroll taxes; and other (mineral royalties and rents). 

Wages pay taxes through payroll taxes, personal income taxes on wages, and most excise taxes.

Using figures from the Tax Policy Center and the President’s Report on the Economy, I calculated that wages pay about 25% of gross income in Federal tax, and capital pays about 28% in Federal tax.  I expected that capital would be higher. 

In a 27-year career with a major oil company, I saw that capital does not create jobs – capital and technology destroy jobs.  A workstation allows a geologist to do the work of 4 geologists working without the computer, so the number of geologists employed at my company was reduced by two-thirds during my career.  Desktop PCs made secretaries irrelevant and PCs made the entire drafting department obsolete.  Enterprise-wide accounting software allowed us to lay-off hundreds of accountants.  In my department, over five years, the number of accountants was reduced from 27 to 1.  Looking forward, in the transportation industry, self-driving trucks will soon make 1.5 million long-haul truck drivers unemployed, and 2 million other professional drivers soon afterwards. 

Robots have considerable advantages over human workers.  Companies can avoid paying payroll tax, and avoid providing health and retirement benefits.  And yet – people in society still need work, healthcare, and funding for retirement.  After all, the importance of business to society is not to make as much money as possible, but to provide what society needs, not only in terms of products for purchase, but also employment for workers.  Bill Gates proposed taxing robots, just enough to put humans on an even playing field with the robots.  But in a broader sense, the problem is not robots, but capital.  Business Capital should be taxed if it doesn’t provide an appropriate number of good jobs in relation to the amount of working capital.  

Basic Facts

Gross Federal Debt is now about 20 trillion dollars, or 112% of GDP.    Debt held by the public is $14.3 trillion, or 76% of GDP.  The difference ($5.7 trillion) is essentially debt that the government owes to itself, through arrangements between government agencies.  Much of the government-held debt is the trust fund for Social Security.  It might be possible to say that Social Security is in great shape, thanks to the set of IOUs from the Treasury, but then you would have to say that the country is in deep trouble because of the debt load.  Or you might say that the country’s debt load is not so bad, but you would have to say that Social Security is going broke.  You can’t have it both ways.

 Here is a graph of gross Federal debt and GDP.

Federal Deficits have been large and persistent since 1980, in Reagan’s first term.

Federal Tax Comparison to Other Countries

United Stats Federal Taxes are among the lowest in the world.  The government accomplishes a great deal with less revenue than other nations.  The US government is also burdened by the highest rate of military spending in the world, further cutting into other government programs.

The OECD database places the US consistently 34th out of 35 industrialized countries.  The only countries with occasional lower Federal taxes (Japan, Switzerland) have no significant military obligations.  Japan also has a massive debt problem.  US Federal taxes (from all sources) are among the lowest in the OECD.

http://stats.oecd.org/Index.aspx?DataSetCode=REV

US total tax burden is among the lowest of the OECD.

US Federal Taxes are among the lowest in the world.

For the year 2011 (the recent year with the most complete reporting), the United States had the fourteenth-lowest Federal tax rate of 123 countries in the World Bank database.  Countries with lower taxes than the United States are as follows (2011):

Ethiopia, Pakistan, India, Afghanistan, Bangladesh, Central African Republic, West Bank and Gaza, Lithuania, Oman, Nigeria, Bahrain, Estonia, United Arab Emirates.  These countries are the peers of the United States in terms of Federal taxation. 

http://data.worldbank.org/indicator/GC.TAX.TOTL.GD.ZS

The Democratic Party Code of Ethics

The Code of Ethics

The Democratic Party needs a code of ethics.   The Republican Party needs one, too, but for now, I’m going to talk about changes needed in the national Democratic Party to win elections. 

As in most things, there is an ethical dimension and a practical dimension to this proposal.  Democrats need a Code of Ethics because they need better standards for behavior; in other words, because it is the right thing to do.  And in a practical sense, Democrats need a Code of Ethics because they need a better reputation in order to win elections.  Unethical behavior and lack of integrity lead to bad results.  When these come to light, the Republican opposition has a field day denouncing Democrats, tarnishing the Democratic brand.  Democrats lose votes, and lose elections.  Beyond that, ethical behavior and fair play are essential to a democratic and free society.  It is the right thing to do.

A code of ethics is not a set of By-laws.   The By-laws are the constitution of the party, which define powers, responsibilities, and the processes for governance.  A code of ethics is not a platform.  The platform is the set of beliefs and goals for the party.  Instead, the code of ethics establishes rules for behavior.

The code of ethics governs both individual and collective behaviors.  Generally, the code specifies what behaviors are prohibited, but may also specify what proactive behaviors should be practiced by Democratic party members. 

The code should include a process for hearing complaints and a process of enforcement.  Ethical complaints should receive serious, confidential investigation.  Actions on ethical problems should be public and transparent.

I.                     Personal and Candidate Ethics

Conflicts of interest lead to poor choices in government, and lead to loss of trust by the public.  Therefore, individuals in the Democratic Party should avoid conflicts of interest, and any appearance of a conflict of interest.  Establishing a code of ethics according to these standards will require changes to certain behaviors which are currently considered normal and acceptable. 

Speaking Fees

Speaking fees should be capped at $5000 per appearance, and $150,000 per year.  In the recent past, Democratic Party leaders have received payments in the range of hundreds of thousands of dollars per appearance.  The clients for the speaking fees are generally high-wealth corporations, such as investment banks, or industry lobbying groups.  Hillary Clinton collected over $20,000,000 in speaking fees from such clients between her tenure as Secretary of State and her presidential run.  Everyone on the planet understood that she would be running for President, and these fees were simply a way of currying favor in the event she won the election. 

A few years ago, a retired Alaskan politician reflected back on his time in office, and realized that if any group gave 500 dollars to his campaign, he looked upon that group more favorably while in office.  It was a simple reaction, and very hard to objectively overcome.  The price of influence was $500. 

Here is a small hint to any high-profile politician who is receiving hundreds of thousands of dollars per speaking engagement.  Your audience has no interest in what you have to say.  They just want to make sure that you take the money, and remember who gave it to you.  In other words, a speaking fee is another way to say “bribe”.  Accepting such large amounts of money creates a conflict of interest, and an appearance of a conflict of interest, and should be prohibited.

Other Ethical Rules for Individuals and Candidates

• There should be no quid-pro-quo for performing official duties while in office.
• There should be no quid-pro-quo for campaign funds, or the distribution of funds to other campaigns.
• Individuals, candidates and office holders should comply with all laws concerning communications, especially laws concerning communications in the course of public service.
• Private electronic communications should be kept entirely separate from official party or government communications.
• Records of party or government communications should be kept or destroyed according to a set records retention policy.
• Individuals in office should recuse themselves on issues which might incur a conflict of interest.
• No position of authority should be used for gain or intimidation.
• Every person should be given respect equally, in official and unofficial contexts.

II.                  Collective and Party Ethics

The Party and its elected officials have a responsibility for collective ethical behavior.  These behaviors should set the party apart from the opposition, although in a perfect world, each side would behave ethically. 

Use of Campaign Funds

Campaign funding can be an ethical minefield.  By its very nature, fund-raising for political campaigns creates many risks of ethical problems, and can create conflicts of interest, or the appearance of conflicts of interest.  Strong ethical guidelines and transparency should be in place to discourage unethical situations involving campaign funding.

Campaigns should avoid accepting funding from sources which would incur or imply any obligation after the candidate is in office.  There should no quid-pro-quo in accepting campaign funding or sharing campaign funding between local and national organizations. 

Actress Margot Kidder (noted for playing investigative reporter Lois Lane) wrote an article in April 2016 for the website Counterpunch.com, accusing the Clinton campaign of buying superdelegate votes through an arrangement to raise and distribute campaign funds with state parties.  https://www.counterpunch.org/2016/04/01/how-hillary-clinton-bought-the-loyalty-of-33-state-democratic-parties/  The accusation carries the ring of truth, because Clinton had gained pledged support of 75 percent of the superdelegates before the Super Tuesday primaries.  Whether true or not, this action gives the appearance of impropriety, and illustrates precisely the kind of unethical behavior that needs regulation through party processes.  If party officials actually thought that buying votes in the party nomination process was OK, they need to think that one through again.

Selection of Candidates

The party should have clear, documented, fair processes for the selection of candidates.  Although the party can and should use tools (such as focus groups and polling) to determine which candidates are the most electable, party functionaries should not “have a thumb on the scale” to determine which candidates receive nominations.  Competition for nomination should be transparent and fair to all candidates.    

Other Ethical Rules for the Party

• The party should defend the rights of those with whom we disagree.
• The party should demonstrate respect for the opposition in words and deeds, publicly and privately.
• Elected Democratic officials should not orchestrate a failure to fulfill their constitutional duties for any reason.
• The party should not engage in gerrymandering.
• The party should encourage registration of all legal voters, and work to enable all voters to vote.  The party will not engage in strictly partisan registration.
• The party will not engage in illegal voter registration, or work to impair or suppress legal voting.
• Any legislation proposed by a party member will carry an accurate and reasonably complete description of the intent of the legislation in its title. 
• Deception should be avoided in all things, including campaigning, public communications, and in legislation. 
• Party officials should not engage in any behavior which is counter to fair play, within the party processes, or in external politics.

III.                Difficult Ethical Issues

There are ethical issues which are beyond the ability of the party to correct in the near term.  These are issues which would give an insurmountable advantage to the opposition if the Democratic Party foreswore certain practices.  The code of ethics should recognize those issues, table the issues for the current time, and propose a long-term process for correction.  Ideally, the process for correction would include an agreement with the opposition party, or a law to eliminate certain behaviors.   Two examples of “difficult” ethical issues are corporate campaign contributions and political patronage jobs.

Corporate Campaign Contributions

Corporate campaign contributions are corrupt by nature.  Corporate campaign contributions violate the core premise of the code of ethics to avoid any conflict of interest, or the appearance of a conflict of interest.  It would be best to prohibit all corporate donations, but if the Democrats acted unilaterally, the funding advantage to the Republican party would cause Democrats to lose elections and all of the progressive agenda. 

One possible solution would be “blind” campaign contributions, if adopted by both sides of the aisle.  The true nature of corporate campaign contributions would be revealed, if these contributions were required to be anonymous.  I suspect that corporate campaign contributions would fall substantially if all corporate campaign contributions were given without an identification of the donating party.

Political Patronage Jobs

Political patronage jobs are part of the meat-and-potatoes of American politics, but the process is corrupt.  Patronage jobs are the quid-pro-quo for support of a candidate during a campaign.  This practice is explicitly a violation of ethical principles.   Supporters may have given campaign contributions, service hours, or campaign organization; the job is the reward.  At the highest levels, it seems that ambassadorships are given to the highest bidder in presidential campaigns.  Both parties participate in distributing patronage jobs. 

The process of distributing patronage jobs serves the interests of the parties, but does not necessarily serve society.  The people appointed to these roles may be unqualified to do the job, and even if they are, better candidates may be available.  The distribution of these jobs at the highest levels should stop immediately, and a process identified to reduce or eliminate the practice entirely in the future.

Conclusion

Corrupt practices are hardest to recognize when they are the ordinary things people do, in the way things have always been done.  We can recognize corrupt practices by asking whether the action creates a conflict of interest or the appearance of a conflict of interest.  We can recognize corruption when the practice in question requires deception, creates disadvantages for some individuals, or does not serve the broader interests of society. 

By applying clear principles, we can make politics more ethical and successful in serving society.  The Democratic Party needs a code of ethics and a process of enforcement in order to do the right things, to repair the image of the party and to succeed at the polls.  Establishing a reputation as the party of integrity would be an important step toward those goals.

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References:

Marathon Oil Company Code of Ethics

http://www.marathonoil.com/content/documents/investor_center/corporate_governance/HG020594_Ethics_Book_re-design_spread_view_Final.pdf

The Marathon code of ethics has been revised since I was with the company, unfortunately eliminating references to avoiding the appearance of a conflict of interest.  Nevertheless, it covers a lot of ethical issues well.

US News and World Report, summary of Hillary Clinton speaking fees:

https://www.usnews.com/news/articles/2016-04-22/heres-who-paid-hillary-clinton-22-million-in-speaking-fees

CNN, summary of Bill Clinton and Hillary Clinton speaking fees:

http://www.cnn.com/2016/02/05/politics/hillary-clinton-bill-clinton-paid-speeches/index.html

Hillary Clinton speaking fee income, April 2013 – March 2015: $21,648,000.

Margot Kidder, 2016

https://www.counterpunch.org/2016/04/01/how-hillary-clinton-bought-the-loyalty-of-33-state-democratic-parties/ 

https://interactives.ap.org/2016/delegate-tracker/

History of the delegate and superdelegate counts in the 2016 Democratic presidential campaign. 

Comments for Senator Dan Sullivan

Recently, Senator Dan Sullivan held a town-hall meeting in Anchorage to meet with constituents.  Senator Sullivan is to be complimented and thanked for holding the meeting; he is the only member of Alaska's Congressional delegation to hold an open meeting with constituents.

The majority of the attendees to the meeting seemed to be in political opposition to the Republican Senator, as has been the pattern in town-hall meetings in other states since the Presidential election. The convener of the meeting and the Senator asked for respect at the beginning of the meeting.  The crowd was boisterous on contentious issues, but generally well behaved.  The Senator invited attendees to speak to members of his team, if we had additional comments.  I spoke to one of his staff members afterwards, and met with her the following week to discuss my concerns.  The following document contains my talking points for my meeting with Senator Sullivan's staffer.  We discussed these issues for 50 minutes.  My meeting with the staffer was generally cordial, although there were a few moments when she simply glared at me.    I plan to follow up our discussion with an e-mail after one week, to see if our discussion had any impact at all on the Senator, or his staff.

I prioritized my talking points according to my guess about the likelihood of positive action by the Senator.

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Meeting with Staffer for Dan Sullivan

Issues and Talking Points

Thursday, June 1, 2017

War Powers:

Will Congress vote on the use of military force before an attack on North Korea or any other country, as required by the Constitution?  White House spokesman Sean Spicer has indicated that the President does not intend to seek Congressional approval before an attack on North Korea.  This seems to me to be a dereliction of Congress’ responsibility to declare war.

Science Funding and Climate Change:

I had a successful career as a petroleum geologist and I understand the importance of petroleum to civilization.  I also recognize the reality and inevitability of climate change.  The consequences range from severe to disastrous.  The remaining questions on climate change are how fast it will happen, and how bad will it be.  Answering those questions is in the national best interest, and requires continuing science funding for critical agencies and programs.

The most positive thing that I took away from the town hall meeting was that Senator Sullivan acknowledges the truth of Climate Change, unlike many others in his party.  I hope that he understands that Climate Change is primarily caused by human emissions of CO2 by burning fossil fuels.   I would be happy to spend several hours explaining that to him if he doesn’t.  In short, the theoretical and observed heating from greenhouse gases closely matches the observed heating of oceans, atmosphere and volumes of melting ice.  Further, the observed heating of the oceans and volumes of melting ice closely match the observed rise in sea level.  Forecasts based on projections of future fossil fuel use indicate significant and expensive problems involving our coasts, our agriculture, and our weather. 

We should not re-direct the agencies currently conducting climate-change research.  Each agency (including NASA, NOAA, USGS, and Energy Department) has a particular expertise.  USGS has the expertise of interpreting past environments.  NOAA has the expertise of monitoring oceans.  NASA has the expertise of remote observations from space.  The CDIAC of the Energy Department has the expertise of understanding carbon emissions.  Please do not cancel NASA’s “Mission to Earth”.  Specifically, please retain funding for:  The Plankton, Aerosol, Cloud, ocean Ecosystem (PACE) satellite; the Orbiting Carbon Observatory-3 (OCO-3) experiment; the Climate Absolute Radiance and Refractivity Observatory (CLARREO) Pathfinder; the Earth-viewing instruments aboard the Deep Space Climate Observatory (DSCOVR) spacecraft; and the Radiation Budget Instrument (RBI).

I support a carbon tax as the most efficient (and reversible) way to reduce U.S. carbon emissions.  I support remaining the Paris accord to improve international cooperation on Climate Change.

Economic Growth

Senator Sullivan seems to think that economic growth will raise workers’ stagnating wages.  Rather, the situation is the inverse in terms of cause and effect.  The economy is stagnating due to stagnating disposable income for workers.  It is necessary to first take steps to improve wages in order to fix the economy.

Internet Neutrality

Internet Service Providers are a natural monopoly, because of the capital required to connect homes to the internet.  Title II of the Communications act of 1934 provides strong Internet Neutrality, but the administration’s new FCC commissioner intends to revoke this protection.

Internet neutrality is exactly analogous to the regulation of natural gas pipelines as common carriers, established by the Natural Gas Act of 1938.  Natural Gas pipelines are required to treat all shippers equally, which provides for free and fair competition among all producers of natural gas.  In the same way, Internet Neutrality provides free and fair competition among all creators of Internet content.  Internet Neutrality protects against: 1) Monopolistic pricing and 2) Discrimination in favor of affiliated or preferred content providers.  I took that wording almost verbatim from a document on natural gas pipelines.

I support strong Internet Neutrality.   Is Senator Sullivan ready to act to preserve Net Neutrality, and fair competition on the Internet?

Tax Policy

I share Senator Sullivan’s concern about the United States deficit and debt.  We have undertaken a nearly 40-year experiment in underfunding the government, with mixed results.  Our government is already doing more with less, considering the comparison with other countries, and the fact that over 50% of the discretionary budget is taken by military spending.  It is clear that future debt increases are dangerous.  Why on earth is Senator Sullivan interested in cutting taxes?  Raising taxes is clearly imperative to restore fiscal responsibility.  I support higher taxes to reduce the U.S. debt burden.

Deficit spending is often necessary to stimulate the economy and to provide continuity of programs during economic downturns, when Government revenues fall.  This is why a balanced budget amendment is truly a stupid idea.  But the corollary is that taxes should be high enough to provide surpluses when economic times are good.  The economy is now near full employment – it is time to raise taxes, so we can afford deficit spending when times are bad.

As an aside, please excuse me for my error in a question asked at the town hall meeting.  I had erroneously calculated that the total Federal tax on capital returns was only half of the total Federal tax on wages.  I was mistaken about the breakdown of Gross Domestic Income, and attributed too much income to capital.  Nevertheless, please recognize the following facts:

1)  The nominal corporate tax rate is 35%, but actual tax paid is only 17.8%.  It is not appropriate to cite the nominal tax rate without acknowledging the actual rate paid.

[Actual figures for the year 2015 are $1583 billion for after-tax corporate profits (Federal Reserve database) and $343.8 billion in actual tax paid (Economic Report of the President, 2017).  Pre-tax profits are therefore $1927 billion.]

The Bush tax cuts on investment income were justified on grounds of double taxation of corporate profits and dividends.  If Congress reduces the corporate income tax, will it raise individual taxes on investment income to compensate?  How would Senator Sullivan propose to compensate for the loss of tax revenue?

2)  During the town-hall meeting, Senator Sullivan claimed that the United States had one of the highest corporate tax rate in the world.  According to the OECD statistical database, the United States has the 10^th lowest corporate tax of the 35 countries in the OECD (2015) as a percentage of GDP.   OECD countries with higher corporate taxes include Greece, Spain, Canada, Austria, Italy, France, Ireland, United Kingdom, Mexico, Netherlands, Portugal, Denmark, Sweden, Japan, Korea, Israel, Belgium, Luxembourg, Slovak Republic, Iceland, Czech Republic, Chile, New Zealand, Australia, and Norway. 

3)  In Donald Trump’s acceptance speech for the Republican nomination, he said that America is one of the highest-taxed countries in the world.  This is very far from the truth.   Of the 35 OECD countries, the United States is consistently second-lowest in Federal taxes, and third or fourth lowest in total taxes (including payroll, state and local taxes).

In looking at the World Bank database, the United States had the 14^th lowest Federal tax rate out of 124 countries.  The list of countries with lower taxes than the United States is:  Ethiopia, Pakistan, India, Afghanistan, Bangladesh, Central African Republic, West Bank and Gaza, Lithuania, Oman, Nigeria, Bahrain, Estonia, United Arab Emirates.

The Social Security is in long-term trouble, due to longer life-spans, and the declining number of workers supporting each retiree.  Expanding Social Security funding would help the situation.  I see no reason to cap the tax at a maximum wage, and I see no reason to exclude personal investment income from the tax. 

Workers are taxed from the first dollar for Social Security and Medicare.  By contrast, investment income is not taxed at all for Social Security.   Further, according to the Bush tax cuts, the first $75,000 in capital gains and dividends are tax-free to the individual.  As capital replaces more and more jobs, it makes sense to me to tax capital at a higher rate to put workers on an even playing field when competing for jobs against automation.

Tax deferral on unrealized capital gains contributes to wealth inequality, and deprives the Federal government of needed revenue.  If congress does away with the estate tax, how will unrealized capital gains ever be taxed?

Perhaps Senator Sullivan believes that wealthy individuals create jobs.  That is rarely the case.  In the modern economy, capital and technology are replacing jobs, not creating jobs.

Social Security and Medicare

Payroll taxes are about three times the burden they were when I was a young man.   The number of workers supporting each retiree has declined from about 9 to less than 3.  Wages have stagnated or declined for twenty to thirty years, and the costs for college, health care and even bicycles have increased at a rate far higher than inflation.  Today’s young people are having to make due with less; they are trying to raise children, and support families, and are necessary for the continuing well-being of society.  But we continue to tax young people to support old people.

Social Security funding is backwards.  We tax earnings from the very first dollar of income, and we have a cap on taxing people with high wages.   We have no tax on investment income of any kind. 

We should give tax relief to young wage-earners, by removing the earnings cap, by taxing capital returns, and putting a means test on benefits. 

We should do away with the whole concept that Social Security is an insurance program, in which a workers’ benefits are tied to contributions.  Individuals whose lives have not allowed them to earn wages should be granted a pension, too.   (For example, my sister dedicated her life to caring for her severely disabled daughter, who died at age 13.  She then cared for my elderly aunt, then my parents.)  We should take care of old people because we respect and honor old people.  I support higher taxes on capital returns to fund Social Security, and reduced taxes on wages.

Planned Parenthood and Abortion Rights

I support the continued funding of Planned Parenthood, as an essential part of delivering women’s healthcare and family planning.  If the Republican party wants to reduce abortions, sex education and greater access to contraception are necessary. 

Why would anyone force a woman to carry a pregnancy to full term, when a known birth defect would doom a baby to die on the day it is born? 

If abortion is prohibited, who will care for the nearly one million unwanted children who would be born annually, adding up to about 16.5 million children before adulthood?

I support a woman’s unqualified and unrestricted right to an abortion.  Efforts to restrict that right by restricting the availability of services are deeply misguided.

Health Care

American spending on health care is far above the spending by other countries, without noticeably better results.  

Image Credit:  Randomly Critical Analyses, https://randomcriticalanalysis.wordpress.com/

Most of the recent increase in spending occurred between 2000 and 2009.  The ACA actually stabilized increases in health care spending (see attached figures, data from the World Bank).

Republicans have made no proposals to decrease the cost of delivering health care which do not involve restricting access to health care for some, or increasing costs to some.

Republicans had every opportunity to engage in a positive way in crafting the Affordable Care Act to make it a better law.   Republicans declined, and cynically tried to cause the legislation to fail.  Republicans continue to do everything possible to sabotage the ACA, without regard for the lives of those who will be physically damaged by the loss of access to health care. 

I expect Senator Sullivan, if he is an ethical human being, to seek out ways to provide health care to all Americans, and to takes steps to reduce the cost of delivering health care without denying care, or shifting costs to those who cannot afford it.

Reducing the actual costs of delivering health care should be a higher priority than the structure of insurance.   Some suggestions to actually reduce costs include:

1. Establishing a system of local health-care clinics, staffed by nurse practitioners rather than doctors. 
2. Establishing a medical school at the University of Alaska Anchorage.
3. Reform patent law, so the drug companies can recoup their costs over a longer period of time, and justify lower drug costs.  Also, regulate the pricing of drugs under patent as monopolies.
4. Conduct a study of the cost structure of health care, and apply regulatory solutions to the areas of greatest cost and least benefit. 

 Social Responsibility

The Senator made a statement in the town council that calls for a stringent rebuttal.  The Senator said that as a 60-year old man, he saw no reason why he should pay for women’s maternity care in his health insurance.  This is one of the most offensive things I have ever heard.  Was the Senator not born of woman?  Was he brought into the world by the Heritage Foundation fully grown?

Let me explain it to him.  The Senator owes a debt to those who paid for the maternity care of his mother, and ethically he is required to pay that debt forward to the next generation. 

All of us are part of a society.  We cannot and do not function as individuals.  The Senator did not make his own clothes, build his house, or harvest his food.  He didn’t build his roads, transport his goods, dig for minerals, or teach his own children.  The Senator has a debt to everyone who serves him in life, which is everybody.  That responsibility does not end by paying a few dollars for any particular service, but that responsibility includes giving everyone in society the basics of a decent life – food, health, education, housing and economic opportunity.  You educate people so that your supermarket checker is literate; you provide healthcare so that he is healthy.  You do these things so that society functions well and serves you well.   That includes a responsibility to illegal aliens who have lived among us, served us with honest work, and to their families. 

The Republican mantra seems to be, “I’ve got mine; everybody else is on their own.”  This ethos ignores the debt we owe to others for the benefits of living in society.   That debt means that we owe a decent life to everyone in society.   If not for the service of all of the unknown people supporting Senator Sullivan, and all of the unknown people supporting them, Senator Sullivan would be living in a mud hut. 

Respect

Senator Sullivan asked for respect in the town hall meeting.  But during Senator Sullivan’s tenure in office, the Senate refused to hold confirmation hearings for nominee Merrick Garland, and Republicans declared they consider ANY nominee for the Supreme Court by President Obama, for a full ¼ of his second term.  This is disrespect not only for the President, but for the voters who put him in office.   Merrick Garland should have been confirmed as Supreme Court Justice, and it was unethical and unconstitutional to deny President Obama that nomination.

Senator Sullivan’s letters are full of disrespect for Democrats, for the former president and for the Health Care plan that was the first and only effort by either party to solve our country’s health care problems.  Why should Senator Sullivan expect to receive respect, when he has not given respect where it is due?

Gun Control

I support reasonable restrictions on guns, as justified by the words “well-regulated” in the 2^nd amendment.  Thirty thousand Americans die every year from guns; two-thirds of them are suicides.  According to Politifact, there have been more than 1.5 million deaths by guns in the United States since 1968.  This is more deaths than the sum of all combat deaths in war in the history of our country.  Many of these deaths are preventable by reasonable gun regulations.   

The EPA and Business Regulation

I remember the time before the EPA.  I remember how snow would turn black in my hometown on the day it fell, due to coal soot in the air.  I remember when the air quality in Los Angeles, before regulations improved the air quality by 98%.  I support the continuing mission of the EPA to protect the environment.

Illegal Immigrants and Immigration Reform

We have many illegal immigrants in this country; in the range of ten million.  The majority of them have been here many years, living peacefully as neighbors, working to support our economy, paying taxes, serving us by taking low-paying and difficult jobs.  In many ways, we owe them a debt of gratitude for their service to us.  Yes, they broke the law.  I also had a few speeding tickets during my life.  In a practical sense, these people are essential to our economy and our housing market.  Currently, they are living outside the law, which creates opportunity for exploitation, and encourages crime in their communities.  Illegal aliens deserve to have a process whereby they can obtain legal residency in this country.

Refugees

Through actions of both Republican and Democratic administrations, we have participated in creating a civil war in Syria that has robbed ten million people of their homes.  Their homeland is destroyed, they have nothing to go back to, and nowhere to go.  We owe it to those we have harmed to accept and shelter some small percentage of these refugees in our country, and to contribute financially to the care of many of the others. 

Education

I do not approve of the use of taxpayer funds to support private schools.  The creation of charter schools funded by school vouchers is a charade for the purpose of religious education, with serious distortion in the teaching of science and history.

Separation of Church and State

One of the most important principles in the country is the separation of church and state.   I expect Senator Sullivan to honor that principle in law, education and all other matters involving the government.

Closing Thought

I am financially conservative; relatively wealthy, white, and middle-aged.  I do not place America First, but rather place humanity first.  I know that all nations and borders are temporary, and I do not care what side of an imaginary line someone was born on.  Our greatest obligation is to leave the world a better place for everyone living here.

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References:
http://www.nrlc.org/uploads/factsheets/FS01AbortionintheUS.pdf