Bankstocks.com Saves The World!
“And your solution is?” commenter “oy” wanted to know first thing after I posted a piece here on Wednesday that chided Wall Street hotshots Whitney Tilson and Anthony Scaramucci for putting forth a purportedly bipartisan budget deficit solution that was, I argued, neither bipartisan nor a solution.
Oy has a point. Enough with the catcalls! What is the best way to cut the deficit and render the nation’s finances solvent? I’m glad you asked! Here’s the Bankstocks five-point plan:
1. Make it so that everyone pays something. President Obama likes to yammer on about how the rich need to pay their “fair share” in financing the government-yet how can it be fair that nearly half the country pays no income tax at all? That’s incredibly unfair to those of us who do pay taxes. So I propose every earner pay a minimum annual tax, even if it’s just $100 at the very low end. No, that wouldn’t bring in much money. But, more importantly, it would ensure that everyone gets the message that government isn’t free, and has a stake in seeing to it that it runs efficiently and sticks to its knitting. Further in this spirit of inclusion, I also propose that tax rates be raised by 100 basis points across the board (fair share!). That won’t bankrupt anyone, but in an economy that generates close to $8 trillion annually in taxable income, would bring in sizable new revenues. You can argue if you’d like that an across-the-board tax hike, even a small one like this, would slow economic growth. Maybe. But the effect would be more than offset by the huge expansionary effect of my next proposal.
2. Jump-start economic growth. The most effective balm for a high fiscal deficit is an economy that’s growing fast. It generates more tax revenues and cuts the need for social-stabilizer spending such as food stamps. So let’s put the pedal to the metal! In particular, pull out all the stops in energy production. The U.S is said to have more energy reserves now than any country on earth. We should exploit them to the max. That would generate thousands of energy-related jobs directly. What’s more, the resulting drop in energy prices would suddenly make many non-energy-related capital projects economically attractive, as well, leading to even more jobs. The next thing you know, the economy would be roaring, tax receipts would be soaring, and the deficit shriveling. This isn’t rocket science.
3. Reform Social Security the Paul Ryan way. That means grandfathering in participants who are at or near retirement age (55 years old and older, say) and trimming benefits for everyone younger. Those younger workers would then have plenty of advanced warning to make alternative arrangements for retirement, while older workers, who don’t have time to put together a Plan B, won’t have the rug pulled out from under them. Is this solution unfair to younger workers? You bet. But the fact is that any reform of Social Security (short of outright dissolution of the program accompanied by one-time payouts of accumulated contributions) is going to be unfair to younger workers. Would they prefer national insolvency? Meanwhile, the budget savings that would result from reform would be enormous.
4. Make health insurance more like real insurance. The best way to get health care spending under control is to get as much of that spending as practicable out of the hands of government and into the hands of consumers, and the best way to do that is to ensure that a variety of private health-care policies are available-from gold-plated to bare-bones-to the consumer, that he pays for out of his own pocket. So: first get rid of the tax-preference for employer-based health insurance. Second, make health insurance renewable and portable across state lines, just the way auto and homeowners is. Whatever level or type of coverage the consumer wants to buy should be up to him. I don’t know about you, for example, but when I worry about financing my family’s health care, it’s not footing the $5 co-pays on the generic penicillin for the kids when they get strep that give me the chills. I don’t mind paying for that stuff out of my own pocket, just like I pay for my family’s food, clothing, and shelter. It’s the financial burden that would be associated with a devastating illness or accident-a true catastrophe-that’s worrisome. So in the world I’m describing, I’d buy a low-cost, high-deductible plan and would make sure I got the most out of the health care dollars I spent. I bet a lot of people would make the same decision. The effect on health costs of having consumers foot their own insurance bills would be dramatic. Yes, some people will find themselves in a circumstance in which they won’t be able to afford decent coverage. So have the government subsidize ‘em. At least the subsidy would be explicit, not bound up and hidden as it is now in the Medicaid/Medicare/Obamacare morass. (These ideas, by the way, are laid in considerably more style and detail by Cliff Asness here.)
5. Restore the “temporary” payroll tax cut. In 2011, Congress cut the Social Security payroll tax to 4.2% from 6.2% as a way to spur economic growth. If that cut had a noticeable effect on the rate of economic growth, I’m not aware of it. In the meantime, the government could use those forgone taxes. For decades, the Republic was somehow able to survive when workers kicked in 6.2% of their pay to help fund Social Security. I somehow doubt things will collapse if we restore that rate back to where it was before.
Add up the effects of all this and where exactly would the deficit be in five years? I haven’t a clue. But it’d be a lot lower than otherwise, that’s for sure, which is more than can be said of the results Tilson’s and Scaramucci’s plan would likely produce. One of the benefits of being an outsider looking in and kibitzing about ways to narrow the deficit is that I don’t have to worry about coming up with a suggestion that might offend one my constituents. Are any of my five points above political non-starters? For all I know, they all are. But they’d go a long way toward fixing our national financial problem. So as the nation hurtles on toward fiscal catastrophe, it might make sense for our political leaders (and colleagues on Wall Street for that matter) to come up with proposals that, while politically risky, perhaps stand a chance of actually working.
What do you think? Let me know!
27 Responses to “Bankstocks.com Saves The World!”
4. Convert Health Insurance to a hybrid Insurance/ Loan product whereby you pay a low premium for a disaster policy that caps your out of pocket expenses at some agreed upon number. Up to the cap the insurance company pays medical expenses but the insured pays the insurance company back with interest over time at agreed upon terms (based on ability to pay). There is no mandate to buy insurance but anyone who does not voluntarily buy it and can’t pay their medical bill gets thrown in the system at worse terms than if they opted in. Add in some subsidies for low income and elderly but they pay enough to care what their medical expenses come to and you have a common sense market based answer to health care that no one will ever even consider.
The “Brown plan” is mostly another attempt to avoid actually asking for real change. There are a few glimmers of hope here but no real solution.
What we need for a start in medical care is:
1. A really serious effort to reduce the fraud in the Medicare and other government funded plans by adequately funding those who police the fraud.
2. A single payer health care system without the skimming by the private insurance companies who siphon off from 15-25% of the premiums for overhead vs. Medicare’s 3-4%.
3. Uniform pricing of services and tests, so the uninsured pays the same negotiated rate for medical services and tests as the insured. the “retail” rates for tests are often 2-4 times higher that the “negotiated” insurance company rates! Why???
4. Clear guidelines on end of life care to make sure the patient knows what the costs and benefits are for the ultra expensive drugs that prolong life a few weeks or months.
Regarding Social Security and retirement savings, we need:
1. To make the 401K, 403b, IRA contributions to be a no opt out requirement of all wage or capital gains earners for a modest % of all income including “unearned” income of carried interest and capital gains. income), perhaps 2-3% in addition to the social security taxes of 6-7%.
2. Eliminate the income cap on social security taxes and tax all income including “unearned” income.
3. Increase the early, full and “late” retirement ages by 1 month per half year until they are at the statistical life expectancy at 65 (which is about 84 for men and 86 for women) minus 13, 10 and 5 years respectively.
4. Require those proposing to eliminate the provisions of the Affordable Healthcare Act to read the CBO’s financial analysis of it before making any statements about the pluses or minuses of the legislation.
Regarding revenue:
1. Do away with the so-called Bush tax cuts and revert to the income tax rate schedules of the 1990s that were about to result in a balanced budget in the 2000 fisca
Here is the rest of my rant…
Regarding revenue:
1. Do away with the so-called Bush tax cuts and revert to the income tax rate schedules of the 1990s that were about to result in a balanced budget in the 2000 fiscal year.
2. Eliminate the “carried interest” travesty of calling it capital gains and tax it as ordinary income.
3. Have a minimum tax rate of 0.5%, before any deductions, so everyone pays some income tax (actually a good “Brown tax” idea.)
4. Have a graduated capital gains tax rates with an exemption of say, $5000, then graduated levels from 10, 15, 20, 25, 30% at levels of $5000-10,000, 10,000-20,000, 20,000-40,000, 40,000-80,000, $80,000 and up. The intervals should be indexed to the CPI.
5. Require all exemptions and deductions from income to sunset after ten years and be ONLY renewable by congress in 10 years increments, with no exceptions or temporary extensions.
6. Institute an estate tax of 50% after a $5,000,000 exemption without any other tax avoidance or delay exemptions. Dead people have no need for the estate and the inheritors didn’t earn any part of it! The estate can pass once to the spouse. No further passage to another spouse…
Regarding corporate income taxes:
1. One 15% rate on all net income above $50,000. No special deductions or exemptions, like depletion of natural resource allowances,. full credit for investment in plant and equipment, R&D,other costs increasing domestic capacity and growth.
Finally, if a US government budget is not passed and signed by the President before the end of a fiscal year, I would reduce the pay (without any possibility of recovery later) of the Congresspersons and Senators by 1/365 th for every day the US goes without a complete, signed into law fiscal year budget during the next fiscal year; then, one month into the new fiscal year, reduce the Executive branch’s 100 top paid executives pay by 1/365 th for each additional day the budget is delayed; after two months, reduce the pay of the
Charlie,
When something like a chronically underfunded program such as Medicare being sold as a model of efficiency compared to the private insurers sounds too good to be true it’s because it is too good to be true. There are some very simple explanations for why Medicares ratio of overhead to payouts is only 3%-4% vs. around 20% for the private insurers that have nothing to do with the insane concept that Medicare is some model of efficiency.
On the Numerator side of the equation (overhead) Medicare doesn’t count the cost of the IRS acting as it’s collection agency, doesn’t have any leases as the government owns all of it’s buildings and doesn’t count the cost of all the debt it’s wrung up to support it’s chronically underfunded operations. On the denominator side (payouts) simple demographics and the fact Medicare isn’t real meticulous about going after fraud would explain paying out about 4X as much per insured as the private insurers. If it sounds too good to be true it is and Medicare is NOT more efficient than private insurance.
The only thing that’s more unbelievable than Medicare being some model of efficiency is the fact that Obama, Reid and Pelosi got away Scott taking over the Health Care Industry on this lie. The major private health insurers average about a 5% profit margin. Obamacare ain’t solving the cost of health care problem by squeezing them.
Charlie,
When something like a chronically underfunded program such as Medicare being sold as a model of efficiency compared to the private insurers sounds too good to be true it’s because it is too good to be true. There are some very simple explanations for why Medicares ratio of overhead to payouts is only 3%-4% vs. around 20% for the private insurers that have nothing to do with the insane concept that Medicare is some model of efficiency.
On the Numerator side of the equation (overhead) Medicare doesn’t count the cost of the IRS acting as it’s collection agency, doesn’t have any leases as the government owns all of it’s buildings and doesn’t count the cost of all the debt it’s wrung up to support it’s chronically underfunded operations. On the denominator side (payouts) simple demographics and the fact Medicare isn’t real meticulous about going after fraud would explain paying out about 4X as much per insured as the private insurers. If it sounds too good to be true it is and Medicare is NOT more efficient than private insurance.
The only thing that’s more unbelievable than Medicare being some model of efficiency is the fact that Obama, Reid and Pelosi got away Scott taking over the Health Care Industry on this lie. The major private health insurers average about a 5% profit margin. Obamacare ain’t solving the cost of health care problem by squeezing them.
The biggest problem with your plan is not enough pages,give it to a few dozen lawyers to expand the ideas than pols can ignore it and maybe vote for it .
1-”That’s incredibly unfair to those of us who do pay taxes.” Those of us who do pay taxes earn enough to do so. Is it “fair” that those who don’t pay, but do work for a living, don’t earn enough to pay under the current system? I think not. That’s the way the system offsets in a small manner one “injustice” with another. I’m all for capitalism. It’s the only way to provide sufficient incentive for too many people, too many Americans, to get off their lazy behinds and pursue the riches that innovation will bring. Otherwise, without incentive, progress goes at a snail’s pace, if at all. But you can’t tell me it’s right that “the boss” earns 400 times what his/her average worker does these days. It used to be 40 times was sufficient, and with even higher tax rates at the upper levels. You want to turn this country into an england pre-magna carta serfdom, or even just go back to America pre-triangle shirtwaist factory fire, then you’ll keep voting the way you do. I don’t expect you to change. It would be out of character for you.
2-You do know more oil is being taken out of the ground than in pre-obama days, with the only drop, since recouped, being from the days of the bp disaster. And that’s the truth, obama wasn’t lying when he pointed that out. Easily researched. Yes, i can see gvt incentives for going more into our abundant gas reserves, but that will come about naturally. Oil prices will rise again as the economy reaches the tipping point, and yes, it continues to gain albeit slowly. But energy development will probably go only part way to the goal, just as a raise in taxes will go only part way to the goal, just as cutting entitlements will go only part way. So, please, don’t get caught up in the propaganda trap. It will take all these things to get to more than a negligible impact on the deficit.
3-Totally the wrong approach. What has to be figured out is how much the average worker pays in vs how much the average worker will then ge
To continue with 3, get in benefits, THAT HE/SHE PAID FOR, and work out the system based on this, The system will then go to the actuarial table of when to start ss benefits and how much those benefits should be. That’s if you don’t want to go to my ss as insurance, at least in part if not in whole, plan.
4-”I’d buy a low-cost, high-deductible plan and would make sure I got the most out of the health care dollars I spent.” No problem. Having been in the insurance business i know you should buy insurance to cover only what you can’t afford to pay for out of your own pocket. But you don’t recognize that many workers, probably most, though that’s a total guess on my part, pay a significant portion of their health coverage plan now. Yes, many employers pay much more than the worker does but you’re out of touch if you don’t know what the actual $$ are that each employee pays in now. You ought to try reading a bit more on that before you come up with “best way to do that is to ensure that a variety of private health-care policies are available–from gold-plated to bare-bones–to the consumer, that he pays for out of his own pocket.” You might get a surprise.
5-Disingenuous. While it’s hard to prove a negative don’t you think the economy would have been negatively impacted by a 2% rise in taxes for the average worker? You, who are on the side of cutting taxes for those who don’t need it to live lavishly? Please. This type argument detracts from your value as a sounding board.
6-Now, don’t like my ss as insurance against poverty, in part or whole, idea? You’re apparently not the only one though i can’t get anyone to comment on it, positively or negatively. Is it so bad it doesn’t desrve a second thought? Geez, i’d like to get at least some feedback from somebody so i can maybe see where i’m going wrong. Or right.
‘
This is just another way of saying “Tea baggers.” The voters spoke loud and clear. For starters, we could restore tax rates the way they were during and after WWII–a period of unprecedented growth. Did I mention that the top marginal rate was 91%.
Tom Brown for President
Auto and homeowners insurance is not “portable” across state lines. Each state generally has its own policy forms and requirements. Also any insurer in your old state may or may not also write policies in your new state. In any case, you would have to cancel your old policy and you or may not be able to get a similar policy from your prior insurer in your new state of residence.
A Plan that makes sense and addresses the fairness issue. Please make it more public.
All good ideas. Also, limit residential mortgage interest deduction
to primary residence only.
Tom, sounds like a good plan.
I second your solution. The key problem with your plan is the Administration. You identified the 50% of this country that voted for Obama in your first point, and his policies are designed to keep them dependent government, not have them put any skin in the game of financing that government.
Demand that all politicians must have same healthcare plan as the general public! Washington wonks live in a dreamworld as far as healthcare. Am retired. $150 taken out of my soc. sec. because “my income” too high. They use GROSS income. My real estate costs soared and in reality, I made very little income from buildings owned. But, GROSS income looked good. Seniors have no protection here.
seems these Miami guys come up with good ideas!
Makes sense to me. hope you send this to the House and Senate members
Brilliant! Simple! I especially agree that everyone should have a little skin in the game. Everything else is so clearly doable that it should only take the time to write the bill to get it done.
4. Convert Health Insurance to a hybrid Insurance/ Loan product whereby you pay a low premium for a disaster policy that caps your out of pocket expenses at some agreed upon number. Up to the cap the insurance company pays medical expenses but the insured pays the insurance company back with interest over time at agreed upon terms (based on ability to pay). There is no mandate to buy insurance but anyone who does not voluntarily buy it and can’t pay their medical bill gets thrown in the system at worse terms than if they opted in. Add in some subsidies for low income and elderly but they pay enough to care what their medical expenses come to and you have a common sense market based answer to health care that no one will ever even consider.
Tom, excellent point, few suggestions/ questions:
1) totally agree when people realize there’s a connection between gov benefit and higher tax you are playing with their money not OPM or worse yet government money (as Milton Friedman was well known for speaking to)
2) totally agree, supply side economic at it’s best. You’re right this is not rocket science, more profitable business produces higher revenues without higher rates. We shouldn’t punish the “producers”. That Art Laffer fella was on to something -no?
3) For the most part I’m fine with that (even as a 32 year old male) I’m a realist and know that if we don’t do anything SS will simply not be there at all. But why not grand father in participants 55 and older (as you have stated), means test benefits based on the pct ss benefits will be of retirees retirement income, tax rates for the younger should stair step down over time if we are to receive commensurately less benefit to at least a floor of 6%, and again means test benefits (Originally it was only going to be a maximum of 3.5% when SS was established) those 55 and older should have current ss taxes stair stepped up -hey what’s right is right. Next just raise the flippin’ retirement age, this is a simple actuarial solution. Life expectancy isn’t what it was when Roosevelt established this program, then the benefit was set to kick in at age 65 (max expected actuarial life expectancy was like 63 then -hows that for fair? -ha!) raise the retirement age to 70. On average you will likely survive to 85, enjoy your 15 years -don’t complain it’s more than your grandparents and parents got baby boomers.
4) You’re right medical insurance should be just like other forms of insurance -that is to say to insure against catastrophic event -NOT routine occurrence and maintenance. Remove the benefits for drugs and regular checkups that Bush mainly instituted thereby greatly contributing to our current problem, grandfather those above 55 in. When we
Tom! Outstanding! Don’t forget to establish a “lobbyist Free Zone” around DC.
All good ideas. I’d like to suggest one more: FREEZE Federal spending right now. No increases for at least four years. No more bogus “cuts” that are really decreases in the amount of the increases. They spend enough. Most businesses and households I know have had to cut spending, let alone freeze it, and more are doing the same. It’s time for DC to do the same. How did they manage to increase spending this October by 13% over last October when we’re out of Iraq?
The sad truth that the media won’t tell us is that Harry Reid hasn’t presented a budget because not doing so kept the $800 billion stimulus baked in year after year. Yet, the media only talks about the original TARP or stimulus. That explains why the deficit is still more than $1 trillion. So FREEZE spending NOW!
Spoken like someone who has his and couldn’t care about those that don’t. I disagree with all five of your points.
Tom, thanks for putting yourself out there on a controversial topic. You are one of the few people I have seen to take on the FICA tax holiday (#5 above). My recollection is it was a program to stimulate jobs and the first year cost was about $100 billion. The overall cost to social security by having to replace these lost dollars over time was estimated at $267 billion. So lets call 2 years worth $500 billion. From October 2010 to October 2012 there are just over 4 million more employed in the US on a non seasonally adjusted basis. Using more exact numbers it looked like about $116,000 per incremental employed person and that gives 100% credit to the tax holiday for every new job. That looks like a really bad deal to me.
I also agree with your call to have everyone contribute something toward the cost of running the government. There are lots of good reasons for that, even if you put it in the left pocket and hand it back out of the right. I am going to use this perspective to challenge you a little on #3 above. I think everyone should contribute to fixing the entitlement issue, regardless of age. In an article titled Sponging Boomers The Economist says, “Erick Eschker, an economist at Humboldt State University, reckons that each American born in 1945 can expect nearly $2.2m in lifetime net transfers from the state–more than any previous cohort.” I don’t know if the math is right but even if it is way off, that is too much money going out. Should our kids and grand-kids have to pay for this? So let me suggest means testing (pay back the amount put in, which is far less than “promised” if an attempt at fairness is needed), defer CPI increases to existing retirees (I know they have in effect already done this) and gradually raise the retirement age for anyone 60 and over.
The notion of “reforming” the tax code is a bad idea when the code exceeds 72,000 pages. It is a compliance nightmare and a “gotcha” trap. Come to think of it, aren’t there about 5 different v
Thanks, Tom, for the constructive follow up. It appears to be a decent starting point for a long term solution (with some addenda as proposed by the other commenters), although I have reservations about going whole hog into energy production. Solving a fiscal problem with polluted aquifers and such seems a bit short sighted, but given sufficient protective measures it might possibly work.
Raising marginal rates on labour income will reduce growth. Raising marginal rates on capital income will reduce investment and growth. The solution is to go to a consumption tax. A consumption expenditure tax. No deductions and no taxes on capital income. Set the rate to 18% and hold federal government spending at that rate. Go to vouchers for health care and use the Ryan Plan to reform Social Security.
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