I've come to the conclusion that those "political elites" in Washington, DC have forgotten that very basic lesson in American government. Lately, too many laws have been passed that have given the federal government direct interference in the daily lives of all Americans. ObamaCare, unconstitutionally has given the government power to REQUIRE each and every one of us to purchase health insurance, under penalty of fines (a tax in all but name). This power isn't available to the federal government and is clearly a contravention of the 10th Amendment power and possibly the 14th as well. That's a power that if available at all, is only available to the individual states. Thus, Massachusetts law that requires each resident of the state to purchase health insurance is clearly within its bailiwick under the US Constitution.
Simply rolling back the scope of government intrusion isn't possible without the concomitant muzzling of federal spending. Both must be done at the same time. The sheer size of federal government has exceeded those of the 50 states as well as the various dependencies and commonwealths. This must end before the crushing weight of that government destroys what is already a fragile economy.
In "How Politicians and Regulators Caused the Sub-Prime Financial Crisis of 2007 and the Subsequent Crash of the Global Financial System in 2008, and Likely Will Again," By Kevin Villani, the author discusses at great length how the federal government at the direction of clueless Congresses have nearly brought the country to its knees financially. As a former SCP/acting CFP and Chief Economist at Freddie Mac and Deputy Assistant Secretary and Chief Economist at HUD as well as a former economist the Federal Reserve Bank of Cleveland, Mr. Villani has some keen insights as to why the credit market failed.
His main contention is that, "The US financial system crashed and almost collapsed in 2008, causing a globally systemic financial crisis and precipitating a global recession...That there was little or no market discipline is obvious. Contrary to the deregulation myths, regulation and politics had long since replaced market discipline in US home mortgage markets. Regulators didn't just fail systemically to mitigate excessive risk and leverage, the induced it. This didn't reflect a lack of regulatory authority or zeal, as politicians openly encouraged it."
Thus, the Dodd-Frank "Wall Street Reform and Consumer Protection of Act of 2010" will do little or nothing to prevent a reoccurrence of further financial collapse in the future. At worst, it will guarantee such a collapse will be greatly magnified as the people of this nation will depend ever more upon the federal government to control the economy.
Representative Paul Ryan is the first Republican in a generation to promulgate a comprehensive plan, and then presented it to the country. He is presently the ranking Republican member of the Committee on the Budget in the US House of Representatives has developed a fairly comprehensive plan he calls
A Roadmap for America’s Future is a comprehensive alternative to the heavily government-centered ideology now prevailing in Washington, which pursues a relentless expansion of government, creates a growing culture of dependency, and in the process worsens a status quo that already threatens to overwhelm the budget and smother the economy. The Roadmap – updated since its previous introduction in 2008, to reflect the dramatic decline in the Nation’s economic and fiscal condition – draws on Americans’ strengths to restore the Nation’s legacy of leaving the next generation better off. It achieves three key objectives:
- PROVIDING HEALTH AND RETIREMENT SECURITY. The plan ensures universal access to health insurance; and it rescues and strengthens Medicare, Medicaid, and Social Security – allowing them to fulfill their missions and making them permanently solvent.
- LIFTING THE DEBT BURDEN. It returns Federal spending growth to sustainable rates, and lifts the huge projected debt burden from the shoulders of future generations.
- PROMOTING AMERICAN JOB CREATION AND COMPETITIVENESS. It promotes solid, sustained economic growth and job creation here in America, and puts the United States in a position to lead – not merely survive – in the global marketplace. The plan also modernizes job training programs to meet the effects of globalization.
Having taken the time to read his plan in its entirety, I have come to the conclusion that should it be adopted without serious modification, it has the repair many of the systemic liabilities that are now part of the federal government. Ryan says that,
Now America is approaching a “tipping point” beyond which the Nation will be unable to change course – and this will lead to disastrous fiscal consequences, and an erosion of economic prosperity and the American character itself. The current administration and Congress are propelling the Nation to the brink of this precipice.
The time to change that course is now, before the economy comes completely under the direction of government bureaucrats who neither comprehend economic theory, nor have had the burden of actually having to meet a payroll. Furthermore, the recent passage of the Wall Street "reform bill" has in actuality,
"will harm the very consumers it seeks to protect: by writing far-reaching rules and restricting risk, it will limit consumer choices, ration credit, and hamper individuals’ ability to make investment decisions."
Thus, the government now controls some 94% of the home lending market. This has grown from the 39% of control as recently as 2006. the time has come to eliminate both Fannie Mae and Freddie Mac, thereby removing the government from the mortgage lending industry.
The level of spending that the current administration and Congress have pursued will increase the level of government spending to $5,100,000,000,000.00 by 2019. Deficits under Mr. Obama's plan will never fall below $633,000,000,000.00 and will again rise above $1,000,000,000,000.00 by the end of the current decade.
This level of debt is unsustainable and will eventually cause the debt to GDP to exceed 82% by the end of the decade, a level not seen since World War II. This will cause the national debt to triple to more than $30,000,000,000,000.00. This unprecedented level of debt and spending is due entirely to domestic entitlement programs.
While reducing taxes would have the effect of encouraging economic growth, without a genuine commitment to reduce both the size and scope of government as well as spending cuts, then end result would still be the same...an ever spiraling debt and deficit. Mr. Ryan concludes,
This is the path on which America is now embarked. It creates a government that grows in size, scope, and influence to a magnitude unprecedented in peacetime. It generates unsustainable evels of spending and deficits, leading to a vicious cycle of unmanageable and ever-growing debt. This drags down the economy, causing standards of living to fall, leaving the next generation – for the first time in American history – worse off. At the heart of all this is a growth of dependency on government, which erodes self reliance and individual responsibility – and thus weakens America from the inside out.
As a nation, we need to act now. This is an ever more pressing issue as more time passes, the problems will only continue to mount making a change of course that much more difficult to accomplish. A recent example is the near 20 year long economic train wreck that has been experienced by the nations that have arisen from the collapse of the Soviet Union. Russia, the strongest nation, economically, is still in the throes of a prolonged recession that has been deepened with the current world wide recession. The CBO has described the accumulating economic problems thus
"The longer that policy action on the budget is put off, the more costly and difficult it will be to resolve the long-term budgetary imbalance. Delays in taking action would create three major problems:
The amount of government debt would rise, which would displace private capital – reducing the total resources available to the economy – and increase borrowing from abroad.
The share of Federal outlays devoted to paying interest on the Federal debt would grow, so lawmakers would have to make ever-larger policy changes to achieve balance. As interest costs rose, policymakers would be less able to pay for other national spending priorities and would have less flexibility to deal with unexpected developments (such as a war or recession). Moreover, rising interest costs would make the economy more vulnerable to a meltdown in financial markets.
Uncertainty about the economy would increase. The longer that action was put off, the greater the chance that policy changes would ultimately occur suddenly, possibly creating difficulties for some individuals and families, especially those in or near retirement." Congressional Budget Office, The Long-Term Budget Outlook, June 2009
Mr. Ryan proposes several changes to the current system. On health care, he seeks to sever health insurance from employment by ending the tax breaks on employer provided health insurance. Historically, this "benefit" stems from WW2 when employers, under wage freezes, were unable to attract prospective workers by offering better wages. Thus, many began to provide "free" health care, eventually ending up as a health insurance benefit. By severing this "benefit" from employment and by removing the artificial walls to interstate portability to health insurance companies (for example several states such as CA, NY and MD only permit 6-10 of the more than 1300 health insurance companies from offering insurance within their borders) would allow the market to act as a cost reducing force.
When more companies can compete for your business, they must either offer better services or reduce the costs of those services to gain your business.
Mr. Ryan would completely overhaul the current tax system. That system when it was first enacted in 1913, it contained a little over 400 pages of laws. In the nearly 100 years since it was enacted, the Federal tax code has grown exponentially and has more than 70,000 pages of opaque laws and regulations. Ignorance of those laws is not permitted under the current system and in tax courts, you are often guilty until proven innocent.
Since the start of this century, there have been more than 3,250 individual changes to that code, or more than one per day. Most of those changes involve giving exemptions to special interest groups who have spent billions bribing Congress (aka lobbying). Those tax breaks now add up to almost $1,000,000,000,000.00 per year. It's these exemptions and exceptions that have made our tax code inefficient and ridiculously complex. The Treasury Department’s own guide to tax regulations, and is issued to help users understand the tax code is six volumes long and runs to over 12,000 pages.
The tax code as it now stands has reduced the competiveness of this country. Furthermore, businesses are beginning to make very long term decisions based upon a much higher rate of taxation and that has lead to very little foreign capital investment due to much higher rates of taxation. Both France and Japan have signalled that they will greatly reduce the rate of corporate taxes they levy, thus having the effect of having the highest corporate tax rates in the world.
This rate of corporate taxation will hinder the ability of American business from competing in the global market place by making those few products that are still manufactured here, much more expensive to the world market. Additionally, by deterring any possible foreign investment, this high level of taxation acts as a further break upon economic grown and job creation. Higher tax rates has the additional effect of complicating the ability of multi-national corporations to conduct business within our borders as well as encouraging them to move manufacturing off-shore to avoid the tax, and therefore, further reducing employment here.
- Full Repeal of the AMT. The alternative minimum tax originally was intended to apply to a small fraction of wealthy taxpayers. But because it was never indexed for inflation, it has in recent years threatened to ensnare millions of middle-income filers. To date, Congress has only extended protection from this AMT expansion on a year-by-year basis. This proposal eliminates the AMT entirely and permanently.
- Elimination of Double Taxation of Savings. The current system essentially taxes savings twice: individuals pay tax on their earnings and, if they choose to invest those after-tax funds, they pay another tax on the return from their savings (i.e. interest, capital gains, or dividends). This proposal eliminates the second layer of taxation. Not only is this fair to individual taxpayers, it also is good for the economy. Greater savings leads to more investment and higher rates of productivity. Higher productivity ultimately drives increased living standards. The plan also eliminates the estate tax, another form of double taxation that is particularly harmful to small businesses.
- Taxpayers Choice. The proposal allows individual income taxpayers to make their own choice about how best to pay their taxes. Within 10 years of enactment of this legislation, individuals choose one of the two tax systems. But they are allowed one additional changeover between the two systems over the course of their lifetimes. Individuals are also allowed to change tax systems when a major life event (death, divorce, or marriage) alters their tax filing status. Simplified Income Tax Rates. In contrast to the six tax rates in the current code, the simplified tax has just two rates: 10 percent on adjusted gross income [AGI] (as defined below) up to $100,000 for joint filers, and $50,000 for single filers; and 25 percent on taxable income above these amounts. These tax brackets are adjusted each year by a cost of- living adjustment as measured by increases in the consumer price index [CPI]. Taxable income equals gross earnings minus a standard deduction and personal exemption.
In addition, Mr. Ryan's simplified tax rates would be thus:
Single Filers
10%......$0-50,000.00
25%......$50,0000.00 and above
Joint Filers
10%......$0-$100,000.00
25%......$100,000.00 and above
- Broader Tax Base. The new, simplified code eliminates nearly all existing tax deductions, exclusions, and other special provisions, but retains the health care tax credit described above. As a result, it broadens the base of taxable income, allowing for lower income tax rates. Lower rates reduce disincentives to work and increase earnings.
- Generous Standard Deductions and Personal Exemptions. The standard deduction is $25,000 for joint tax filers, $12,500 for single filers. The personal exemption is $3,500. The combination is equivalent to a $39,000 exemption for a family of four.
- Prevention of Future Increase in Tax Burdens. This individual tax system – in combination with the business tax described below – is designed to keep the Federal tax burden at its current level; and as the economy recovers from the recession, it caps revenues at 19 percent of GDP.
- Greater Certainty. Under current law, the scheduled expiration of the 2001 and 2003 tax relief measures, along with a growing expansion of the AMT, will push overall tax. burdens to an unprecedented level in the coming years. By reforming the entire tax code and removing these upward pressures on taxes, this plan offers greater certainty so taxpayers can better plan for their financial futures.
- Business Consumption Tax. The proposal creates an 8.5-percent BCT on goods and services. The tax is calculated and administered based on the “subtraction method,” under which a business determines its tax liability by subtracting its total purchases from its total sales. The BCT is then imposed on this net receipts figure (i.e. the firm’s value added) and paid to the Federal Government once each reporting period (i.e. each business quarter).
- Elimination of the Corporate Income Tax. Like the individual income tax, the corporate income tax contains a host of tax preferences that end up narrowing the corporate tax base by up to 25 percent, according to the Treasury Department.62 That narrow tax base requires higher tax rates to raise a given amount of revenue. The current statutory U.S. corporate tax rate (including State corporate taxes) is 39 percent, the second highest tax rate in the Organization for Economic Cooperation and Development [OECD] and 8 percentage points higher than the OECD average.
All of these proposed changes would vastly broaden the tax base. Under the current system, roughly 45% of the population of this country pays no taxes at all. Additionally, by rationalizing the corporate tax system, the proposed system would encourage foreign investment.
Additionally, Mr. Ryan proposes to rationalize the current federal job training programs by creating a common set of metrics so that all 49 of the existing Federal job training programs can be compared for suceess/failure ensuring that policymakers as well as the public can see whether or not individuals are benefitting from the training. Furthermore, requires that both training and spending data for those programs are placed on a central website for ease of access to the general public. It will also require that the GAO and the Department of Labor’s Inspector General conduct regular routine audits and studies on the generated data, to ensure these programs are successfully serving all those who participate. The following will be required:
- The type of training provided and the cost per student.
- The employment status immediately after training, and then 1 year, 3 years, and 5 years after training.
- Whether or not trainees are working in the field for which they were trained in order to determine whether the training led directly to employment.
- The participant’s income level two years before and up to 5 years after training to determine if the training led to increased income.
- The participation level in Federal support programs (i.e. Temporary Assistance for Needy Families [TANF], the Supplemental Nutrition Assistance Program [SNAP], Supplemental Security Income, and the like) before and up to 5 years after training to determine if it led to self sufficiency.
Lastly, Mr. Ryan would seek to rationalize the budget process, not the least of which would end the practice of earmarking (the process wherein legislators insert political payoffs to campaign contributors). That in itself would save the nation hundreds of billions of dollars. The most fundamental change would be the end of deficit spending. Thus no spending increases would be permitted without equal cuts in other areas. At the present time, mandatory spending as then Congressional Budget Office Director, Peter Orszag said,
"Spending for mandatory programs has increased from less than one-third of total Federal outlays in the early 1960s to more than one-half in recent years. Most of that growth has been concentrated in Medicare, Medicaid, and Social Security. Together, gross outlays for those programs now account for about 45 percent of Federal outlays, compared with 2 percent in 1950 (before the health programs were created) and 25 percent in 1975." Orszag testimony to the Committee on the Budget, 13 December 2007.
This level of spending is unsustainable without the above proposed reforms. The current system does not predict the long-term cost of any program and further, shields them from changes that would keep them from remaining unsustainable. Mr.'s Ryan's proposals in A Roadmap for America’s Future
"...establishes a binding cap on total spending as a percentage of GDP at the spending levels that are projected to result from the plan. It requires the President’s budget and the CBO to make projections annually in comparison to these spending limits. It requires a comprehensive review of the long-term budget outlook every 5 years. If spending gets out of control again, and Congress fails to address the problem during the 5-year review, the proposal provides a mechanism to slow the growth in faster spending programs by no more than 1 percent, to bring spending back in line with the spending limits." Statement of Senator Bayh, 14 October 2009
Over the past 2 years, non-defense discretionary spending, has grown at double-digit rates, even after excluding “stimulus” and emergency funding. As Senator Bayh of Indiana has said, Washington is “serially incapable of getting Federal spending under control.”69 In addition to caps on total spending, the Roadmap establishes enforceable caps on discretionary spending.
The proposal also requires a three-fifths supermajority vote in the House and Senate to pass legislation that increases revenue."
Thus, for the first time in nearly 80 years, we have the opportunity to correct those misguided policies that have been enacted and return America to a sustainable future. One in which the government returns to what was intended by the founders.
