Sunday, March 06, 2005
http://www.wiredbrain.net/
Investment vs. consumption:
As people and households we know the difference between investments and consumption. Most business knows the difference but World Com charges expenses as capital to fudge the books. In the public sector there are investments that have a return – a ROI a return on investments. Infrastructure (transportation, communications, institution building, education, public health, science and technology) make the economy more efficient and raise incomes and welfare. Consumption of military equipment, money used by beneficiates to consume, subsidies that are likely negative (making distortion in the effective allocation of resources) tax breaks that encourage less than optional investment decisions do not add to future welfare but do gather votes and political money. When we spend billions producing .70 cents cotton, or peanuts, or sugar when the world market is less than ½ that consumers have less real income in buying goods at higher prices so able to but less than otherwise.
Entitlements are income transfers. Workers pay FICA taxes (larger than they know because employer contributions are hidden) that goes into checks for beneficiary recipients. Workers can buy less while people getting checks can buy more. The economic effects have a small effect in discoursing work and saving increasing debt and consumption. The fundamentals of government economic policy should be to encourage work and saving. VAT or sales taxes encourage investment over consumption if saving are tax advantaged while consumer prices are higher.
The 19th and 20th century economic problem was the business cycle. Free market economies suffer from “irrational exuberance” based on greed during booms and virtuous cycles, and excessive fear during the following busts preventing investments and creating an evil cycle of lay off, disinvestment and hopelessness. We have more to fear than fear itself. “So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.” http://historymatters.gmu.edu/d/5057/ read the whole speech.
Marx called this the “surplus product” not in the sense we are too rich but only that the market produces more than can be consumed by effective demand. By producing income and consumption by paying people to produce goods that do not enter the market or income transfer sucks up the surplus. War generates a lot of income but no goods on the market. Benefits create buyers that don’t produce anything. It is not clear that a global service economy has quite the same level of over production, boom and bust.
Real reserves would provide “pump priming” without the hangover of debt. A revenue and fiscal system based on investment and limiting the damage done by income transfers (from the productive to the retired and unproductive) would solve the business cycle issue. The Federal Reserve and treasury could increase demand in down times (beyond interest rate effects) by increasing investments (using reserves to build roads, schools, new technologies, utilities and labor intensive projects in parks, public works, low interest bonds to rebuild the electric grid, more efficient power plants etc.) In booms increasing consumption taxes and collecting on construction bonds, replace reserves and cool over heating.
By making payroll (and other income) taxes go mainly into transfers which are a form of insurance. Health insurance, retirement is saving, education saving, house buying, are subsided for the bottom half and paid for by the top half.
Solving the social security problem:
And the health insurance and taxing issues – a set of simple solutions to complex problems. If the population changes and there are fewer workers and more people drawing retirement and health benefits the percentage of GDP going to transfer payments will have to increase – there are fewer paying in and mort taking out. Transfer payments have to include some element of redistribution – some pay more than they put it and some get more than they contribute. There is no way out of these hard facts.
The issue is to increase freedom and choice, to run the system with efficiency and fairness, and to maintain a large majority support for social security – The SSA includes retirement, Medicare, Medicaid, disability, survivor protection, unemployment, welfare, with the idea of a social safety net first set up by Bismarck in the 1890’s to cut off the growing socialist, in American by the new deal, England after WWII with the NHS, and now in all modern nations.
There are five elements in a system for the 21st century.
1.) The payroll deduction system
2.) Choice of extra tax advantaged saving, insurance, education, health plans
3.) Income and VAT taxes
4.) Redistribution – credits
5.) Individual plans and management systems
The federal pay stub shows all the deductions as do many state and private pay systems. The FICA shows only the employee contribution which is just a slide of hand to hide the true cost. The employer contribution is just as much part of the cost of labor as cash. Health and retirement plays do not reflect in taxable income or part of the total employment compensation package and is income in every sense.
Fairness in wages would require (over time) that everything going in and coming out is regularly reported.
1.) Then the employee or individual can add to parts of their plan – more and better retirement, savings, health, educational savings, etc. The more they pay the more they get. The choices are on a menu t the buyer not the employer.
2.) The state and federal government provide a basic set of benefits – retirement and health plans. Beyond these basics it subsidies add on a diminishing scale. Low income people are encouraged to have saving with incentives, credits, and subsidies.
The income tax is reduced and made very simple. People below the 50th percentiles (median) do not pay income taxes but have earned income benefits to pay part of health care and private retirement accounts.
3.) If the top rate of Income Tax is 20% for the 99% percentile it is reduced by ½% by each group until the 50% goes to 0. By setting the tax as percentile it adjusts for inflation and by setting the top rate and the income required the math is quite simple.
4.) The rest of needed revenue has to be raised by a VAT – sales tax so the whole system floats for ever. The tax credits and benefits equalizes the issue of low income people paying VAT so the net effect is positive for low income and does require contribution from those better off.
5.) The management of the individual accounts would be by contracts – in social security the current system becomes a basic plan with subsidies for the poor especially for health insurance and tax advantages for the rich who pay more and get more. More can be added into a variety of retirement options and saving plans.
Financial Times Current projections over future years is 44.2 trillion debt in current dollars if current benefits are to be paid to the next generation (unfunded liabilities) - interest costs alone would be greater than current total budget of 2 trillion - clearly a banana republic - clearly forces high interest rates - but the scheme is to "starve the beast" forcing big cuts in benefits - see
http://www.wiredbrain.net/reserves.htm
http://www.wiredbrain.net/politicaleconomics.htm
http://www.wiredbrain.net/reform.htm
An administration official said the study was designed as a thought-piece for internal discussion - one among many left every year on the cutting-room floor - and noted the budget's extensive discussion of projected, 75-year Social Security and Medicare shortfalls.
The study's analysis of future deficits dwarfs previous estimates of the financial challenge facing Washington. It is roughly equivalent to 10 times the publicly held national debt, four years of US economic output or more than 94 per cent of all US household assets. Alan Greenspan, Federal Reserve chairman, last week bemoaned what he called Washington's "deafening" silence about the future crunch.
Investment vs. consumption:
As people and households we know the difference between investments and consumption. Most business knows the difference but World Com charges expenses as capital to fudge the books. In the public sector there are investments that have a return – a ROI a return on investments. Infrastructure (transportation, communications, institution building, education, public health, science and technology) make the economy more efficient and raise incomes and welfare. Consumption of military equipment, money used by beneficiates to consume, subsidies that are likely negative (making distortion in the effective allocation of resources) tax breaks that encourage less than optional investment decisions do not add to future welfare but do gather votes and political money. When we spend billions producing .70 cents cotton, or peanuts, or sugar when the world market is less than ½ that consumers have less real income in buying goods at higher prices so able to but less than otherwise.
Entitlements are income transfers. Workers pay FICA taxes (larger than they know because employer contributions are hidden) that goes into checks for beneficiary recipients. Workers can buy less while people getting checks can buy more. The economic effects have a small effect in discoursing work and saving increasing debt and consumption. The fundamentals of government economic policy should be to encourage work and saving. VAT or sales taxes encourage investment over consumption if saving are tax advantaged while consumer prices are higher.
The 19th and 20th century economic problem was the business cycle. Free market economies suffer from “irrational exuberance” based on greed during booms and virtuous cycles, and excessive fear during the following busts preventing investments and creating an evil cycle of lay off, disinvestment and hopelessness. We have more to fear than fear itself. “So, first of all, let me assert my firm belief that the only thing we have to fear is fear itself—nameless, unreasoning, unjustified terror which paralyzes needed efforts to convert retreat into advance.” http://historymatters.gmu.edu/d/5057/ read the whole speech.
Marx called this the “surplus product” not in the sense we are too rich but only that the market produces more than can be consumed by effective demand. By producing income and consumption by paying people to produce goods that do not enter the market or income transfer sucks up the surplus. War generates a lot of income but no goods on the market. Benefits create buyers that don’t produce anything. It is not clear that a global service economy has quite the same level of over production, boom and bust.
Real reserves would provide “pump priming” without the hangover of debt. A revenue and fiscal system based on investment and limiting the damage done by income transfers (from the productive to the retired and unproductive) would solve the business cycle issue. The Federal Reserve and treasury could increase demand in down times (beyond interest rate effects) by increasing investments (using reserves to build roads, schools, new technologies, utilities and labor intensive projects in parks, public works, low interest bonds to rebuild the electric grid, more efficient power plants etc.) In booms increasing consumption taxes and collecting on construction bonds, replace reserves and cool over heating.
By making payroll (and other income) taxes go mainly into transfers which are a form of insurance. Health insurance, retirement is saving, education saving, house buying, are subsided for the bottom half and paid for by the top half.
Solving the social security problem:
And the health insurance and taxing issues – a set of simple solutions to complex problems. If the population changes and there are fewer workers and more people drawing retirement and health benefits the percentage of GDP going to transfer payments will have to increase – there are fewer paying in and mort taking out. Transfer payments have to include some element of redistribution – some pay more than they put it and some get more than they contribute. There is no way out of these hard facts.
The issue is to increase freedom and choice, to run the system with efficiency and fairness, and to maintain a large majority support for social security – The SSA includes retirement, Medicare, Medicaid, disability, survivor protection, unemployment, welfare, with the idea of a social safety net first set up by Bismarck in the 1890’s to cut off the growing socialist, in American by the new deal, England after WWII with the NHS, and now in all modern nations.
There are five elements in a system for the 21st century.
1.) The payroll deduction system
2.) Choice of extra tax advantaged saving, insurance, education, health plans
3.) Income and VAT taxes
4.) Redistribution – credits
5.) Individual plans and management systems
The federal pay stub shows all the deductions as do many state and private pay systems. The FICA shows only the employee contribution which is just a slide of hand to hide the true cost. The employer contribution is just as much part of the cost of labor as cash. Health and retirement plays do not reflect in taxable income or part of the total employment compensation package and is income in every sense.
Fairness in wages would require (over time) that everything going in and coming out is regularly reported.
1.) Then the employee or individual can add to parts of their plan – more and better retirement, savings, health, educational savings, etc. The more they pay the more they get. The choices are on a menu t the buyer not the employer.
2.) The state and federal government provide a basic set of benefits – retirement and health plans. Beyond these basics it subsidies add on a diminishing scale. Low income people are encouraged to have saving with incentives, credits, and subsidies.
The income tax is reduced and made very simple. People below the 50th percentiles (median) do not pay income taxes but have earned income benefits to pay part of health care and private retirement accounts.
3.) If the top rate of Income Tax is 20% for the 99% percentile it is reduced by ½% by each group until the 50% goes to 0. By setting the tax as percentile it adjusts for inflation and by setting the top rate and the income required the math is quite simple.
4.) The rest of needed revenue has to be raised by a VAT – sales tax so the whole system floats for ever. The tax credits and benefits equalizes the issue of low income people paying VAT so the net effect is positive for low income and does require contribution from those better off.
5.) The management of the individual accounts would be by contracts – in social security the current system becomes a basic plan with subsidies for the poor especially for health insurance and tax advantages for the rich who pay more and get more. More can be added into a variety of retirement options and saving plans.
Financial Times Current projections over future years is 44.2 trillion debt in current dollars if current benefits are to be paid to the next generation (unfunded liabilities) - interest costs alone would be greater than current total budget of 2 trillion - clearly a banana republic - clearly forces high interest rates - but the scheme is to "starve the beast" forcing big cuts in benefits - see
http://www.wiredbrain.net/reserves.htm
http://www.wiredbrain.net/politicaleconomics.htm
http://www.wiredbrain.net/reform.htm
An administration official said the study was designed as a thought-piece for internal discussion - one among many left every year on the cutting-room floor - and noted the budget's extensive discussion of projected, 75-year Social Security and Medicare shortfalls.
The study's analysis of future deficits dwarfs previous estimates of the financial challenge facing Washington. It is roughly equivalent to 10 times the publicly held national debt, four years of US economic output or more than 94 per cent of all US household assets. Alan Greenspan, Federal Reserve chairman, last week bemoaned what he called Washington's "deafening" silence about the future crunch.
