Republicans are always complaining corporate taxes are too high even though many of the most profitable corporations in the US don't pay any taxes, in fact many receive money from the government. At the same time, the Supreme Court, presumably in some kind of rare alcohol induced stupor, ruled a long time ago that corporations are persons, with all the attendant rights of persons. As persons, surely they should pay the same taxes as regular citizens. So do the Republicans want corporations taxed as people, or do they want them to get a break?
I propose a novel solution. While I am unabashedly a bleeding heart liberal, I can see an argument against taxing corporations on the grounds that they are ultimately owned by persons as shareholders and tax is already due on dividend income or on capital gains when shares are sold and on salaries paid by corporations to individuals. So I propose a swap. Congress ends the fiction of corporations as persons, and at the same time exempts corporations from paying taxes on their profits.
As usual, the devil is always in the details, so I explain some of the proposal in detail. Since corporations will no longer be persons, they will no longer have the rights of persons. Thus they will have no right to make political contributions of any kind. Nor will they have the right to petition Congress. Obviously, shareholders may make political donations, and lobby Congress but that must come out of their personal finances. The corporation may not reimburse them. All lobbying and contributions must be paid for out of income that has been taxed. Additionally extremely strict rules will have to be put in place to ensure that NO corporation money is spent on any executive. For example, any use of a corporate asset, such as a company airplane for personal use must be paid for by the employee from after tax salary. I would prefer for the rules to be simple, but the corruption inherent in all corporations means that anything not explicitly excluded will be used as a loophole. If corporations are to be conducted solely as corporations then no one can really complain at these restrictions. To argue against these restriction is really a tacit admission that corporations really want to buy government, a feat they are well on their way to accomplishing at the present time. Corporations would also not have any freedom of speech. They can advertise their products; they can report on their financial statements, but they are prevented from making political statements. Note that the owners, or stockholders, still have all of their rights - they are not infringed at all. But if stockholders are to be free from paying taxes, then it is reasonable that they must lobby Congress as individuals to allow for a favorable climate.
This seems to me like a very fair swap and might well return corporations to their original purpose. In case we forget, the basic purpose of a corporation is to allow people to invest in an idea but without putting all their personal wealth at risk if the corporation fails or misbehaves.
Obviously a lot of meticulous drafting would need to be done to ensure the idea is practical, but this should be possible if there is a serious desire to do so.
Friday, May 27, 2011
Tuesday, May 17, 2011
On Social Security
We keep hearing about how much trouble Social Security is in how the system will go bankrupt and how the only solution is dire cuts or privatization or various other unpopular solutions. I believe this is because no one takes the time to look at the root cause of the problem. When Social Security was enacted there were two factors which were significantly different to the present day. The average age of the population was much lower than it is today and people's life spans were significantly shorter. This meant that the ratio of people paying in to the number of recipients was much higher and also that people collected benefits for a much shorter period. The fundamental problem with Social Security is that benefits are paid out of current revenue and as people live longer, this is unsustainable, particularly in an economy where almost 10% are unemployed.
So what is the solution? In a traditional retirement account an individual contributes into a fund while they work, and that fund is invested and yields a return, such that, by the time the individual is ready to retire, they can start to draw down from that fund enough to support them during retirement. I played with an Excel spreadsheet today and if a person started to contribute to SS at 20 and continued till age 65 by the time they reached 65 they would have an amount 16 and 25 times their annual income saved. This is based on contributions of 15% (currently the employer pays 7.5% and the individual pays 7.5%) and assuming interest on the principal saved of 3% to 5% (hence the rage of 16 times to 25 times). This is more than enough to pay for a good retirement.
Conservatives might jump with glee and say "this is what we have been saying" but I am not advocating that the individual have control over each personal account. The reasons are several. Social Security is properly called Social Security Insurance. That implies that a large pool contribute to the risk and a smaller group withdraws from it. Not only would it be very expensive to track each account individually but it would also lead to risk of poor investment strategies, thus destroying the entire point of SS that it has to be available at all costs. Secondly, Wall Street wouldn't be able to keep its hands of the individual funds and all that would happen is that most of the profits would be transferred from being available for beneficiaries to the bank accounts of a few wealthy fund managers. So I am not really advocating anything essentially different for SS, simply that the beneficiaries not be paid out of current donations, but by their accumulated savings.
The solution is inherently simple, but the transition isn't. Obviously a simplistic solution would be to say everyone starting work now contributes to the new fund, while all current contributors or beneficiaries continue as at present. Unfortunately this would mean that the current system would have to remain until the last person currently contributing dies. This could be a very long time. So I suggest a hybrid system is needed. What we do is pick an age for current workers and all workers older than that stay in the current system and all persons younger go into the new system. This would cut down the transition time by 30 to 40 years depending on the age chosen for the transition. Additionally, in the new fund, the amount of the fund required would have to be calculated from the amounts contributed by those transferred to the new system. This would involve a one time accounting of funds to be placed into the new system. This could be funded in many ways. There could be a special "transitional" tax imposed which would bring the new accounts up to current, or it could even be financed by borrowing. After all, that is what debt is supposed to be for, to ease the transition for expensive one off items.
After the transition, Social Security would be safe forever. In fact, I suspect it would be in outstanding shape and accountants might conclude that FICA tax needn't be 15% but some lower figure would suffice. In fact, this could be one way to fund the one time cost, by keeping payroll tax at 15% until the shortfall was made up and then reduce to the lower percentage. This is not really complicated and is an approach I have been advocating for almost 20 years. But it would require a desire to fix the problems with Social Security. Sadly, I am far from convinced that today's Republicans want a solution. I think they want the program to fail so they can destroy it. But if they did negotiate in good faith to do this, I think it could ultimately be a win win situation, where we could end up with lower taxes and yet have secure retirement for all citizens.
I think the goal of destroying Social Security is fundamentally impossible. If conservatives did succeed in destroying it, what would happen to the seniors who would be broke? Would the world's richest nation actually be happy building huge "debtor prisons" where broke seniors were sent to subsist until death. Is this the view the US would like to present to the world? I think not. So that ultimately what everyone should be interested in is how can we ensure a reasonable quality of life for all our seniors without bankrupting the citizens still working. On the other side, I think Democrats have to be more flexible. As people live longer, I see no reason why the retirement age can't be slowly increased. This could save a lot of money. Contributors could even be offered a choice of plans - pay at one rate for a retirement at 65 and at another lower rate for retirement at 70. Of course, like so much else in our economy, this is dependent on the cost and adequacy of our health care. If we are sensible, and cut health care costs by investing in wellness programs, we would greatly increase the possibility of people being able to work past 65. Health care is another topic, but let's realize we spend 16% of GDP on healthcare compared to around 8% for most other industrial nations and they are healthier than we are. paying more for less doesn't seem like a good bargain to me.
So what is the solution? In a traditional retirement account an individual contributes into a fund while they work, and that fund is invested and yields a return, such that, by the time the individual is ready to retire, they can start to draw down from that fund enough to support them during retirement. I played with an Excel spreadsheet today and if a person started to contribute to SS at 20 and continued till age 65 by the time they reached 65 they would have an amount 16 and 25 times their annual income saved. This is based on contributions of 15% (currently the employer pays 7.5% and the individual pays 7.5%) and assuming interest on the principal saved of 3% to 5% (hence the rage of 16 times to 25 times). This is more than enough to pay for a good retirement.
Conservatives might jump with glee and say "this is what we have been saying" but I am not advocating that the individual have control over each personal account. The reasons are several. Social Security is properly called Social Security Insurance. That implies that a large pool contribute to the risk and a smaller group withdraws from it. Not only would it be very expensive to track each account individually but it would also lead to risk of poor investment strategies, thus destroying the entire point of SS that it has to be available at all costs. Secondly, Wall Street wouldn't be able to keep its hands of the individual funds and all that would happen is that most of the profits would be transferred from being available for beneficiaries to the bank accounts of a few wealthy fund managers. So I am not really advocating anything essentially different for SS, simply that the beneficiaries not be paid out of current donations, but by their accumulated savings.
The solution is inherently simple, but the transition isn't. Obviously a simplistic solution would be to say everyone starting work now contributes to the new fund, while all current contributors or beneficiaries continue as at present. Unfortunately this would mean that the current system would have to remain until the last person currently contributing dies. This could be a very long time. So I suggest a hybrid system is needed. What we do is pick an age for current workers and all workers older than that stay in the current system and all persons younger go into the new system. This would cut down the transition time by 30 to 40 years depending on the age chosen for the transition. Additionally, in the new fund, the amount of the fund required would have to be calculated from the amounts contributed by those transferred to the new system. This would involve a one time accounting of funds to be placed into the new system. This could be funded in many ways. There could be a special "transitional" tax imposed which would bring the new accounts up to current, or it could even be financed by borrowing. After all, that is what debt is supposed to be for, to ease the transition for expensive one off items.
After the transition, Social Security would be safe forever. In fact, I suspect it would be in outstanding shape and accountants might conclude that FICA tax needn't be 15% but some lower figure would suffice. In fact, this could be one way to fund the one time cost, by keeping payroll tax at 15% until the shortfall was made up and then reduce to the lower percentage. This is not really complicated and is an approach I have been advocating for almost 20 years. But it would require a desire to fix the problems with Social Security. Sadly, I am far from convinced that today's Republicans want a solution. I think they want the program to fail so they can destroy it. But if they did negotiate in good faith to do this, I think it could ultimately be a win win situation, where we could end up with lower taxes and yet have secure retirement for all citizens.
I think the goal of destroying Social Security is fundamentally impossible. If conservatives did succeed in destroying it, what would happen to the seniors who would be broke? Would the world's richest nation actually be happy building huge "debtor prisons" where broke seniors were sent to subsist until death. Is this the view the US would like to present to the world? I think not. So that ultimately what everyone should be interested in is how can we ensure a reasonable quality of life for all our seniors without bankrupting the citizens still working. On the other side, I think Democrats have to be more flexible. As people live longer, I see no reason why the retirement age can't be slowly increased. This could save a lot of money. Contributors could even be offered a choice of plans - pay at one rate for a retirement at 65 and at another lower rate for retirement at 70. Of course, like so much else in our economy, this is dependent on the cost and adequacy of our health care. If we are sensible, and cut health care costs by investing in wellness programs, we would greatly increase the possibility of people being able to work past 65. Health care is another topic, but let's realize we spend 16% of GDP on healthcare compared to around 8% for most other industrial nations and they are healthier than we are. paying more for less doesn't seem like a good bargain to me.
Monday, May 2, 2011
On Burying bin Laden at sea
When I first heard that Osama bin Laden had been buried at sea my reaction was that this will lead to a plethora of conspiracy theories. But on reflection, I think it was a stroke of genius.
Those susceptible to conspiracy theories will not believe in any case. But by burying him immediately, in accordance with Muslim tradition, removes any reason for moderate Muslims to be upset and adds credence to the oft repeated line that the "War on Terror" isn't a war against Islam.
Further, burying him at sea removes the opportunity for his grave site to become a shrine.
Those susceptible to conspiracy theories will not believe in any case. But by burying him immediately, in accordance with Muslim tradition, removes any reason for moderate Muslims to be upset and adds credence to the oft repeated line that the "War on Terror" isn't a war against Islam.
Further, burying him at sea removes the opportunity for his grave site to become a shrine.
Subscribe to:
Comments (Atom)