Here’s what I propose: in the event that a state governor asks the president, who will then ask Congress to bail out a bankrupt state, that the state be required to certify that government public service unions are illegal, and that future government employees must have salaries and pensions comparable to the private sector, and no more, with the exception of police and firefighters. Let the police and firefighters be represented by collective bargaining, but require pensions to be on a similar basis as in the private sector. Should local governments wish to pay their policemen and firemen more, let them, but with the intent that out of some of the salary increases, the policemen and firemen can make their own pension contribution. The goal here is to make the city, county, and state finances public, and eliminate hidden and unfunded future liabilities that become invisible to the city, county, and state electorate.
The first step is obviously for Congress to codify this proposal as law. Then, sometime in the future, when and if a state gets into such a financial bind that seemingly the only way out is to send their state representative to Washington for help, a contingency plan will already be in place. Once local governments know what the bailout rules are, it’s possible that they will take the necessary measures to prevent the bailout problem in the first place.
Now for the federal side of taxes. The current federal income tax code is a mess. The code with attendant rulings and interpretations has been estimated at 10 million words. No one is really sure what’s in the code, and even experts can’t agree on what the correct amount of taxes for some people should be. This corrodes trust in our system of government. To the 99% that think the other 1% don’t pay enough; the 1% are steamed by the fact that almost 50% pay no income tax. Actually, the top 20% pay more than 80% of the burden, while the bottom 50% paid less than 3%. Everyone pays taxes, including the lower brackets, who pay taxes for Social Security and Medicare, but the arbitrary, confusing, and varying rates create the appearance of unfairness. Further, there is a lot of misunderstanding about the capital gains rate. What is really unfair is how the code polluted the political system which is in favor of individuals and corporations that can afford to hire tax lawyers to navigate the code’s confusing regulations and hire lobbyists to win tax breaks. More money goes toward lobbyists than toward running Congress. Politicians use the code to advance their agendas by giving breaks to special projects or special interests. Then there’s the hidden tax of compliance: what individuals and businesses pay to accountants, lawyers, etc. to comply with the code or navigate through an audit. Besides, compliance costs estimated at $378 billion, and the economic costs at more than $600 billion divert resources that could be used elsewhere in the economy; consider what $600 billion reinvested every year into something productive could achieve. Finally, the current tax system can give power to bureaucrats at the IRS which sometimes gets wrongly applied to individuals and/or groups. For example, think of Lois Lerner, who targeted a hated group, lied, and was called to testify before Congress, pleaded the Fifth, retired with full benefits and bonus intact, and all with no accountability. And still, some question where the anger behind the campaigns of Bernie Sanders and now President Donald Trump came from. It’s time to drive a stake through the heart of the IRS.
In the past, forward thinkers such as Jack Kemp and Steve Forbes ran political campaigns advocating for a “flat tax,” but they failed at the ballot box. They always lost the argument that the rich were carrying the heavy load; that is, they paid the majority of the taxes, and this was unfair. But no one has any sympathy for the rich. Art Laffer turns this argument on its head by stating that the rich will always escape paying the huge portion of the federal revenue, and meantime, the middle-class gets screwed. This because the rich have all kinds of ways to avoid paying their tax. Here are some ways the rich avoid paying income tax. They can better time when they take their income, and they have myriad ways to defer their income, starting with IRAs. The rich can more afford expensive lawyers and accountants and deferred income tax specialists.
Laffer’s solution: Throw out the current tax code and go to a flat tax for everybody. Laffer’s tax policy advocates the lowest flat tax rate possible applied to the broadest base possible. He goes on to say that perhaps the rate might be 9%. But what I find so compelling in his book is his dispelling of the myth used by the Keynesian and socialistic types that we’ve had to listen to forever. What follows I confine to the income tax, but his book covers all taxes: corporate, capital gains, estate tax, and state taxes.
Laffer begins by making reference to President Kennedy’s speech to his Yale graduation class in 1962, in which Kennedy said
“…For the great enemy of truth is very often not the lie—deliberate, contrived, and dishonest—but the myth—persistent, persuasive, and unrealistic. Too often we hold fast to the clichés of our forebears. We subject all facts to a prefabricated set of interpretations. We enjoy the comfort of opinion without the discomfort of thought.”
Laffer says “the greatest of all tax myths is: Government spending or tax cuts for low and middle-income earners can be financed by taxing the rich at higher income rates. He reminds us that Kennedy cut tax rates on the rich, cut the corporate income tax rate, cut the capital-gains rate, cut tax rates on dividends, cut tax rates on traded products, increased defense spending, and balanced the federal budget.
Laffer continues “Again, during 1980 and on for years, tax rates were cut.” Tax data are probably the best data government produces. Laffer gives a chart of the various tax cuts from 1955 on, but simply, the highest marginal income tax rate was cut from 90% to 78% (1964), to 70% (1965), to 50% (1982), to 28% (1987).
Laffer next presents a chart showing the federal revenue from the top 1% from 1980 to 2008, and it went from 20% to 40%, or a pronounced march upward. But during the same time period, revenue from the bottom 95% declined from about 65% to 40%. Then, for the same time period, he shows that paid as a % of GDP, for the top 1%, their contribution increased from about 1.7% to about 3.3%, or doubled, while the bottom 95%’s contribution decreased from almost 6% to 3.3%. Thus, the 1% had their tax doubled, and the bottom 95% declined sharply. Worse yet, the bottom 20% have gone from paying income tax to collecting from the IRS, thanks to the Earned Income Tax Credit (EITC).
Taxes were cut drastically in the Harding and Coolidge administrations, and again in the Kennedy, and in both cases, the tax collections from the highest income earners rose sharply. And at the same time, collections from the rich fell as a share of the GDP. (Please reread this until it soaks in). Why did the rich get their tax bracket lowered, and at the same time they contributed a lesser amount to the total GDP? Because the rich hate paying taxes and they can afford to find ways to avoid paying taxes. How? They can better time when they take income, and have various ways to defer taxes like using IRAs. The rich can change locations where they pay the tax, and they can alter the composition of the taxes they pay. The rich can more afford expensive lawyers and accountants and deferred income tax specialists.
Again, the rich hate paying tax, and they can better find ways to avoid paying.
Laffer’s solution is to throw out the current tax code and implement a true flat-rate tax. He says the purpose of government is to make people better off, not to maximize revenues. The fundamental problem with the plans to redistribute income is that they don’t take actual human behavior into account. If the government taxes rich people and gives money to poor people, sooner rather than later we’ll have a lot more poor people and fewer rich people. When entrepreneurial spirit is unleashed, peoplemake the world a better place… as a direct result of their personal motives to better their lives financially, which is an example of Adam Smith’s “invisible hand.”
Policies that focus on more even distribution of income will bring with them lower incomes for all. If you want to get income from the rich, you’ve got to make the rich richer, and to make the rich richer, you’ve got to lower tax rates. Putting all this together, if you lower tax rate
s on the lower and middle-income earners, you will lose revenues. If you raise tax rates on the highest income earners, you lose revenues. We need a true flat tax devoid of class warfare rhetoric.
The present federal tax code covers things like capital gains, corporate taxes, and special breaks for things like carried interest and other things. Laffer would subject all federal taxes to the same low flat tax.
10 - BARRIERS TO ECONOMIC GROWTH
2. BURDENSOME REGULATIONS
“Guess it depends on what you mean by “authoritarian.”
During the election, Donald Trump was routinely likened to Hitler. The headlines suggest not much has changed.
From the New Republic: “Donald Trump is Already Acting Like an Authoritarian.” National Public Radio: “Donald Trump: Strong leader or Dangerous Authoritarian Reality.” The New Yorker: Trump’s Challenge to American Democracy.”
What’s striking here is that the same folks who see in Mr. Trump a Mussolini in waiting are blind to the soft despotism that already has taken root in our government. This is the unelected and increasingly assertive class that populates our federal bureaucracies and substitutes rule by regulation for the rule of law. The result? Over the Obama years, the Competitive Enterprise Institute reckons, Washington has averaged 35 regulations for every law.
…For one thing, almost all these departments (Environmental Protection Agency, Education, Housing and Urban Development and Labor) are legacies of some progressive expansion of government. While an uneasy William Howard Taft, for example, made Labor its own cabinet office on the last day of his presidency, Woodrow Wilson named its first secretary.
Meanwhile, HUD is a child of LBJ’s Great Society. The EPA was Nixon’s attempt to buy liberal approval for his administration. As for the Education Department, it was a reward from Jimmy Carter for the endorsement the National Education Association gave him in 1976. At the time this cabinet was established, even the New York Times called it “unwise” and editorialized against it.
There’s a good case that Americans would be better off without most of these departments meddling in our lives and livelihoods, however politically unfeasible this might be….
…The good news is that Mr. Trump does not have to fight government regulatory fiat alone. House Speaker Paul Ryan has a raft of legislation that would reassert the authority of the people’s elected representatives over an unaccountable bureaucracy including a budget that would limit the cost an agency can impose each year…”
From Despotism and Donald Trump, William McGurn
The Wall Street Journal, 12-13-16
I was sitting in my radiology office mid-morning working through my morning list of fluoroscopies of mainly barium upper GI and colon x-rays, and some myelograms (x-rays after injecting contrast medium into the spinal canal). In came a fellow, asking if I was Dr. Northwall. I said, “yes.” He went on, “I’m from the Kansas City office of HEW” (Health, Education, and Welfare, which was the predecessor of HHS [Department of Health and Human Services]). “I’m here to tell you to cease and desist in what you are doing in Broken Bow, Nebraska. We’ve been collecting a file on you. I’m not to tell you who I am, or who my boss is, but I can show you your file, though you have to hand it back to me and you are not allowed to copy it.” I took his file. The government had written 75 radiologists in the U.S. asking their opinion of what I’d been doing. All 75 disapproved. I handed him back his file, and he left my office.
For the non-radiologists, fluoroscopy is where the x-ray tube is pointing upward fromunder the patient, and above the patient is a plate containing phosphors that fluoresce, converting the invisible x-rays to visible light that the human eye can see. The examiner, using the fluoroscope thus can see a moving image in real time, live like watching a movie instead of a picture. Because of the danger to both the patient and the examiner from the high levels of radiation needed to make the shadow bright enough to be seen, steps were taken to reduce the amount of radiation necessary. The first step taken was to only do this in total darkness, and for the eye to be most efficient at reduced visibility, it was necessary that the examiner be totally accommodated to seeing in the dark. This meant either waiting about 20 minutes in the dark, or after wearing red goggles while in the light.Around the time of my training, 1968-1971, an image-intensifier was invented that brightened the image about 10,000-fold. Now the radiologist could throw out the red goggles and work in normal daylight. It was the carry-over of the old precautions that were in the mind of whoever wrote the first Medicare Handbook of 65 pages, when Medicare was established in 1965. Originally, the visible image was viewed by reflecting it off a mirror that the examiner looked at. Today, the image is taken off the intensifier by a TV camera and displayed on an adjacent monitor.
That was around1975. I no longer have my file on this case, but from memory, I relate this tale. I’d joined another radiologist in Kearney, Nebraska, in the private practice of diagnostic radiology, based in the Good Samaritan Hospital. My partner’s name was Wally Vnuk. Wally was a very creative and inventive fellow (he held a number of patents), and he had a friend who was taking the newly available and very inexpensive TV cameras and selling security systems for bank ATMs. Wally began fiddling around with the cameras,working out a way to use them in our practice.
Around the same time Wally was experimenting with the cheap new cameras; I received a call from my old chief, Bill Wilson, where I had recently trained in radiology. He was head of the Radiology Department at the Nebraska Medical Center in Omaha. Wilson said he’d just gotten a call from the hospital administrator in Broken Bow, Nebraska saying that the hospital had just received a huge gift from some wealthy person who wanted to rebuild the hospital, put his mother’s name on it (Jennie Melham), and maybe even buy the hospital a CATscanner. Wilson said he could get a government contract to experiment with teleradiology between the med center in Omaha, and Broken Bow half way across Nebraska, and they could transmit x-ray images via satellite from Broken Bow to Omaha. Wilson called me to ask if I would be willing to be the “local” radiologist for Broken Bow, which was 70 miles from my town of Kearney. Now Broken Bow sits on the Eastern edge of the Nebraska Sand Hills. The Sand Hills are 200 miles across of lush meadows and ideal cattle country. The ranches there are huge and few, so the population is sparse. Residents have a long distance to go for doctors and hospitals, as well as shopping and all other town facilities most of us take for granted.
I thought the offer of a new service needed in a most rural area would be challenging and fun, and figured it would pay its way, soI told Wilson “yes.” I went up in a couple of days to meet the hospital administrator and check everything out. I figured I could go up there once a week, do fluoros, and read up the week’s worth of x-rays. Wally then suggested we add one of his cameras to the fluoroscope, and train a technologist to take fluoro images for us, under our direction. I had recently written a small book for a general practitioner and his physician assistants of how to get diagnostic x-rays of the GI tract, colon, and gallbladder. This was after I trained the GP in my office in Kearney. Films and video tape arrived every few days from this office by UPS. After examining the films and tape, I’d dictate a report, and my secretary would send the report by telephone to the GP’s dictation system for it to be typed. Bytheway, this GP’s office was also in the Sand Hills, but was more inaccessible.
Meantime,back in Omaha, Dr. Wilson, got his contract, and I was to compare my readings with his, by teleradiology back in Omaha. He later dropped out with too many technological problems with the transmission. Still,I continued with my services of once-a-week visits to Broken Bow, and daily reading of films by me back in Kearney. Everyone was happy, until this bureaucrat walked into my office and said I couldn’t do my long-distance radiology anymore.
I asked the bureaucrat why not. He showed me the Medicare regulations, written at Medicare’s onset in 1965, which said the use of fluoroscopes was limited to only physicians. He then added that by my allowing x-ra
y technologists to use the fluoroscope, an act not permitted by Medicare, I was, therefore, in violation of Medicare regulations.
I immediately contacted Virginia Smith, our Congresswoman at the time for our Third District of Nebraska. She was very popular and had a great reputation of representing our most sparsely populated and very rural places, being a rancher’s wife herself. She was most interested in getting better medical services for our people. The Third District covered the Western two-thirds of Nebraska, which was basically the whole state, minus Lincoln (the state capital), and Omaha. Virginia’s main interest outside of agriculture, was rural healthcare. She took on my case with gusto.
Virginia Smith and I corresponded extensively over the next 1 ½ years, but got nowhere with HEW. HEW wouldn’t admit that one of their own had challenged me, and refused to name who was in charge and had issued me a cease and desist order. Meantime, I had been carrying on as though nothing had changed. Finally, Congresswoman Smith got together with Al Ullman, who at the time was chairman of the House Ways and Means Committee, and the two of them marched over to HEW headquarters in Washington and demanded to know who was behind my cease and desist order, and also demanding that they withdraw the order. HEW by this time wanted a truce, and made the deal that if I would not advertise that I was allowing technicians to use a fluoroscope under my supervision, they would drop the case. They still refused to give one of the most powerful Congressmen the name, or why they thought the order was even necessary. For what it’s worth, today radiologic x-ray technologists all over the country freely use fluoroscopes under the direction of their supervising radiologists.
I cite this case of mine as one example of a burdensome regulation. In itself, it’s a small case, but if you multiply this by thousands of other harassing enforcement of ridiculous regulations by nameless, faceless bureaucrats, you get the picture.
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