Congressman David Camp released his tax reform plan this week and it seems like everybody has an opinion on it. It includes some good ideas which have been presented before, including cutting rates and limiting certain types of deductions. I’ve opined on my ideal income tax plan before (assuming that America needs an income tax, which is subject to debate of course). When it comes down to it, though, the current tax code is a symptom of a larger problem which permeates American society and government.
Government is too big and continues to try to get involved into every facet of our lives.
At the risk of sounding cliché, the Founding Fathers would be appalled that We The People let the government get to the size it did. Don’t believe me? Try to start a business in New York City, for example. You’ll deal with three sets of governmental authorities whose purpose it basically to make your life (and your business) a living hell.
It’s not just taxes and business regulation. Government searches us when we want to use public transportation, has corrupted the health insurance market more so than it ever was before, listens and watches our every move, and more, and more, and more.
How can we begin to fix this? It’s simple, dear reader. Implement Mikey Ramone’s 5 Point Plan:
I microblog under the hilarious pseudonym “Mikey Ramone,” which is a nod to the punk legends “The Ramones.” Some have referred to me as Mike Damone, the unsympathetic free market libertarian hero from Fast Times at Ridgemont High. Fortunately, my 5 Point Plan does not involve ordering Cokes without ice, or playing Led Zeppelin IV. What it does do is try to identify what I see as the biggest causes of the dysfunctional government which we have and offers a fix.
1. Cut the damn spending.
Both parties are guilty of this but as of late, the Democrats are the biggest offenders. The 2008 financial crisis is the excuse offered for the overspending. Newsflash, folks: the recession ended in June 2009. When the government spend, the money comes from one of two places: it can either borrow (and incur record amounts of debt, which it has done) or it can tax folks and businesses.
Both of these have broad economic impacts on the economy. While the US government can borrow at record low rates now, when interest rates rise the cost to service debt(fund the interest on the borrowed money) will go up. That will cause us to either borrow more or tax more (if we can even do that–since taxing all of “the rich” won’t close our current $680 billion deficit at today’s rates).
Spending less is a key step toward increasing our fiscal health. It also will lead to the…
2. Reduction of government regulation.
Reducing government regulation through spending cuts will have a net positive effect on the economy. First, we would spend less on things, as I outlined above, and that is something we need to start doing before interest on the debt overwhelms us. Second, it puts money back in the pocket of job creators. Regulations cost a lot of money. The SBA estimates that a business is burdened with $10,000 worth of regulations per employee (before the effects of Obamacare are added in). Less costs for business means more profits and cheaper products. Things costing less is a good thing for Americans, because they would spend less to acquire what they need, and also potentially buy more things. Lowering costs increases wealth much more than the fake “wealth effects” of inflationwhich generally lead to higher prices that hurt the poor the most by reducing their disposable income. Speaking of disposable income, next we should…
3. Cut taxes. Seriously.
America had to work until April 18, 2013 to pay for all of the income taxes collected in America in 2013. Of course, if Comrades de Blasio, Cuomo, and Obama had their say, the so-called “Tax Freedom Day” would be pushed back until December each year. Tax Freedom day does not include sales tax, property or school taxes, licensing fees, or anything else. And don’t get me started on the double taxation of dividends and capital gains, which hardly incentivizes people to invest.
A flat tax would be a much fairer tax. I don’t see any reason other than for purposes of screaming “it’s not faaaaaaaaaaair” to tax income at higher rates as certain arbitrary earnings levels are passed. This simply disincentivises earning income. It’s not at the “high” levels of income, either. The Obamacare subsidy cliff is a major problem for middle class. On to the fourth point of my plan, which is…
4. Repeal Obamacare and replace it with tax-advantaged health care ideas.
Easier said than done, I know. The government saw a problem in the health insurance market, which definitely existed prior to Obamacare: health care and insurance costs were expensive. Instead of enacting free market ideas like cross-border issuance of plans, portability, and health savings accounts, we got Obamacare.
The subsidy cliff which I mentioned above means that a couple that earns $62,040 can qualify for a subsidy for Obamacare which means the health insurance plan would cost $211 per month. However, if the same couple earned exactly one dollar more, the subsidy would disappear and the monthly premium would cost $1342. Obamacare has now become an incentive to work less. This was most recently exposed in the context of the CBO report which was euphemistically spun as ending “job lock.” Newsflash, media and Obama defenders (but I repeat myself): if you provide a large enough incentive not to work, a rational person will likely not work.
The key to true health insurance reform (unfortunately) starts with the tax code. We should incentivize health care savings in tax-advantaged accounts, and permit cross-border issuance of policies and enhance competition.
Obamacare incentivizing people not to work has other ripple effects in the economy, not the least of which is in the context of Social Security. Less workers means less employers and employees paying Social Security taxes. This is especially problematic when we have a system which is over-extended and when we have a retirement crisis in the country. Leading me to Point 5, which is…
5. Emphasize self-reliance, especially in the context of retirement.
The idea that “the government will take care of me” is fine and dandy, until the government runs out of money. Guess what — we’ve run out of money. Otherwise, we wouldn’t need to borrow $680 billion to fund our spending. We have an enormous amount of folks on unemployment, disability, food stamps, and other welfare programs. At the same time, we have folks who are relying on Social Security as their only source of retirement income. This is exceptionally troubling, since Social Security is teetering on insolvency. The retirement crisis in America is another symptom of the lack of self-reliance.
Folks, the government can’t take care of everyone. Unfortunately, governments will “take care” of people (voters) now at the expense of future voters. I cannot emphasize self-reliance more, especially when we are of retirement age. When we’re able-bodied and capable of working, the concern is less present.
Bottom line – because government is present in everything we do, many people want to rely on or believe that government is there to help them in their lives. Intentions may be noble (or nefarious, or neutral), but government reliance and omnipresence poisons self-reliance which is harmful to society in general. In order to reduce government presence, we need to starve the beast. Reducing spending will permit us to cut regulation and taxes and hopefully provide true reform to the health insurance market. More self-reliance in the terms of retirement is a necessity as well.
As always, free markets are better markets.
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The world will probably be focused on the Ukraine in the early part of the week, but also keep an eye on the insolvent Ulster Bank in Ireland. Is this a precursor to more problems in Europe, or a one-time snafu? The other big market-moving event will be the February Jobs Report, due Friday, March 7. Look for nonfarm payrolls to come in around 150,000, according to the consensus.