I haven’t posted in quite a while, but thought I’d restart by posting a photo I took on an S-bahn platform in Berlin (Savigny Platz for those keeping score). Interesting to see what folks in other parts of the world think, isn’t it?
In some ways, quite a positive image – if only our politicians got along that well!
Despite the bleak headlines about Iraq, conflict in Lebanon, and nuclear confrontations with both North Korea and Iran, 2006 was a good year globally. GDP growth in developing nations surged forward at a 7% pace, while overall global economic growth remained high at close to 4%. Long term economic growth is the only available means to decrease absolute poverty; in India, growth around 7% per year reduced overall poverty by 10% over the last decade. To be sure, much of developing nations’ current growth is owed to rising commodity prices, but in many nations this influx of revenue is being harnessed more effectively than in the past.
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Numerous comparisons have been made between the current Iraq War and the Vietnam War, with some likening the two situations and others decrying the notion of any similarity. Some comparisons, including an analysis by Dr. Atul Gawande in the New England Journal of Medicine, show conclusively that improvements in medical technology have decreased the battlefield death rate significantly. Researching the statistics, Dr. Gawande shows that combat death rates from injury dropped from 30% during World War II to 24% during Vietnam, and to 10% in Iraq and Afghanistan. This decrease in mortality has been used to show that without modern medicine, American fatalities in Iraq would run at close to 2200 per year instead of the current 900 per year. But even at 2200 casualties per year, the Iraq conflict would pale in comparison to Vietnam, where on average 9000 American soldiers were killed each year during America’s heaviest presence (1966-1971).
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I’ll digress here from my typical short-essay style to post an excellent series of articles by Dr. Richard Fogoros on the state of US healthcare. Dr. Rich does an excellent job showing how healthcare in the US is primarily government-funded, and how politicians’ inability to confront growing healthcare demand has led to covert healthcare rationing. He goes on to argue that open rationing of public resources is the only long-term approach moving forward, and proposes a system for rationing. The “Grand Unification Theory of Healthcare” is a bombastic title, and the articles are verbose, but Dr. Rich does an excellent job of addressing the topic head-on, and I agree with most of his conclusions.
The Grand Unification Theory of Healthcare, Dr. Richard N. Fogoros, MD
Why do we in America constantly tell children that they can be whatever they want to be? When asked what they want to be when they grow up, large percentages of adolescent boys reply that they want to be a professional athlete. We generally encourage our children to set their aspirations high, at President or professional athlete, at Astronaut or movie star. Such aspirations are wonderful in that they challenge children to reach for lofty goals, but the reality is that a tiny percentage of us will ever attain such positions.
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To the extent that any development in New Orleans makes sense, vertical development makes sense. New Orleans historically was a narrow sliver of a city curving along the banks of the Mississippi, where the only liveable high ground in the city was to be found. Historical neighborhoods like the French Quarter, Warehouse District, Faubourg Marigny, and Central Business District are thus densely developed areas with a majority of structures possessing multiple floors. Even Uptown New Orleans, a primarily residential area, possesses many multi-family homes and multi-floor homes built on relatively compact lots.
Why then are so many in neighborhoods across New Orleans and the metro area fighting vertical development? As developers trot out plans for high rise condominium and apartment buildings as a means to rapidly increase the housing supply, many neighborhood groups and even the city council are fighting to curtail growth. But what other options exist in a city that has an average elevation somewhere between zero and ten feet below sea level? High rise towers provide a much greater level of protection to residents and their property; many living in existing modern high rises experienced relatively little property damage even from Katrina. Since downtown New Orleans predates the automobile era, it also possesses human-sized blocks perfect for dense, pedestrian friendly redevelopment.
While the historical character of New Orleans’ architecture should be preserved in redevelopment, many projects are being sidelined due to height restrictions, minimum parking requirements, and other zoning restrictions. But if New Orleans is to accelerate the recovery and redevelopment process, its politicians and citizens will have to accept that higher density development is the only viable route forward. Vertical development can help minimize the threat posed by future storms while rapidly increasing the area’s housing stock. Let’s hope that the powers that be accept this and move projects to fruition with the expediency that true recovery dictates.
The United States provides universal health care. Sound laughable? It’s true: all individuals in America, whether citizens, immigrants, or tourists, are entitled to government subsidized care in the event of medical emergency. While the uninsured may not be able to get a routine doctor’s appointment, they are guaranteed life saving surgery and medical intervention, regardless of cost. Indeed, care for indigents can occasionally run into the hundreds of thousands per year, as they repeatedly return to the emergency room for treatments of illness caused by chronic diseases like diabetes. The US spends roughly 75 billion annually on treating the nation’s 40+ million uninsured; the situation among alcoholics in Seattle has become so absurd that they are being given housing and routine medical care, since this decreases the cost of treating them in emergency situations.
Perhaps it is no surprise then that America spends a larger percentage of its GDP on health care than almost any other nation, and yet it lags on a wide range of health indicators, including overall life expectancy. How did such a situation emerge? Largely by accident, it turns out. In 1986, the EMTALA was passed by Congress, denying hospitals the right to refuse critically ill patients. Federal and state governments partially reimburse providers for costs incurred for this treatment through Medicaid and Medicare. Unfortunately, critical care is provided without any cost-benefit analysis whatsoever; it is considered a criminal act to withhold treatment from elderly, terminally ill patients, even if it would extend their life by a matter of weeks.
As US healthcare costs continue to spiral upward at rates often double and triple that of overall inflation, the situation becomes increasingly untenable. But what are the alternatives to America’s current system?
1. Remove required treatment burdens from hospitals, leaving the burden of care to individuals, charities, and local and state government.
2. Provide routine medical care to the uninsured, eliminating the treatment gap for the uninsured.
3. Require all Americans to buy insurance, or to pay a healthcare tax to pay for the implied insurance provided by emergency rooms.
4. Begin to consider rationing publicly funded health care based on cost-benefit analysis, taking into account a procedure’s likelihood of success, its cost, the patient’s age, and other factors.
Option 1 is politically infeasible for an industrialized nation, and is included only for completeness. Providing routine medical care to the uninsured, as in option 2, would expand America’s current system to be more similar to European systems of comprehensive universal public health care. Nations like the UK and Canada ration non-critical care within their systems in order to control costs; the very notion of health care rationing is anathema in the US currently, making public dialogue on public universal care close to impossible. Australia, meanwhile, has a hybrid healthcare system which includes public insurance for all while enabling private care to co-exist, potentially providing a model for US healthcare reform.
Massachusetts has begun a program similar to that outlined in option 3, in which all residents without insurance are required to purchase insurance or pay a tax to subsidize the emergency coverage that all residents receive. Poor residents are provided with assistance to pay for an insurance policy, enabling all residents to acquire coverage. This system provides the benefit of extending coverage across the population, while forcing everyone to contribute, thus averaging out costs across healthy and less healthy individuals. Since the system provides a net increase in medical coverage, however, it will result in increased costs over time.
This brings us to option 4, the unspeakable in the American health care dialogue: rationing. In practical terms, medical decision-makers find it difficult to discuss the notion of saving $100,000 by not performing a procedure, even if it has a 1 in 1,000 chance of success. Cost-benefit based rationing of care is not a solution to the problems of health care access. Rather, it is an eventuality that will have to be confronted, as public expenditure on health care cannot forever grow faster than the economy. Until then, America’s broken universal healthcare system will continue to plod along, destined to hit the wall when we just can’t find another dollar to keep 95 year-old vegetables alive another minute.
With the 2001 tax cuts beginning to expire in a few years, perhaps it is time to revisit them. Those tax cuts, along with a subsequent tax cut in 2003, cost roughly $150 billion per year in lost tax revenue. Tax rates were cut across the board, with a drop from 15 percent to 10 percent in the lowest tax bracket, and a drop from 39 percent to 36 percent in the highest bracket. A myriad of other tax breaks including a cut in taxes on dividends and capital gains combined to make one of the largest tax reductions in years. Now, with the tax cuts set to expire in 2010, Democrats argue that they be allowed to expire to reduce the deficit while Republicans argue that they should be made permanent. A recent Congressional vote over a minimum-wage increase succumbed to this battle, as Republicans attempted to tie the repeal of the estate tax to a minimum wage hike.
There is room for compromise on this issue, where all Americans can enjoy a tax cut without increasing current structural deficits. A reduction in the lowest federal tax bracket (for income below $10,000) from 10% to 0% would provide $1000 in tax relief for every full-time American worker, from the richest to the poorest. The elimination of the lowest tax bracket would lift more Americans out of poverty than a hike in the minimum wage, since it wouldn’t have the adverse affects on employment that a wage floor can have. If developing nations like China and India can do without an income tax for the poorest in society, can’t America? One caveat: giving $1000 in taxes back to all 145 million American workers would cost $145 billion annually.
How can America pay for a tax cut even larger than the last round? For starters, since the lowest tax bracket would be eliminated, the Earned Income Tax Credit could be largely eliminated as well. The EITC rebates $40 billion per year to the poorest families in America, but adds a large regulatory burden for both families and the IRS by requiring taxpayers to claim the credit, with the IRS auditing them to ensure eligibility. Eliminating the EITC could help pay for a large chunk of lowest-bracket elimination while lightening the tax filing burden for a significant percentage of the population. Next, allow the upper tax bracket and estate tax reductions to expire in 2010, adding roughly $100 billion to government revenue. Finally, make permanent the 15% tax rate on dividends and capital gains, providing investment tax relief for the middle class and wealthy. The 15% rate on dividends and capital gains costs $5 billion to government coffers, but provides an incentive to the investing class to support the overall tax package.
All this leaves a neat compromise in which all Americans get a $1000 tax cut, and upper-middle class and wealthy Americans get to keep low investment tax rates in return for pitching in on broader tax relief. The elimination of the lowest tax bracket and the EITC would also simplify tax filing for millions of Americans, from poor working class families to the elderly and part-time workers as well. US mid-term elections take place tomorrow; if the Democrats take the House, this sort of tax cut would be a welcome new idea for their platform. If the Republicans narrowly maintain control, a broad-based compromise tax cut for all might be just the kind of legislation they need to break the legislative logjam. Any takers?
While tax policy has long been used as a political tool, the basic purpose of taxation is to raise funds for the government. Ideally, taxes should accomplish this goal in as efficient and equitable a manner as possible. Tax codes at both the federal and state levels have long since diverged from this ideal, becoming bloated documents aimed at encouraging us to drive certain cars, have certain occupations, and make a myriad of other choices having nothing to do with government revenue. But for all their flaws, personal income tax codes in the US are simple and efficient in comparison with corporate tax codes.
Corporate income taxes are the only taxes in the US levied on a vague notion of “income”: the difference between revenues and all business-related expenditure. Personal income taxes are in effect revenue taxes, as they do not shrink for the person who spends every dime to get by, nor do they grow for the person who saves 20% of their income. Property and sales taxes likewise do not take into account the payor’s ability to pay; indeed, property taxes occasionally push property owners into bankruptcy. Only corporate income taxes attempt to tax based on a company’s ability to pay, as measured by corporate profits.
Unfortunately, determining a corporation’s profits is complex at best, and can be a subjective matter at worst as companies use myriad techniques to reduce their taxable profits. Small, individually-owned companies often commingle business and personal expenses, reducing taxable profits while gaining personal benefit. In the area of automobile leasing this is so common that accountants typically tell their small business clients to deduct 90% of a personal vehicle lease against their business revenue, as this is the “generally accepted” deduction for such an expense.
Large public companies also have been known to deduct expenses incurred for the benefit of company executives. Corporations use foreign subsidiaries to avoid taxes by paying those subsidiaries for rights to trademarks or other services, resulting in an expense for US accounting purposes. Public corporations also legally keep two separate sets of accounting books: one for the SEC and investors, which attempts to show maximum profitability, and another for the IRS which shows minimum profitability. The complexity of this system imposes a significant burden on both companies and the IRS, as both sides engage in a complex accounting dance to accurately determine profitability.
Why not tax corporations just as the government taxes individuals, by taxing their revenue and not their profit? Revenue is a much simpler number to establish and verify than profit, since no consideration of expenses is involved. The accounting burden for both companies and revenue collection agencies would be greatly reduced, decreasing the drag of compliance on the economy. Gross-receipts taxes, as they are often called, are effectively used in several states including Washington and Delaware. Since gross-receipts taxes are broad-based, US corporate tax rates of around 35% could be replaced by a revenue-neutral revenue tax at a rate of around 1%. For many profitable companies a revenue tax would result in a significant tax reduction, while millions of small businesses would now have to make a small 1% contribution to tax revenue for the first time.
Critics complain that revenue taxes hurt companies like wholesalers that have very low margins – but even commodity intermediaries aim to earn 2-3% in net margins, making the burden of a 1% revenue tax similar to their current income tax burden. And no one seems to complain that a profitless corporation can’t afford to pay its property or sales taxes! A complete migration of corporate taxation to gross-receipts taxation might seem close to impossible at the federal level, with all the winners and losers it would create. But such a system would deliver huge benefits by lowering compliance and audit costs while distributing taxation more fairly across all corporations.
Why aren’t there more terrorist attacks in the United States? Or in other developed countries, for that matter? With the exception of Israel, which is involved in an ongoing conflict and is surrounded by hostile states, terrorism is still relatively rare in the industrialized world. In many developing nations, on the other hand, from Latin America to Africa and Asia, terrorism and irregular conflict are commonplace. Most of these conflicts have a political root, and internal political stability clearly prevents this kind of ongoing insurgency within the United States. There is another safety net protecting the US, however: there simply aren’t that many individuals in the United States that are both crazy enough AND competent enough to execute a real terrorist plot.
The US market economy provides an amazing wealth and diversity of opportunity for a striving individual; one need look no further than the Mexican border to see that millions desire the opportunity to participate in the US employment market. The great majority of individuals competent enough to even contemplate a terrorist plot find themselves engaged in a productive career path from high school onward. The US, like any place on Earth, also has its share of individuals that harbor destructive or anti-social thoughts, and occasionally even plans for terrorism. Most in this group have no capability to execute on their dangerous ideas, and generally have nothing more than hate-filled invective stewing about in their heads.
Who then is left to cause terror in the homeland? There certainly are skilled and competent individuals in the United States who dislike US policy, and who may even harbor destructive plans. Even within this group, only very rarely will an individual choose to sacrifice the good life of America for the risk incumbent in prosecuting an act of terror. In the US, Timothy McVeigh is a rare example of such an individual. Among the millions of annual visitors to the US, the 9/11 hijackers represent a similarly rare breed.
All of this doesn’t mean that the US government can just drop its guard in securing the nation. Rather, it means that an intelligence-based approach is the only viable option for ferreting out the minority of minorities that is intent on causing harm. With the FBI, CIA, and NSA woefully understaffed in areas such as Arabic translation, it looks like we have a long ways still to go in catching that rare and elusive beast: the terrorist.
True Cost - Analyzing our economy, government policy, and society through the lens of cost-benefit 