Sunday, October 30, 2005

Advice to the Tax Reform Commission

There are two actions that would reduce the cost of tax preparation and auditing and make the personal income tax more equitable while changing the code very little. This is not to say that other changes are not desirable, but these changes can be made easily without upsetting almost anyone, and therefore are a good place to start.

The table below compiled from IRS data shows that 53 million taxpayers with incomes less that $22,000 could be removed from the tax rolls, reducing tax revenue by only $13 billion out $748 billion. Seven billion of this loss could be recouped by closing the loopholes that people making over ten million a year use to lower their tax rate four points below that of people making half a million. The savings in preparation and auditing costs could easily make up the rest.

Anyone making $22000 or less can hardly meet their everyday expense to hold a job and pay for health care. They shouldn’t have to pay income taxes if they don’t have any income after expenses, when corporations pay taxes only on their net income.

The first thing the commission and the Congress should do is take anyone who is making less than $22,000 a year off the tax rolls and close the loopholes for the multimillionaires so their rates are in line with others making less.

Tuesday, October 18, 2005

A Religious Outlook I Respect

Although I’ve been pretty hard on religion when it inserts itself into government and policy making, there are some religious leaders I respect, even though I think they are lost in fantasyland. Dr. Richard Land is one of them. He is one of the few evangelicals who have spoken out against Bush’s touting of her religion as one of the reasons for picking Harriet Miers as his Supreme Court nominee. Land is a true believer not only in Christianity but in the philosophy that judges and justices should set aside their personal beliefs and decide cases on the basis of existing law. This is what some conservatives believe, but not all, by any stretch. There are many who view getting a Christian on the court as a way to get Christianity back in government, i. e. prayer in schools, creationism in the classroom, gays on the sidelines, stem cells, abortion and contraceptives out of medicine, etc. Land is not one of them.

Another attitude I can respect is what Land sees as one of the virtues on Christianity. He believes that if Christianity were accepted by all, we would have a much more ordered society with fewer births out of wedlock, less crime, more attention to the plight of the less endowed, etc. And, he may be right for some segment of society, but not for all. This belief assumes that all people need religion to live productive, law abiding, moral lives. This I cannot accept because it has been proven wrong over and over again. There are many people with no religious belief that live such lives. Religion limits the freedom and liberty of such people. And anchoring a society on rules and principles devised thousands of years ago limits its adaptation to changing conditions and acquisition of new knowledge.

An appropriate compromise would be to take advantage of religion by allowing those who can profit from it to profess it freely, but also allow those who don’t to go their own way without discrimination or any requirement to participate in religious activity. In any case it should be a personal choice, not something that should be implemented in law or universally applied.

Monday, October 17, 2005

Elitism, Enlightenment, Tradition and Our Future

Michael Barone of U. S. News and World Report has written an article, Spurning America, which I hope will be the opening salvo of a discussion of an important issue in American politics, namely, the role of tradition and religion verses adaptation in a modern society. The following is my response.

In the article, he chastises the liberal elites for a world of sins, the usual saw in attacking the left. So let’s first clarify what it means to be “elite”.

Elitism

Elitism involves setting oneself apart and above the rest of society on the basis of what may be just a perceived superiority in the eye of the exhibitor of this behavior. Elitism is to be distinguished from enlightenment which is the true attainment of a state of knowledge that others might not have acquired in a particular field or discipline.

There are elitists of all political stripes, although liberals are most often accused of elitism, possibly because they reside in urban trend setting communities like the Northeast or West Coast cities, or because they have advanced degrees and prominent positions in academia. But, there is also a business elite of CEOs, investment bankers, and free marketers who conceive of themselves holding a unique knowledge of how economic systems work and how to scratch their way to the top of the economic pyramid without being too concerned about what happens to those who don’t achieve their prominence, or who think there is more to the health of a country than just economics. And then there are the literary and cultural elite who reside in the press or political think tanks pontificating on whatever they are paid to pontificate on. And finally, there are the political elites who have achieved high positions in government, possibly only through clever association with the aforementioned elites who provide the necessary campaign funds or writing and promotional skills to get them elected.

Enlightenment

What may appear to some as elitism, may actually be enlightenment, if the individual exhibiting it has achieved a state of knowledge through study, experience, or travel that gives them a better perspective to judge the value of a theory, plan, or action. Someone may appear as an internationalist elitist if he cites examples from foreign sources attained through study or travel that the observer has not attained through comparable experience.

Someone unfamiliar with governance or economics may rely more on the personality of someone, which mirrors his own, rather than the documented history of a person’s actions if he is not informed of them, or if he does not understand how the experience relates to the requirements of his position.

Someone without a scientific background may equate the scientific method with any other theory or myth regarding an observed behavior or phenomena.

Someone growing up in a rural environment may have an extensive knowledge of the land, conservation and natural phenomena that someone raised or living in an urban environment has not acquired. Whereas, someone in an urban environment may have experienced a wide range of social behavior from a wide range of different cultures and ethnicities, while the rural resident may have experienced a relatively monolithic culture.

These differences in learning or experience, when viewed from the opposite viewpoint may appear as elitism when they are actually attributable to enlightenment through wider experience or study.

Tradition and Religion

Now let’s examine the makeup of those who most value tradition and religion as opposed to those who may be accused of taking an internationalist, and possibly more secular political stance. Here we might look at why some people prefer “my country right or wrong”, support their leaders, fly the flag, put patriotic stickers on their automobiles, etc. whereas others seem to protest against their government’s actions and cite examples from abroad rather than taking the former approach.

History is littered with empires that faded because they clung to what worked in the past instead of adapting to the present and future, taking account of the rapid growth of knowledge acquired over the years.

It used to be tradition in this country to enslave people because it seemed to work economically, and there was an “elite” attitude that these people were better off enslaved because of their lacking an ability to make their way on their own. Fortunately, we finally got rid of that tradition after discovering these people actually weren’t much different from their enslavers and could function pretty well on their own.

At one time we considered women lacking the necessary skills, or possibly due to their domestic responsibilities, the time and ability to participate in the electoral process or hold some jobs that required the “manly” skills. We have subsequently found through experience and learning that women do indeed have the skills and mental capacity to do almost all things previously done only by men, and fortunately have abandoned that tradition as well.

Now it has been a couple thousand years since our religions sprung to life at a time when there was essentially no science and where religion provided essentially all the answers to the unanswerable questions of the time. And, answers to many questions are required for an ordered society and for peace of mind for the individual, to give people a sense of purpose and comfort in times of stress or despondency.

Since then, we have passed these traditions on to our descendents, from an early age, as principles which have served us well and which they should adopt to get along in the world. But, we have also learned much since then about how the world works and what is required for an ordered society. We have discovered individual liberty, human rights, democracy, political institutions, etc. and we now we rely much less on the oracles or the priesthood to give us guidance on the right way to live.

At some point we may want to ask ourselves how much we want to rely on the knowledge we have acquired over these many centuries and how much we want to rely on the ancient religious faiths we have adopted. We still may enjoy our religious community, the comfort we feel from our religion in time of conflict or loss, and ceremonial aspects of celebrating religious holidays, etc. But, we should consider the degree to which we want our religious faith to dictate our everyday decisions in raising our children, pursuing our careers, and governing our society.

The Future

Our success as a country in the future will depend on our further enlightenment and recognizing that we can’t run in place, resting on our past success and traditions to see us through a rapidly changing future. It will require the less informed to become more informed. It will require that we not rely on our tradition of American exceptionalism, but recognize the other countries and civilizations may have discovered ways of prospering and getting along that we have been too isolated to appreciate fully. It will mean cooperation, not just nationwide but worldwide. We can continue to do battle over preserving our traditions, or put them in perspective with the requirement to continue expanding our knowledge, to sustain our past success and prominence as a leader of the world.

Thursday, October 13, 2005

The Constitution and Representative Government

At the time the constitution was written there was no theory of evolution, no quantum theory, no molecular theory, no theory of relativity, no cosmological theory, no electronic theory. The only light was from the sun or fire. There was nothing that could be called scientific medicine. Only cut and try methods of treating symptoms, like blood letting or distillates from roots and herbs were available.

Antoine Lavoisier first defined a chemical element and drew up a table of 33 of them for his book 'Traité Elémentaire de Chimie' (Treatise on the Chemical Elements) published in 1789, the year the Constitution was written.

There were about 4 million people in the country and only 13 states. Most were farmers, shopkeepers or tradesmen. There were no corporations. People held slaves. Women couldn’t vote. These were all traditions of the times, many of which we have since discarded based on more recent knowledge and development.

Under the circumstances, the founding fathers did a magnificent job of constructing a governing document for the time and as a guide to future needs. But, can anyone really say that we should be bound by the original intent of the constitution, let alone only the original words of the constitution with all the water that has gone under the bridge since then? Certainly the safeguards enumerated in the Bill of Rights remain viable. But the commerce clause, privacy considerations, and the basic rules adopted for representative government could use a little updating and further definition.

One of the major problems encountered in governing is the remoteness of the people from those who represent them, primarily due to the overwhelming growth of our population and the dominance of political parties, which were never given a charter in the constitution. The gap has been filled by special interest groups who usurp the role of voters through the finance of political campaigns and mass media advertising in return for legislation to accommodate their special needs. There seems to now be a need to bring politicians closer to the voters they represent.

Having one representative for every 600,000 people hardly seems adequate. When was the last time you talked to one of your national representatives? Even the mail you send them is answered by auto responders, or if you’re lucky, a low level staffer. They are so well insulated from the average voter that only polls give them a sense of what voters want, and they are easily ignored without consequences.

It may be time for some form of tiered representation where the lowest unit of representation is small enough to where everyone can personally know the person they vote for, like on a precinct level. The representatives at any level would be elected by the representatives at the next lower level, who also know them personally, etc. This system would only have 3 or 4 levels of representation to cover the entire population. A prime minister would be picked at the top level to lead the making and enforcing of laws.

In addition to the formal government elected in this way, a ceremonial head of government would be elected by all the voters at large. His duties would be to meet with kings and other ceremonial heads of government around the world, go to scenes of catastrophe and sympathize with victims, go to holiday events and make rah-rah speeches, present awards to military heroes, citizens of the year and other personalities of achievement, go to press events and rally the country around causes, and generally do all the backslapping chores required by a population that worships celebrity.

This electoral system would be safeguarded by a recall process, where a representative at any level could be petitioned and recalled by a vote of all the people they represent. If they were recalled all the representatives who voted for them would also be recalled, all the way down the line. In this way, representatives would have a stake in picking the best people and would know the people they pick personally. A similar referendum process would allow petitioning and reversal of any piece of legislation by a vote of the people. If a piece of legislation was overturned by referendum, all those representatives voting for it would be automatically recalled, as well as all the people who voted for them, all the way down the line. This would ensure that only laws that the people supported would be implemented.

A similar initiative process would be available to petition and pass laws by a vote of the people. If a law was passed by initiative, all representatives would be recalled and new elections at every level held. This would ensure that representatives would pass and enforce laws that had the support of the people. A classic example needing this kind of attention today is the illegal immigration situation, where politicians refuse to deal with the problem because the money getting them elected and reelected is coming from people who don’t want the problem addresses while the majority considers it one of the most important problems that needs addressing.

It could be expected that these initiative and referendum processes would be seldom used because the system itself would be more responsive to voter sentiment.

People could still join interest groups or even political parties, but these groups would have no role in electoral process like they do now, where the two major parties are able to essentially exclude candidates that don’t belong to one of them by controlling participation in debates and press opportunities.

This is only one of many ways our constitution could be improved by taking advantage of what we have learned over the past 200 years. There is always fear of throwing the baby out with the bathwater in any attempt to modify a document that has served us fairly well for a long time. But, there comes a time when even valuable, almost sacred documents become out of date for the times.

Saturday, October 08, 2005

Curves along the Economic Road


When supply side economics became the vogue in the eighties, Arthur Laffer came up with the Laffer Curve to show that there was an overall tax rate which maximized tax revenue. There would be no tax collected if the rate was zero and if the rate was 100% no one would be interested in working so the revenue collected would again be zero. Somewhere in between a rate would exist which would result in the maximum tax revenue.

An analysis of government intervention in the free market would yield a similar curve, which we will call the Laugher Curve, since we would all be laughing instead of fighting if we could find the optimum point. Growth is increased by some government regulation of markets because it makes the markets more stable and prevents monopolies from developing. Some government regulation also promotes growth when it helps workers by promoting safe working conditions and stable employment. So growth increases as the degree of government intervention increases, up to a point, beyond which growth drops when the tax burden necessary to improve the lot of workers and regulate competition swamps its beneficial effects.

These trends are indicated in the following graphs, which are not meant to represent the actual data, because we don’t know at what percentage the peaks in the curves occur.

Supply siders always seem to assume that any tax rate cut is a good tax cut because it stimulates growth. But, this is only true if the current rate is beyond the peak of the Laffer Curve. Similarly, conservatives always seem to assume that any government intervention in the free market is too much, and liberals appear to assume the opposite, when in fact there is some degree of intervention that produces the maximum growth rate.

To further complicate the issue, even if we could determine the optimum percentage in each case we still might not have the best overall situation for the good of the country. Growth due to increases in productivity usually increases our overall standard of living, but not necessarily the standard of living of everyone. It is possible to have an increasing standard of living for a few people, while the majority tread water or backslide. To ensure an increasing standard of living for everyone, further government intervention is usually necessary to level the playing field by transferring benefits to those lower on the economic scale. This may result in lowering overall economic growth, while at the same time enhancing overall well being. A measure of this effect might be represented by the median per capita domestic product (MPCDP), rather than the gross domestic product (GDP). Comparing the solid and dashed Laugher Curves shows the trends. The peak of the MPCDP curve occurs at a higher rate of government intervention.

Unemployment can be addressed in a similar fashion. Low wages and no government assistance may result in the least unemployment and greatest GDP, but it won’t result in the greatest MPCDP, or overall well being of the population.

We need to get away from addressing prosperity only in terms of maximum GDP growth and lowest tax rates and try to determine what these curves actually look like if we want to minimize class warfare and promote the well being of the whole country.