Common Sense

GM AND ITS LOST LEADERSHIP

2007-04-25T20:26:00.000-04:00

Today it was announced that Toyota is now larger than GM. The "common theme" in the press is that GM lost its lead due to the high cost of health insurance, unions and other issues beyond its controls. The problem is that this hides the true source of a loss of market position, and that is its lack of leadership. When GM started giving away benefits to the unions just to avoid a strike, rather than bring the workforce into strategic alignment by using some form of gain sharing, thus aligning its needs with that of its workforce it took the easy way out and avoided demonstrating good leadership. When GM started making cars that fit the needs of the accountants in the 1970's, rather than the design and styling desired by its customers it was due to a lack of vision and leadership. When GM allowed an "acceptable number of defects" in its cars rather than be obsessive about quality, once again we have a lack of leadership. Like so many companies in America, GM was the victim of its own lack of management and courage. I always think of the cup holder and the ashtray when I think of GM. For years every GM car had an ashtray, but heaven help you if there was a cup holder or a trash container in the car. Clearly the old men at GM had forgotten to observe its customers or it would have seen 35 years ago that they had unmet needs and would abandon GM if it ignored them too long. And ultimately, they did!

DEFENSE POLICY

2007-04-24T21:58:00.001-04:00

Defense policy in this country is driven by two different strains. The first is the drive to make a new army that is all high tech and highly mobile in nature. The second one is the reality of the messiness of protracted battle in foreign lands. We need to recognize that even though we are the only super power left, we are not the only power in the world. The world of the future will have different points of leverage and conventional warfare will not be the only solution set we can draw upon.

In examining our armed forces we need to reduce the cost of conventional warfare that is not going to lead to direct preparedness. This means we need to look very carefully at large new programs like the latest fighter aircraft or new submarines. We cannot afford to deal with direct people to people warfare unless we equip ourselves with sufficient men and material to deal with the ground we have to conquer. We are no longer interested in subjugating a people group. This means that rather than attack and pillage, our aim is to constrain and educate. It is only with friends that are themselves safe from fear and consequence that we will eliminate the need to occupy those lands which are against us.

The modern world is a very small place. We have all of the technology to drive warfare, in the conventional sense, into a pattern of drones and remote controlled battle that eliminates the human risk of combat. However, war is not the aim, peace is the goal. Peace comes from changing the hearts and minds of those who attack us. This can best be accomplished by providing a strong offense while at the same time working to understand the world around us with which we must engage.

An example of this is the need to have a military that has diverse backgrounds in other cultures. Training the soldier to understand both the cultural needs and desires of the different people groups around the world, we will build within the military a better understanding of how deal with conflict and advise our political leaders. Too many times we have ignored the small events, The USS Cole for example, while not pushing for a complete success plan for large forays, such as Iraq with its plan for battle but no plan for peace.

This soldier of the future, an officer corps that has a bigger view of the world than our own politicians, must have a deeper understanding than just tactics and war plans. He must also have the kind of keen insight into his own political world that allowed Washington to maneuver against both the British crown as well as his own politicians who had no “national backbone” in the Continental Congress.

What I am calling for is to return the military from a reputation of politically astute turf battle players to an “elite” of officers that are both well educated in the art of war but also in the art of training up a people to be free. No battle plan should ever again be just that of conquering, but also that of governing.

FOREIGN RELATIONS

2007-04-24T21:56:00.000-04:00

Americans have largely been disinterested in foreign relations for most of our history. As a result we are a pitifully informed populace when it comes to how the rest of the world views the U.S. Our bent as a nation has been to leave foreign relations to the experts and not be concerned. The events of 9/11 have changed all of that. Now we must understand what our government is trying to do and how we are directly impacted by it. Though it would be nice to go back to the good old days, we now see that there never were any really good old days, just days that we were blind to what was going on in the world.

Just as we want “good” for our citizens, so we must also desire good for the rest of the world. Likewise, just as we recognize that man has inherent conflicts within himself with regard to good and evil, so must we see that governments are also a dichotomy in there desires and needs. So how do we proceed in the world?

If we use both the carrot and the stick, we would see that a balanced foreign policy must include recognition of the ways of man when he is unfettered and free. Let’s look at Iraq for example. Prior to the British putting Iraq It was obvious that once you overthrew the repressive Hussein regime that the groups would naturally revert to there prior state. This same reversion to prior ethnic groups occurred in Yugoslavia after the fall of the Soviet Union. together as a country they were three separate ethic groups.

Therefore we need to try and discern the natural pattern of the world if all peoples had free association and democratic input into there future. This is difficult to do but essential to understanding what directions we want to push diplomatic relations. If we discern the natural order of peoples, we will build lasting policies while taking in to account our own interests in the world.

If we recreated the events of post 9/11 we see other directions that might have made more sense while also taking into account our long term interests. For example, it is clear that the peoples of Afghanistan had a desire to be free as seen in the 20 year struggle with the USSR. However, there was also a struggle after the Taliban took over. If we had gone into this conflict with the understanding of there struggle, we might have a taken a different approach. Instead of focusing only on getting rid of the Taliban, we would have focused on setting up a massive investment into AfghanistanIraq. We could have made a very successful Islamic state in a small way in which we would have built a great reputation around the moderate Islamic world. infrastructure and avoided going into

It is unnatural for a people group to desire freedom when there very existence, in regard to their view of the world (including their religious views), are built upon a strong man principle. God ordains that there is to be government of all peoples, even if it is dictatorial in nature. For us to displace government with no government (chaos) is not only against the natural order of things, but it is a vacuum that cannot be tolerated in God’s ordering of the world. In Iraq, we did not create an environment for government but instead tried to replace a strong man with “no man”. The training of a people to understand and enjoy democracy requires that we do the heavy lifting of establishing an educated populace in the art of compromise and reconciliation. These cultural norms are not evident in the Islamic world and would have been more meaningful had we dealt with the initial elimination of the old regime by demonstrating justice through an equal distribution of wealth to all members of society. Further, had we kept the military intact and used them to rebuild both the infrastructure of the country as well as gather and destroy all arms, we would have shown the average Iraqi how to deal with members of all three cultures with dignity, not just distrust.

Our real aim should be to make friends with whom we can draw upon. To do this we need to look not only at our interests but the interest of those who desire to be free. It is impossible to know what we have to deal with at any given time but it is important that we know who we are and what friends we have made in the world.

ANTITRUST

2007-04-24T21:55:00.000-04:00

Antitrust legislation has tried to maintain a competitive environment in many businesses since the turn of the last century. This has worked in cycles but not consistently. We see business go out and buy companies for which they have no managerial expertise and then reduce them to a former shell of themselves.

The reason that this usually occurs is that business managers can tell investors that due to double taxation even if they only add modest value it is better than paying out returns in the form of dividends. If they acquire another company and it pays as well as there current business the acquisition will more than return the investment. What it ignores is that most acquisitions actually destroy value since it pushes the managers into businesses that they do not understand.

The solution is to eliminate double taxation of dividends. If all dividends were only taxable to investors and paid pre-tax by corporations, there would be no excuse to invest in businesses unless they could demonstrate there ability to increase value. This would lead to better decision making, less churn among businesses and more mergers and acquisitions that actually create value.

The economic pressures of the marketplace would keep business from buying companies in industries for which they had little expertise and allow them to destroy lives, towns and business services all in the name of “growing bigger”. Too often the financial raiders have had to step in to restore sanity to a business because the barrier to returning capital to the investors is so high. With the elimination of double taxation the “financial raiders” would have very little business because there would be no argument with the board of directors to returning income in the form of dividends.

IMMIGRATION

2007-04-24T21:54:00.000-04:00

Illegal immigration is an emotional issue because it makes Americans feel violated, like a robber has broken into our house. The way we deal with this issue is to think about what motivates people to come to this country. The two primary motivations we see are the desire for a better economic life and the ability to let there children grow up as American citizens. The way to avoid those motivations is to cut them off at the root.

The first motivation is economic. The way we eliminate hiring of illegal immigrants is to provide a severe penalty for those that hire them but with a safe harbor provisions to make it easy to comply with the law. We know that the most likely way to trace individuals is with a social security number. If we provided an on-line history of the prior five years social security earnings the employer could verify that data against the employment application. In addition the social security administration could alert all employers where they receive double payments for the same number. This could allow investigation into potential stolen numbers. Currently most employers either ignore the law or do there required investigation but then the government turns a blind eye. The government has an incentive to ignore illegal contributions for benefits that they know they will not need to pay out so they can help keep the current system solvent.

It is far too easy for the Federal government to collect revenue with no expense while the State and Local governments pay out benefits for which they receive no compensation. To break this cycle we need to have the government start putting the rights of citizen’s first and not economic greed.

A good guest worker program will allow employers to sponsor brining in workers for specific needs, but they would be economically liable for there leaving at the end of the period. If the employer posted a $10,000 bond for workers that did not leave at the end of 3 years, then the employer would have an incentive to make sure that there was compliance with the law.

The second change is we should only allow children of citizens be allowed to have automatic citizenship. If the parents cannot demonstrate valid citizenship then the children will be denied citizenship. This eliminates one of the primary reasons for immigration.

The current approach of letting poor immigrants in while simultaneously limiting access by well educated immigrants is upside down. We should be encouraging well trained immigrants and discouraging the un-educated. This bias against the well educated is rooted in a “slave” mentality of believing that we need lots of low wage workers wile protecting our college bound. Wealth, the engine that drives economic growth, is a result of the creation of new goods and services. Those are not created primarily by the poor but instead by the well educated. If we are to increase wealth in this country we need to have the types of individuals that will be willing to relocate to pursue there dreams.

Building a fence, while politically popular is just a boondoggle. We should use the best surveillance and protection we can, we should not believe that this will stop immigration – only stopping the reasons that immigrants come here will we stop the flow.

ENERGY POLICY

2007-04-24T21:53:00.000-04:00

Energy policy is one that seems so simple to the common man but is filled with years of bowing to powerful special interest groups. It is commonly agreed that we do not desire to be hostage to foreign entities for our basic energy supplies and likewise we do want low cost and low environmental impact. The key to getting an energy policy that makes sense is to admit that we must get the special interests out of the ball game and provide a level playing field for those energy sources that can best provide for both of our needs.

The first step is to develop an environmental policy like the one described previously. This would let consumers of energy understand the true cost of energy and its life cycle impact on our planet. The second step is to put a tax on foreign energy that would fund the development of local energy supplies. I believe that a BTU tax (since this allows us to compare different types of energy) tied directly to the importation of foreign energy would be used to fund direct investment tax credits for new domestic supplies of energy.

For example, if we taxed imported oil and used that to finance an Energy Fund (similar to the Highway Trust Fund) that could provide credits to domestic suppliers of energy; we would only finance the fund as long as we continued to import oil. As our imports diminished we naturally need less subsidy of domestic production and thus collect less tax revenue. Further, if we successfully develop new technologies like clean coal, then we can start exporting those technologies to other countries.

Likewise, as we pass these higher costs on to consumers of energy, they would have an economic incentive to move to locally produced energy sources. Further, conservation would be promoted since that would not incur any new energy requirements, but also those credits could be sold for avoiding consumption. This creation of new trading credits puts money directly in the pocket of the consumer allowing him to benefit from his own energy (and pollution) saving activities.

The question of how to direct the Energy Fund investments should be determined by those potential energy sources with the lowest direct impact on society. For example, direct conversion of sunlight to electricity through photovoltaic cells only hurts the society to the degree that the product manufacturing process has an impact. The energy produced releases no new pollutants. Thus this would be a favored technology versus improvements in conventional coal fired boiler technology. Direct conversion of solar produced electricity to hydrogen would be a natural since there is no environmental impact in either the conversion or distribution of energy.

Further, this fund could promote those infrastructure changes that would be needed to move society to lower impact technologies. We could fund the development of hydrogen burning buses and thus create the initial refueling infrastructure in a city for hydrogen distribution. We could add inner city trucks and other local transportation until we had developed an infrastructure that was low impact to our energy and environmental concerns.

THE ENVIRONMENT

2007-04-24T21:45:00.000-04:00

The environment is an ideal example of providing for the common good. The environment does not distinguish if the people breathing the air or drinking the water are rich, poor, white, black, male or female. Therefore, it is strictly in our common good to provide for the environment to the benefit of all. The key issue is what standard do we apply and what are we willing to pay for?

The missing part of our current policies is we apply unequal treatment to each form of pollution based on political clout. For example, power plants built 30 years ago that have not had a major renovation are allowed to pollute more than newly built plants. If we required all plants to meet the same pollution standards, we eliminate the distortion in the marketplace for power cost versus pollution. The correct policy is to make all polluters pay equally and eliminate distortion in the marketplace.

The solution to the dilemma is to make polluters pay for there pollution impact through domestic trading credits. First, we measure a zero baseline and then set a standard that is tightened periodically as technology permits. Next we require all pollution creators to offset there pollution by purchasing pollution trading credits through an open marketplace. This way there is a limit on pollution without any additional revenue to the treasury and a free market for good ideas.

The key to the implementation is to have all source providers purchase the trading credits. This will include fuel providers (natural gas, gasoline, diesel), electricity providers (power companies), and manufacturers (furniture, cars, cosmetics – anything with an environmental footprint). By going to source providers, you make sure it is early enough in the chain so that down stream players (such as airlines that provide a service) will make financial decisions based on the total cost of the product and its environmental footprint. This should include even the cost of waste disposal for nuclear. That way all products have there total life cycle cost without the government passing hard and fast rules about how you handle pollution but only focus on the results desired. This lets the free market determine the how that makes sense.

An example of the desired results would be to have those products that go to land fills but do not bio-degrade pay a higher penalty than those products that do bio-degrade. This would drive producers to use more bio-degradable packaging and provide more methane off gassing which can be used to fuel power sources versus inert plastics that will never degrade.

To make sure that we did not have a loop hole in our environmental strategy, we should impose tariffs’ to normalize the cost of avoided pollution laws. If a product was made in China that created pollution above what was required here, we make the importer buy pollution offset credits just like we would for a domestic manufacturer. This means that they may gain an advantage through lower wages, but not through lower pollution laws. The environment will not be polluted on our account and since those pollution credits are for domestic reduction, we gain a cleaner environment at there expense.

HEALTHCARE SOLUTIONS

2007-04-24T21:44:00.000-04:00

Healthcare in America is a puzzle that is an accumulation of many historical decisions. The development of employer paid healthcare was due to price controls during WWII in which competition for employees via wage differences was not allowed. Thus employers started to use employee benefits to substitute for wages. During the 1960’s the government could not get retirees to enroll in Medicare so they made it illegal for retirees to have primary insurance other than Medicare. These two events separated the user from the providers of healthcare.

Today we only speak of deductibles and how much we must pay for out of pocket expense with no regard to the total cost of healthcare. With the goal of reconnecting the user to the cost of the service, we regain decision making in healthcare that is driven by a cost benefit calculation. Is it not better to have each individual make a decision as to what cost he places on what benefit?

If we broke down the problem into two parts, catastrophic health care coverage and primary coverage, the problem is much more solvable. The cost of healthcare is broken down into 2 major categories: catastrophic health care and normal preventative & day to day health care of routine sickness. The uncertainty that most families face is catastrophic health care. That is why the government should make it mandatory that all citizens have catastrophic coverage with a very high deductible. A deductible of $10,000 or so would be high enough to make the cost relatively low. For those that fail to procure such coverage it could be paid through a tax. For the low income they would be provided with the same basic coverage as those who fail to procure coverage.

Since we already have said that all benefits from employers would be taxable income, there is no reason to buy healthcare from your employer. To insure that there were no inequalities in the insurance marketplace it would be illegal to charge different amounts to those who bought policies individually versus from groups. In addition, there would be a requirement that all healthcare providers charge the same for the same services.

These three changes would produce totally different outcomes than under today’s system. For instance, with all employers paying cash instead of benefits, a dual income couple would choose to get only one policy, not dual dip. Further because each employee would be buying coverage outside of there employer, they would be able to choose the correct policy for there needs and not be hostage to the “company” plan. An example of these differences would be a family with children may want good preventative care while a young single person might only desire the lowest cost. These types of decisions lead to better shaping of needs to coverage.

Under the current setup, health care insurers might charge an individual many times the cost they offer for a group policy. This leads to the “lucky” few having better choices because they belong to a “better group”. This inequality would be eliminated if all insurers were forced to sell the same coverage for the same price regardless of affiliation. It would also be a good idea to require that all employers offer payroll deduction for third party benefits. Likewise, the federal government should also allow all employees to pick there health care coverage just like private industry. This would eliminate any difference between governmental and private employers, thus insuring fairness in legislation.

Finally, with all providers charging the same for the same services we eliminate the current state of affairs where the poor pay substantially more for services than the fully insured. Typically the fully insured might pay as little as 50 cents on the dollar versus the poor who are charged full price. With all comers being charged the same, then there is no discrimination due to method of payment. With all citizens covered for catastrophic expense, hospitals will not carry a disproportionate financial burden.

Buy keeping healthcare private, we avoid the types of distortions we see in today’s marketplace. When Medicare was first passed we had far more general practitioners than we do today. One of the reasons is that for the same office visit the government originally paid more based on there medical degree. Therefore we had an internist being paid more than a general practitioner for the same services. This caused many more doctors to pursue advanced degree regardless of demand. It also gets the government out of the business of deciding what coverage should be available to which citizens. We already pay for the low income to have health care coverage; we now just allow them to pick and choose with there limited government provided resources which ones are most important to them.

Some people will decide to take out a policy for routine preventative and sickness care. Others may choose to pay out of pocket. Some may choose to be partially insured for sickness but pay cash for preventative care. In all situations, the decision being made is not distorted by place of employment, self employed versus employer paid, or private versus public care.

EFFECTIVE EDUCATION

2007-04-24T21:43:00.000-04:00

Education is one of the unifying elements of society. It is not unifying because of a strict repetitive mantra, as is common in communist regimes, but instead because it creates a populace that is able to discuss, reason and compromise rather than resort to settlement of disputes by the sword. The foundation must be one of personal self government, but without knowledge to eliminate fears and fallacies, there is no basis for discussion between peoples. How do we achieve this desired result?

Universal education was not the case with our founding fathers. They were largely self-taught in home schools or through tutors or the church. The foundation was the role of the parents to insure that there child received enough education to achieve whatever desired role they wished to guide there child towards. Yet, with the rise of industrialization, came the misnomer “public schools”.

What we are really discussing is Government Schools. These schools have several severe limitations. The first is the removal of the parents from responsibility of raising our children. We have turned over to the government the responsibility for not only the 3 R’s, but also the teaching of civics, responsibility, personal behavior and the host of other character traits that make one a model citizen.

The second disadvantage is the inability to deal with children whose learning styles are outside the normal bell curve. A child who has a learning style that is either accelerated or behind the normal pace of learning is left to fend for himself. Often that child is either bored or struggling with insufficient tools to stay involved with the program.

The third limitation is the inability to tie education to desired outcome. This is clearly understood when you look at the non-correlating nature of expenditure per pupil to test scores. Money, by itself, is not a good predictor of educational success. What is a good predictor is adult, usually parental, expectation. This is why we see children from low, moderate and high income backgrounds excel while children from the same backgrounds also fail. The attention a child receives is more of an indicator of success than teacher certification, dollars spent, hours in class, etc.

Therefore, the first principle needed to improve education in America is that we restore the parents as the primary decision maker in selecting the educational path of our children. The old adage that “there is nothing like a mother’s love” is not only true, but one of the cornerstones of finding those adults that can provide the nurturing, training, discipline and guidance that children need to become successful adults. There are many proposals that could accomplish this goal. The underlying issue however is always the cost burden of education borne by the average parent. We have seen in the past that private schools can provide a quality education for a reasonable price. The Catholic Church has successfully run parochial schools in this country for years and delivered a competitive education at a reasonable cost. The issue is how to give parents the ability to select those alternative educational opportunities in our varied society.

The two principles I believe will solve our dilemma are to first, put the parents in charge and second, return to local control over education. If we go to the store we find dozens of different types of tooth paste. The reason is that we have different needs and desires. Likewise we need to offer as many opportunities as possible to meet the varied and diverse needs of our children. Why offer only one way?

The easiest way to do this is to recognize that the variable cost of teaching a child is usually about 50% of the total cost of educating a child. With that we can do what we have done for years with disabled children, pay others to handle those outside the normal learning environment. Thus, if we offered every parent a voucher equal to 50% of the funding of education and allowed that money to be used at any educational institution, whether public, private or home schooled, we would bring the parent back into the decision making process and allow specialization of the process around the needs of our children.

For the public schools, because they have the other 50% to spend for overhead, we do not penalize the schools if children decide to go elsewhere. However, with competition each principle must decide what educational plan they will offer and attract based on competence of educational experience and not governmental fiat. This degree of competition gives each educator the opportunity to compete based on the services that they can best provide and not get muddled in the “every thing for every body” syndrome.

For private schools the only limitation is that the money not be used for direct religious training. It can still be used for reading, writing, arithmetic, etc. If it was in the form of a voucher then it can be used by parents to pay part or all of the tuition of a private school. For home school parents it could be used to pay for books, tutors or other qualified education materials.

Theses diverse needs start with the recognition that local control will give each parent the input to the public school offerings with a greater voice. One of the unfortunate observations of most southern school systems is that they are county based and therefore too large for parents to have much influence. While most of the northern school systems are city based and thus much more able to have parental involvement. Likewise, I believe the federal government needs to get out of local education so that the states can focus on administering more effective programs.

Ideally I would like to see the smallest population we can maintain and still providing the physical facilities. Hewlett Packard used to have the rule that no factory should be over 250 associates. This because much larger than that and one person cannot remember all of the individual names and thus treat each person as a valuable member of the team. Likewise, we need smaller schools, not larger ones.

FAIRNESS IN TAXATION

2007-04-24T21:13:00.000-04:00

“Why do I begin with taxation?” probably because that is where this country started. We focused, as a fledgling nation, on the issue of taxation without representation. Taxation was, and still is, a basic issue of fairness to drive us to a common goal as a people.

The role of taxation is to provide for the common good through the collective contribution by society. Normally we focus on taxation as being compulsory. However, if taxation is to be effective in causing us as a people to bring about a society that values its collective needs and responsibility, then every citizen must see taxation as a provision we all support to lead us to a common good.

If we focus first on the common good, then the collective contribution becomes fairly easy to solve. However, most of the time we focus on the “collective contribution” rather than the motivation behind having taxes in the first place. The common good is properly identified as those areas whereby government can assume a large degree of similar motivations that call to our basic needs for collective action to be successful. The common good, being broad based, would lead us to correctly identify sources of revenue as one in which all Americans are expected to contribute. Taxes to support our military, court system, and general government operations are good examples of what is a common good. We all agree that without these basic services, we as a nation would not function as a single country. The principle that we should have a common tax for supporting the common good is a foundation of fair taxation.

The second area of consideration is where we have a specific good that the government feels comes under the general commerce clause of the constitution or other areas that require us to identify the specific need and how to fill it. The U.S. Highway System is a simple example of where we have a strong collective will to share the benefit of a road system that ties all of the states and major cities together for increased commerce, safety and freedom of movement.

If we had instead focused on the “gasoline tax” before we recognized a specific good then there would have been, most likely, severe opposition to such as momentous a task as the forty year effort to build our modern highway system. Once it was agreed that a common benefit was to be provided, then we just had to decide how to tax ourselves to pay for this good.

It was decided, in what I considered a brilliant move, to tax fuel since virtually all of the vehicles on the highway would be benefiting from the highway system. This tied the benefit reasonably well to the consumer of the good, and thus the cost for that benefit. This principle, to charge the consumer of the governmental service for the benefit provided, is the first step in correctly identifying how to tax for specific services fairly.

Though we will always have a need for taxing the public for the general welfare of the nation for defense, the courts and general operation of the government, we should try as much as possible to charge for those services that can be traced to a specific group of users. Examples would include the cost of entrance into parks to fully charging for any natural resources provided to private companies.

These two principles will be the basis for further discussion in how we should tax ourselves. Let us turn to taxation in general. As a nation founded upon the idea that men are equal before the law, the tax code is the most capricious and unequal law that we have yet devised. It segregates us based on income, influence, industry, social structure, age and even with whom we associate. Therefore, it has lost much of its validity in promoting a society that will treat each person justly and fairly. Furthermore, it has reached so heavily in to our lives that it causes great resentment between fellow citizens and thus can lead to extreme selfishness and ultimately promotes social disintegration.

Let us now look at taxes for the common good. Broad based taxes generally come in two forms. The first is a form of consumption tax. A national sales tax would be a prime example. The sales tax is appealing because it allows us to have a simple and convenient way to collect taxes and avoids direct interaction with the electorate. However, it is a bad tax for at least two fundamental reasons.

Let me give an example of how it is applied differently than an income tax to show the lack of fairness. An income tax is based upon the idea of a common tax applied over a common time period. Ideally the only fair income tax is a flat tax. God deemed that every one should pay a flat tax so that each person is taxed according to what each was given. Thus, as a percentage of income it was levied on all peoples (full participation) but still in proportion to the ability to pay.

In our example let us assume two individuals with an income of $100,000 and $10 million in income. Let us assume either a flat income tax of 15% and standard deduction of $20,000 or a sales tax of 15%. The person with the lower income spends 80% of his income while the wealthier person spends 20% of his income. The tax burden on each would be as follows:

Sales Tax

1. $100,000 income X 80% spending X 15% sales tax = $12,000 in tax or 12% effective tax rate.

2. $10 million income X 20% spending X 15% sales tax = $300,000 in tax or 3% effective tax rate.

Income Tax

3. ($100,000 income - $20,000 deduction) X 15% income tax = $12,000 in tax or 12% effective tax rate.

4. ($10 million income - $20,000 deduction) X 15% income tax = $1,497,000 in tax or 14.97% effective tax rate.

Clearly, under 1 and 3 the family with the lower income pays the same tax. However, the very wealthy pay very little tax under the sales tax proposal (2) and will not pay tax on those earnings until either he chooses to spend more money or he dies and any untaxed income will be subject to some sort of “death tax”. In either case, the principle that “taxes are owed when income is earned” would be violated under a consumption tax proposal.

Further, when we have deductions that are a function of specific working capabilities we are discriminating against our fellow citizens. If you are self employed and you contribute to a retirement account, it is entirely self funded. However, if you are employed by a company, contributions to you can be tax deductible and not recognized as income. This is what causes the great distortion in private health insurance. Those companies that provide and pay for a portion of health insurance are giving a tax free benefit while self employed persons must pay with after tax dollars. Discrimination, whether in race or money, is still wrong.

A fair tax proposal would be like the following:

1. A flat single tax rate. Experts expect this to be between 15% and 20%.

2. A single deduction for each household based upon the published poverty rate. Tying taxes to income above poverty makes more sense than to tie it to income above an arbitrary indexed number. I would propose that this be set at 2.5 times the poverty rate, adjusted annually for changes in the cost of living. For a family of four the current poverty rate is about $16,000 so 2.5 times that rate would be a deduction of $40,000. For a single person this would be about $24,000.

3. No other deduction except for catastrophic loss above 50% of income. This could cover illness, natural disasters, etc.

This would be fair, understandable and easy to monitor. We would abolish all deferred income plans, all delaying of taxes due to distortion of who could save for retirement, etc. There would be no need for expensive attorneys to implement trusts or deal with inheritance taxes because all taxes are due when the income is earned. The only issue is what to do when appreciated property is passed on to another generation. In that case the principle is quite simple; the persons receiving the property must take it at the original basis. Thus when it is turned into income through sale or disposition, tax will be due on the previously untaxed income.

Let us say that a couple has purchased a farm for $100,000. At the end of 10 years the couple dies and passes the estate on to their daughter. She operates the farm for 20 more years and then sells it. If she sold the farm for $2 million, then her tax would be calculated as follows:

($2 million sale price - $100,000 basis) X 15% tax rate = $285,000 in taxes.

The issues this would solve are extensive. Let us look at the impact this would have on society. A list of a few advantages is:

1. Since all income is taxed and no one can have income paid for by there company without recognizing the benefit as taxable income, there is a completely level playing field between self employed and corporately employed individuals. This could dramatically alter the landscape with respect to insurance, retirement, etc. It would give incentive to employers to stop trying to provide benefits that are of little value to some and of greater value to others and instead let each person purchase those benefits either through or outside of the employer. I will discuss this in more depth later. Suffice it to say that we would finally give individuals the ability to leave an employer without fear if they knew that they were not bound by a benefit that they could not get elsewhere.

2. Subsidies that favor some industries over others would be eliminated. Such examples are foreign export subsidies that benefit a few corporations and the oil depletion allowance. The oil depletion allowance is an especially troubling tax credit because it has no basis in real economic benefit to anyone except as a way to avoid taxes. If congress chose to give a benefit to a particular industry rather than give a hidden benefit through a targeted tax reduction, they would have to appropriate the money and write a check from the U.S. Treasury. The use of tax credits over the years to provide special incentive to specific organizations has been one of the most abused forms of power we have ever seen. Congress has refused to recognize that the general principle of only providing specific benefits when there is a clear and compelling reason to fulfill one of there constitutionally mandated responsibilities is one of the reasons we read about scandals involving lobbyists. Congress should be required to be transparent and only grant benefits that impact less than 50% of the population by direct grants from the Federal Treasury. This exposure to the light of specific expenditures would allow for both transparent government and accountability for the “pork” currently doled out through creative tax benefits.

3. Elimination of the enormous burden on both the Internal Revenue Service to create extensive regulations and the taxpayer to pay high priced experts to try and work through the thousands upon thousand of pages of special legislation in our tax code.

4. A perception of fairness that would eliminate the continual discord between parts of the population, thus creating social discord. Why should a couple, in there peak earnings years immediately prior to retirement and when they are most focused on saving money, be subject to twice the income tax rate of a very wealthy who have billions? This polarizing and destructive force in our society is great for driving the political parties but terrible for creating a social fabric in which we all pull together to deal with the truly pressing moral, social and economic issues of our day.

5. A simple tax that would allow both corporations and individuals to plan for the future with some degree of confidence as to how they should handle there affairs. Today we have all sorts of extra burden to keep up with the passing fancy of lawmakers to add or reduce taxes.

One issue that routinely comes up is how we would redefine income and measure it during the transition period. I think it could be done quite simply with a few simple rules.

All income would immediately become taxable at the time of implementation of a flat tax. To avoid company’s from reducing an employee’s take home income, all prior non-deductible or company paid expense would need to be added to the employee’s income with penalty of jail time for defrauding the public. For example, an employee might see the following changes on his pay stub.

1. Prior to conversion

a. Income $2,000

b. Employer paid Social Security $ 150

c. Employee paid Social Security $ 150

d. Take home pay before tax $1,850

2. After conversion

a. Income $2,150

b. Employee paid Social Security $ 300

c. Take home pay $1,850

Of course there would be a change in tax rates since now all income would be taxable. This plus the change due to other tax reforms covered later could make the tax landscape so simple that there would be no inherent unfairness due to having a “brilliant” tax advisor that could find all of the loop holes. Confidence in the system would be restored.

We consolidate all special treatment tax accounts into a lifetime savings account. One objection to a flat tax is that there is no deduction fro retirement income, college, etc. This is quite simple, instead of allowing folks to save pre-tax, we would allow them to save with no future taxes on there earnings. Thus, just like the ROTH IRA, all dollars contributed would be after tax but all withdrawals would be tax free up to a certain limit. There should be no income test with this single lifetime savings account. The tax free withdrawal should be limited to a cap of $1 million gain, indexed to inflation. By example we might have an individual contribute $10,000 per year for 40 years. At the end of 40 years they have an account worth $2.0 million. They could withdraw the principle of $400,000 tax free since that was put in with after tax dollars. Then they could withdraw another $1 million tax free. The remaining $600,000 would be taxed at the normal tax rate.

This proposal eliminates a number of issues with the current mix of accounts available today. First, there is no income test so self employed individuals who do not bring home an income would not be penalized. My wife spent 16 years home schooling our children but was denied the right to set aside the same amount of income in an IRA than she would have been able to set aside if she qualified for a 401K plan. This discrimination meant she will be denied the same ability to retire even though she saved the public school districts hundreds of thousands of dollars in teaching our children.

Second, by having one account, individuals could avoid lots of small accounts, each with various fees, which keep the small saver from getting ahead. Just the basic IRA fee of $15 could have a cumulative effect of being worth several thousand dollars over a working career, much less for other accounts such as 529 plans, etc.

Third, by placing a maximum on the amount of tax free withdrawal, indexed to inflation, there is fairness between individuals regardless of when they earned there income. Today we cap the amount of savings on a per year basis. However, life is not a simple straight line. It is complicated and messy. Some years you get a good bonus and others you are scraping by with the payments. By allowing merely a lifetime maximum of tax free withdrawal, you eliminate the penalty towards those whose income is unpredictable, such as in sales or other profession where there income is more entrepreneurial.

Fourth, all income is treated the same. There are no classifications like “long term capital gains” that allows the wealthy to pay a lower tax while penalizing the basic wage income earner. One of the most oppressive aspects of our current tax system is that when a couple are in there peak earning years, usually in there 50’s, they often are paying a tax rate over twice that of the super wealthy. We all know that the very wealthy can afford to invest for there earnings and thus can derive the vast portion of there income from capital gains. Thus the very wealthy will pay 15% while the higher earning person in the last few years of his working career is often paying a marginal tax rate of 35%. It has been said that we need the 15% tax rate to induce individuals to invest in new business ventures. This has been shown to be absolute baloney! When Bill Gates started Microsoft, the marginal tax rate was substantially higher than 15% and yet he still co-founded his company. Good ideas, not tax policy, create wealth. This unfair treatment of wage earners is one of the prime reason no one trusts Washington, it is a den of thieves and liars from both sides of the aisle!

KEEPING OUR INDIVIDUALTY

2007-04-24T21:11:00.000-04:00

Individuality is core to God’s view of man. God tells us that he knows even the numbers of hairs upon our head. Further he tells us that we are his sons and daughters. How personal is a relationship that even the most mundane of details is important? Is this not like the intimacy between husband and wife? Does this not show that God views us as unique creatures with aspirations and goals specific to our time and place?

The need to treat every one individually is both the cornerstone of our democracy and the key to “fairness before the law”. Justice, which calls for blindness to mans differences before the law, allows us to know that both the law is not capricious and that no man is above the law. It is this very foundation of equality in treatment that allows each man to be an individual and to pursue his life as he sees fit. Without the fear of those powers above oneself, one can pursue those talents, goals, and passions that make us unique.

God intended that each man have life and to have it more abundantly. This abundance is found in the knowledge of our unique gifting and freedom to pursue it. As we hold each other up to find what God intends for us to discover, we also create an environment whereby we can afford to let others flourish. Fear, the restraining of individuality, is what holds both societies and individuals from developing all that God intended.

Thus, societies, governments and institutions that do not value the individual will ultimately fail because they suppress those relationships which are built on the strengths of each member. One of the greatest institutions to understand this dichotomy is the Unites States Marine Corps. They see that a team, to be effective, must be built of many different skills and talents and yet function as one body. The grueling nature of there training is to not only coordinate activities, but to build respect between the members of the team for the high value that all members of the team play in carrying out there mission regardless of rank or function. That is why “no man left behind” is critical to the cohesiveness of the unit. It says that all men, though not equal in talent, are equal in inherent value to the unit. Likewise, I see that each person must be valued as a member of society, not for there equal contribution, but equality in value to society.

As soon as society distinguishes between persons based on value of contribution, there comes into play the inherent likelihood that societal members will begin to view contribution in concrete terms like income, wealth or power, and discard values like compassion, helping of others or knowledge. We cannot stop society from these thoughts personally, but we can avoid institutionalizing these thoughts in government by using principles, as found in our constitution, that ensure equal treatment before the law.

THE ISSUE OF FAIRNESS

2007-04-24T21:07:00.000-04:00

One definition of fairness is the “ability to make judgments free from discrimination or dishonesty”. This implies that each decision should be focused on the specifics of the particular situation and not be distorted by outside influences. This lack of distortion would allow many of our most difficult moral, ethical, political, social and business issues to be solved relatively easily and without major trauma.

The purpose of this document is to explore ways in which we can use some common sense and logical thinking to gain the greatest advantage for the greatest number of people. If we are ever to provide widespread prosperity for the folks in this country, we need to allow them to not only help themselves but have the motivation to take seriously there role in governing themselves. Self government, the basis for all government, is the key to freeing people from the tyranny of politics. Furthermore, it returns respect to the common man by allowing him to make good decisions when provided a fair and just environment in which to make those decisions. Justice, the act of treating all equal before the law, is the second part of fairness. For without justice, there is no ability to make judgment free from discrimination. Governmental law, as God’s implementer of justice, is the human foundation upon which the believer and non-believer alike are to find societal support for fairness.

This book contains a series of reviews on specific issues, all illustrating the role of justice and fairness as the key principle to solving specific real thorny problems in this country. I believe that through illustration one can begin to see that most issues, rather than being “complex and above the common man”, are really quite easy to solve given a level playing field and access to all of the facts.

THE BIG IDEA

2007-04-24T21:04:00.000-04:00

All politicians search for The Big Idea so they can promote a vision around there candidacy, capture the public’s imagination and get elected. The problem with this is that The Big Idea has been reduced to what can be presented in 30 seconds on a TV spot. I agree that every man needs a vision, and that The Big Idea is a way to usefully communicate with the voting population, but more importantly is that the ideas we build our dreams upon fit with the nature and character of man.

The Big Idea in this writing is that man inherently wants to pursue constructive, creative pursuits but must be checked against greed and selfishness through restrained government and competitive forces. This may seem contradictory but it is recognizing the inherent conflict in man between good and evil. The basis of this platform then is how to release the inherent creativity and constructive pursuits of man while at the same time providing a boundary of civilized society through some minimal government regulation and the invisible hand of competitive forces.

The basic platform consists of laying the ground work of society and government roles by examining specific issues in our time. These issues are:

Fairness
Individuality
Tax Policy
Education Policy
Healthcare Policy
The Environment
Energy Policy
Immigration
Anti-trust
Foreign Relations
Defense Policy