“Shame on You, Grandpa!”

The rush to cut taxes and increase the deficit simply to please major partisan donors by adding more profit to businesses that have reported record profits for the past 5 years, and shift the cost to future generations, is the most unpatriotic policy I’ve seen in my lifetime.  If passed, this generation will be the first one in my lifetime of almost 70 years to put their own self-interests above the interests of future generations, and we will deserve the shameful scorn from the generation of Americans in the second half of this century. 

I can imagine our grandchildren making the following statements about our generation:

·        Shame on you for failing to sacrifice during your life to help make the lives of future Americans better than yours; 

·        Shame on you for passing the debt you created from the tax cuts of the 1980’s through the late 2010’s, culminating in the tax cuts of 2018, onto our generation;

·        Shame on you for adding to existing debt in 2018 instead of taking responsibility to pay down that debt and make sure you would not pass it on to future generations; 

·        Shame on you for putting the future economic security of the country at risk during our generation, a country you claimed to love deeply in your lifetime, while choosing not act responsibly to protect the country from serious economic risk in the future. 

Every generation of Americans, beginning with our Founding Fathers in the days before we were a county, has sacrificed some of their own quality of life in order to ensure a better quality of life for future generations. Our generation has benefited greatly from the sacrifices of our grandparents’ generation, who have rightly been called “The Greatest Generation”.  Not only did they make great sacrifices to secure a lasting peace during and after World War II, but when they returned home, they continued to act to ensure greater security for our country and future generations … ours.  

So I am wondering what is causing our generation to act with so much self-centered interest in the past 38 years, to focus only on our own needs of the day, to put our future economic security at risk, and to ignore the example of our grandparents’ generation?  When they returned home from World War II, you could not blame them for saying, now it’s my turn.  But, they continued to focus on ensuring the economic security of the country and quality of life for future generations ahead of their own short term needs.

Lessons to Learn From The “Greatest Generation”

Here’s an overview of their selfless and inspiring actions.  From 1950 to 1963, they set the top personal tax rate at 91% and business tax rates were 50%.  Can you even imagine even half that tax rate being considered today?  This obviously required sacrifice by individuals in the country, but those tax rates provided the revenues for several key actions that greatly benefited the country:

1.  Pay down World War II debt and not pass that on to our generation;

2.  Fund a new transportation infrastructure, the interstate highway system, which has been the backbone of our economic growth and personal quality of life over the past 50 years, without passing on debt to our generation;

3.  Pay for sending about 4 million veterans of WW II to college, providing a large educated workforce to support economic growth, again without passing debt on to our generation;

4.  Provide funds to help rebuild the economies destroyed by WW II, in Europe and Japan, of both our Allies and our Enemies, leveraging the learning from the rise of fascism out of the destroyed economies of WW I, a key part of how their generation helped create a largely peaceful/non-violent world for nearly 60 years.

Deficits Rise From Revenue Cuts 

The annual deficits were quite small from 1950 through 1980, with tax rates declining from a high of 91% in the first decade to 50% in 1980.  The progression of top tax rate cuts over time since the end of WW II have dropped from a high of 91%-92% during 1950-1963, to a low of 28% in 1988-1989. Tax rates were raised in 1993 to help reduce growing deficits following tax cuts in the 1980's, then were cut in 2003 to 35%, but raised again for deficit reduction purposes to 39.6% in 2013.   

As shown in the above chart, annual deficits started rising with the tax cuts of the 1980’s as tax rates were cut to 50% and then to 28%, while military spending increased dramatically.  It was “projected” at the time that the lower tax rates would pay for the extra spending, without the need to raise tax rates to pay for the increased spending.  This projection did not turn out to be what resulted, and deficits grew substantially.  So by the late 1990’s, bi-partisan action was taken to reduce the annual deficits by enacting a small reduction in spending and a small increase in tax rates to 39.6%, resulting in small budget surpluses in 1999-2000.

Dramatic Deficit Growth Since 2001

Beginning in 2001, spending increased due to the Iraq war spending, which was not funded by raising revenues via tax rates, but by increasing the deficit, were followed by cutting taxes on 2003.  Once again, these tax cuts were “projected” to grow the economy and offset the extra spending.  But once again, this projection did not happen and annual deficits in 2001-2008 increased dramatically.

The actions taken by business after the 2003 tax cuts, and their impact on the economy, incomes, the deficit and stock buy backs, is clear.  Most of the profits were used to buy back stocks, increasing stock prices above that deserved by earnings, and contributed to the severity of the market collapse and recession of 2009-2010.  In 2009, the economy suffered the collapse of housing prices, at a time when the profits from the 2003 tax cuts were being invested not in building the economy or growing incomes, but in buying back stock and increasing executive compensation.  This created a bubble in stock prices which also collapsed when the housing prices collapsed.  The deficit, as shown above, grew dramatically, the economy continued to experience slow growth before and after the largest recession since 1929, and incomes remained flat or declining slowly.

Why haven’t these tax cuts over the past 30 years grown the economy?  They have always fueled increases in company profits, but because the profits were used to buy back stock, to the level of Trillions of dollars from 2003-2008, and middle class incomes were declining, the economy did not grow. The fact is, economic growth is measured in GDP, which is not driven by profits, it is driven 70% by middle class spending, which requires increases in middle class incomes.  So unless worker incomes are rising consistently, it will be nearly impossible for the economy to grow consistently.  Simply stated, it should be the single most important factor in any economic growth policy that will work.

Following the 2009-2010 mortgage and stock market collapses and the accompanying deep recession and job losses, annual deficits skyrocketed further.  Revenues dropped and spending increased to fund a recovery of the financial industry combined to contribute to that result.  Profits have soared since 2011, reaching annual record levels every year in each of the past 5 years.  Along with these profits, stock buy backs and executive compensation have also soared, sending stock market prices to new records nearly every year.  However, because middle class incomes continued to decline throughout the last 18 years until 2016, the economy has consistently suffered from slow growth even in periods of sustained record profits.  And annual deficits, while declining from the 2009 level, have remained at nearly historically high levels compared to those before the recession.

Tax Reforms Needed

So now there is a proposal to cut taxes further, which is forecasted to increase economic growth, create more high paying jobs and increase worker incomes.  But the current tax policy does not leverage the facts of economic growth or the history or actual results of past tax cuts over the past 30 years, nor is it focused on directly increasing worker incomes.  Instead we are repeating the focus on cutting revenues and taxes and “projecting” strong economic growth to offset the extra deficit impact.   

What would the “Greatest Generation” do today?  Do you think they enjoyed paying 91% tax rates?  That was a sacrifice in their lives to ensure the economic prosperity and security of their grandchildren and the country they loved and defended during World War II.  So while no one enjoys paying more taxes, here’s a proposal for an economic growth policy that reflects the facts of what drives economic growth, and the lessons of past actual actions following past tax cuts:

1.  We should not cut revenues when we have an existing deficit.  In fact, we need to increase revenues to start paying down the existing debt, and to fund investments in infrastructure and more workforce development programs.  We cannot build a world class economy on a second class infrastructure via tax cuts alone.  And many businesses seeking to grow today cannot readily hire the skilled workers they need.

2.  We can reform the business  tax code by eliminating most BUSINESS deductions and credits and setting published tax rates LOWER than current published rates, and closer to the actual tax rates that most large businesses pay after leveraging deductions and credits.  The actual business tax rates today are much lower than the published tax rates, and these actual rates are about equal to the average tax rates of our global competitors.  The premise that as a country, we need reduced business tax rates to be more competitive globally ignores the fact that actual tax rates paid by businesses are already about in line with most global competitors.

This approach will also correct the imbalance between large and small business.  Small businesses can’t afford the tax specialty staff to find and structure the business to take maximum advantage of a complex tax code.  This should be the focus of tax code simplification, as small businesses create most of the jobs in today’s economy.  It is a false claim that reducing the number of tax brackets reforms and simplifies the tax code.  The tax code remains thousands of pages if all deductions and credits remain in place.  Fewer tax brackets makes the rate differences between brackets larger, which in fact can be a disincentive to move up to higher income brackets.

But most importantly, these proposed business tax cuts are simply unnecessary for economic growth. We’ve had 5 years of record profits with slow growth because it is middle class incomes that drive economic growth, not business profits.  Cutting business taxes will explode the deficit because once again, growth will not offset the loss of revenues without an increase in middle class incomes. The tax cuts will lead to more stock buy backs and executive compensation increases, creating another, larger bubble in stock market prices. None of those outcomes is good for the economy or the country.

3.  When deductions are eliminated, a range of tax rates will be set in each profit bracket.  The lowest tax rate in each bracket would be applied to those earned profits that are shared with workers, not with executives.  A higher tax rate would be applied to profits invested in business expansion and hiring and executive compensation, and a much higher tax rate would be applied to profits used to buy back stock. 

4.  With incentives in place to use record profits to share with workers, there will be a greater impact on middle class incomes than the proposed personal tax cuts, without having an impact on deficits or company profits.  It will also minimize the impact on creating a stock price bubble.

Conclusion

These proposals are not partisan, they do not seek to favor any single segment of citizens.  They seek to benefit all citizens by focusing on the actions that will grow the economy for all citizens.  They will not grow the deficit, and as middle class incomes grow, the growth in the economy will increase revenues and minimize or possibly eliminate annual deficits. This should be an outcome that both parties and most citizens would welcome. The future economic security of our country, and the quality of life of our grandchildren, depends on our choices.  I hope we have the courage and the selflessness of previous generations to act to deserve the admiration, not the scorn, of our grandchildren.

Declaration of Interdependence

Declaration of Interdependence

On this very special holiday, when our country pauses to celebrate the beginning of our Independence as a nation, I want to share some thoughts about taking time to celebrate the value of national unity our Founding Fathers passed on to us, and to encourage all Americans to recommit ourselves to the continuation of those values in the coming months and years.

The strength of our country as a Democracy does not rest solely on our freedom, as a country and as a people; it also rests on the unity of a diverse people coming together, as in the Pledge of Allegiance, to be “one nation … indivisible.”  I don’t think many would feel that we are living that pledge today in our politics … and I wonder if we are really committed today, as a country, to do what it takes to achieve this state.

There are other Democracies in the world where people enjoy freedom.  Freedom is not what makes America great. But no other Democracy has the ethnic, cultural and religious diversity of America, nor has any other Democracy unified these diverse groups in their histories.  It is the unity of a diverse country that makes and has made America great.  But today, we find the strength of our diversity is being undermined from within by our own divisiveness.  Diversity is our historic strength but divisiveness is our current weakness.  The difference is in our choices as a free people.  

In order to revive our strength and minimize our weakness, we need to stop the competition over winning and losing between the parties, where some 40% of Americans lose no matter which party wins. Leaders are elected by a majority but are expected to act as the leader of all Americans, including those who didn't vote for them and who often have a different set of needs.

Elections have consequences, but does it make sense that in a diverse country, that 51%-60% of the people “win” and that 40%-49% of the country “lose” every 2 years?  Doesn’t it make more sense, and help bring the country together as “one nation … indivisible”, if the majority party always seeks to accommodate the needs and concerns of the other party, representing perhaps 40%-49% of the country they are governing, along with the needs and concerns of the party that elected them?

Years ago, in the best-selling program “The 7 Basic Habits of Highly Effective People”, Dr. Steven Covey identified the behaviors that lead to achieving a “win-win” in human relationships between parties with different needs and concerns, versus a “win-lose” outcome.  In his teaching, Covey points out the basic truth that in human relationships that are truly “interdependent”, “win-win” solutions are the ONLY solutions that work, that endure.  So the question is, is America as a country, as a society, an interdependent reality or an independent reality?  Does our strength as a country depend on the welfare of each other, or can we be a strong country when the needs and concerns of a large minority of Americans are ignored by the majority?

The source of our Independence may actually lie in the belief in our Interdependence on each other and the concern for each other’s welfare. These concepts are at the core of our Founding Documents.  Here are two quotes to consider:

1.  The last sentence of the Declaration of Independence

Most Americans can recite the key opening words of this landmark document. But I would draw attention today to the last sentence, which states: “And for the support of this Declaration, with a firm reliance on the protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor.”  To me, this is a very strong statement in the belief that America would only survive, that we could put the principles and values of the Declaration into practice, that we would in fact only survive as a country, if we would pledge to support each other, with “our lives, fortunes and sacred honor”.  Note they didn’t pledge their lives and fortunes to the country, but to each other.  How far have we varied from that commitment in our politics today?

2.  The Preamble of the Constitution

            The Preamble is a key part of what the Founders drafted to guide the operation of our government.  This was not the first document written to establish a government after the Revolutionary War.  The first attempt to establish a government was called the Articles of Confederation, which did not establish a strong united country, but a loose affiliation of independent states.  It took about 6 years for the Founders to realize that the self interests of the individual states were unravelling the Union.  So a convention was called to develop a new constitution and a new government … a “more perfect union” than existed under the Articles of Confederation. After 4 months, the delegates passed our Constitution with the following statement of purpose:

“We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity ...”.

One final thought:  Do you know what word is not found in the Declaration of Independence or the Constitution?  The word “party”.  In fact, I believe that our major political parties today are not working as part of the solution to our divisiveness problem; they are in fact a major part of the problem.  Our first Presidents each foresaw the risk of partisanship to the success of the country, over 200 years ago:

John Adams wrote in 1789, in his first year as Vice-President:

 “There is nothing which I dread so much as a division of the republic into two great parties, each arranged under its leader, and concerting measures in opposition to each other. This, in my humble apprehension, is to be dreaded as the greatest political evil under our Constitution.”

7 years later, in his farewell address upon leaving the Presidency, George Washington stated:

“However [political parties] may now and then answer popular ends, they are likely in the course of time and things, to become potent engines, by which cunning, ambitious, and unprincipled men will be enabled to subvert the power of the people and to usurp for themselves the reins of government, destroying afterwards the very engines which have lifted them to unjust dominion.”

I am not suggesting that any one party is any better or worse than the other in this regard. I believe that one of the leading causes of the divisiveness in our country and government today is the prioritization of our leaders in both parties on self-interest, partisan interests and special donor interests.  These interests seem to prevent the parties from working together to develop policies that address our key problems and advance the national interests of all parts of the country, and for all citizens, of both parties.

In closing, on this July 4, 2017, the 230^th anniversary of the year the Constitution was ratified, I’d like to suggest that our leaders and each citizen, recommit ourselves to following the lessons that our Founders learned the hard way between 1777 and 1787, and that are reflected in the Founding Documents of our country. I suggest now is the time to reject the divisiveness of partisanship and to truly embrace a focus on the unity of country … to recommit to the value of making our country that “more perfect union”. Let ours be the generation that renews a pledge to each other’s welfare … to seek policies that address the needs and concerns of those Americans who look, believe, and live differently than ourselves, as we look to address our own needs and concerns.  And to support those leaders who share that commitment.

This aspect of interdependence, of pledging to care for the “lives and fortunes” of each other, is to me the real legacy of our Founding Fathers and our Founding Documents … a legacy we can choose to either embrace and prosper from our unity, or to discard and struggle further in our divisiveness.   As was written over 200 years ago, “every country gets the government they deserve”.  Let us commit to deserve by our actions and not just our heritage, the government “of, by and for the people” that was bequeathed to us and to our care.

Health Care: Repair or Repeal and Replace?

Health Care:  Repair or Repeal and Replace?

As is the policy with my blog posts, I seek to share a “third alternative” to the partisan proposals on key issues that come from the political parties.  I try to employ the ideology of “what works” versus either political or partisan ideology.

So within this context, today I would like to provide a suggestion on the specific issue of a new Health Care Law.  The Republicans have just proposed the first part of their “Repeal and Replace” approach to the existing Affordable Care Act.  And I expect that the Democrats will take up opposition to these changes, and by default, will defend the status quo of the Affordable Care Act, without defining what changes they would make to address the key problems that have surfaced with the existing law.

This approach is how the parties responded to the Affordable Care Act over the past 8 years, in reversed roles.   The Republicans opposed the passing of the Affordable Care Act, but provided no alternative approach.  This approach did not serve the public interest then and will not serve the public interest now.  So the attempt of this blog entry to suggest an alternative solution that might serve the public interest by providing an alternative worth consideration.

At the start, I have sought to understand and define the problems that exist with the current ACA law that were not anticipated, so that I could propose the changes to the current ACA law that would effectively address these problems.  Providing a real Repair alternative to the Repeal and Replace approach of the Republican Administration will hopefully help focus the debate on issues of importance to the public interest, versus partisan interests.

Here are the key elements of the proposed Repair to the ACA:

1.  Eliminate the limited number of proscribed benefit policies, which while with good intentions were designed to ensure that all policies provided basic care, had the unintended outcome of reducing choice of Americans for a policy that would meet their personal needs.  These plans would be replaced with a menu-based process for “building” a personalized health care policy.  The benefits of the different coverage options would be explained, and a suggestion of the coverages that would best meet the needs of people in different risk or demographic profiles would be provided.  However, the choice of specific options would be left to the individual. 

Each policy should start with a base policy that would only cover emergency care and transportation in the event of a severe accident, injury or illness … the very kind of services that would be provided for free at taxpayer’s expense for uninsured patients.  Every American should have this coverage, with support in the areas of tax credits or subsidies if needed depending on income. This would ensure that no one would come to an emergency room for emergency care without a base level of insurance.  And a policy for all Americans covering only this service should be very low in cost.

This approach is consistent with the principal that people should take responsibility for their own health care insurance and that no one should expect the government to pay for their emergency care if they can afford it.  But neither do we want as a society to check for proof of insurance at accident sites or in emergencies before care is provided.

2.  Eliminate the requirement for businesses to provide health care for employees.  In fact, I propose to change the law to eliminate ALL employee provided health care programs, and require that ALL Americans obtain their own health care insurance plan from a national pool.  Each individual should own the health care plan, not the employer.  This would eliminate a lot of the pre-existing condition needs that arise when an employee leaves a company health plan and needs to purchase private insurance.  Everyone should own their own health care plan and have the opportunity to choose the coverages they need from a menu-based plan process.

This should appeal to Americans as fair, especially to small business owners and employees.  The current system allows large companies to negotiate health care services with insurance companies on the basis of their employee pool, not a national or regional pool.  Further, there is a tax benefit to employees and employers, as neither pays tax on the costs of health care plans provided to employees.  So as a small business owner, I and my employees will pay higher health care costs than our neighbors who work for Fortune 500 companies, and this puts small businesses at a disadvantage in attracting talent.

The new Republican Health Care Plan would provide a tax credit to “equalize” this benefit between large and small businesses, but both of these policy elements reduce the income to the government, and thus have a deficit impact.  The proposal of eliminating business owned and provided health care, and replacing this with only individual health care plans, equalizes the playing field without a major deficit impact.   This change is important because small businesses are the major job creators in this country and should not be at a disadvantage to larger companies.  Let’s take health care benefits out of the employer’s package. 

Any company could provide a direct payment to the employee’s health care insurance they choose to help offset costs as a way of attracting and retaining employees, without the cost within the company of monitoring and negotiating health care coverages, reducing their current costs.  This represents a true “win-win” for companies large and small, and may reduce the costs for private insurance plans due to the expanded pools.

3.  Eliminate the state-by-state control over health insurance providers and enable every insurance company to cover citizens in every state.  This is being considered as part of a future Republican health care initiative, but could be part of an immediate repair to the ACA.  It is expected to be a key element of reducing the costs and ensuring broader choices in plan options to Americans in every state and situation.  The policy should require the states to continue their own oversight and to institute their own ratings systems for company performance, costs, patient satisfaction, and allow the states to levy fines for actions that violate the terms of their policies or for any actions that mislead or defraud consumers.

With these 3 changes to the ACA, I believe the major problems with the existing health care program would be repaired or completely eliminated.  Many of the concerns of both parties would be addressed, and the interests of the public would be the main focus of the policy.  This might well be an approach that both parties could work on together to implement with collaboration, instead of wasting time and money on a destructive debating process.

If you have comments or suggestions to this post, please do leave your comments below.  If you find it worthwhile, please do share the blog with others in your network.

Robert Viney