Big budget requires small compromises

Republicans and Democrats have both proposed federal budgets, the first time in years that each has come up with a plan.

Both parties call for tax increases and spending cuts.

The difference is mainly about what each would do with the money from the tax increases. 

The Republicans would raise some taxes to reduce others. The Democrats would cut the deficit.

The GOP plan is based on the idea that tax cuts stimulate the economy. An improved economy produces more tax revenues and, when spending is under control, the new revenues would make it possible to reduce the deficit.

The Democrats have a more direct approach. Use new tax revenues now, they say, to trim the deficit.

One way or the other, both say they want to reduce the annual federal deficit. Unfortunately, when it is in power, each party increases the deficit, often by catering to the interests that contributed to its election success.

The picture that emerges shows both parties seem somewhat less serious than they claim to be about cutting the deficit.

Recently, some Democrats have admitted they favor a permanent annual deficit, provided it’s not too large. Because some federal spending benefits future generations, they say, it’s all right to pass some of the cost on to them.

What taxes would the GOP cut? They complain that, at 35 percent, the federal corporate tax rate is among the highest in the world. They want to reduce it.

The corporate tax rate would be a reasonable target, if only companies actually paid it.

Last year, General Electric, a huge, diversified company, paid 14.4 percent in taxes on its profits. It can take advantage of tax preferences — more commonly called loopholes — that allow it to exclude income from taxation.

And Fairchild Semiconductor paid no taxes at all. It can take advantage of having lost money in earlier years, a feature of the tax law that does not apply to most individual taxpayers.

A cut in the corporate tax rate would mostly benefit the corporations concerned.

The budget choice is to raise taxes or cut the programs. In either case, the federal government would continue to run deficits.

Beyond taxes, the main differences between the parties are about cutting spending on Medicare, Medicaid, and Social Security. Republicans want to reduce these entitlement programs, but Democrats aren’t enthusiastic about such rollbacks.

The elusive “Grand Bargain” would deal with all issues — taxes, entitlements and deficits. 

The parties are so far apart, even to the point of allowing the sequester to kick in, that such a deal seems impossible.

One solution is for a party to take control of the presidency, the House of Representatives and a filibuster-free Senate. That’s not likely, leaving compromise as the only alternative to more deficits.

Let’s say each side was willing to hold its nose and accept something less than perfect. 

Taxes could be increased with some of the money going to deficit reduction and some of it going to tax reform that could result in lower taxes for middle-income people.

The first step on this approach is to close as many of the worst loopholes as the parties can agree upon. That’s not as impossible as it sounds, because there is already agreement on getting tough on a few tax breaks.

But that step won’t produce enough revenue. The total amount of loophole benefits that any taxpayer — individual or corporate — can use could be limited to a fixed percentage of gross income. Taxpayers could still choose their loopholes, but within limits.

In setting a cap on loopholes, Congress would have a good idea how much revenue would be raised. As the economy changes, the cap could even be adjusted.

That way, Congress could keep adding loopholes as it inevitably will, knowing the effect would be limited by the cap.

If too much of the income of the wealthy or of companies doing business abroad still escaped taxation, the much maligned “alternative minimum tax” could be made to do what was originally intended. It was meant to nullify or limit tax avoidance features used mainly by the wealthy.

In short, all of these measures show that it is possible to increase tax revenues without touching current tax rates.

Some diehard GOP House members won’t accept any compromise. But electoral reality could push other House Republicans to join with Democrats in finding a compromise.

Without abandoning their widely opposed positions on taxes and spending, the parties ought to concentrate on finding small steps on which they might both agree. We’d call that progress.

What does “the Pursuit of Happiness” mean?

You may have missed it, but we recently celebrated World Happiness Day.

To celebrate, the United Nations published a study on happiness in most countries in the world.

That may sound like a waste of money, but one of the findings suggests that the study may serve a useful purpose.

The World Happiness Report concluded that “happiness depends on a huge range of influences, many of which can be influenced by government policy.”

The study revealed that if governments want to make their people happier, there’s more involved than making them richer.

The notion that government is somehow responsible for people’s happiness is not as silly as it may sound. 

The Declaration of Independence, America’s revered founding document, proclaimed that one of our basic rights is “the pursuit of happiness.”  Government is created to “secure” this right, it said.

The question is how to define happiness.

Some historians believe that the Founding Fathers saw happiness as economic well-being.  Government’s job would be to help people improve their incomes and wealth.

The U.N. study report is based on surveys involving tens of thousands of people all over the world.  They reveal that, while a person’s economic condition counts, a number of other factors go into making people happy.

Of course, for many, happiness starts with having a job.  Employed people are happier than the jobless.

But income as a measure of happiness is somewhat complicated.  For some people, it is a matter of how much money you have and earn.  Clearly, the poor do not usually rate themselves as being happy.

For others, economic status matters -- having more money than other people.  It may get to the point where people become increasingly unhappy as their neighbors do better.

Either way, unless a person lives in poverty, economic well-being may matter less than a collection of other factors. 

Social relationships are important.  If people believe they can turn to family and friends if they run into difficulties, such relationships contribute to their happiness.

That’s a major reason why people say that religion contributes to their happiness.  It appears that while faith is important, the social links provided by religious groups count even more heavily.

Another factor in happiness is the degree to which people feel free to live as they wish.  In other words, governments range from dictatorships to democracies, and people measure their happiness partly as a function of the form of government.

Connected to this is the degree to which government is considered to be free from corruption.  People are happier if they believe their government is operating by the rules and not to promote the personal enrichment or enhanced power of those in charge or because of the undue influence of forces outside government.

Not surprisingly, the condition of a person’s health influences happiness.  Here, too, government has a role to play, if it assists people to lead healthy lives and to have access to medical care.

People seem also to place some importance on the environment as a factor in their happiness.  They give weight to both their own living conditions and the legacy they leave for their children.  Again, in this area, government matters.

Demographic data from industrialized countries reveals that women are happier than men and that as people age they regain a degree of happiness they may have lost in middle age.

Based on the surveys, the report comes up with a rough ranking of countries.

Those that come out with the highest degree of happiness are among the richest countries.

People in these countries have greater individual wealth with less deep poverty.  They are all democracies.  Their governments have more resources than others to support programs for job creation, income support, health care, and environmental protection.

Who is at the top?  The Scandinavian countries and the major English-speaking former British colonies, including the United States.

Interestingly for Americans, as the country gains in wealth, it has not gained in happiness.  Perhaps that’s because of the way wealth is distributed.  The share of the poor here has not declined.

At the bottom in terms of happiness are mostly poor countries in Africa. 

A country with a low rating may be more likely to create international unrest.  And the crime rate among the poor in many countries is often high.  So it’s in the interest of all to alleviate poverty at home and abroad.

Altruism – helping others without personal gain – was found to be a factor in creating happiness.  Helping the poor may not only be better for all but makes us happier.

Economic Reality Transforms the American Dream

Welcome to the new version of the American Dream.

It may look the same as the old one – personal prosperity and owning your own home – but fewer people are likely to live it, and if they do, it will happen later in life.

The transition Americans are undergoing is not merely recovery from a deep recession with life soon returning to the way it was before 2008.  It is a complete redesign of the American economy.

Two news stories last week prove the point.

“The situation for today's adults in their 30s and younger is particularly gloomy,” reports the nonpartisan Urban Institute.  “When it comes to building wealth -- adding to savings, owning a home, paring down debt, growing a retirement nest egg -- those under age 40 have stagnated,” it says.

Instead of earning more than previous generations, younger people get less pay than what their parents were paid when they were the same age.

We also read that two states – Maine and West Virginia – now see deaths exceeding births each year.  By one measure, Maine is the oldest state in the country with West Virginia coming in third.

They are the bellwethers of the United States as a whole.  In the first nine years of this century, the median age in the country increased by one and a-half years.

Older people have not saved enough for their retirement years, so they cannot be the big-spending consumers they used to be.  In other words, older people are a larger share of the population, and they have less to spend.

American businesses are adjusting to these new realities.  To survive and remain competitive with foreign suppliers in what is now a global marketplace, they must reduce their costs.

And the place where they cut is paying their employees.  Labor costs as a share of total national production are now at record lows. 

High paying jobs have been lost, forcing many to accept new jobs with less income.  Even worse, some have been pushed out of the work force, making the unemployment rate look better than it really is.

Many people have become more realistic about having enough income to afford a new home.  While that means they must wait longer for their dream home, the chances of losing it in foreclosure are less.

There’s some good news.

Jobs that went abroad are coming home.  As wages rise in China and elsewhere in the developing world while they stagnate in the United States, imports are beginning to lose some of their attractiveness.

Taking into account transportation, heavily influenced by the price of fuels, and the narrowing labor cost difference, “Made in the U.S.A.” is staging a comeback.

While people struggle to find decent jobs, American corporations are doing well.  Unemployment may still be too high, but the stock market, which reflects what investors see as the economic future, has broken through to new highs.

U.S. manufacturing, long in decline, seems to be gaining again, thanks to the jobs that are coming home.

In fact, as American-made goods are priced close to world market prices, U.S. exports could improve, which would help promote job growth.

Business is profitable partly because labor costs are down.  Workers – from airline pilots to assembly line labor – have accepted pay reductions in order to keep their employers competitive.  Perhaps as big as government bailouts are the sacrifices made by employees.

Even with this improved outlook for business, the total picture is far from rosy.

Government programs that depend on income-based taxes will have less money to meet the growing financial needs of Social Security and Medicare. 

Rep. Paul Ryan’s proposed Republican budget would keep these programs solvent by sharply reducing benefits.  While these programs might then pay their own way, older people would suffer.

One alternative is higher taxes to help support these essential programs.  In an economy with fewer workers relative to the total population and lower pay scales, those workers might have to pay more to the government.

Another option is for people to save more for retirement.  Like higher taxes, more saving would reduce the amount people could spend.

The new American economy would depend less on consumer spending, now its main driver, as more money went either to taxes or savings.

A rapid increase in the working age population could help slow or reverse this trend.  That’s why immigration reform may turn out to be essential.

Perhaps this new version of the American Dream is not inevitable.  But nobody has yet offered a way to save the old version.

The High Cost of Health Care is Its Biggest Issue

The problem with health care is not Medicare, Medicaid, or Obamacare.

It’s what health care costs.

The United States leads the world in one area of health care – it costs more here than in any developed country. Higher cost does not mean better care.  The United States lags many other countries in length of life and infant mortality.

Most industrialized countries have some version of a single payer system in which the government is the insurer and can influence the prices it pays for various procedures and medications.

In this country, the government, insurers, and individuals all pay for health care.  And, when the government is not paying, health care providers are free to set prices that everybody must pay.

Why are hospital costs so high?  A recent report by Steven Brill in Time magazine provided answers.

He revealed that both non-profit and for-profit hospitals make money, with non-profits doing better.

Where does the money go?  It pays for more sophisticated equipment, whether it is needed or not, advertising to attract more patients, and astronomical salaries for the top officials.  

And for lobbying Congress to keep the system just as it is.  The health care industry spends more on lobbying Washington than the defense, aerospace, and oil and natural gas industries combined.

The industry is rapidly becoming a monopoly.  In most areas, there is no longer any choice among hospitals.  There is one in each area, making the concept of a “market” purely theoretical.

As the number of hospitals is reduced, so is the number of independent doctors’ offices.  In the near future, it is expected that 75 percent of physicians will be on hospital payrolls.

To boost hospital income, these doctors are often required to see more patients each day, resulting in less attention to any individual.  And insurance reimbursement is more profitable for hospitals, Brill says, with doctors in-house.

The hospitals’ big profits are obvious, when the costs charged to the uninsured based on hospitals’ “chargemaster” price lists are compared with Medicare payments.

The chargemaster sets prices well above cost and even levies outlandish charges for simple bandages, which ought to be included in overhead costs.

In one case Brill cites, a hospital bill came to $121,414, but the hospital accepted $16,949 from Medicare.

Hospitals and doctors are not required to participate in Medicare.  If they are not paid enough, they can quit the system.

But they don’t.  In fact, in Florida, where many patients are on Medicare, hospitals advertise for retirees to use their services.

Even Medicare, the largest single customer for health care in the country, is prevented from bargaining to get the lowest prices for drugs.  If one medication is better than another and cheaper, Medicare must still pay the average price of all approved drugs of the same type, which means it must overpay.

The Veterans Administration, which also buys a lot of prescription medicines, does not have such a rule, and its costs are estimated to be 40 percent less than Medicare’s.

Obamacare will not fix the problem.  It can only create competition among insurers, though one of the players in each state will be a non-profit company. 

Opponents of Obamacare see this so-called “exchange” as being able to underprice the private companies so that it ends up as the single payer.

That would have to happen at some point in the indefinite future if the non-profit insurer could ever be powerful enough to force the industry to bring its costs under control. 

Meanwhile, the health care industry is increasingly acts like an unregulated monopoly where, for the time being at least, the insurers have little ability to place a brake on its charges.

Experience shows there are essentially only two ways to deal with the pricing power of “natural” monopolies, those that cannot simply be broken up, because of the type of services they provide.

We can see how such controls work, because both approaches having been applied to electric utilities, which are natural monopolies.

One is regulation, where “just and reasonable” prices are set by independent regulatory bodies, acting like judges.  Those areas where competition is possible – electric generators or equipment manufacturers in the health care sector – are left largely unregulated.

The other solution is government as the single payer.  For electricity, government takes the form of the municipal utility.  It makes no profit and bargains for what it will pay for power.

We seem to be moving toward the point in health care where regulation or the single payer or both will become essential and inevitable.