Zodiac Times

Like all of us, I’ve been listening for weeks now of how the presidential candidates are proposing to fix our economy. This morning, McCain came out with all his financial advisers with the statement on how he would do it.
Well, his proposal scares me. But Obama’s take on the economy does not make me feel any better either.
As I was washing dishes and doing laundry, I came up with the following thoughts:

1) HOUSING CRISIS has been long overdue. Only a simpleton would think that real estate prices would always go up and never come down. The market rules apply here, as everywhere else. Since most of the housing market caters to middle class, as soon as it reaches unaffordability level for middle class, it has to go bust. That is called “Market Correction”, and that is what happened. In any capitalist society, these corrections must be allowed, otherwise it would hurt somewhere else.
Both presidential candidates are proposing eliminating or severely decreasing capital gain tax. But once Reagan decreased capital gain tax, speculation in real estate and taxes went rampant, contributing to the sad state of affairs we find ourselves in now.
2) FINANCIAL CRISIS was brought on by derivatives trading, made illegal in 1907 and made legal again in 2000 (?!), as well as by indiscriminate lending (mortgage and credit cards alike) – that can be brought under control by government intervention and better rules and regulations of financial industry – which is underway. But some market correction should be allowed as well, otherwise the problems will continue.
When your tooth aches, you should take a painkiller. But if you are not going to fix it, painkillers would hurt you further with side-effects.
I would be glad to see that any credit is substantiated by income tax returns and is based on actual ability to pay it back. But I would also update usury laws, making it illegal to charge more than 15% for any type of loan.
3) RECESSION has been brought on by squeeze of the middle class as much as by anything else. Besides housing prices going down, medical, tuition and everyday living (food, transport, etc.) costs went up, while income stagnated or went down. Squeeze the middle class’ discretionary income, and you would get automatic recession.
Any capitalist economy depends on the financial health of the middle class, and that is where all economic fixes must start.
Since medical expenses are almost universally a major problem, I would go with universal health care.
But it should not hurt small business with extra taxes or mandates, as Obama proposes. That is like amputating the head when you’ve got a headache.
In fact, small business (which is also middle class) already suffers from too many taxes and mandates.
Why would I hire an employee, if that means I have to add 50% expense to the employee’s wages via payroll tax, work-comp insurance, liability insurance, etc.??? I’d rather get me an independent contractor, who would do the same work for the same wage amnt, and save me $, paper-work and headache.
So how the universal medical insurance would be paid? Well, so many states already have good working models: Vermont, New York (health plus), etc.
On top of it, we have SSI model. So why not add Universal Medical Insurance to the income tax, and collect that tax in the specific UMI fund?
Moreover, as the main insurer, the government would be able to keep prescriptions and other costs down.
Granted, this would create a medical industry crisis. But I would rather take out the rotting tooth than kill my liver by constant intake of painkillers.
I would also do the same income tax special funds for unemployment and work-comp insurances and make them optional. Let it be the employee’s choice, rather then the employer’s problem.
In fact, I would eliminate social security altogether, and, instead, create livable pension fund where people are able to retire at the age of 70 keeping the same annual income level as shown on their last income tax return, and I would pay for it via the same optional contribution to the special Pension fund, collected via income tax. This way, our pensions will be our own responsibilities, and no employer will go bankrupt on that account. But we all would feel so much safer, knowing our retirement does not disappear in the bear stock market.
On the other hand, if one does not contribute to those optional funds, and something goes wrong – tough! It should not become the society problem.
I would also do the same with college tuition fund, doubling the taxable amount with each additional child. Then I would expect my child to be able to attend any college that accepts him based on his grades without extra tuition costs that may bankrupt me.
I would do the same with school tuition with the state income tax, and would add universal after-school care fund to that. This way, all public schools in a state would get equal funding, and there would be no additional costs for babysitters, extra-curriculum classes, etc.. Now, if you don’t have children, or your children have grown, you don’t have to contribute to that fund. I would, because these costs are now crippling my personal economy.
There should also be mandatory but separate funds within income tax for
defense
law & order
infrastructure
emergencies
general upkeep
foreign debt
etc
Then we would know where our money goes, and hopefully then such funds as foreign debt would become unnecessary (as we would not stand for that).
Am I proposing huge income taxes?
Actually, no, if you would consider how much business expense and personal expense would be spared instead, while huge financial risks are eliminated.
For example, the government gives me now something like $3,000 child credit for my son, but, in reality, he costs me no less than $12,000/ yr (that is without any college tuition savings, since I cannot afford them right now). Most of this money goes to babysitters and extra-curriculum classes.
If there was an universal after-school program in my state, it would cost the government less than $3,000 per child. The state would simply keep existing school buildings open till 7PM, and schools would hire a few extra-curriculum instructors (music, tennis, chess, etc.) – that would cost the schools significantly less, if payroll tax, work-comp, etc. become employees’ responsibility.
So I am not going to get my $3000 child credit. But I would save $7000 instead and use this $ to support the economy via my discretionary spending. I would not have to save this money for my retirement, because I would contribute to my pension via income tax fund. I would also save at least $4,000/ yr on my medical insurance. Overall, I would have a little more or the same discretionary income, but I would feel so much safer regarding my retirement, my child education, medical emergencies, etc.. On top of it, I would know exactly where my taxpayer money goes, and my say on account of government spending would have more effect.
Actually, in real numbers my fantasy proposal would look like this:
Let’s take a guy in minimum tax bracket who makes $36,000/ yr. He actually nets only $24,000. On top of it, he contributes to his medical insurance $220/mo.
His small business employer shells out $65,000 for the honor of keeping this guy as an employee:
He pays him $36,000, pays $18,000 in payroll tax, and the rest in work-comp, liability and medical insurances.
If my proposal ever saw the light, the employer would pay my guy $48,000 and shell out $2,000 on top in liability insurance. The worker would $24,000 in taxes, but would net the same amount. He would save additional $2,500 on medical insurance. So he would be $2,500 richer. The employer saves $15,000. So it is $17,500 going into supporting economy via spending.
Besides enriching economy by $17,500, both guys feel more secure regarding their future (medical problems, retirement, disability, unemployment, etc).
This taxation method would also have effect on ILLEGAL IMMIGRATION issue. Because then we would not care how people got into the country, as long as they pay income taxes and do not strain our economy.
I would also eliminate welfare altogether, and substitute it with unemployment and disability benefits instead. All those who have never been able to work can be subsidized in the same way they are now through the income tax disability fund I have suggested.
Other well-talked about issues are ENVIRONMENT and OUR DEPENDENCY ON FOREIGN OIL. They actually go hand-in-hand. I actually see the solution to both as a rather easy one:
I would have the government tax businesses that produce, import, or use the oil itself or any devices that must use oil, and use this tax money to give tax credit to all businesses that produce and develop clean technology, and devices able to use the clean technology. Money is always the greatest motivator. So, for instance, gas stations that sell only gasoline are taxed, and those who sell natural gas are given credit. You would see many gas stations then switching to natural gas, with car engines switching immediately following. That is what they do on most of the Caribbean Islands already: they import a car and fix the engine right away so it can operate on natural gas. But then they can fill up the tank with natural gas on any gas station there. We cannot. That’s why we still use gasoline.
But I am happy that oil is so expensive now: so the incentive to develop and use the alternative is so much greater.
The same applies to heating oil. Russia is much richer than the U.S. in oil, and much colder. But it uses steam to heat the houses.
If we could produce cheaper and cleaner electricity via nuclear technology, why should not our tax dollars pay for it? We would get our money back by paying less for utilities each month.
Yes, an accident at a nuclear facility is scary. But, honestly, it is such a remote possibility. And that guy from Texas – what’s his name?- who wants to build wind turbines also makes much sense to me.
Give him the tax credit! And tax the oil companies instead with the special oil + dirty energy tax!
I would also eliminate the present farm subsidies and subsidize the organic farms instead.
As to spur our economy on right now, please, start re-pairing roads, levies, and other infrastructure A.S.A.P.. Not only bridges fall down and whole cities get flooded because we have been ignoring our infrastructure for too long, think how many so needed jobs would be created if we get on with it now.
Jobs mean money to spend, that feeds businesses, which create more jobs in turn. Healthy economy means more taxes collected, less foreign debt, etc.
Most importantly, re-building infrastructure means jobs here in America and not in India or China.
Unfortunately, we will continue to invest into those nations’ employment (read: economy) instead of ours if businesses here would continue to pay 50%+ extra for each employee than the employee’s actual wages.
Well, too bad I am not running for office )
But if I make any sense to you, please pass my musings along.