J.C. Moore Online

Current events from a science perspective.

The “Fair Tax” proposal would replace income taxes with a “revenue neutral” consumption tax. To fund our government at the current level would require a national sales tax of  30%. The Fair Tax proposal  might simplify our tax codes, but it would also have ripple effects across our economy with unknown consequences.

Economist Mike Moffatt has identified the likely winners and losers under the Fair Tax proposal. Winners would be people who are inclined to save, people who can shop in other countries, those who can avoid sales taxes by unscrupulous means, and the wealthiest one percent who will get an average tax cut of about $75,000.

The losers would be the working poor, families with incomes less than $200,000, people who derive income from the current system (tax accountants, IRS employees and income tax lawyers), and seniors who have already paid a lifetime of income taxes and would now be taxed on spending as well.

The “Fair Tax” proposal would shift more of the tax burden to middle and lower income groups, those groups already benefiting the least from recent tax cuts. Our present graduated income tax code is based on the ideas that those who profit most from our country’s wealth, resources, and opportunities should pay a greater share of their bounty in taxes. The current system seems fairer and more pragmatic than shifting taxes to those who could least afford to pay.

For more information and references, click Here.

Is Social Security Going Broke? No. According to the actuaries at the Social Security Administration, Social Security (SS) is financially as sound as the U.S. government. The surplus in the SS trust fund today stands at $2.4 trillion and is entirely invested in U.S. Treasury Bonds, which earn interest. The Treasury bonds are backed by the full faith of the US government and SS would only go broke if the U.S. government went bankrupt.

There was a hike in the Social Security payroll tax (FICA)in the 1980s so that baby boomers would pay a bigger share of their own retirement. That hike created a surplus which went into the SS trust fund. The trust fund is projected to grow and reach its peak in 2027 at nearly $6 trillion. From that and collections, there will be sufficient money in SS to pay 100 percent of benefits until 2041.

A few small changes now could extend the trust fund far into the future. A poll conducted for USA Today by Gallup shows that 67% of Americans would support lifting the cap on FICA contributions. That change alone would extend the SS trust fund until 2083.   More, and references  Here.

Is Social Security Going Broke? No. According to the actuaries at the Social Security Administration, the bottom line is that Social Security (SS) is financially as sound as the U.S. government. (1) The surplus in the SS trust fund today stands at  $2.4 trillion and is entirely invested in Treasury bonds which earn interest. The trust fund will peak in 2027 at nearly $6 trillion and there will be sufficient money in SS to pay 100 percent of benefits until 2041. A few small changes now could extend the trust fund until 2083. The Treasury bonds are backed by the full faith of the US government and SS would only go broke if the U.S. government went bankrupt.

Why Do Many Believe Social Security Is Going Broke? It is because many politicians and financial advisers are telling them so. The claim that SS was going broke was part of the PR created to try to justify privatizing SS. Privatization would have been a boon to the financial services industry and money poured in for promotion and campaign donations. Privatization eventually failed, but the idea that SS was going broke has lived on. The theme that “SS is going broke” has now become a talking point used by unscrupulous politicians to blame political opponents, inspire fear, convince voters that the government isn’t working, or to justify changes to the system to benefit friends and donors. The theme is also a useful marketing tool for retirement funds who wish to convince potential customers that no matter how much money they have saved, they will eventually run out – unless they invest with them. Of course, a solvent SS ruins that argument.

Won’t the Baby Boomers Use SS Up? No. There was a hike in the Social Security payroll tax in the 1980s so that baby boomers would pay a bigger share of their own retirement. That hike created a surplus to handle the crunch of baby-boomer retirements and the surplus went into the SS trust fund. The trust fund is projected to grow steadily until 2027 and after that, it is estimated that SS funds will be sufficient to pay 100 percent of benefits until 2041. After that, payroll tax revenue alone will be sufficient to meet 78 percent of the program’s obligations – even if no changes are made.

Should Changes Be Made? The SS trust fund could be extended by either increasing the retirement age, reducing  benefits, increasing the payroll tax, or raising the cap on earnings.(2) The latter might be the fairest and most popular. Earnings above $106,000 a year are now exempt from SS taxes. As the inequality in earnings between top and average wage earners has grown over the years, the cap has exempted a larger share of top wages from taxes – and thereby reduced SS collections. An analysis by the Congressional Budget Office shows that if the cap were lifted, the Social Security trust fund could be extended through 2083. A poll conducted for USA Today by Gallup shows that 67% of Americans would support lifting the cap. (3)

Social Security was created by the Social Security Act of 1935 in the midst of the Great Depression to provide for retired workers who had lost their life savings. It did that, and since has become one of the most relied on government programs. Many economists think future retirees may be even more dependent on Social Security because of the disappearance of traditional pensions. Social Security provides a safety net so that no matter how fortunate or unfortunate Americans are in their lives and choices, they will not be destitute when they retire. A few thoughtful changes now will insure that SS will be around when those who are now babies reach retirement age.

1) http://www.ohio.com/news/american_dream/27325314.html

2) http://www.cbo.gov/ftpdocs/115xx/doc11580/07-01-SSOptions_forWeb.pdf

3) http://www.dailykos.com/storyonly/2010/8/2/889034/-Proof-that-the-Social-Security-problem-is-easy-to-fix

This  guest article is a letter by a small businessman sent to the Wall Street Journal:

The Wall Street Journal has published many articles on climate change. Most all claimed the science was unreliable and discredited the scientist, whose emails were stolen. However three investigations have cleared the scientist. I have both a major in Journalism & Business and I am ashamed of the yellow journalism the Wall Street journal has discredited itself with in this area. Is it that  Rupert Murdock’s News Corporation* backs the skeptics; is it his desire for sensationalistic headlines;  or, is it the paper has incompetent or biased writers and editors in the area of climate science?

I fear the one paper I buy almost daily at the newsstand and depend on for business information has lost its credibility. How can I make reasonable business decisions without undistorted facts.  I have been a businessman for 30 years in the oilfield through boom and bust.  How can I depend on the world’s top business paper if it does not investigate and check its facts. Now, the question is “Can I depend on your paper to give me the facts I need for my small oilfield drilling service to survive?”

At this juncture, I wonder if I can count on the Wall Street Journal to make your grievous errors right?  At age 57, I hope so for my children’s and my grandchildren’s  sake. I want them to have clean air to breathe and clean water to drink at a cost of 4/10 of 1 percent of their income  in the future, as I do now.

Guest author: David Moore

*Editors note:  Rupert Murdoch also owns Fox News and the NY Post.

Dan Boren (D-OK) has made a number of ads critical of his Democratic primary opponent, Jim Wilson.  It bothers many Oklahomans that Boren appears to be just camouflaging himself as a Democrat because his father was a highly respected Democratic Governor and Senator. It’s not clear whether the acorn fell really far from the tree or if Boren’s ads represent what a Democrat has to do to be elected in Oklahoma. One ad showed Boren in new camouflage gear, tags still attached, cocking a gun at his opponent. However, the ads have not gone over well as State Senator Wilson, who Boren chastises as Oklahoma’s “most liberal” senator, was a combat marine in Vietnam.

An article recently appeared in the Daily KOS containing a video making fun of Boren’s ads and criticizing him for supporting a “Flat Tax” scheme. (1) True to form, in the tree scene in the video, Boren is wearing the unofficial state color – camouflage. He is the  only Democrat among 61 Republicans in Congress supporting the “Flat Tax”(or “Fair Tax”) scheme.

Boren apparently hasn’t thought that Flat Tax scheme through. My Congressman, Frank Lucas (R-OK), also favors a “Fair Tax” scheme that would replace income taxes with a national sales tax ( a consumption tax) (2). Boren says it would be a sales tax of 30%. It  may need to be higher for it to be “revenue neutral” as we have to raise a certain amount of revenue to support our government and that would not change. What the “Fair Tax” would change is that more of the tax burden would shift to the middle and lower income groups, those  already benefiting the least from state and federal tax cuts. (3)

While many like the idea of the Fair Tax’s simplicity, that may turn out not to be the case. The Tax Reform Act of 1986 was supposed to bring us “simplification” of  our income taxes but there is little evidence that it has worked. Adopting a national sales tax will have a ripple effect across our economy with unknown consequences. For instance, we would have to tax internet purchases and raise import duties to keep the wealthy from shopping overseas for major purchases.

Economist Mike Moffatt has worked out who would be the likely winners and losers under the Fair Tax proposal: (4)

Winners:

• People who are inclined to save: People who do not consume as much will benefit from the plan.
• People who can shop in other countries: People who take a lot of overseas vacations or living near the Canadian or Mexican borders.
• People who can avoid sales taxes: Those who can exchange or barter services and goods, or the unscrupulous who can buy for personal use and claim as a business use.
• The wealthiest one percent: They will see an average tax cut of about $75,000 per person.

Losers:

• The Poor: The working poor pay little income tax but they must spend a larger proportion of their income to survive. They’d pay a larger percentage of their income in taxes than wealthier individuals.

• Families: Tax breaks such as dependent deductions, earned income credits and child care credits would disappear. It would hurt families with incomes less than $200,000 but help families with income above $200,000, due to the dramatic reduction in the top tax rate.

• Tax Accountants, IRS Employees and Income Tax Lawyers: Yes, but they’d survive somehow.

• Seniors: They’ve already paid a lifetime of income taxes and this would now tax them again on consumption as well. They would end up paying a disproportionate share of taxes.

Overall, the Fair Tax is fairer to some than to others, and it looks to be most fair to the wealthy. Our present graduated income tax code is based on the ideas that those who profit most from our country’s wealth, resources, and opportunities should pay a greater share of their bounty in taxes. The rich may not think that’s fair, but that’s fairer and more pragmatic than shifting more taxes to those who have little.

(1) http://www.dailykos.com/story/2010/7/3/881389/-Dan-BorenCongress-Worst-Democrat-Has-A-Primary

(2) For an in depth analysis of the consumption tax see:  http://mises.org/daily/1768

(3) For historical top tax rates see:

http://www.taxpolicycenter.org/taxfacts/displayafact.cfm?Docid=213

(4) http://economics.about.com/cs/taxpolicy/a/fairtax_5.htm

A Winning Flip: I can remember when Republicans liked Cap-and-trade. (1) For instance, John McCain cosponsored cap-and-trade bills in the Senate in 2003, 2005, and 2007 and, during his 2008 presidential campaign, proposed a pragmatic national energy policy based upon good stewardship, good science, and reasonableness. As he said then,

“A cap-and-trade policy will send a signal that will be heard and welcomed all across the American economy. And the highest rewards will go to those who make the smartest, safest, most responsible choices.”

And he was right. Having to pay the true cost of fossil fuel use is fair and would create incentives for renewable energy and energy efficiency.

Cap-and-trade was once considered to be the market solution to reducing carbon emissions. While popular, a number of key Republicans, such as Sen. Lisa Murkowski (R-Alaska), Sen. Richard Lugar (R-Ind.), Sen. Lindsey Graham (R-S.C.) went on record as endorsing the policy. Even Sen. Scott Brown (R-Mass.), only two years ago, while supporting a version of a cap-and-trade bill in the Massachusetts legislature said:

”Reducing carbon dioxide emission in Massachusetts has long been a priority of mine. Passing this legislation is an important step … towards improving our environment.”

But somewhere amid lobbying, big donations from power companies, and criticisms from so called conservatives who don’t really want to conserve much, the Republicans are now calling it cap-and-tax, essentially making fun of what was once their own idea.

The Sticker Shock Distortion Flop: In an effort to kill the bill, Republicans such as Senator Tom Coburn (R-OK) are now claiming cap-and-trade would cost each U.S. households about $3,100 a year, a cost that has considerable sticker shock. However, that number was fabricated by doing some misleading  additional math on a MIT study. Dr. John Reilly, the economist who authored the study, has criticized Republicans for distorting his work. In his words,

“It’s just wrong, It’s wrong in so many ways it’s hard to begin.” Not only is it wrong, but he said he told the House Republicans it was wrong when they asked him. “That’s just not how economists calculate the cost of a tax proposal”, Reilly said. “The tax might push the price of carbon-based fuels up a bit, but other results of a cap-and-trade program, such as increased conservation and more competition from other fuel sources, would put downward pressure on prices.” Moreover, he said, consumers would get some of the tax back from the government in some form. (2)

What Is the Uninflated Cost? The report by the nonpartisan Congressional Budget Office (CBO), the entity responsible for providing Congress with nonpartisan analyses of economic and budget issues, estimates that the net annual economywide cost of the cap-and-trade program in 2020 would be $22 billion—or an average of about $175 per household. That figure includes the cost of restructuring the production and use of energy but it does not include the economic benefits and other benefits of the reduction in greenhouse gas emissions and the associated slowing of climate change. Households in the lowest income bracket would see an average net benefit of about $40 in 2020 while those in the highest bracket would see a net cost of $245. Overall, net costs would average 0.2 percent of households’ after-tax income. (3) That doesn’t seem so bad, particularly as the CBO experts also estimate the climate and energy bill now stalled in the Senate would reduce the federal deficit by about $19 billion over the next decade. (4)

The High Cost of Doing Nothing: The cost of doing nothing may be unacceptably high in the long run because of resource scarcity, environmental damage, and the risk of reachng catastrophic tipping points. A recent report by the National Academy of Sciences details the high economic costs of reduced streamflow, rainfall, and crop yields (5). Estimates by the World’s top economists such as Britain’s Nicholas Stern (6) or the US’s Paul Krugman (7) are that right now it would cost about 2% of the worlds GDP to mitigate environmental damage – but if delayed, that amount could rise to 20% or more of the world’s GDP and put us at risk of an environmental catastrophe.

A Flip is Needed: What is it worth to have clean air, clean water, a more sustainable economy, and a less risky future? Can we risk doing nothing? We need a flip by our Republican leaders.

(1) http://www.grist.org/article/2010-06-29-remember-when-republicans-liked-cap-and-trade/

(2) http://flavcountry.blogspot.com/2009/05/mit-economist-john-reilly-calls.html

(3) http://cboblog.cbo.gov/?p=300

(4) http://www.msnbc.msn.com/id/38130006/ns/politics-capitol_hill/

(5) http://www.denverpost.com/headlines/ci_15536630

(6)   http://siteresources.worldbank.org/INTINDONESIA/Resources/226271-1170911056314/3428109-1174614780539/SternReviewEng.pdf

(7)  http://www.nytimes.com/2010/04/11/magazine/11Economy-t.html

Integrity in Politics: It is the purpose of this site to apply observation and reason to current events. Good government depends upon our Legislators and our voters having up-to-date and accurate information. Senator Tom Coburn is considered to be the best informed of the Oklahoma Legislators. However, some things he presented at his town hall meeting, though they play well with his base, are not supported by research. We feel that Senator Coburn should thoroughly research the topics upon which he votes and speaks and that he should provide his constituency with accurate information.

Supreme Court: When asked about the recent court appointments, Senator Coburn disparaged the latest Supreme Court Justice, Sonia Sotomayor, by claiming she had lied, a very serious accusation to make against a Supreme Court Justice – especially when wrong. Coburn said that Sotomayor had reneged on a promise made during her confirmation hearing not to use foreign law to interpret the Constitution of the United State. He used as evidence the ruling of the Supreme Court on the case of Graham v Florida, in which a juvenile offender had been sentenced to life in prison for nonhomicidal crimes.

After reading the Supreme Court response which was actually presented by Justice J. Kennedy, not Justice S. Sotomayor, it appears that Senator Coburn was actually not being honest in his presentation of the information. As shown in the section of the Supreme Court brief below, the only reference to foreign anything is that the practice has been rejected the world over. This does not refer to any foreign laws but merely reflects on our standing in how humanly we treat juvenile offenders compared to the global community to which we belong and by whom we are scrutinized and in no way reflected that any foreign law was used to interpret the United States Constitution.

This misleading charge by  Senator Coburn raises a concern about any information he uses to support his views and whether he is just another typical politician trying to manipulate his constituents with “smoke and mirrors”.  Additional support for the Court’s conclusion lies in the fact that the sentencing practice at issue has been rejected the world over: The United States is the only Nation that imposes this type of sentence. While the judgments of other nations and the international community are not dispositive as to the meaning of the Eighth Amendment , the Court has looked abroad to support its independent conclusion that a particular punishment is cruel and unusual. (See, e.g., Roper, supra , at 575–578. Pp. 29–31, 982 So. 2d 43, reversed and remanded. )

Elena Kagan: Senator Coburn also said he could not support the appointment of Elena Kagan to the court because she considers the Constitution to be a living document. Senator Coburn believes that the Constitution should be interpreted as the Founding Fathers meant it. That, however,  has been as an excuse used by some politicians and judges to interpret the Constitution as they wish and claim it is what the Founding Fathers actually meant. The Founding Fathers were wise enough to give us a mechanism for amending the Constitution and there are now 27 Amendments. The Constitution is alive and better for it.

Recess Appointments: When asked about President Obama’s recess appointment of Dr. Berwick to head the Center for Medicare and Medicaid Services (CMS), Coburn emphatically declared that it was wrong and  illegal. Yikes! Coburn should polish up on his history of the much-used recess appointment. By this same point in his Presidential career, George W. Bush had used this technique to make 15 appointments and he used it 179 times during his career. Where were those Republicans then? The last group of appointments will bring Obama’s total to 18. It has been noted that Bush was not facing the same level of obstruction.Currently, Obama has 189 nominations pending before congress and 28 have been on the floor for more than three months. Bush only had six nominees that had been waiting that long. It might also be an interesting FYI to note that even George Washington used the practice to appoint the then controversial judge John Rutledge to the Supreme Court after he had failed to be confirmed by the Senate.

Reccess Appointments are a legal practice granted to the President of the United States by the Constitution of the United States in Article II, section 2.

Some have indicated that they feel this power should only be used when the position becomes vacant during a recess but this has been adjudicated by The Eleventh Circuit, in an en banc decision in Evans v. Stephens which held that the Constitution permitted both intrasession recess appointments and recess appointments to fill vacancies that existed prior to the congressional recess.( Evans v. Stephens, 387 F.3d 1220 (11th Cir. 2004). ) Since the position filled by Dr. Berwick has been vacant since 2006 it fulfills the courts requirements and is clearly legal.

Health Care: Senator Coburn said he  objected to the appointment of Dr. Don Berwick to head the CMS as Dr. Berwick  promotes medical rationing. Coburn’s basis for this premise uses “cherry-picking“, a technique which picks out a quotation and presents it out of context. A statement that Dr. Berwick made in 2008 in an interview with the respected publication, Biotechology Healthcare has been “cherry-picked” and this partial quote has been publicized many times by zealous Republican in order to create the specter of medical rationing. Here is the partial quote Senator Coburn refers to: “The decision is not whether or not we will ration care. The decision is whether we ration care with our eyes open.”  But, here is the actual quote in context, “We make these decisions all of the time. The decision is not whether or not we will ration care. The decision is whether we ration care with our eyes open. And right now, we are doing it blindly.”

Despite what Senator Coburn might claim, that statement isn’t particularly radical. Rationing currently occurs in our health-care system as resources are limited, and medicine and medical procedures are approved or disapproved by insurance companies regardless of whether that system is privately or publicly funded. “Blindly” as used by Dr. Berwick indicates we are currently doing it badly and not with an eye to the best practices to be used for the good of the patient; and not with an eye to which practices are unnecessary and therefore unnecessarily costly; and not with an eye to what medicines, tests and equipment are provided unnecessarily and sometimes even to the detriment of the patient.

“Ezra Klein, a blogger for the Washington Post, notes that Berwick’s statement is no different than a statement from Republican Rep. Paul Ryan of Wisconsin (seen as an up-and-coming leader within the GOP), who said with respect to health care, “Rationing happens today! The question is who will do it?” www.cbsnews.com/8301-504763_162-20009880-10391704.html.
Here is another more honest Republican’s statement on Berwick’s appointment. Tom Scully, who ran the CMS under President George W. Bush, noted, “You could nominate Gandhi to be head of CMS and that would be controversial right now.” http://www.newsweek.com/blogs/the-gaggle/2010/07/07/don-berwick-appointed-to-drive-health-care-changes-sidestepping-congress.html

With the use of the “cherry-picking” technique, some Republicans appear to be using medical rationing as a scare tactic to gain support in the up-coming elections without regard for what is actually good for the patient, I mean constituents. And to make matters even worse, Senator Coburn is a doctor. He also  said that other countries have national health care at lower cost because they ration health care. He says you and your family are responsible for paying for your own health care. Isn’t that just rationing health care by using money. If you, or your family can’t pay, would he just let you die?

By Guest Author: Barbara Moore