Fixing America, Part IV

All right folks, as promised, here's part IV. I'm going to try to keep this one short, because I'm also writing a paper on organized begging and human trafficking in Vienna, which you'll soon be able to view online by clicking the link to "grad school papers" on the sidebar.

This section is supposed to cover a lot: budget and current account deficits, debt, and America's labyrinthine tax system. Luckily, all of these issues are related (isn't it funny how they all ended up on my part IV?). Once again, I will suggest some unpopular changes that probably would not be implemented, but hey, my job's to point out realistic solutions (in the sense that they are completely doable) to problems, it's the politicians' job to get it done.

So here we go: introduce a federal value-added tax system (VAT) like the ones seen in almost every other developed country in the world. Much of deficit-reduction will be tackled by measures mentioned in previous installments (individual private health accounts, later retirement age, paying social security benefits only to those who actually need them, etc.). A VAT is a tax that is applied to goods and services every step of the way. Sounds like it would accumulate, but it doesn't. Look at it like a chain: Producer A sells raw materials to producer B. Producer B pays a 10% VAT to producer A, who is obligated to deliver that amount to the IRS. HOWEVER, it will probably end up getting to keep much or most of the money. Everything producer A spends money on, from machinery, to contractors, to services, requires producer A to pay a VAT. Producer A simply writes down all that it has paid in VAT for business purposes and gets to keep that amount from the  VAT it has collected from sales. It sounds complicated, but it's actually much easier to manage than a system of tax-exemptions, which all have to be approved, revised, etc. What a headache!

Producer B then sells its finished goods to the retailer. The retailer pays VAT to producer B, who gets to keep whatever VAT from those sales that it has also spent doing business. The same applies to goods sold by the retailer. In this way, only additional value added at any given stage is taxed, so the effect is not cumulative.

OK, fine, by why is this good? It's good for two reasons. The main one is that studies show that taxes on consumption slow growth less than taxes on income because taxes on income reduce your incentive to work and earn more. The second reason is that a company has to pay VAT to keep VAT, it has an incentive to pay VAT and report this, which makes fraud a bit more difficult.

There are always a few problems, and the main one here is this: consumption taxes are regressive, meaning they tax the poor at a higher rate (as a percentage of their total incomes) than the rich. This, by the way, is another way America is more "liberal" than much of Europe: America's tax system is actually more progressive! In any case, addressing this problem is fairly simple: exempt certain necessities from the VAT, like necessary food items (not potato chips, soft drinks, and TV dinners), clothing items under $50 apiece, prescription medications, etc.

This would allow America's income tax rate to be cut and/or exceptions to it to be removed, making the system simpler (it's one of the most complex and frustrating in the world at the moment, costing individuals and businesses a lot in tax consulting services and wasted time). At the same time, this would help encourage growth and wouldn't be overly regressive.

The other issue to be addressed is also addressed with this tax: America's current account deficit. A current account is made up largely of a country's trade balance. America imports quite a bit more than it exports. This could be due partly to the fact that America taxes income too much and consumption too little when compared to other countries. True, America is likely on the road to rebalancing as we speak, since consumers have no scope to boost consumption in the near future, but this might be a pleasant side-effect of a tax that would otherwise be beneficial anyway.

Nancy Pelosi had indicated last year that a VAT was "on the table." Since then, the discussion has been dropped. It's unpopular because it contains the word "tax," particularly hated by conservatives, and because it's regressive, which makes it unpopular with the left. If combined with income tax cuts, tax simplification, and exceptions to protect those who would be most adversely affected, I think the tax could appeal to a broad base of legislators... if they could explain it to the public. Maybe we can give it some ridiculously long name that excludes the word tax? Those plans are usually stupid, but Congress seems to like them anyway...

Who knows Ronald Reagan?

I am starting to become frustrated with the Right's persistent attempts to drag Ronald Reagan's policies back onto the main political stage. The McCain/Palin ticket resurrected the idea of Ronald Reagan to energize their base during an election year, and now the Republicans and Tea Party Movement continue to carry the torch, insisting that we need to return to the Reagan years. President Reagan had a lot of fascinating accomplishments during his Presidency. His foreign policy was a remarkable step forward. His economic policy, however, was much more controversial, and if we are just looking at some hard numbers, it baffles me why we are even bringing up the Reagan name if we are debating the Country's most crucial issue: fiscal deficits. I think we are at the point where no one really remembers what Ronald Reagan actually did during his presidency, which is the perfect storm for meaningless political rhetoric.

Most people remember Reagan's top-down approach to the economy with steep tax cuts, but he also oversaw one of the first real expansions of the deficit, which should cause us to shun his policies in light of today's issues. The Reagan legacy brought such phrases as "supply side economics" and "trickle down" to the national political conversation. This approach is centered on cutting taxes and government spending so individuals can reinvest in the economy. Similar to George H.W. Bush, Reagan was successful in cutting taxes dramatically, especially for the most wealthy Americans, but his true failure was the hard part: cutting spending. We often talk about the unprecedented growth in the national deficit from the Bush Jr. years, but rarely do Republican spinsters mention Reagan's inability to control federal spending. The deficit more than tripled under Reagan's watch, an unintended reality, but still a result of his leadership. Choosing a President that served more than TWENTY years ago may allow Republicans to augment reality, but it cannot escape a simple fact check. At the very least, they should shy away from a politician that made many of the same mistakes that led us to where we are today.

I would like to end with an entertaining video from last week:

Sure Pamela Geller is making a total idiot of herself, and, sadly enough, this interview sparked an embellished controversy about this non-issue, but there is a bigger point here. I think this exchange really drives home how difficult it is to put words in the mouth of a deceased President. It doesn't matter where you land on the political spectrum, if you thought Reagan was a great President or single handedly destroyed our economy, his policies from days ago are really no longer relevant. We shouldn't be asking what would Reagan do, or care about what he would think. We have today's problems, today's leaders, and today's America. We should start coming up with solutions that are tailored to the present instead of trying to turn back the hands of time... Or at the very least, if we are going to look back, can we at least pick a President who actually DID cut the deficit?!?

Blue Dogs and Tea Parties, Will New Forces Be For Good?

President Obama made a promise to the American people: a new era of political compromise. With the rise of splintered factions of Democrats and Republicans, I bet the President is now wishing for an old era of bipartisanship. The Blue Dog Democrats and the Tea Party Movement have accumulated massive power to taker control of progress (or lack there of) in Washington. As we look at the potential of these two movements, we can begin to see if they will they be a positive influence of compromise, or a paralyzing force of roadblocks.

President Obama made the following comments during his presidential acceptance speech, his promise to America.

“Let us resist the temptation to fall back on the same partisanship and pettiness and immaturity that has poisoned our politics for so long. Let us remember that it was a man from this state who first carried the banner of the Republican Party to the White House - a party founded on the values of self-reliance, individual liberty, and national unity. Those are values we all share, and while the Democratic Party has won a great victory tonight, we do so with a measure of humility and determination to heal the divides that have held back our progress. As Lincoln said to a nation far more divided than ours, "We are not enemies, but friends...though passion may have strained it must not break our bonds of affection." And to those Americans whose support I have yet to earn - I may not have won your vote, but I hear your voices, I need your help, and I will be your President too[1].” (Emphasis added)

I do not think the new President could have ever expected what would happen during his next 12 months in office. Not only did he experience the entrenched factions within his own volatile party, but triggered the rise of a new, powerful, faction within the GOP.

The President made a few mistakes within his first year that triggered a rapid deterioration in the fragile cohesion within congress. It all comes down to the two emphasized words in his speech, “humility” and “determination,” with not enough of the former and too much of the later. I have been working within local government for a few years now. If nothing else, I have learned to manage my own expectations and set achievable goals. Obama thought he could reverse the course of the Country's hardest issues at breakneck speed. His determination to meet an unrealistic timeline was his own trap. As deadlines slipped, he lost his momentum and became vulnerable to a strong wave of attack from the right (and the left, I might add - IPE pundit). This past summer, he should have shown some humility issuing from this rookie mistake, set a new pace for his agenda, and taken a moment to readjust his priorities. Instead, he isolated the party on healthcare, pushing hard on a Democrat-centric solution, far from the Obama we knew from the campaign.

The State of the Union was a good attempt to reset the agenda, but the tone has already been set; and his speech was far from showing any humility. The President has lost a year without any real progress on his agenda and the political backlash from his first year in office may have changed the political landscape for a long time. Both major parties are now splintered. Blue Dog Democrats gained significant power from the healthcare debate, representing a less liberal, more centrist approach to spending. Representing a more extreme end of the political spectrum, the rise of the Tea Party Movement seems to be a growing force in America, and even has the potential to give birth to a new political party.

The Blue Dogs have the potential to bring balance to legislation as long as they bring reasonable compromise to the debate. If played correctly, the more center-leaning legislation can create a more moderate view of the Democratic Party. This is effective only if the Blue Dogs can be seen as part of a united front supporting certain legislation, instead of eating each other alive for political gain. If this new power is of true compromise, bringing legitimate objections WITH legitimate solutions to the table, they can be a strong force for good, centrist legislation. I have yet to really see this positive influence, but the possibility is there.

Unlike the Blue Dogs, which I think are a short term reaction to Obama's missteps, the Tea Party has some staying power. Now unofficially led by my favorite master of misdirection and rhetoric, Sarah Palin, new polls show the Tea Party brand is more valuable than the GOP. Still loyal to her party, Sarah resisted the idea of a Tea Party separation in her keynote speech at the Tea Party Convention last night, but I think this view can definitely change based on Sarah's future political ambitions. For whatever insane reason, Sarah is able to control her political/celebrity persona so well that she could definitely develop the Tea Party Movement into the Tea Party... Party! If she continues to lose support within the GOP this could be a platform to spring into a larger political career. Given the Movement's current distance from the center, and its choice of spokeswoman, I think this this new party has the potential of being a strongly polarizing force. Is the Rogue Maverick even capable of compromise?

Our Country seems to do best when we head down the center of the road. I see the Blue Dogs as a potential force for good, keeping the extreme liberal side of the Democratic Party in check, as long as they keep their own egos in check along the way. Unfortunately, if the Tea Party Movement is going to step in line behind Sarah Palin, I can only see that as a decisive, destructive force. Without compromise, I cannot see the potential for any real progress in this country, but let's hope I am wrong.

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[1] “Barack Obama's US Election victory speech: full text” http://www.telegraph.co.uk/news/worldnews/northamerica/usa/barackobama/3383629/Barack-Obamas-US-Election-victory-speech-full-text.html

Liberal Europe?

It doesn't matter who you talk to: Europe is considered to be "liberal." Republicans dislike it for that reasons, democrats plan trips there for that reason. But is Europe really so liberal? Before we begin, it's important to note that there is no "Europe" as a single concept. It seems most people seem to be referring to France when they speak of it. There are a lot of countries over there though.

My first example: 2nd and co-parent adoption laws regarding same-sex couples. As far as I know, there is no country in Europe where they are legal. Yet in my home region of the US, legislation passed almost uncontroversially around a decade ago in numerous states allowing gays to adopt children together as a couple. Even in the few countries that have allowed same-sex marriages (like the Netherlands and Spain), adoptions are not part of the deal. "Separate but equal?"

Then let's take religious expression. France has been a bastion of illiberalism in this regard for a while. Recently, a committee recommended banning the burqa in many public spaces in France. Supporters contend that this is merely an assertion of France's long-standing separation of church and state. I like separating church and state and don't feel that any religion should have anything to do with any government decisions. I am disturbed when political candidates talk about their faith (or even go so far as to say they talk to god themselves). But banning freedom of religious expression takes this too far. After all, the result might be that the women are then not permitted to leave the house by their ultra-conservative husbands. The problem is a spread of fundamental Islamic ideas. It makes absolutely no sense to fight illiberalism with illiberalism!

The next point is racism, integration, and acceptance of other people. Here, Europe scores poorly once again. True, this is mostly for historical reasons ("French" and "German" are nationalities, not just citizenships). Europeans claim they are not used to immigration. There is some truth to this, but it is no excuse for the xenophobia immigrants can experience there. Immigrants living in Germany and France take a much longer time to feel at home in their host countries than those in the United States, and many of them never feel at home at all, stuck instead between two worlds. This is largely the source of unrest among immigrant communities in Europe (think of burning cars on the outskirts of Paris or increasing criminal difficulties in Neukölln in Berlin).

Finally, there are inheritance laws. In most, if not all, of continental Europe, you have to bequeath property to all your children. You could not, say, decide to leave all your possessions to your best friend, who had looked after you better than your deadbeat kids. You HAVE to give your property to your kids. This is in the name of "fairness" and was originally intended to break up aristocracies by splitting land into smaller pieces. This may have made sense in the past, but it seems alarmingly un-free now. And yet: there is no desire to change these laws. Continental Europeans are content with them.

Keeping all this in mind, perhaps you ought to be careful next time you talk about Europe being a "liberal" place. Just because there may be bare breasts in some advertisements there does NOT make it "liberal"!