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The Fiscal Tide, health care

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  • Aaron Schutte
    From: Philip Hinson [mailto:PLH001@comcast.net] Subject: RE: [scfairtax] The Fiscal TIde John & John: The FairTax would address this situation in a number of
    Message 1 of 1 , Nov 2 12:42 PM
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      From: Philip Hinson [mailto:PLH001@...]
      Subject: RE: [scfairtax] The Fiscal TIde


      John & John:

      The FairTax would address this situation in a number of ways.  As John Steinberger points out, there is approximately 10 to 11 trillion $$ trapped offshore by our current tax system. 


      In addition, the FairTax directly addresses perhaps the biggest problem discussed in the article, which is the demographic situation with respect to Social Security and Medicare.  If we convert to the FairTax, we convert the revenue base for those programs from payroll to a broader based tax on the entire economy.  This gets right at the essential problem with these social safety net programs, which is that the number of people working and having payroll deductions is going to shrink as a ratio of those retired and receiving benefits from the program over the next few decades as the “baby boomers” retire.  If we double the US economy over the next 15 years, which is suggested as a goal with tax reform as a cornerstone of that strategy, then we double the revenue base from which to pull SS and Medicare taxes from.  If we stick with a payroll tax base, there is no way that revenue base expands to that extent.  Therefore, the FairTax goes a long way toward alleviating this pressing problem.


      Another problem that the article points to is the spiraling upward of health care costs.  Our current tax system is a major contributor to this situation.  Because of the tax code, most people get health coverage through their employer, with employers picking up a major part of the cost.  Many employees don’t bear the full brunt of health increases, except perhaps through premium increases and then the insurance companies are often blamed.  The fact is that many Americans have come to view health coverage as an entitlement and, if not free, then they are certainly partially shielded from the impact of cost increases.  Congressman Linder has made the point that there is one area of medicine which has not experienced cost increases greater than inflation for the past couple of decades.  That area is cosmetic surgery.  I’m sure many of you have guessed why its price increases have been more modest: it isn’t covered by insurance.  Our dysfunctional health care reimbursement system is a by product of our dysfunctional tax system.  Get rid of our antiquated and horribly inefficient tax system and you make a major step forward in “fixing” the rapid increase in health care costs because our tax system has operated to insulate health care from normal market forces.


      BTW, even though I referred to our health care reimbursement system as “dysfunctional”, that certainly isn’t true for our health care delivery system, which is the world’s best.  We have to keep what we do best and improve what isn’t the best.


      Phil Hinson 



      -----Original Message-----
      From: scfairtax@yahoogroups.com [mailto:scfairtax@yahoogroups.com] On Behalf Of John Steinberger
      Tuesday, October 31, 2006 3:58 AM
      To: scfairtax@yahoogroups.com
      Subject: Re: [scfairtax] The Fiscal TIde


      There is no question that Fair Tax will stem the tide.  The is an estimated $11 trillion in U.S. dollars stashed in offtax tax shelters to escapte our tax code.  Those folks could find better investments in the U.S. if tax consequences are removed here.


      John Steinberger


      ----- Original Message -----

      From: J Bultmann

      Sent: Sunday, October 29, 2006 1:59 PM

      Subject: [scfairtax] The Fiscal TIde


      Wouldn't implemeting the Fair Tax reverse the cash
      flow pouring out of this country and save it
      financially, if not buy us some time? Because, if I
      understand this article, I sense that the heads of
      these Central Banks sitting there holding their hands
      are beginning to eye each other waiting to see which
      one is going to fold, place their cards on the table
      and leave the room...to use a poker analogy.
      Scary stuff.
      -John Bultmann,
      Surfside Beach, SC

      http://apnews. myway.com/ article/20061028 /D8L1OC5G0. html
      ------------ --------- ----
      GAO Chief Warns Economic Disaster Looms

      Oct 28,
      12:32 PM (ET)


      AUSTIN, Texas (AP) - David M. Walker sure talks like
      he's running for office. "This is about the future of
      our country, our kids and grandkids," the comptroller
      general of the United States warns a packed hall at
      Austin's historic Driskill Hotel. "We the people have
      to rise up to make sure things get changed."

      But Walker doesn't want, or need, your vote this
      November. He already has a job as head of the
      Government Accountability Office, an investigative arm
      of Congress that audits and evaluates the performance
      of the federal government.

      Basically, that makes Walker the nation's
      accountant-in- chief. And the accountant-in- chief's
      professional opinion is that the American public needs
      to tell Washington it's time to steer the nation off
      the path to financial ruin.

      From the hustings and the airwaves this campaign
      season, America's political class can be heard
      debating Capitol Hill sex scandals, the wisdom of the
      war in Iraq and which party is tougher on terror.
      Democrats and Republicans talk of cutting taxes to
      make life easier for the American people.

      What they don't talk about is a dirty little secret
      everyone in Washington knows, or at least should. The
      vast majority of economists and budget analysts agree:
      The ship of state is on a disastrous course, and will
      founder on the reefs of economic disaster if nothing
      is done to correct it.

      There's a good reason politicians don't like to talk
      about the nation's long-term fiscal prospects. The
      subject is short on political theatrics and long on
      complicated economics, scary graphs and very big
      numbers. It reveals serious problems and offers no
      easy solutions. Anybody who wanted to deal with it
      seriously would have to talk about raising taxes and
      cutting benefits, nasty nostrums that might doom any
      candidate who prescribed them.

      "There's no sexiness to it," laments Leita Hart-Fanta,
      an accountant who has just heard Walker's pitch. She
      suggests recruiting a trusted celebrity - maybe Oprah
      - to sell fiscal responsibility to the American

      Walker doesn't want to make balancing the federal
      government's books sexy - he just wants to make it
      politically palatable. He has committed to touring the
      nation through the 2008 elections, talking to anybody
      who will listen about the fiscal black hole Washington
      has dug itself, the "demographic tsunami" that will
      come when the baby boom generation begins retiring and
      the recklessness of borrowing money from foreign
      lenders to pay for the operation of the U.S.

      "He can speak forthrightly and independently because
      his job is not in jeopardy if he tells the truth,"
      said Isabel V. Sawhill, a senior fellow in economic
      studies at the Brookings Institution.

      Walker can talk in public about the nation's impending
      fiscal crisis because he has one of the most secure
      jobs in Washington. As comptroller general of the
      United States - basically, the government's chief
      accountant - he is serving a 15-year term that runs
      through 2013.

      This year Walker has spoken to the Union League Club
      of Chicago and the Rotary Club of Atlanta, the Sons of
      the American Revolution and the World Future Society.
      But the backbone of his campaign has been the Fiscal
      Wake-up Tour, a traveling roadshow of economists and
      budget analysts who share Walker's concern for the
      nation's budgetary future.

      "You can't solve a problem until the majority of the
      people believe you have a problem that needs to be
      solved," Walker says.

      Polls suggest that Americans have only a vague sense
      of their government's long-term fiscal prospects. When
      pollsters ask Americans to name the most important
      problem facing America today - as a CBS News/New York
      Times poll of 1,131 Americans did in September -
      issues such as the war in Iraq, terrorism, jobs and
      the economy are most frequently mentioned. The deficit
      doesn't even crack the top 10.

      Yet on the rare occasions that pollsters ask directly
      about the deficit, at least some people appear to
      recognize it as a problem. In a survey of 807
      Americans last year by the Pew Center for the People
      and the Press, 42 percent of respondents said reducing
      the deficit should be a top priority; another 38
      percent said it was important but a lower priority.

      So the majority of the public appears to agree with
      Walker that the deficit is a serious problem, but only
      when they're made to think about it. Walker's
      challenge is to get people not just to think about it,
      but to pressure politicians to make the hard choices
      that are needed to keep the situation from spiraling
      out of control.

      To show that the looming fiscal crisis is not a
      partisan issue, he brings along economists and budget
      analysts from across the political spectrum. In
      Austin, he's accompanied by Diane Lim Rogers, a
      liberal economist from the Brookings Institution, and
      Alison Acosta Fraser, director of the Roe Institute
      for Economic Policy Studies at the Heritage
      Foundation, a conservative think tank.

      "We all agree on what the choices are and what the
      numbers are," Fraser says.

      Their basic message is this: If the United States
      government conducts business as usual over the next
      few decades, a national debt that is already $8.5
      trillion could reach $46 trillion or more, adjusted
      for inflation. That's almost as much as the total net
      worth of every person in America - Bill Gates, Warren
      Buffett and those Google guys included.

      A hole that big could paralyze the U.S. economy;
      according to some projections, just the interest
      payments on a debt that big would be as much as all
      the taxes the government collects today.

      And every year that nothing is done about it, Walker
      says, the problem grows by $2 trillion to $3 trillion.

      People who remember Ross Perot's rants in the 1992
      presidential election may think of the federal debt as
      a problem of the past. But it never really went away
      after Perot made it an issue, it only took a breather.
      The federal government actually produced a surplus for
      a few years during the 1990s, thanks to a booming
      economy and fiscal restraint imposed by laws that were
      passed early in the decade. And though the federal
      debt has grown in dollar terms since 2001, it hasn't
      grown dramatically relative to the size of the

      But that's about to change, thanks to the country's
      three big entitlement programs - Social Security,
      Medicaid and especially Medicare. Medicaid and
      Medicare have grown progressively more expensive as
      the cost of health care has dramatically outpaced
      inflation over the past 30 years, a trend that is
      expected to continue for at least another decade or

      And with the first baby boomers becoming eligible for
      Social Security in 2008 and for Medicare in 2011, the
      expenses of those two programs are about to increase
      dramatically due to demographic pressures. People are
      also living longer, which makes any program that
      provides benefits to retirees more expensive.

      Medicare already costs four times as much as it did in
      1970, measured as a percentage of the nation's gross
      domestic product. It currently comprises 13 percent of
      federal spending; by 2030, the Congressional Budget
      Office projects it will consume nearly a quarter of
      the budget.

      Economists Jagadeesh Gokhale of the American
      Enterprise Institute and Kent Smetters of the
      University of Pennsylvania have an even scarier way of
      looking at Medicare. Their method calculates the
      program's long-term fiscal shortfall - the annual
      difference between its dedicated revenues and costs -
      over time.

      By 2030 they calculate Medicare will be about $5
      trillion in the hole, measured in 2004 dollars. By
      2080, the fiscal imbalance will have risen to $25
      trillion. And when you project the gap out to an
      infinite time horizon, it reaches $60 trillion.

      Medicare so dominates the nation's fiscal future that
      some economists believe health care reform, rather
      than budget measures, is the best way to attack the

      "Obviously health care is a mess," says Dean Baker, a
      liberal economist at the Center for Economic and
      Policy Research, a Washington think tank. "No one's
      been willing to touch it, but that's what I see as
      front and center."

      Social Security is a much less serious problem. The
      program currently pays for itself with a 12.4 percent
      payroll tax, and even produces a surplus that the
      government raids every year to pay other bills. But
      Social Security will begin to run deficits during the
      next century, and ultimately would need an infusion of
      $8 trillion if the government planned to keep its
      promises to every beneficiary.

      Calculations by Boston University economist Lawrence
      Kotlikoff indicate that closing those gaps - $8
      trillion for Social Security, many times that for
      Medicare - and paying off the existing deficit would
      require either an immediate doubling of personal and
      corporate income taxes, a two-thirds cut in Social
      Security and Medicare benefits, or some combination of
      the two.

      Why is America so fiscally unprepared for the next
      century? Like many of its citizens, the United States
      has spent the last few years racking up debt instead
      of saving for the future. Foreign lenders - primarily
      the central banks of China, Japan and other big U.S.
      trading partners - have been eager to lend the
      government money at low interest rates, making the
      current $8.5-trillion deficit about as painful as a
      big balance on a zero-percent credit card.

      In her part of the fiscal wake-up tour presentation,
      Rogers tries to explain why that's a bad thing. For
      one thing, even when rates are low a bigger deficit
      means a greater portion of each tax dollar goes to
      interest payments rather than useful programs. And
      because foreigners now hold so much of the federal
      government's debt, those interest payments
      increasingly go overseas rather than to U.S.

      More serious is the possibility that foreign lenders
      might lose their enthusiasm for lending money to the
      United States. Because treasury bills are sold at
      auction, that would mean paying higher interest rates
      in the future. And it wouldn't just be the
      government's problem. All interest rates would rise,
      making mortgages, car payments and student loans
      costlier, too.

      A modest rise in interest rates wouldn't necessarily
      be a bad thing, Rogers said. America's consumers have
      as much of a borrowing problem as their government
      does, so higher rates could moderate overconsumption
      and encourage consumer saving. But a big jump in
      interest rates could cause economic catastrophe. Some
      economists even predict the government would resort to
      printing money to pay off its debt, a risky strategy
      that could lead to runaway inflation.

      Macroeconomic meltdown is probably preventable, says
      Anjan Thakor, a professor of finance at Washington
      University in St. Louis. But to keep it at bay, he
      said, the government is essentially going to have to
      renegotiate some of the promises it has made to its
      citizens, probably by some combination of tax
      increases and benefit cuts.

      But there's no way to avoid what Rogers considers the
      worst result of racking up a big deficit - the outrage
      of making our children and grandchildren repay the
      debts of their elders.

      "It's an unfair burden for future generations, " she

      You'd think young people would be riled up over this
      issue, since they're the ones who will foot the bill
      when they're out in the working world. But students
      take more interest in issues like the Iraq war and gay
      marriage than the federal government's finances, says
      Emma Vernon, a member of the University of Texas Young

      "It's not something that can fire people up," she

      The current political climate doesn't help. Washington
      tends to keep its fiscal house in better order when
      one party controls Congress and the other is in the
      White House, says Sawhill.

      "It's kind of a paradoxical result. Your commonsense
      logic would tell you if one party is in control of
      everything they should be able to take action,"
      Sawhill says.

      But the last six years of Republican rule have
      produced tax cuts, record spending increases and a
      Medicare prescription drug plan that has been widely
      criticized as fiscally unsound. When President Clinton
      faced a Republican Congress during the 1990s, spending
      limits and other legislative tools helped produce a

      So maybe a solution is at hand.

      "We're likely to have at least partially divided
      government again," Sawhill said, referring to
      predictions that the Democrats will capture the House,
      and possibly the Senate, in next month's elections.

      But Walker isn't optimistic that the government will
      be able to tackle its fiscal challenges so soon.

      "Realistically what we hope to accomplish through the
      fiscal wake-up tour is ensure that any serious
      candidate for the presidency in 2008 will be forced to
      deal with the issue," he says. "The best we're going
      to get in the next couple of years is to slow the

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