The Fiscal Tide, health care
- 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.
From: email@example.com [mailto:firstname.lastname@example.org] On Behalf Of John Steinberger
Sent: Tuesday, October 31, 2006 3:58 AM
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.
----- 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.
Surfside Beach, SC
http://apnews. myway.com/ article/20061028 /D8L1OC5G0. html
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GAO Chief Warns Economic Disaster Looms
Oct 28, 12:32 PM (ET)
By MATT CRENSON
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
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
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 -
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
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
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,"
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