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The five key challenges must be successfully addressed, even as America faces a situation where the tailwinds of increasing debt and favorable demographics which it has enjoyed for decades increasingly become headwinds. Econometric models will be far too optimistic because they are based on historical correlations taken from a time when the favorable tailwinds of increasing debt and favorable demographics predominated. Therefore, the amount of change required is far greater than that generally assumed. To meet America’s challenges, implement the reforms. In the end, one can only consume what one produces. America consumes more than it produces. When America consumes more than it produces, America becomes poorer. What standard needs to be adopted to stop this from happening? All activities must be evaluated on their value-added. The value of the outputs must exceed the value of the inputs – the more, the better. Of course, every activity is not to be judged solely by its economic return. But in an America flooded with cheap money, Americans stopped asking themselves whether or not they were getting value for the money the government spent. And it was easier for politicians to show how much they cared by supporting ever higher spending regardless of whether the spending made sense or not. The effectiveness that mattered most was: will this spending help me get re-elected? Finally….
Americans must get rid of special privileges for special interests. America is controlled by many groups of government cronies ganged together in a loose oligarchy. The oligarchs include activists, predatory lawyers, the education edifice, public employee unions, the financial industry, the health care industry, the military industrial complex and the list could go on and on. The oligarchs control politicians, bureaucrats and judges. They also control the media, communicating their carefully crafted messages to influence the people to support their preferred policies. Election Day determines which cronies will control vast resources via virtually unlimited government power until the next election. The oligarchs appropriate for themselves a disproportionate share of America’s riches, leaving less for others. Redistribution of wealth is needed so that the unprivileged masses can have more. But the left-wing socialists’ definition of “redistribution” means a larger government taking more from some groups and giving to others. What is really needed is “undistribution”; that is, a smaller government that revokes the oligarchs’ special privileges so that opportunities along with their attendant income and wealth can flow to those who currently have no voice in the corridors of power. This is especially necessary for the young people who otherwise can’t get a start in life. Those with government-protected advantages are hurting others. The damage to the others wasn’t visible when there was a tailwind of increasing debt and favorable demographics. Now that the tailwind has backed around to a headwind, the damage is very visible. If the oligarchs would surrender their government-granted special privileges, the resources freed up would support lots of opportunities for others. This surrender would not reduce the special interests to anywhere near poverty, though the special interests will claim otherwise. If these special privileges are not revoked, the others will not prosper.
When the reforms are implemented, households will be helped. Household budgets are constructed from income and expenses. Income is regulated by the need for competitiveness. Your income depends on what everyone else is charging. You cannot charge significantly more than others or people will hire the others and not you. The total cost of local labor to an employer includes gross pay, shown in the approximate center of the slide; plus employer-paid benefits mandated by the free market or by government; plus employer-paid taxes like the payroll tax, unemployment insurance and workers compensation. It is this total cost that is balanced against the cost of technology or “foreign” labor in deciding whether or not to hire local labor and what to offer for compensation.
Anyone who has ever received a paycheck knows the difference between gross pay and take-home pay – the amount of money a worker actually receives after subtracting taxes and other deductions like health insurance premiums. Some households may receive assistance from government social welfare programs and/or charity. That total income must cover the cost of living. The higher the total income is relative to the cost of living, the higher the standard of living can be.
The trend over time is that cheap “foreign” labor puts pressure on local labor’s wages. The decreasing cost of technology will continue to put increasing pressure on wages. To combat this trend, we must employ two strategies. First, local labor’s competitiveness versus technology or “foreign” labor must be maximized by minimizing local labor’s total cost so that it is as close to take-home pay as possible. In particular, minimize or eliminate government-mandated employer-paid benefits and taxes on labor. Second, local labor’s standard of living must be maximized by minimizing the cost of living. This will allow local labor to better compete with technology and “foreign” labor. Do not artificially raise wages because that reduces the competitiveness of local labor, increasing the attraction of hiring “foreign” labor or replacing local labor with technology.
When the reforms are implemented, jobs will be created. The key is to reduce the cost of labor which will increase the demand for labor. The cost of labor is the sum of wages, benefits and employer-paid employment taxes. The reforms relieve employers of the need to provide health insurance, so that expense is eliminated. The reforms eliminate the Medicare payroll tax. The reforms also eliminate the employers’ Social Security tax. If all the reforms were implemented, the employers cost to hire employees would decrease by about $800 billion per year. According to the Debt Reduction Task Force, which relied on a Congressional Budget Office analysis, a one year complete Social Security tax holiday would create 2.5-7 million jobs over two years. The total amount of money saved by employers in Fix America’s Future is as much as Social Security’s payroll tax revenue and it is all employer savings rather than split between employers and employees. Also, it is permanent, so employers will plan accordingly. Therefore, job gains should be larger than the Task Force/CBO estimate.
When the reforms are implemented, business competitiveness will be improved. This illustration shows the current revenue, cost and profit structure for a hypothetical company versus the future revenue, cost and profit structure because of reduced employee costs. The figures are on a per employee basis. Decreased employee benefit and tax costs allow profitable activity with lower revenues – that is, prices – without reducing wages. This will improve competitiveness and should open up many new business opportunities. Other proposals in this book affecting things like taxation and regulation will further improve competitiveness.
It is true that people must pay VAT and VMAT and sin taxes on purchases. Average final prices (including consumption taxes) may rise somewhat. The supplemental income for families will reduce the impact of these taxes on low-and middle income households.
When the reforms are implemented, the standard of living will be improved. First, lower costs will offset MC’s consumption taxes, on average. MC will raise consumption taxes, but the higher costs will be offset by lower costs from the elimination of payroll taxes, sales taxes, gross receipts taxes, current “sin” taxes and current health insurance premiums; a reduction in out-of-pocket health care expenses and other taxes and charges; and reform of the legal and regulatory systems. The net impact of these changes will be roughly zero.
Having offset increased consumption taxes for MC with decreases elsewhere, the second priority is further reductions in the cost of living which will be achieved by making housing more affordable by modifying building and zoning codes to better match household needs; higher energy efficiency standards; reforming utility regulation; and making communications like TV, Internet and phones including mobile phones cheaper. Transportation costs will be reduced by vehicle mileage standards and driverless vehicles. The quality of living will improve because of universal health care with more competition. The result will be $100s or $1,000s of savings per year for everyone.
The income for lower income workers will increase because of the supplemental income for families or SIF. For example, an adult making $14,000 per year will receive $1,400 per year. A lower cost of living plus universal health care means a higher standard of living for everyone without jeopardizing people’s jobs by increasing the cost of labor through laws like the minimum wage law.
When the reforms are implemented, the trade deficit will be closed. How will that be accomplished? First, by cutting petroleum imports by 80% through a combination of decreasing oil use by 60% and increasing domestic production. Second, the previous slides illustrate how U.S. companies could be more competitive on price than before. If that translates into a 10% decrease in non-energy imports and a 10% increase in exports, the trade deficit will be closed, all other things being equal. And this doesn’t include other proposals that will reduce the cost of production and make U.S. companies even more competitive by fixing: the excessive size and cost of government, including compensation; taxation that discourages production; excessive regulation; a costly and inequitable legal system; a costly education system with uneven quality; a costly health care system with uneven quality; and inadequate infrastructure.
This table shows the predicted changes in revenue, spending, and other impacts on the federal government including Medicare, Social Security, Medicare Choice, state and local governments, and the private sector. Private sector effects include direct changes in cash flow plus improvements in efficiency. In the long-term, the reforms close the deficit while being approximately revenue-neutral across federal, state, and local governments. These reforms fully fund Social Security retirement by improving financing by about $225 billion per year. Government expenditures on health care are increased by about $119 billion per year. Infrastructure spending is increased by about $93 billion per year. And federal government education expenditures are increased by about $319 billion per year with state and local government education expenditures decreased by a comparable amount. The cost estimates are approximate and need to be verified. Significant variation in individual numbers is expected but it is believed that they will sum to something close to the estimated amounts.
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