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Geoff Colvin and Allan Sloan’s Vague Plan to Fix the Economy

By JLP | August 22, 2012

I just spent the last few minutes reading Geoff Colvin and Allan Sloan’s piece in the latest issue of Fortune (sorry, no link available yet).

The article started out promising in that it made it sound as though they actually had a solution for the economy. Instead, I was disappointed because there is no solution, only generalities (much like politicians give us day in and day out).

What do I mean?

Well, they start out by talking about how bad everything is right now and about how childish Washington politicians are. I agree with that.

Then, they move on to address how they would fix certain parts of the economy. The first of those is spending.

Social Security and Medicare

Medicare first…

The biggest problem in dealing with Medicare is the endgame—when people enter their final descent and are kept alive, expensively, often with no statistically significant chance of leading what most people would consider a decent or rewarding life.

I agree with that. It’s very awkward to talk about elder care. Their solutions:

We propose that if you want to use heroic measures to keep yourself or any other Medicare or Medicaid recipient alive—we’ll leave it to experts to define “heroic measures”—either spend your own money or buy a supplemental end-of-life policy from the market that will doubtless spring up if our propsal is adopted.

Not sure I’m comfortable with “we’ll leave it to experts to define ‘heroic measures'” but I understand their point. At some point it’s time to let go.

I like this but wonder where they would draw the line:

We’d also surcharge smokers and the ultra-fat for their Medicare coverage.

Seems like we would eventually cross over into the nanny state. Smokers, ultra-fat, consumers of certain foods, etc. Seems scary to me.

They move on to talk about Social Security. This is where it starts getting vague.

The fixes are simple and obvious: Bring in more money by slightly adjusting the payroll tax, and change the benefit formula to reduce benefit growth over time to the highest-income beneficiaries. Social Security tax is levied only on salary income up to $110,100 (while Meidcare tax is levied on all salary income), and that wage base rises gradually over time. Let’s raise it a little faster while also edging up the reitrement age to keep pace with increasing life expectancies. That would do it.

Questions: How much? How fast? What age?

I won’t even get into why this idea of raising the income cap while lowering the benefit amount disgusts me so much.

They briefly address lowering defense spending before moving on to…

Taxes

They use the phrase “Broaden the base and lower the rates” but they give NO DETAILS on how they would broaden the base and how they would lower the rates. One thing is for sure: their proposals would mean SIGNIFICANTLY INCREASED TAXES for my family. Why? Because they want to do away with…

• the exclusion for employer-sponsored health insurance

• the tax deduction for mortgage interest

• the tax deduction for state and local taxes and for charitable gifts

WOW! That would kill us.

I’m a reasonable person. If we want to do away with those things, fine. But, while we’re at it, why not just go with a FLAT TAX?

The authors don’t address welfare spending, which is unfortunate. Maybe that’s because this was a magazine article and not a book. Still, if I’m going to face higher taxes, I would like to see fewer people mooching off everyone else’s hard work.

Topics: Politics, Social Security, Taxes | 15 Comments »


15 Responses to “Geoff Colvin and Allan Sloan’s Vague Plan to Fix the Economy”

  1. BG Says:
    August 22nd, 2012 at 6:31 am

    The problem with trying to drastically change the tax code is that it will kill markets that have been built up around provisions in the tax code.

    For example, elimination of the mortgage interest deduction is going to crater home prices, since that deduction is a government subsidy for homeowners.

    People who own homes today will see that change as a tax increase, while people who don’t own homes will see prices drop and enter the market — so a balance will be found.

    Personally, I’m all for eliminating all tax deductions/exemptions/loopholes, and also flattening all the tax rates. At the same time, we need huge cuts in government spending in defense, social security, medicare/medicaid. 25% cut in defense and plans to eliminate social security (and other entitlements) completely.

    Also would like a PAYGO amendment in the constitution. Congress should pass the spending bills, and the IRS to auto adjust tax rates to collect in taxes every penny the government spends. Right now we have Congress passing spending bills, and that same body unwilling to set tax rates to cover their spending — so congress should be eliminated from the tax/collection side altogether.

  2. W at Off-Road Finance Says:
    August 22nd, 2012 at 8:19 am

    In general I think we do need to broaden the tax base. The numbers I’ve seen are that about 50% of households pay an effective 0% federal tax rate. That seems surprising, but with all the deductions and credits and the very back-weighted structure I can see how a low to medium income family gets there. I think almost everyone needs to shoulder some of the load, even if it’s only a few %. Perhaps a flat 5% minimum.

  3. Valkyrie Frost Says:
    August 22nd, 2012 at 12:54 pm

    The current plan seems to be to devalue the dollar through inflation while calculating the COLA Index below real world values, thus pushing tax payers into higher tax brackets. In the process, it reduces the *wealth* required to pay off the national debt while making exports more competitive with other markets.

    On the other side, I recently finished Bartlett’s “The New American Economy: The Failure of Reaganomics and a New Way Forward”, where after 180 pages, his solution to our budget problems is to implement a VAT system like Europeans enjoy.

  4. Valkyrie Frost Says:
    August 22nd, 2012 at 1:00 pm

    Not sure I’m comfortable with “we’ll leave it to experts to define ‘heroic measures’” but I understand their point. At some point it’s time to let go.

    Our healthcare system has been conditioned to to attempt to save life, even when the effort is in vain; both from a moral perspective and from a financial perspective. The problem here is that we (the customer) only realize the futility of the situation AFTER we’ve spent thousands and thousands of dollars in medical procedures.

  5. Jack Says:
    August 23rd, 2012 at 10:53 am

    “For example, elimination of the mortgage interest deduction is going to crater home prices, since that deduction is a government subsidy for homeowners.”

    The first part of that sentence contradicts the second part. If eliminating the mortgage interest deduction, then its existence is artificially inflating the prices. The homeowners are paying those artificially inflated prices. It can be argued that the prices are inflated by the value of the deduction, so the result is a wash for the homeowners.

    So who IS benefiting?

    Well, whoever benefits from inflated housing prices. Those would be the people who owned their homes prior to the mortgage interest deduction (and I don’t think there are many of them left), the people in the mortgage business (who get a percentage) and real estate agents (who also get a percentage).

  6. Jack Says:
    August 23rd, 2012 at 12:51 pm

    Here’s a simple fix — Medicare will not reimburse the last 30 days of care.

    Then, the FAMILY has to decide whether they are willing to pay for the “heroic measures.” If the family is not willing to put its own money on the line for grandma, they should not force anyone else to do it, either.

  7. Sam Says:
    August 23rd, 2012 at 2:41 pm

    “We’d also surcharge smokers and the ultra-fat for their Medicare coverage.”

    This proposal seems to be designed to penalize people for lifestyles that lead to increased medical spending. I can understand the urge to penalize people with unhealthy lifestyles, but have concerns about what is defined as an unhealthy lifestyle. For instance, if someone blows out their knee joint while competing in a marathon, should that be covered? The medical problem is related to their lifestyle, after all. Or the high school athlete that separate a shoulder in a football game, or the hiker that falls off a cliff. Again, lifestyle related.
    Or what about drug abusers, alcoholics, people with STDs or AIDS. You could argue that all of those are lifesytle related diseases. So who decides and what criteria do they use?

  8. Jack Says:
    August 23rd, 2012 at 3:19 pm

    Well, Sam, why should ANYONE be forced to pay for another’s healthcare?

  9. BG Says:
    August 23rd, 2012 at 11:51 pm

    I dont like that last 30 days idea. Instead, force the medical industry to have money back guarantees. Heroic measures work: you get paid. Heroic measures dont work: not a penny.

  10. John Says:
    August 24th, 2012 at 3:04 am

    What exactly is the Republican plan? All I hear is “trust us”. That worked real good with Bush, didn’t it?

  11. Jack Says:
    August 24th, 2012 at 11:26 am

    Well then, BG, no-one would perform the “heroic measures”!

  12. Jack Says:
    August 24th, 2012 at 11:27 am

    I hear ya, John! Kerry was going to tell us his Iraq plan after the election, too! We’re still waiting!

  13. BG Says:
    August 26th, 2012 at 12:45 am

    Jack #11) Exactly. If the doctor won’t guarantee their service, it must be because they believe it won’t work — but they will take the sucker’s money for the practice.

  14. Valkyrie Frost Says:
    August 26th, 2012 at 10:53 pm

    Most people have healthcare coverage from employment, but retirees do not have such coverage as they are unemployed. As health risks increase dramatically for the retired, insurance co.s either do not want them or change so much that the average person can not afford the rates. Ergo, we now have Medicare.

    I’ve had many relatives become sick and die over the years, some quick, others slow. All I can tell you is there is no silver bullet, no easy one-size-fits-all solution. therefore, we provide care for all cases as long as possible, sometimes even longer, regardless of expense. Yet, America is the only 1st World nation where healthcare can bankrupt you.

  15. Jack Says:
    August 27th, 2012 at 8:58 am

    “Most people have healthcare coverage from employment…”

    Which is a result of the government’s interference in the labor market. When wage controls were placed on labor during WWII, employers needed some way other to attract good workers, and so they started providing health insurance.

    Medicare has eliminated private basic-level coverage for seniors. Prior to that, such insurance existed. However, there is still a large and growing market for “MediGap” insurance. So saying that retirees do not have health insurance because they are unemployed is simply wrong; and it was Medicare that eliminated that insurance, not the lack of insurance that necessitated Medicare.

    “[We] provide care for all cases as long as possible, sometimes even longer, regardless of expense…..”

    Again I ask, if the family is not willing to pay that expense, why should they demand that someone else pay it?

    “America is the only 1st World nation where healthcare can bankrupt you.”

    Healthcare is bankrupting the other First World NATIONS!

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