New Year, New Approaches?

Americans woke up this morning with news that the Senate had passed a bill which would avoid the nation going over the fiscal cliff.  Well, sort of.  At least not right now, unless…

The Senate bill increases taxes on those earning more than $400,000, grants a two month delay on “sequestration”, eliminates the AMT for most Americans, and a bunch of other small items.  It’s a small bandaid on a big problem.  And the House may reject it anyways, and then it might be over the cliff.

On the positive side the Senate bill does represent a step forward, albeit a very small one.  The bill completely ignores the real problems at hand.  Why do we have a deficit and why can’t we pay for it?

The deficit results from government expenditures which far exceed tax revenues.  Simple.  So how has this come about?

The deficit has resulted from mainly the Bush tax cuts, two unfunded wars, and an exploding Medicare/Medicaid policy.  All of this was known and the consequences were all clearly predictable.  Our elected officials chose year after year inaction rather than the leadership we should expect.

At the end of the day, however, the deficit is not Congress’ fault.  It is our fault for not demanding better from them.

The Bush tax cuts were tantamount to a selfish, greedy act by all Americans.  Lower taxes which were cleverly constructed in favor of the already rich played right into the average person’s preference to pay lower taxes and spend more on themselves.  No one asked what these cuts would do to the national budget.  Times were good, so let’s just enjoy them more.

The two unfunded wars represented a double pox on our homes.  First, it made it easy to avoid asking the hard questions about whether these wars were necessary.   And second, it allowed us to overlook our responsibility to someday have to pay for them.  Now it time to pay and no one thinks they have enough money to cover this obligation.

But by far the largest component of the current deficit is Medicare/Medicaid.  Since America has chosen a health care delivery system where profit rules at all levels of care, America stands alone in the world with the most expensive health care per capita, where not everyone is covered, and where the average outcomes are mediocre compared to all other modern countries.  As a result, America needs two supplementary plans to ensure coverage for the elderly and the poor, Medicare and Medicaid.  These programs are essential (in our system) and they must be paid for.

But how?

It may be possible to tweak Medicare and reduce its costs slightly.  These is, for sure, possibilities in both Medicare and Medicaid to reduce inefficiency and outright fraud (most estimates put the savings at 10-15%).  These is, however, no getting around the fact that more revenue is needed.  How about a consumption tax?

How about creating a national sales tax where the proceeds flowed to the Medicare/Medicaid bank account?  While this is probably regressive, it is no more so than eliminating the Bush tax cuts across the board and then adding necessary wage roll taxes to make up the short fall.

A national sales tax enables individuals to elect to save what little discretionary money they have or to purchase and pay a small sales tax.  Bringing more money home and then choosing how you would spend it seems to me a lot more palatable than having the extra money taken from ones pay first.

There is a big trap with this approach.  With the government armed with a national sales tax now able to pay more for Medicare/Medicaid, what will keep the providers from simply charging more?  And this is a valid worry.  But do we have a choice?

Given the current discussions, it looks inevitable that the fiscal cliff will be approached with mouse bite size measures.  America will limp along sinking slowly deeper and deeper into debt.

A bold step forward, however, would be to combine a national sales tax with a reform of the US health care delivery system.  Take the role of businesses out of providing health insurance and eliminate both Medicare and Medicaid.  Institute means tested co-pays and deductibles while keeping health care providers private businesses.  Fund the new national health care system with a national sales tax and create a medical board to oversee provider fees and services (like referencing what is available in the 15-20 countries with already better health outcomes compared to the US).

OMG.  If we did that we might have a health care system that looks like Germany, France, Canada, Japan, and many others.  Everyone would be covered, health care outcomes would be no worse and possibly better, and the per capita cost would decline.

All this is possible despite the pathetic efforts we witnessed last evening in the Senate.  It is a new year after all.


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