Monday, February 8, 2010

Letter sent to Wall Street Journal

I have just sent a letter to the editor to the Wall Street Journal, commenting on an article published this morning by R. Glenn Hubbard, dean of the Columbia University Business School and chairman of the Council of Economic Advisors under President George W. Bush. Read the article here.

Here is my letter:

To the editor:

R. Glenn Hubbard, after reciting a standard list of bad trends, tells us that "If taxes were increased sufficiently to accomodate the CBO's projected increase in entitlement spending, long-term U.S. GDP growth rates would be reduced ...unacceptably lowering our future living standards."

There are two problems with this statement. First, since GDP growth increases pressure on finite resources and may surpass the carrying capacity of the environment, we should not assume that growth is good.

Second, Medicare, Medicaid, and Social Security increase personal security against bad fortune, which might outweigh any decrease in GDP and actually increase future living standards. People willingly accept reduced current consumption in order to buy the security provided by various kinds of insurance, and the same logic can apply to insurance purchased collectively via entitlement programs.

Hubbard does make an excellent point when he says that "the tax increases [to pay for the president's welfare state ambitions] must necessarily be broad-based. . . ." While elimination of favorable tax treatment for the rich, including the scandalous taxation of "carried interest" at capital gains rates, may help, tax increases on the general population will also be necessary. And if the reasons for these increases are properly explained to the public, it may be willing to support them.

Paul deLespinasse, Ph.D.
Professor Emeritus of Political Science
Adrian College
Adrian, Michigan 49221

Now living in Corvallis, Oregon

A "Mad-As Hell Doctor" writes in CommonDreams

Paul Hochfeld, a Corvallis doctor with whom I am slightly acquainted, has written an interesting article which appears in this morning's CommonDreams. Read it here.

A key point made by Dr. Hochfeld:

"Single payer means one risk pool. You've heard the slogan. Everyone in. Nobody out. We gather all the money that employers and individuals are currently paying for health care. It's not more money. It's the same money, already being spent on health care, but by pooling it, we can save 20% right off the top."

This may be true, but two key problems standing in the way of such a reform are:

1. Because of the current financing of medical care largely through "employer-paid" insurance which does not show up on individuals' pay stubbs as income most people are not aware how much this insurance is already (indirectly) costing them.

2. Nobody has come up with a system for capturing "all the money that employers and individuals are currently paying." How to get from here to there may be the most troublesome question facing reformers here.

Tuesday, February 2, 2010

Letter to Andrew Tobias

The Wall Street Journal's summary of the proposed budget (page A-5) this morning notes that "Fund managers would lose the ability to claim capital-gains treatment on certain income by using "carried interest" rules."

This is wonderful!

We have discussed this before, and I hope you will lead the cheers for this proposal and see what you can do to discourage Senator Schumer from helping shoot it down again. This situation is absolutely disgraceful. President Obama should announce that he will veto any legislation that does not incorporate this reform.

Although this would be a drastic change, I wonder if we do not need to change federal tax law so that ALL (and I do mean ALL!) income is taxed at the same set of rates without regard to its source. This may be the only way to avoid gross unfairness in favor of those with the money to hire creative tax lawyers and CPAs to figure out how to exploit existing loopholes and lobbyists to implore Congress to create new ones.

If it proves impossible to get Congress to discipline itself on this matter, it might be interesting to bring a lawsuit based on the equal protection component of the due process clause of the Fifth Amendment to see if the courts will rule that discriminatory tax rates for different kinds of personal income are unconstitutional.

I am aware that the favorable treatment of capital gains helps compensate for the taxation of asset price increases caused by inflation. However a more appropriate remedy for that problem might be to index capital gains. Or if that is too unwieldy, perhaps we should just tax the inflationary gains, figure that a little injustice cannot be avoided, and hope that creating a class of wealthy and influential people with a strong interest in preventing inflation might have beneficial results for everyone.

Paul F. deLespinasse, Ph.D.
Corvallis, Oregon