March 6, 2005

G.W. Fixit

Mr. G.W. Fixit is a busy fella these days. Even though he is no where near done fixing the entire Middle East and is having no end of trouble getting started fixing Social Security, he has added another job to his “to do” list, fixing the tax system.

Okay, so I don’t like George. That’s no secret. Most of my readers like him even less. But we don’t want to act like those dog-pack Republicans did during the Clinton years. We need to give credit where credit is due and criticism where it is richly deserved. So, let’s try to objective today – at least on these three issues.

The Middle East
Sometimes it really does take a fool to rush in where wise men fear to tread, if for no other reason simply to destroy the status quo. I have no idea - though many suspicions -- just what the Bushies thought they were really going to accomplish by attacking Iraq.

We know now that the reasons given at the time were false. Did they know they were false as well? They claim to have been just as surprised as we were that there were no WMD in Iraq. But, that was the reason they said we had to attack. It was only later that they changed their motivation to “freeing the Iraqi people from a cruel dictator.”

Having said all that most Middle East experts agree that something quite remarkable is happening over there. There have been elections in Afghanistan, Palestine, Iraq and today in Saudi Arabia, of all places. (Yes, I know women can’t vote in Saudi Arabia yet, but they couldn’t vote here either for over a century either, so we should not feel smug about that.)

Last week Egypt announced it would allow real opposition candidates to run for the first time. The people of Lebanon suddenly found the backbone to stand up against their Syrian occupiers. And yesterday Saudi Arabia publicly slapped Syrian leader Assad around and sent home with his tail between his legs.

Even the Israeli/Palestinian, the Hatfield/McCoy’s of the Middle East, are suddenly getting along. Israel is about to uproot rightwing nutcase settlers for the first time. Sure it’s just a small step, but even small steps in that part of the world are remarkable.

It would be very hard to argue that all this has nothing to do with George W. Bush’s policies in that part of the world. Whatever the Neo-con’s grand plan may have been when they attacked Iraq the effect it has had is similar to what we saw when Reagan rattled the SDI saber at the Soviet Union.

The Soviets looked at Reagan and came to the following conclusion: the man is mad as a hatter. He does not care about public opinion. He is not susceptible to logic. He knows what he knows and no one is going to tell him otherwise. But above all that, he is definitely crazy.

So, believing that despite world opinion, scientific proof or threats Reagan was going to build a missile shield over the US, thereby effectively disarming the Soviet Union, the Soviets proceeded to commit economic suicide trying to beat him to the punch. At the same time Reagan, refusing to believe the post-WWII division of Europe was an unchangeable fact, began encouraging eastern block nations to free themselves from Soviet domination. ("Tear down this wall.")

At the time we thought it was just more corney Reagan cowboy rhetoric. Then it happened. Today the corney rhetoric is "Democracy is on the march." And so it appears to be.

I am not giving Reagan or Bush credit for these successes because they were well planned and well executed. On the contrary. Reagan bumbled and fumbled like the rank foreign policy amateur he was. Remember the Iran/Contra mess? Remember when he sent McFarland to Tehran with a frigging birthday cake and a bible for Ayatollah Fruitcake?

Same with Bush. What a mess he made of post-war Iraq. What a mess he made of our alliances around the world.

But what both men did was to roll a hand grenade into these respective status quo cesspools and blow the lids off them. And that changed history. The Arabs, like the Russians before them, looked at Bush and decided he was crazy. And, after he proceeded to attack two Arab countries against domestic and world opinion, they decided he, like Reagan was going to do whatever he damn well pleased. So, today we see change on the move in a region where, for centuries, change was against the law.

If you are a student of history you will know that history is not in the business of producing either unambiguous results or happy endings. So don’t look for either anytime soon coming out of the Middle East. But, whatever is happening in the Middle East right now is a lot better than what was happening. And, like it or not, be it for good motives or evil motives, Bush is the reason.

Social Security Reform
On this one I know what they are up to, and so do they. Conservatives never liked Social Security, Medicare or Medicaid, all of which they view as communist tumors growing within the capitalist system. They would like to eliminate, privatize or turn over to charities, all public services. And that’s what Social Security reform is all about, the first step in that direction.

Notice also that, at the same time they are trying to take their first real bite out of Social Security, they are also chipping away at Medicaid. Bush wants to cut $60 billion out of the program, almost all coming out of money sent to states. Medicaid is a shared program. States pay half and the feds pay half. The $60 billion Bush wants to cut will come out of the federal share leaving states to figure out how to make it up, or cut services. Most states are already stretched and will have to cut medical services to children and the poor if Bush gets his way.

Social Security is like a trusty old 1951 Chevy I had growing up. It ran great but needed an occasional bit of tinkering. Its old straight-six engine would need new rings or seals. But, a hundred bucks or so and it would run like a dream for another few years. I am certain that old green four-door is still on the road.

Same goes for Social Security. It needs some new rings, tires and an oil change. That’s all. Raise the ceiling on top earners so that all their earned income is subject to Medicare tax, not just the first 90 grand. And, raise the retirement age as demographic data indicates it is appropriate. Tie the growth in Social Security checks to the CPI not wages. That’s it. Done.

As for Medicare and Medicaid there is only one solution and the sooner we adopt it we can be done with this problem for good: a national single-payer health insurance system. Period.

Tax Reform
I just paid my taxes so this issue is fresh in my tired mind. The current tax system is a mess. It’s Rube Goldberg contraption pasted together over the decades by small armies of accountants and lawyers, all working for people looking for ways not to pay taxes. Since most of us don’t have the money to pay for our own tax-lobbyists it means we were left holding the bag.

Look no further than the Alternative Minimum Tax, ATM. It was passed by congress years ago as way to catch rich folks who had found all kinds of legal ways to avoid paying any taxes at all. The trouble is, no sooner was the ATM on the books than their lawyers and accountants found ways to avoid paying the ATM as well. The inflation set in and suddenly millions of middle class families discovered their gross income put them squarely in the sights of the ATM tax. (Under ATM you figure what your tax would have been the way you would like to file and what it would be under the ATM formula, then you get to pay the HIGHER of the two. And the ATM is always higher, often much higher.)

Screwed again.

Bush says he sees that the current income tax system is hopelessly bollixed and wants to simplify it. Conservatives, including Fed Chief, Alan Greenspan, favor a consumption tax. Such a tax can take several forms, a national sales tax or a value added tax (VAT), like they use in Europe. Liberals favor a 12%-15% flat tax on gross, unadjusted earnings.

"Many economists believe that a consumption tax would be best from the perspective of promoting economic growth - particularly if one were designing a system from scratch - because a consumption tax is likely to favor saving and capital formation," Alan Greenspan

The trouble with the sales tax is that it hits the wrong people the hardest. No matter how rich a person is he or she can only consume so much stuff each year before they are full. The rest of their earnings get invested or saved and therefore untaxed. Working folk, on the other hand, generally spend every dime they make each year, largely on essentials, meaning they will be taxed on every dime they make.

A national sales tax also hits retired folks hard since they already paid taxes on a life’s worth of earnings, including the money they saved for retirement. Now they will be taxed again when they spend that money. Not fair.

The flat tax idea may work but only if it really is flat, no exceptions. That means no home mortgage deductions, no charitable deductions, no offshore accounts, nada. If you make a million bucks you pay $150,000 in taxes and shut up about it. But, should a Wal-Mart worker earning $15,000 a year have to pay $2250 a year in taxes? No, so you see, already in trying to be fair we are going to begin un-flattening the flat tax. The working poor would have to either be exempt or we would need to extend the current Earned Income Tax Credit to more people.

The value added tax, VAT, is a bureaucrat’s wet dream. Under VAT a product or service is taxed at each stage of development or manufacture. This would require the kind of bureaucracy only the French – or old Soviets -- could love. Can you imagine?

So, I have no easy solution to tax reform. I guess if I had to choose the one I thought would be the least unfair it would be a modified flat tax that makes allowances for the working poor and working families and no one else.

Whew. I'm taxed. Time to knock off. Have a nice weekend.