Dec 092012
 

So with all this cliff talk and the “growing”/theoretical insolvency at some point in the future, I got to thinking and doing a little math as it relates to entitlements and alike since the statistics aren’t hard to find, with much of my baseline math coming from general welfare statistics and budget allocations.  My assumption is that we don’t fundamentally change any benefit – just the qualification of said benefit.  Modest changes and only for those that are able bodied.  The goal is a better educated population, a more productive economy and a better sense of community through participation.

  • Why Should we provide entitlements for anyone regardless of their contribution?
  • Shouldn’t some amount of return be provided from the citizenry receiving entitlements?
  • Shouldn’t there be some minimal baseline requirements around education or directional intent from participants?
  • Is there a minimum contribution required for all?

Premise

We need a basic floor by which no citizen falls, but that citizen needs to provide some contribution back and into the system and we need a fiscal policy which rewards active participants in the community/economy, while balancing the load across the wage base.  To that end, I’ve done some analysis which might make entitlements more appropriate, bring in more revenues and support equal opportunity for those producing for the country.

Entitlements: BIG DOLLARS, no constraints!

Source: http://upload.wikimedia.org/wikipedia/en/2/2b/U.S._Federal_Spending_-_FY_2011.png

It’s About Contribution and Participation to Gain Benefits

1.56T is a big number, but there are also the tax credits we provide for producers and consumers alike.  Mortgage deductions, earned income credit and charitable contributions.   The challenge I have with entitlements, isn’t that they exist.  We owe a minimum to our citizens – SNAP, Housing assistance, education, security and opportunity, but it’s a trade – they have to produce and contribute to our society.

Perhaps we should consider the following minimal qualification for any government program or credit:

  1. Minimum Education levels
  2. Minimum Production: Monthly Hourly Contribution
  3. Citizenship
  4. Limits on eligible dependents
  5. Minimum hours/investment into your social security account

Minimum Education levels

Perhaps it should be a requirement that all household members have a GED or equivalent for ANY entitlement, including social security.  Let’s say that all people over 45 are exempt.  Roughly 42% of ALL recipients of welfare have no GED.  So let’s say that 70% of these folks obtain their GED during some grace period, say 18 months.  That could be a savings of $100B annualized going forward which would probably decrease over time where worst case EVERYONE gets a GED and we are in theory better off with some increase in overall education levels and skills.

Minimum Production: Monthly Hourly Contribution

The average welfare recipients hourly contribution to production is on average 800 hours per year.  That pretty low.    To that end, anyone under Social Security qualification age must have say 1400 hours in wage generation or community service.  Hours spent in education would qualify for participants under a given age – say 35.  Let’s say that 3% of the people fall off the dole due to this – that’s a cool $25B savings forever and at $8 an hour in value let’s call it $100B in increased contribution to the community and production annually.

Citizenship

Even with the somewhat paltry number at $10B annually, it’s still a reasonable thing to stop.  This would include people claiming dependents on their tax returns, even if not receiving traditional entitlements.

Limits on eligible dependents 

The concept here is that, we all make choices for good or ill.  Whether they are faith based, desire to have kids or just out of unpreparedness, there is a limit the government should support with tax credits and entitlements.  Do whatever you want, but credits are applicable to the number of children associated with say – 3 birth events.  You have three deliveries for 3 kids, it’s 3 kid limit.  If you have 6 with 3, you get 6.  Fourth birth event equals ZERO.  I know this is a rounding error, but it’s a good constraint.  Choices have consequences.  Let’s call this – $50M.

You Have to Pay Something to Get Social Security

I’m not including disabled folks, they are out of the equation.  It is however reasonable to think you can’t get social security unless you’ve paid in at least $80,000 over your lifetime, as an exception you can just right a check for the gap to be included.  Let’s say 3% don’t hit that, that’s ~$20B in ongoing savings.

Qualifications for entitlements shouldn’t be just that you live here, it should center on your participation while your living here – socially and economically.

The Credit Problem

While we look at entitlements, there are credits which represent a challenge from a cost perspective.  Two of the biggest which should be closed/modified are non-trival – the earned income tax which costs $269B a year and the mortgage tax credit @ $83B according to NPR.

Earned Income Tax Credit

I agree this is important, but should only be applicable to tax owed and allow no refunds based on the credit.  Which to the best of my ability looks to be $59B.

Mortgage Interest Deduction

Can we just eliminate this? “About two-thirds of the total benefit go to that group in the 80th through the 99th income percentiles,” so if you want to own a home, you should be able to afford the taxes.  Stretching home ownership creates a bubble and risk of collapse, I think we learned that.  So let’s take the current $83B back.

Conclusion

By requiring a certain set of criteria and limits on entitlement consumption all productive community members will have a minimum amount of subsistence and the subset who don’t reach the bar, that’s a sad thing, but that should be the domain of charity, not community.

My math indicates that these measure, at conservative math saves about $295B or reduces entitlements by over 18% which providing value back to the community.  Worst case, it stays flat and we have more production.  Couple that with law and taxation changes I’ve talked about before, we can get to a budget which pays down the deficit by as much as $.5T more than what we are paying now in as quickly as 7 or 8 years, while running a no deficit budget from year 1.

Oct 142011
 

So watch this video and understand lack of facts and a focus on desires and dreams won’t work.

I understand this kid’s frustration and desire, but he’s not using facts. Most of the arguments are wishes and emotions. Let’s start using facts to get heard and understood.

Facts and Counterpoints You Should Use

  • The US DOES have the highest corporate tax rate or nearly the highest on the planet

Counter Point: Since the US has the highest tax rate, corporations are encourage to dodge taxes, use foreign tax shelters and move jobs to other countries to minimize impact to their bottom line.  #OCCUPY folks should agree and acknowledge corporations are there to generate profit for the investors, which many of them are through their 401K’s or other investment tools.  (I know many of you don’t have such, but many do, they just are as big as they used to be due to greed)

  • Education in the US is expensive and slipping in quality compared to other countries, except at the elite private schools.

Counter Point:  The standardized teaching models which are administered by the federal government are creating an environment and citizenry which is ill prepared to achieve success in many schoold districts, due to teaching to the test, rather than the needs of the students, the community or realities a given economic situation.  While K-12 teaching models are increasingly test based, even those who succeed in this model find it difficult to afford college.  To that end, the government should afford the opportunity to high performing students to have merit based access to higher education opportunities.

  • The rich 1% doesn’t pay their fair share!
Counterpoint:  #OCCUPY acknowledges that the current taxation system puts an unfair burden on many segments of the population, in fact the top 1% pay north of 40% of all taxes.  That being said, the current business climate, taxation model and federal administration overhead makes the distribution of these funds uneven and inequitable for many segments of the population.  A system which not only taxes income, but consumption taxes is needed to more fairly tax individuals, corporations which impacts all based on their impact on natural resources, use of infrastructure and the sourcing of goods which generate profit.
  • Debt growth is a choice that was assumed by the debtor, not the corporation which gave someone a loan.

Counterpoint: Federal programs, loose lending policies and lack of oversight created an environment where financial institutions preyed on individuals which extended their debt beyond their ability to pay in a time of hardship.  While this situation did involve the decision making of a individual, the market which was created by lack of oversight artificially increased price, based on the time proven supply and demand model of free markets.  Increased oversight and debt relief (not erasing debt, resetting debt at market values or changing terms of existing agreements) is needed to limit future foreclosures and a second iteration of the bubble most recently observed in financial markets which was created by this lack of oversight of marginal mortgages.

  • The quality of healthcare in the US is one of the highest on the planet, but access is a challenge for many.
Counterpoint: The currently modeled Obamacare has flaws, but healthcare is a right for all (that whole LIFE, liberty thing…).  While is it agreed that no one goes without emergency care, it is important that our country provide preventative care to avoid the costly care associated with late stage detection of an illness.  A healthy population increases the productivity of the nation, improves the quality of life and drives additional revenue for all constituents – the people, the country and corporations.
  • The current system of entitlements/support for the ill, elderly, unemployed and disabled is not working due to administrative overhead, fraud and consumption by non-citizens.
Counterpoint: Access to help and support is not focused on providing the necessary housing, welfare and skills to allow individuals and families to become self-sufficient.   A means based and contribution based model is needed which allows individuals to give back to the community and develop skills which provide value to the community in return for support.   Services and aid should be limited to citizens, have strict qualifications and require active participation in the community, should ones receipt of such entitlements be a long term/multi-year dependencies.  The system should be overhauled to use the most current technology to reduce costs, enforcement and administration to free up resources to better support the populous.
  • Increased government growth and more stimulus does not drive the same benefits that can be achieved in the open markets from a jobs perspective.  The average small business and corporation will create a new job for every $140,000-$180,000 in revenue, where as the US government is north of $220,000 per job
Counterpoint: The current economic stimulus model and leaning towards socialism has proven not to be effective in the US markets.  To drive job creation the US government should support the lending to small businesses and reduce tax rate to encourage the retention and creation of jobs in the US.  We are not promoting socialism, but economic growth and freedom from predatory corporate activities.
I’m sure there are other points which need to be stipulated to gain credibility and to get more air time on mainstream media.  The other thing which is impacting the credibility of the Occupy movement is word choice.  The words being used today surely are charged and create a level of camaraderie while on the ground and on the streets, but it just isn’t playing well with those of us which are doing our part – paying taxes, creating jobs and making sure the next generation/our children have the skills for succes and contribution to the country.  So here is a list of words you shouldn’t use and why.
  • Fat Cats: What exactly is a fat cat?  How about you use a term like wealth hoarders.
  • Evil Corporations: How about you just name corporations which did bad deeds and enumerate their deeds like Bank of America
  • “The Rich”: What exactly is rich?  I know plenty of people making over $500K and they are on the verge of losing their homes and have lost  much of their retirement just like YOU.
  • Millionaires/Billionaires: I’m sure you know this, but isn’t this the goal of the american dream? I’m also sure you know people like George Soros, Bill Gates, Ted Turner and many others have given much of their wealth to charities.
  • Greed: Maybe we should focus on criminals, not greed. I mean where does greed start and end? 10% profit? 100% profit?  People at farmers markets make 200-300% profit, the issue is scale right?  I think corruption and criminal actions should be the mantra.
  • Capitalism is Bad: I think you really mean theft and criminal actions is the issue.
Here is a better way to position the issues:

We should also put a plan in place for how to manage, address and improve the situation, not just complain.