Tag Archives: incentives

Why Bother to Vote?

This is an important election for voting partly because the election is anticipated to be close, but mostly because the next four years include many important events: two supreme court appointments, a likely resolution of the war in Iraq, and countless policy decisions. Some of the policy decisions will determine the balances of privacy vs. security, environment vs. production, social security vs. privatization, and national healthcare vs. insurance, just to name a few. We need help to decide on a course for this country. Show your support for the troops and for this great country. Make the small sacrifice to vote.

I’m an American who cares about fairness and wants to know the facts. I did not put this letter together to try to convince you to vote for one candidate or the other. Instead, I put his letter together in the hope that other interested Americans will think about the issues and make up their own minds. Bush and Kerry differ on some important issues, and when you vote you will be endorsing a style of policy that will shape the next few years of American progress.

There has been exaggeration and misrepresentation in both campaigns, but let’s set that aside for now. My personal feeling is that both Bush and Kerry are great Americans, dedicated to their visions of a bright future for this country. On many issues, both candidates share the same position, but I’ll try to focus on some of their differences.

The Political Parties

In general, Democrats are stronger supporters of the working middle class and public social services. Democrats generally believe that America is best served by strengthening the working class, reducing poverty, and enforcing a fair global economic environment that includes protection for the planet. They prioritize social programs and American workers more directly, and American companies less directly. Democrats generally try to balance economic growth with social priorities in order to achieve a sustainable and fair playing field for all Americans. Democrats have a long history of supporting civil rights, equal rights, labor rights, and the environment. Democrats tend to be more socially liberal and prefer a larger role for government. Democrats encourage a work ethic, and generally disapprove of a culture of inherited class elitism. In this election, Kerry is promising policies aiming for continued public social security, expanded workers’ rights, international fair trade, national healthcare, public support for the problems associated with poverty, and environmental protections.

(More detail: http://www.democrats.org/issues/ and http://www.johnkerry.com/)

In general, Republicans are stronger supporters of American business and social charity. Republicans generally believe that America is best served by strengthening the role of corporations who will compete to be good at what they do, better than a government agency. They prioritize the profitability of American companies more directly, and social programs and American workers less directly. Republicans generally push for more privatization and “trickle-down” economics, as made popular by Ronald Reagan. Trickle-down economics is based on the idea that if you put more wealth in the hands of the rich, then this wealth will encourage investment and economic growth. Republicans tend to be more socially conservative and prefer a smaller role for government. Privatization of social security, healthcare, and social safety nets puts those services in the hands of private institutions that compete with other institutions and constantly become more efficient. For example, rather than increasing public support for the problems associated with poverty, religious charities have been authorized to receive federal tax money to support their social services. Republicans encourage a work ethic, and generally support the right for families to amass wealth so that future generations of their family can have advantages.

(More detail: http://www.gop.com/GOPAgenda/ and http://www.georgewbush.com/)

Let’s not assume that either political party is right about every issue or wrong about every issue, but instead look at each of the issues in its own detail.

The Economy

Based on spending, American consumers are the most important factor in the US economy. Enabling Americans to be stronger consumers is the cornerstone of economic growth. Assuming that is the goal, how do we get there?

The wealthiest 2% of Americans do not generally increase their spending very much when they grow their wealth; this may be because they already buy what they want. In order to maximize economic growth and consumer spending, put more money in the hands of the bottom 98%. Democratic policies historically do this better than Republican policies. In practice, trickle-down economics has had mixed reviews: widespread and severe poverty occurred during Reagan’s presidency, and job growth during these periods has generally been less than expected. In America’s history of occasional depression and recession, the strongest recovery in economic production and standard of living happens when the working class is supported more directly. Growing consumer spending will mean growing corporate sales, and that leads to growing profits. This typically means companies will want to invest and grow their production, and hire additional employees. These same policies that enable Americans to be stronger consumers also result in rising real estate prices, rising corporate profits, and broader participation in the stock market.

This recent recession started in March 2000, over a year before the World Trade Center attacks. Job growth in recessions is almost always ugly. This time, it was ironically made worse by the extraordinary growth in productivity that came from the internet. Companies are suddenly capable of much more production with many fewer employees. Managing the economy through a recession is a difficult task, and is primarily the responsibility of the Federal Reserve, not the President. Taxes are one way that the President can try to assist in economic recovery, but the FED funds rate – the tool that guides mortgage rates, corporate debt rates, and the appreciation of consumer debt – is much more of a factor. Alan Greenspan seems to be doing a good job of manipulating the FED funds rate and making clear statements so that businesses can plan for rate changes. Job loss during this Presidency is almost certainly not the fault of President Bush. The Republican agenda of tax cuts probably helped reduce the impact of the natural economic cycle that President Bush inherited.

Privatization

As a nation, we are deciding whether we want social security to be a public right, or a product citizens have to buy. We are deciding whether healthcare should be the responsibility of the employer or the government. And we are deciding whether the government should provide social services or rather rely on private organizations to fulfill that responsibility.

The issue of the privatization of social security is subjective; it depends on your perspective about who should be covered under social security. It also depends on the details of the products available under privatization, and how inclusive it can be of every American. Currently, social security is available to everyone, IRAs are available to every American who is able to contribute money into it, and 401(k)s are available to those who both work for a company offering a 401(k) and are able to contribute. The trend so far has been less than perfectly inclusive, and this indicates to me that privatization is likely to let some Americans fall through the cracks. Bush’s agenda calls for ending the 67 years of increases in social security, and instead adding voluntary personal retirement accounts that individuals would fund themselves. How you feel about that is a personal preference. My own feeling is that there should be a balance with both public and private social security. Public social security should provide a reasonable level of income during retirement for those who need it, and private systems like IRAs should be available to encourage additional retirement savings.

The healthcare issue is very clear: some of it should be nationalized. America is the last developed nation NOT to have some form of national healthcare, and this is a huge competitive disadvantage for US employers. This is one of the major reasons for outsourcing – foreign employees do not require expensive healthcare benefits. The more social benefits we tie to employers, the more outsourcing will be a compelling choice, and the more American companies will be at a competitive disadvantage. The issues is even more clear for children: they are restricted from working by child labor law, making health insurance unavailable to them unless provided by a parent. Currently, there are 9 million American children (about 13% of American children) without health insurance. On this point, the Democratic agenda is on the right track. The leading criticism of this point is cost, so the question is: is it worth it? I discuss health care and tax policy below.

As for the privatization of social services, the only religious organizations to receive federal tax money to date have been Christian. As a Christian I appreciate the support, but as an American I am saddened to see the end of the separation of church and state. I think that the separation protected both church and state. I am also saddened to see the apparent rejection of religious diversity in social services. Further, I would hope that people who are experiencing the pains of poverty are not forced into religious organizations; that should always be optional. The Republican push to replace public social services with religious organizations is scary to me. I don’t know if it will be better for America, but the historical evidence seems strong that when governments rely on (and finance) religious groups, both become corrupted.

Concentration of Wealth

Because of the policy styles of the two political parties, they have different impacts on how broadly wealth is distributed in America. The Democratic party generally tries to reduce the concentration of wealth (broadly distribute wealth) more than the Republican party. The concentration of wealth plays a role in economic growth and employment, crime rates, and just about every aspect of American society. The primary tools government uses to manipulate the concentration of wealth are tax and healthcare policies. Policies that distribute wealth and power more broadly are sometimes called “socialist”, while policies that concentrate wealth and power too much are sometimes called “fascist”. Both of these names are misleading. In a capitalist democracy, a wide range of policy decisions can set the stage for incentives and fair business; we’re still working to find the best balance.

Tax Policy

Under the Bush tax cuts, investors are now paying 15% tax on income from capital gains. Meanwhile, income from work is taxed about twice as much. I think this is wrong. Income is income. If we are going to encourage one kind of income over the other, then we should be encouraging income from work. Investors may argue that they have already earned this money and paid taxes on it so it should not be taxed again. This is true; remember that you only pay tax on the new income. The original amount you invested is not considered income and is not taxed again.

Estate taxes were created along with child labor laws, voting rights for women, and the establishment of an income tax during the Progressive Era (1900-1918). The question of whether we should we maintain estate taxes or eliminate them is a subjective question. Rather than make this point myself, let me defer to the words of President Franklin Roosevelt: “Great accumulations of wealth cannot be justified on the basis of personal and family security. In the last analysis such accumulations amount to the perpetuation of great and undesirable concentration of control in a relatively few individuals over the employment and welfare of many, many others. Such inherited economic power is as inconsistent with the ideals of this generation as inherited political power was inconsistent with the ideals of the generation which established our Government.” President Bush’s agenda for estate taxes is to reduce the estate tax over time to nothing, and in the next 4 years, his agenda is to make this permanent. If this happens, families of vast wealth will effectively be an elite class, removed from the rest of Americans by the virtue of birthright.

Bush’s economic agenda for the next 4 years also includes eliminating the tax on dividend income (http://www.gop.com/GOPAgenda/AgendaPage.aspx?id=2). If this is passed, those who receive dividend payments will not pay any taxes on that income, giving them an after-tax raise of more than 50% (35% tax leaves 65%. Going from 65 to 100 is a 53.8% gain). That personal income will no-longer be contributing to the government revenues, and the shortfall will accumulate against us all in the form of budget deficit. If stopping the double-taxation of dividends is the goal, the correct way to deal with it would be to make dividend payments a deductible expense just like any other cost of doing business.

These recent tax cuts have been very effective in getting money back into the hands of Americans, but have put us into growing debt. The budget deficit is important because the national debt must someday be paid down, with interest. This is one of the most important factors that determines the value of the US dollar and international confidence in American investments. With extensive history and other nations as examples, we clearly see that as the debt gets bigger, we will experience inflation, not be able to buy as many foreign goods, and see less international interest in our stock markets. The U.S. budget deficit in 2004 will hit a record $445 billion, according to the White House. Not only would this be a record deficit, but also an unprecedented fall from record surplus.

Data source: http://www.cbo.gov/showdoc.cfm?index=1821&sequence=0

Instead, if income from all sources is simply taxed as income, then tax policy will be much more fair and government revenues will be higher. On this point, the Democratic agenda to roll back such specific portions of the recent tax cuts is the right step. The timing, however, is sensitive: increasing taxes during economic recession can make problems worse. In any event, the Federal Reserve (not tax policy) is the primary mechanism for managing economic recession.

Personally, I believe that one step to bring the nation’s growth rate up toward its potential would be to eliminate federal income taxes on Americans living in poverty. The poverty rate was 12.5% of all Americans in 2003. The numbers are even worse for children: 17.6% of Americans under the age of 18 are living in poverty (http://www.census.gov/hhes/income/income03/prs04asc.html). I hope you will agree that these numbers are too big. These Americans often disappear in our society and are not very well represented in politics: they may not apply for jobs or vote, they often do not have health insurance, they often do not pay taxes on the money they do earn; they hide from the system because the system demands taxes that they can’t afford to pay. If the system was designed to recognize and assist them, asking nothing but lawfulness, they would be more likely to work. Once the downward spiral of joblessness and poverty can be broken, the upward spiral of employment and fulfillment can begin. Increasing the workforce and reducing structural poverty is clearly in the interest of America.

Healthcare Policy

In recent decades, healthcare costs are the second leading cause of personal bankruptcy, behind job loss. In every other developed nation there is a form of national healthcare, and it has improved their countries in both an economic and social sense. Economically, companies can hire domestic employees and still compete internationally because they are free from the large burden of employee health care. Socially, a healthier population is more active, more productive, and has lower risk of personal bankruptcies (better credit). Finally, better access to healthcare for all Americans would have additional benefits because early diagnosis and treatment is an important advantage in medicine. More patients would receive treatment before their conditions became life-threatening and expensive emergencies.

National Security and the War on Terror

In this election, national security and the war on terror are major issues. However, the parties do not seem to diverge in meaningful ways on this matter. Both Bush and Kerry agree that the war was an appropriate action, must be continued, and that we must “win the peace” by transitioning power and freedom into the hands of the Iraqis. The only major area of disagreement seems to be the timing of when we went to war. Kerry voted to authorize the President to go to war, but he did not assume that President Bush would go to war immediately. He incorrectly assumed that the President would first use his authorization as a negotiating tool in the UN before exercising the military. President Bush decided that waiting was not worth the risk posed by the possibility of WMD. It does us little good to look back and blame anyone for what they should have known or how they would have voted if we had perfect intelligence at the time. Kerry says that he would still have voted to authorize the President to go to war knowing what he knows now. And Bush is also proud of his decision to go to war knowing what he knows now.

By the way, Kerry’s vote against the $87 billion funding bill for the war was a political gesture of protest that is more complicated and interesting than the stories that have become popular. Senator Kerry and Senator Joe Biden (D-Del) had proposed an amendment to the funding bill that would pay for the $87 billion by delaying some of the recent tax cuts. The White House threatened to veto the entire $87 billion bill if the Kerry-Biden amendment was passed. The senate was clearly going to pass the bill to fund the troops, but could not accept the possibility of a White House veto. Because the senate vote was so clear, Kerry made a political protest by voting against the bill (http://abcnews.go.com/sections/WNT/Politics/tapper_kerry_040319.html) This practice is common in the Senate.

Senator Kerry has experience in the Vietnam war as a soldier, and he should be honored for that service to his country. President Bush has experience in the war on terror as Commander in Chief, and he should be honored for that service to his country. They both displayed strength and patriotism in the face of terrifying times.

I do hope that in our war on terror, we can retain the civil liberties that make America the land of the free. Search and seizure, wire tapping, and mandatory ID cards are the same government practices we criticized in Russia during the cold war. Benjamin Franklin said, “They that can give up essential liberty to obtain a little temporary safety deserve neither liberty nor safety.” (source)

Now let’s get a little perspective on American terrors. Almost 3000 people died in the attack on the World Trade Center. It was a traumatizing event for me, as it was for many, many people. It was unexpected and tragic. But should that be our biggest fear? What is likely to kill you? And what is likely to kill other Americans?

In 2001, the same year as the World Trade Center attacks, the following were the leading causes of American deaths: