Friday, November 18, 2011

Who can best spend my money?


Grover Norquist, the president of Americans for Tax Reform (an anti-tax lobby), asked a millionaire visiting the U.S. Capitol, “Who can best spend your money, the government or you?” The millionaire was part of a group of high-earners visiting members of Congress to lobby for higher taxes on high earners.

The quick thinking millionaire remarked that if Norquist wanted to avoid paying taxes, he should exchange his citizenship for Somalia citizenship and move there since Somalia has no income tax.

Where do you want to live, Somalia or the United States?

For me, the choice is easy. I want to live in the United States. I enjoy the multiple benefits of living in a society in which the rule of law prevails, rights and freedoms are respected, most basic social services are provided (e.g., transportation, good governance, and public education – healthcare being the exception) and at least the rudiments of a social welfare safety net exist.

Consequently, I am happy and grateful to pay my taxes. Most of what government provides I could not purchase on my own. Furthermore, outsourcing of government functions has generally proven, over time, to be more expensive than the government continuing to directly provide the service.

Does the United States need to take better control of federal finances? Absolutely. I’ve written previously about the need to fix Social Security and a relatively simple, painless way to do so (Ethical Musings: Expand Social Security? ).

Fixing healthcare is more difficult, but still feasible, especially if approached systematically. Without basic healthcare, rhetoric about the right to life is meaningless gibberish. Ensuring access to adequate healthcare is basic. Current estimates of the administrative overhead caused by multiple billing systems range from 20% to 50% of all healthcare spending. Implementing a single payer system to healthcare immediate reaps 75% or more of that overhead as a cost savings without any reduction in the level or type of care available. Implementing outcomes based healthcare system to prevent useless treatments and tests will probably save similar amounts. For other ideas on healthcare cost control, read Ethical Musings: Supporting healthcare reform and Ethical Musings: Half-truths about healthcare and U.S. founders.

U.S. defense spending is out of control. The escalating emotional language in which proponents of maintaining or even increasing the defense budget frame their arguments is reminiscent of what happened in the 1960 U.S. presidential campaign. Both Nixon and Kennedy emphasized the “missile gap” alleged to exist between the U.S. and the U.S.S.R. when no such gap existed. The U.S. never lost its superiority over the U.S.S.R. in ballistic missiles and nuclear warheads. Eisenhower knew this, but failed to speak out.

Today, much defense spending is either wasteful or unnecessary. For example, Mitt Romney (not known for being advocating deep cuts to defense spending) has identified some of the waste in his speeches. For example, at the height of WWII, the U.S. procured 1000 ships per year with a staff of 800. In 2011, 24,000 Department of Defense (DOD) employees oversee procurement of just 9 ships per year. Similar over-management plagues all aspects of DOD procurement. In an upcoming post, I argue that sin remains endemic to the human condition. No number of regulations and oversight employees – no matter how excessive – can completely eradicate waste, fraud, and abuse in government procurement. Redundant, vain efforts to achieve that impossible goal result in much wasteful spending, indicated by the number of personnel who oversee ship procurement.

Furthermore, the political-military-industrial complex (first identified by Eisenhower in the waning months of his presidency as the military-industrial complex) has become an almost unstoppable juggernaut that relentlessly pushes procurement of new and extremely expensive weapons systems. The F-35 Joint Strike Fighter is the latest of these efforts. No other nation has warplanes that match the capability of current U.S. warplanes. In other words, the F-35 simply improves the U.S. lead in warplane superiority. Scheduled procurement of 2400 planes over the next decade will cost a projected $400 billion. The U.S. could better spend these monies on healthcare, transportation infrastructure, debt reduction or leave them in taxpayers’ pockets.

In sum, the nation could probably halve the DOD budget without harming national defense.

Fixing Social Security, healthcare, and defense largely fixes the nation’s fiscal problems. Keeping the current tax rates while eliminating most (all?) deductions and other loopholes would put the nation on a secure and stable fiscal footing.

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