Two Grand Bargains and Fiscal and Economic Sanity, my newest paper for No Labels

By Tom Pallow

Given that Congress must now pass a budget by April 15th, this Congress should pass two compromise budgets that together solve our debt problem and reform our healthcare system.

The first grand bargain budget should contain both new revenues and real federal savings. The new revenues should come in the form of raising the second to top personal income tax rate to 36% from 33% at $250,000 for joint filers and $200,000 for singles. But with this tax increase, as well as with the one just passed for those making over $450K and $400K, the bipartisan Collins-McCaskill Employer Tax Carve-Out for businesses with less than 500 employees should be enacted. This ETCO would protect today’s most prolific job creators and our future most prolific exporters. Analysis suggests that ETCOs would help to generate four to five times the tax revenues than would the exact same tax increase without an ETCO. In exchange for this new tax increase Republicans would receive their choice of one of the larger and one of the smaller below healthcare reforms. These reforms are not spending cuts as much as they are the elimination of regulations that will then save virtually everyone money.

The first larger reform is the right to buy private healthcare insurance across state lines. By allowing this we would permit much “healthcare cost shifting” to occur, whereby, lower Medicare and Medicaid payments to most all healthcare providers can be offset by their new found bureaucratic savings. Respected studies suggest that state insurance mandates can raise the costs of private healthcare premiums by 30% to 50%. This might translate into $3 trill to $5 trill over ten years in cost shifting and therefore government savings. The second larger healthcare reforms is the Republicans proposal to bring a private insurance option to Medicare. Some Republicans have proposed that this option to Medicare could save as much as $4.7 trillion over 10 years! Even if they are just partially right, it would be worth enacting. The first somewhat smaller healthcare reform concerns Medicare’s current inability to use their bulk purchasing power with prescription drugs. The Obama administration says that changing this will save Medicare more than $200 billion over ten years. The second smaller healthcare reform would be tort reform within Obama Care. A reasonable tort reform in Obama Care would be to civilly and criminally protect all healthcare providers when they use only the one device or procedure that epidemiological studies suggest has the highest probability of success at that time. Other much less radical tort reforms are said by CBO to be able to save about $54 billion over 10 years.

The above first grand bargain vote should also extend the debt ceiling, but for only one full year because our deficit problem will only be halfway solved. For this same reason this same vote should also enact No Budget No Pay as part of the 2014 budget process!

The second grand bargain will have to come by April 15, 2014. With this second compromise Democrats should receive a capital gains and dividends tax rate increase of 5 percentage points to 23.8% for joint filers earning over $250,000 and singles over $200,000. However, this investment income tax increase, along with that of January 1, 2013, should be enacted with Employer Tax Carve-Out. Investment income ETCOs protect and incetivize the generally 5% to 12% of financial market gains that are derived from those investments that directly fund American job and economic growth. These four financial investments are: venture capital funds and investments, bonds bought at first issue, stocks bought at IPO and secondary offering, and the underwriting of the above three investments, and these investments all have the same US employment qualifiers to achieve the lower tax rate through the carve-out. Similar to personal income tax ETCOs, it is possible that the investment income ETCO could incentivize enough domestic job growth to cause this tax increase to raise as much as four to five times the tax revenues that would exist without the ETCO. Much more on all ETCOs can be found at Republicans in this second grand bargain will receive one of the above larger healthcare reforms and one of the smaller. Yet because the smaller healthcare reform that will likely be leftover after the first grand bargain is more often supported by Democrats, that being Medicare using bulk purchasing power for drugs, the tax increase in the second grand bargain will be smaller than the tax increase in the first grand bargain.

Yet when these two grand bargains are fully implemented and our economy is able to fully adjust to them, it is possible that all together they could raise and save as much as about $15.5 trillion over ten years, which means a surplus of $4.5 trillion over our current deficit! Very importantly again, these pro-growth tax reforms and interrelated healthcare reforms would not be pulling $15.5 trillion out of our economy, they would for the most part simply be making our healthcare and tax system much more efficient and effective, which would then be adding monies to our economy. Moreover, then there would exist the $4.5 trillion that could be used in several beneficial for the country ways including braking the economic headwinds of the recent FICA tax increase. We have all already witnessed how austerity, IE, sequestrations, are now not working in Great Britain as they are now starting to experience a double-dip recession. Maybe we do not raise and save as much as $15.5 trillion over the first decade. But this is what good governments do; they enact better policies and then work on refining them. Remember, the biggest change in our lifetimes is the effective 12 fold increase in global trade that has come with the fall of communism. It is time for us to stop relying on tax and healthcare policies that are 100 years old and not built for the global economy of the 21st century!

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