1. Why do you think people should be more aware of Tax Policies implemented at Federal level?
Federal tax policy has enormous, though often hidden effects on people’s lives. For example, Federal income tax breaks for housing (such as the home mortgage interest deduction) may have contributed to the real estate price bubble that culminated in 2008 with the financial crisis, recession, and thousands of Americans losing their homes due to bankruptcy.
2. Are you happy with the present Federal Tax policy? What changes do you think are needed to make it better?
Current U.S. Federal income tax law is overly complicated, inefficient and unfair. I would support the replacement of the current system with a progressive consumption tax that would be much simpler and more efficient while preserving the current level of tax progressivity. Unfortunately, with low public understanding of tax issues and the overwhelming power of interest groups in Washington, D.C., this is unlikely to happen.
3. How serious is the budget deficit issue for the U.S.? How does it impact Americans on a daily basis?
The deficit is a very serious medium to long-term problem. Its main current adverse impact on Americans is that the government could not as aggressively address the 2008 recession as would have been possible had we entered the crisis with the large budget surplus that we had in 2000 – and that was dissipated through the gratuitous adoption of reckless and bad policies, such as adopting huge tax cuts that were unaffordable in the long run while waging two wars and adopting an enormously costly Medicare prescription drug benefit with no financing whatsoever. That’s like someone on a fixed budget deciding to work and earn less, while also buying an expensive new house and sports car while also going on multiple costly vacations.
The impact of the deficit will be felt much more down the road, when it may very well lead to hyperinflation and a collapse of the dollar, producing a financial crisis much worse than that of 2008 through the present. There may also at this time be massive cuts in items such as infrastructure repair, healthcare spending, and Medicare / Social Security for seniors. The only way to get ready for this is to save as much as possible and hold it in diversified assets that are relatively immune to inflation.
4. What action do you think should be taken immediately to tackle the huge government budget deficit? What should be done for the long run?
Nothing can be done while the political system is still dysfunctional. Also, in my view the Republicans, who went stark raving mad around 1994 and have only gotten worse since then, need to return to sanity. In the Reagan and George H.W. Bush years, the parties were able to address deficit problems through cooperation. But the Republicans, I believe, would rather sink the country (as they are already sinking California) than agree to responsible bipartisan cooperation of the sort that Reagan did every single year from 1982 through the end of his term and Bush senior did several times as well.
What’s basically needed is a balanced package of cuts in the unsustainable growth rate of federal entitlements, and also in military waste, along with sustainable tax increases. If we had a responsible political system, the fix would probably include enactment of a federal value-added tax (VAT), such as those which all other countries with advanced economies have. A ‘VAT’ is a sales tax, but with better administrative features (discouraging cheating) than the retail sales taxes that are familiar at the state and local government level in the U.S.
5. What views do you have about the healthcare debate? Do you think the government should adapt a universal health care system?
Properly designed universal healthcare would likely be better than what we have now, which in a sense mixes the very worst features of both private and public systems. On the one hand, we have tens of millions of uninsured Americans. On the other, we have enormously expensive healthcare, generating surprisingly poor results relative to those obtained by cheaper systems in other countries, reflecting that people are not paying at the margin for the healthcare they get.
The current Obama Administration / Democratic plan is a bit of a hodgepodge, reflecting both politics and the peculiar starting point from our complicated and unduly employment-based system (which makes it harder for the unemployed to get proper insurance coverage). It does more to address the under-insurance problem than the lack of cost-consciousness problem, though I gather it makes some efforts to address the latter. Whether it is adopted or not, more wrenching changes are likely down the road.
6. What additional initiatives do you think should be taken to improve Social Security reform?
Raising the retirement age more rapidly than it is happening under present law, is probably unavoidable. Privatization – the big initiative pushed by the prior Administration, does little to address the system’s long-term funding problem (as its proponents admitted). Essentially, payroll taxes need to go up a bit and/or benefit growth needs to slow. The best thing that individual Americans can do for themselves is make sure that they have enough retirement saving without counting on Social Security to do the job for them.
7. What do you think about the Obama Administration’s new budget?
It insufficiently addresses the long-term budgetary problems. Current deficits ought to be as high as they are in the budget, given the continuing weakness of the economy. But the Administration needs to pave the way for serious deficit reduction starting in a couple of years. Not extending any of the 2001 tax cuts for individuals (which are scheduled to expire next year) would be a start. The Administration exaggerates the amount of deficit reduction that is possible if “middle class tax cuts” are treated as sacrosanct. The middle class is eventually going to bear the brunt one way or the other – this is simply a matter of arithmetic, given the long-term deficit problem. You don’t really help the middle class by simply postponing the day of reckoning.