From One Cog to Another – This Doesn’t Seem Fair

Moving on to other business so to speak, I might ask, How was your last vacation from your job?  Did you enjoy the one-week, or that two-week, or, if you put in the requisite 10 or 20 years of service, that three-week vacation?  The latter probably doesn’t apply to most of you, because you would have been subject, somewhere along the line, to a corporate mass termination before you ever got to that point, which happens on a regular basis whenever there is a slight downturn in the overall economy or in a particular corporation’s financial performance.

It absolutely amazes me that most Americans have to work 50 weeks a year to earn two weeks of vacation.  Your life is your job, and your employer reminds you of that all the time with the stinginess of its leave policies. 

Personally, where I work, I receive 27 days of annual leave (vacation) and 15 days of sick leave per year.  Let me tell you, it’s wonderful.  If you get the time off I do, you can make it through because you have the opportunity to enjoy life outside of work.  But an American company will never let you enjoy that sense of fulfillment because most are too tight to consider your life outside of work, to consider that by allowing you to regenerate your batteries and be away from the stress of work that you might actually become a more productive and content employee. 

Why is that the status quo?  Only because it’s the status quo.  It’s just part of American corporate and social culture.  Companies set the basic policies long ago, and those policies have only changed in fits and starts from social, government, and labor union pressure, and not because of corporate largess.  The bottom line, even today, is that basically your employer is saying that we don’t care about you, we don’t care whether you like it, and you can accept it or leave. 

A lot of companies these days try to entice you with something called paid personal leave.  Basically, the concept is to add more days to your paid leave, and you have the option of using the days for annual leave or sick leave.  So, if you really get sick and have to use all or the majority of your leave for that purpose, you can consequently count on little or no paid vacation for that particular year.  Instead, you can spend your entire year either at work or being sick.  Quite a scam! 

What’s the outcome?  The outcome is a lot of people avoiding sick leave at any cost.  So, they come to work, sick or not, and the company benefits because it has workers at work.  The downside of course is not only that people are being forced to work when they shouldn’t be but even worse those sick workers are potentially infecting other workers around them, creating a situation where the company ultimately loses more worker sick days than they would have had it simply had let a sick worker take the sick leave she or he should be entitled to. 

Other than for federal workers, in the US there is no federal law that requires employers to give paid time off, for sick leave, vacation, or even holidays.  A whopping 41% of those workers with incomes below the federal poverty level receive no paid time off of any kind.  Even 17% of white-collar private workers get no paid vacation.   But, in that regard, we are pretty much alone in the industrialized world. 

Among the world’s 15 most competitive countries, by law, 14 provide sick leave, 14 provide paid annual leave, 13 guarantee a weekly day of rest, and 13 provide paid leave for new mothers and 12 for new fathers, according to the organization Raising the Global Floor.  You can guess who the odd man out is in most cases.

US employment laws offer no paid annual leave, no paid sick leave, no paid leave for attending to children’s health needs, no paid leave for absolutely anything.

Opponents of legally guaranteeing these types of benefits to US workers argue that such policies would cost jobs and create a financial burden on US companies. 

Could this be an absolute truth?  A study on this subject undertaken by McGill University and Harvard University on 15 of the world’s most competitive economies found that “none of these policies in any way impede being highly competitive or having low unemployment.”  Look at Germany, one of those 15 countries studied, as an example.  German workers can receive four or more weeks of annual leave, 26 weeks of sick leave, and 52 or more weeks for new mothers.  And Germany is an absolute economic powerhouse!  There are plenty of such countries, that, as nations, actually value workers as human beings rather than just as cogs in the all-mighty industrial machine. 

In the meantime, you can feel good in the fact that according to statistics, the US worker is the most or one of the most productive in the world.  I guess that is the inevitable outcome of long working hours and little time off in a highly technical, highly industrialized society.  Feel good in the fact that while you suffer your company prospers.

And prosper they do.  Take the example of General Electric.  The company’s profits rose 77% in the first quarter of 2011, much of it coming from GE Capital.  This is the same arm of the corporation that received a massive government bailout during the financial crisis in order to have itself saved and the same corporation that, according to some reports, paid no US  corporate tax in 2010. 

US multinationals like GE bring up the question of what these companies take and receive from us as a country.  They have tremendous influence, through their lobbying efforts, on US policy, on the tax code, the environment, and a myriad of other issues.  They also expect to have the full support of the US government and its military should they ever run into trouble with their overseas operations.

At the same time, they don’t seem to be very enlightened or contribute much to helping the government’s economic strategy through actively working with the government to improve the country’s infrastructure base, the quality of education, or the quality of life of US workers.  In fact, they generally take the low road to economic strategy, basically focusing on one thing only, and that one thing is the reduction of their costs in doing business.

The main method for cutting these costs is through reducing the cost of labor.  US Commerce Department statistics show that during the decade of the 2000s, big US multinationals cut their US workforces by 2.9 million jobs while creating 2.4 million jobs overseas.  Don’t get me wrong – I am no socialist opposed to all the good and economic prosperity that capitalism and the advent of these large multinational corporations have brought to the US and the world at large.  I just wish and hope that these companies would recognize that their good fortune should come at a price, and that price is giving back to the country, the system, and most importantly the people who have allowed them to prosper.  Exporting jobs in order to shore up the bottom line and the stock price is no way to do so.

Really, is it any wonder that employees in the US have no loyalty to employers and change jobs so frequently?  Who can blame them?  Unfortunately, most would have to look long and hard to find a new employer that actually values them as a person, although there are a few such employers out there and we can only hope that their numbers increase.  Rock on, Occupy Wall Street!

The Sleaze of Corporate America

This is a timely topic, I think, with the Occupy Wall Street movement and all its offshoots across America keeping it real.  Most of us don’t understand the exact message of all these movements, but I do know they are pissed at corporate America, the huge gaps in income equality, and stuff like that.  They have every right to be pissed, as America has truly become a society of the haves and have-nots.  And it’s about time people finally started showing some contempt for what is happening around us, and I’m surprised this all didn’t happen sooner, specifically when we discovered that the recession we still presently suffer under was caused in most part by investment banks and like institutions.  (Granted, lame government regulation and idiot home buyers who didn’t bother to understand let alone read their purchase contracts also played a part.)

I’ll take some credit here in the sense that, just as I was a Lebron James-hater way before he took his talents to Miami and it became fashionable to hate him, I have long been discouraged with the manner corporate America treats us as employees, as people, and as a country.  All I can say is that it’s about time everyone else got on board.  We can only hope that the Occupy movements have some success in causing some reflection in our society of our collective greed and the excessive power corporations wield.

 When I was younger and had recently graduated with an MBA, I had aspirations of working for a big US multinational corporation, working my way up the corporate ladder, and someday being a high-paid corporate executive.  Granted, I did end up working for some larger companies, along with some smaller ones.  I have done all right, I suppose, but I certainly never made it to the big time. 

The desire to work for a large US company doesn’t interest me in the least now, and I will tell you why.  And it isn’t because I never ended up with a career as a high-powered corporate executive.  It basically comes down to the many aspects that make up the employment system in the US (and much of this applies to smaller as well as large employers) and the lack of character of the companies that employ us. 

A problem that one could start with is the huge discrepancy in salaries between regular workers and executives.  In Japan the average CEO made, in 2005, 11 times what the average factory-floor worker made.  This was the lowest ratio among 14 industrialized countries.  The Brits were comparatively outlandish in this regard, with a ratio of 32.  But, those greedy Brits, they still pale in comparison to the magical minds of US CEOs, who made 39 times the salary of the average manufacturing production worker.  Data also shows that in 2006 these same CEOs made 364 times the average salaries of all workers.  It doesn’t stop there.  In another glaring comparison, these brilliant US executives, based also on data from 2005, made 2.25 times the average compensation of CEOs in 13 other advanced countries.

Now, I have no problem at all with people making high salaries commensurate with their abilities.  That rides hand in hand with the tenets of capitalism and the theory that people should be rewarded for performance.  But is it plausible to think that these overpaid US executives are that much smarter than their foreign counterparts?  Some perhaps are, but averages tell the whole story. 

And the whole story is that US executives are vastly overpaid for what they do.  I would guess that you could take 90% of the executives from Fortune 500 companies and replace them with someone else in an absolute heartbeat with no drop off in corporate performance.  But, for some unfathomable reason, rubber-stamp boards of directors will approve outrageous salaries for people who simply aren’t worth it, and they will often sweeten the pot with multi-million dollar Golden Parachutes should the boards ever deem the CEOs’ performances poor and thus terminate them. 

To make matters worse, a report in August 2011 by the Institute for Policy Studies (IPS) found that 25 of the 100 highest paid US CEOs earned more last year than their companies paid in federal income tax, and many of the same companies spent more on lobbying than on taxes.  Chalk it up to the wonderful federal tax code, which allows a lot of these companies to not repatriate income by utilizing offshore subsidiaries in tax haven countries.  One of the most egregious examples was that of GE CEO Jeff Immelt, who earned $15.2 million in 2010, while his  company got a huge bailout courtesy of the US government, paid no tax, and still managed to invest $41.8 million on lobbying and political campaigns.  This same company has also sent tons of jobs overseas, but President Obama still saw fit to name Mr. Immelt to run a White House panel on US  job creation.  Go figure!

Not only do these high salaries create a substantial expense for a corporation (granted, it sometimes is quite small vs. total revenue or profit), but, more importantly, they create a huge degree of animosity between management and employees.  Like me, it’s hard for most people to wrap their minds around the amount of money some CEOs receive.  It’s hard to imagine that one person could possess a brain so intelligent or have such unique talents that his or her salary should be worth 364 times what mine is.  It isn’t logical, and it doesn’t seem very fair.

It’s also a clear signal from the CEO and the board of directors that you are a mere peon compared to the brilliant mind that is leading you.  If you are not one of these brilliant minds, you should be angry about it, even though it may not affect you directly.

The solution?  There isn’t one, unless a board and/or shareholders takes action.  Beyond that, distorted salaries are part of free enterprise, which we should all embrace.  But that doesn’t mean you cannot be mad about the whole thing or question the integrity of these companies that are representatives of America.  Sadly, these high corporate salaries are a reflection of a money-hungry society of which we are a part.

Next time we’ll talk about the benefits you all receive as employees of a company located on US soil.  After reading, you’ll wonder whether they should be called “benefits” at all.

Health Scare – Part 3

And now, getting close to two years since health-care reform was passed by the US Congress (although it is still a couple of years from actually being implemented), we have, as I mentioned, Republicans in Congress and Republican presidential candidates who are making a major priority the repeal of the new health-care law. 

This is scary for a lot of reasons.  For one, how can American society ever be expected to function properly if laws are constantly changed based on the whims of those who enact the laws?  How can corporations and individuals ever be expected to plan long term when they have no idea and no expectation of what the future holds?  The inefficiencies and the money wasted by constantly changing the way things are done represent how the perverse politics in the US prevent our country’s progress in so many ways, only to serve the ideologies of those in charge.  The inability to compromise, to find a middle ground, would be laughable if it weren’t so self-destructive.

One Republican, Rep. Paul Ryan, over the last year put forward a proposal to do away with Medicare in its present form and replace it with some sort of “premium support” system.  Medicare, while I’m sure is far from perfect, has shown that it’s a fairly efficient system, one reason being that the administrative costs to run it are far below the same for insurance provided by private companies.  It also, because it’s run by the government, allows much greater bargaining power with providers than is seen with private insurance companies.

The main reason for the initial enactment of Medicare was that most senior citizens could not afford health care on their own without government support.  What was true in 1965 is probably even truer today with the state of the US economy.  But Paul Ryan thinks or thought that vouchers will do the trick, without addressing the issues of containing costs and compelling insurance companies, through tighter regulations, to make certain that everyone gets a fair shake.     

We have another fellow named Mitt Romney who wants to be President of the  United States.  Back in the day when he was governor and presumably acted on his own principles, he passed a health-care reform bill in Massachusetts that became a respected model. 

Now, with his chance of being elected President tied to a certain extent to an adherence to the ideology of conservative Republicans, Mr. Romney will hardly even admit to being associated his past accomplishment lest it brand him as some sort of progressive.  Sad for him, and a poor reflection of the lengths politicians will go to get elected.        

Honestly, in closing on this subject, it absolutely amazes me how much opposition there was and is not only in Congress but more alarmingly among the American public against the Affordable Care Act that was passed into law in March 2010.  A poll conducted by the Kaiser Family Foundation just last month shows that only 34% of Americans have a favorable view of the law, with 51% an unfavorable view.  This is the worst vote of confidence since the legislation was passed, and you can read about it at http://www.politico.com/news/stories/1011/67048.html.

Certainly, I understand why someone who is adequately covered with insurance, who can afford to pay for that insurance, and who is satisfied with the quality of medical care being received would not want to change the status quo and, in addition, would not want to see our country go further in debt.  It’s a valid point for that person.  But the bigger point is that the system is fractured if not broken because not everyone has the same opportunity and, in my opinion, right to access the same health care system.

In elections coming down the road in the near future, Americans have a choice to make on whom they want leading the way when it comes to the health of our country.  Do we want a government that will do what it has already promised us by implementing the health-care bill already passed, a government that will bring health costs under control, a government that will make certain all Americans can live life without worrying about paying for a doctor’s bill?

Or do we want a government that will pass the entire responsibility off to the private sector and leave Americans to fend for themselves and at the whims of that private sector?  The choice is pretty clear to me.

Have you ever seen those newscasts applauding the efforts of volunteer doctors, dentists, and other health care professionals who set up shop in an arena or whatever and spend a weekend providing free health services for the poor (figuratively and literally) in a particular community?  This type of humanitarian effort happens quite a lot.  It’s extremely heart-warming and extremely laudable.  It’s also sad, as it exemplifies the true situation.  It’s also very 3rd world and not something we should accept in the richest country in the world.   

Shouldn’t we be looking at the big picture?  Shouldn’t we aspire to a society that cares enough about its citizens that it allows all of them to have the right to be healthy without worrying about the costs?  ALL other industrialized countries do this and at much lower costs.  The facts are plain and simple.

Health Scare – Part 2

We all know now that health care reform was passed into law by the US Congress in the winter of 2010.  How this will all work out is still to be seen, but at least it is progress and something in which we can rejoice.  It’s sad however that it has already and is being challenged at various state and national levels, one of the reasons being that it may be unconstitutional to force US citizens and residents to purchase health insurance, whether they want it or not.  Some Republican president-wannabes have already vowed to repeal the law should they be elected to office in 2012.  That alone should be reason enough to keep them out of office.

That being said, the cost to society of the present system, and we still don’t know how much this will change under the reform, gives plenty of ammunition to the fact that we still have a long ways to go.  My understanding is that the 2010 health care reform, whenever it gets implemented, will do a few things that are positive steps forward.  It will not allow insurance companies to discriminate against people with preexisting conditions and it will require, as aforementioned, that everyone purchase health care and subsidize those that cannot afford it. 

However, there is no indication that health care costs in general will be reduced nor will insurance premiums (my own premiums will go up 5% in 2012, which is less than some of the double-digit mark-ups we’ve seen in previous years, but still easily surpasses the rate of inflation).  And these two things really represent the problem.  It’s as if our government is too afraid of taking on (or too cozy with, in the case of Congress) the medical-industrial complex so that some real solutions can be realized. 

I heard a report from a Wall Street Journal reporter that Medicaid and Medicare alone cost the government in 2010 $725 billion, which is 50% more than all other government domestic agencies combined (park service, education, etc.).  According to the reporter, this amount will grow to $950 billion by 2014, if nothing is done.  It’s not sustainable when you look at the size of the government debt and has become a real threat to our nation’s economic security.

To help prove my concern that, even with the passage of the health care reform bill by Congress, we still have an untenable situation on our hands, I will quote some statistics from Wikipedia.  Granted, information in Wikipedia is not always accurate, but the statistics I present are all cited, and so we can assume they are fairly accurate.

*The US presently spends 17% of its GDP on health care.  The average in other developed countries is 10 or 11%, and even as low as 4% in Singapore (and, remember, these are all countries that offer universal health care or some variation of it and, for the most part, have healthier citizens than we do).

*The 17% mentioned above has risen from 5.2% in 1960.

*More money per person is spent on health care in the US than any country in the world.

*A greater percentage of personal income is spent on health care in the US than in any other United Nations country except for East Timor.

*62% of personal bankruptcies in the US were due to medical debt.

*The US has a higher infant mortality rate than most other industrialized countries.

*US life expectancy ranks #42 in the world, behind most of the richer nations and even trailing countries such as Cuba, which ranks #37.

*The WHO (World Health Organization) ranks US  medical care as highest in overall cost, #1 in responsiveness, 37th in overall performance, and 72nd by overall level of health.

*The American Journal of Health reports that lack of health insurance among citizens results in over 44,000 excess deaths each year.

The US ranks 31st in an index of the best countries to be a mother, according to Save the Children’s May 2011 report on “State of the World’s Mothers.”  Reasons include the country’s poor standing on maternal mortality, ranking among the lowest of developed countries and even below a place such as Bosnia and Herzegovina. 

The US also scored low on under-five mortality, and had the least generous maternity leave policies of any wealthy nation.  High rates of maternity and under-five mortalities are directly related to the overall health conditions of some US mothers, with whom diseases such as hypertension, obesity, and diabetes cause negative consequences before, at the time of, and after child birth.  This in turn is directly related to a health-care system that is unfair and unevenly distributed between the haves and have-nots.

The countries that did well in the report had, in addition to good health care, generous maternity leave, a larger percentage of children attending pre-school, and more representation by women in government legislative bodies, this last item important because more women in government means more emphasis placed on issues important to women and children.

Eight of the top ten countries that are great places to be mothers are western European (the other two Australia and New Zealand). Finland topped the list, where mothers are generously given one year of paid maternity leave.  You will see these same countries in a lot of world lists dealing with quality of life, happiness, etc.

And, finally, to press my point a little further, here are some of the findings from a June 2010 report presented by the Commonwealth Fund, which is a private foundation supporting independent research on health policy reform and a high performance health system.  This report shows where the US factors in health care compared to several other industrialized countries

*On measures of quality the United States ranked #6 out of seven countries.  On two of four measures of quality – effective care and patient-centered care – the United States ranks in the middle (#4). However, the nation ranks last on providing safe care.

*US patients with chronic conditions are the most likely to report being given the wrong medication or the wrong dose of their medication and experiencing delays in being notified about an abnormal test result.

*The United States ranked last in efficiency due to low marks regarding spending on administrative costs, use of information technology, re-hospitalization, and duplicative medical testing.

*Nineteen percent of US adults with chronic conditions reported they visited an emergency department for a condition that could have been treated by a regular doctor, had one been available, more than three times the rate of patients in Germany or the Netherlands.

*US  citizens have the hardest time affording the health care they need – with the United States ranking last on every measure of cost-related access problems. For example, 54% of adults with chronic conditions reported problems getting a recommended test, treatment, or follow-up care because of cost. In the Netherlands, which ranked first on this measure, only 7% of adults with chronic conditions reported this problem.

*On measures of healthy lives, the United States ranks last when it comes to infant mortality and deaths before age 75 that were potentially preventable with timely access to effective health care, and second to last on healthy life expectancy at age 60.

Enough said, I think.  It is clear that we are not getting much bang for our collective overly excessive and large buck.  More later.

Health Scare – Part 1

For those few who read this blog, I apologize for being gone for so long.  Busy with other things, etc., etc., etc. — and a bit disillusioned with the aforementioned lack of readership.  However, though I won’t guarantee I will be back at in full force, I’m going to give it a shot, and so here goes…

In this post, I could be very contemporary and discuss the recent fiasco going on with the US economy and the continued lameness of the US political situation, but instead I will carry on and discuss those issues near and dear to me.  The next several posts will the about the state of health care in the US, a subject not getting much publicity these days as it has been put on the back burner, with everything else that is going on.  But, it’s important nevertheless and will certainly be in the spotlight once again should the economy ever begin to recover.

Health care in the US  has been a pet peeve of mine for the last 15 years, way before many Americans were giving it much thought.  I guess it could go under a different section in this blog, but I will leave it here under government since the US government is the main culprit in ignoring such an important element of US society for such a long time. 

I could go into an expanded story of why this particular subject has been on my mind for long time, but it would bore you.  Simply put, living overseas and wondering whether I would ever be able to qualify to purchase health insurance upon returning to the States was the impetus for my concerns. 

At some point I began to question the utter ridiculousness of a health care system that placed such an unfair and discriminatory burden on its citizens and residents, a system that basically said “screw you” to anyone who didn’t have access to corporate-sponsored health insurance.  And unless one was really, really poor or relatively wealthy, that’s exactly what the system said and still says today. 

Over the years, little progress was made in remedying the situation, and, in fact, the opposite happened, with costs continuing to rise and more and more Americans finding themselves without health insurance.  The Clinton Administration at least made an attempt at health care reform, only to be shot down by the US Congress, for whatever reason.  After that, health care reform was not heard from again until President Obama made it part of his election agenda. 

During that interim, my disillusion grew and grew about a political system and populace that at best feigned only minor interest in the matter.  To me, it was and is unconscionable that as a society we were not interested in reforming a system that is so corrupt and unfair and that has caused so many Americans to either bankrupt themselves with health care costs or go without medical care at all due to the those high costs. 

As for the US government, it was equally unconscionable that it could place such little priority on a matter that affects each and every American, allowing a broken system to get worse and more unfair. 

One of the big reasons our Congress has always been against implementing reform was the cost.  Sure, offering universal, government-run health care, for example, costs a lot of money, but so does fighting unjust wars in Iraq and Afghanistan.  But don’t dare bring up those war costs, because it would have had you branded as being unpatriotic (although, thankfully, that attitude is beginning to change recently).  I don’t have the exact figures, but I am certain that the cost of offering universal health care for ten years would pale in comparison to the amount of money spent to date on the two wars above.  Really, where are the priorities?

Another argument against universal health care is that it would cause a deterioration in quality and is a step towards socialism.  Regarding the former, I too have no doubt the quality of care would decline, but what good is superior health care if a large percentage of the population cannot afford to partake in it? 

Every other developed country has some form of universal health care, a subsidized system that allows health care to be affordable for its citizens, or a combination of both.  However, I will be the first to admit that I would prefer treatment in the US over that in Japan, for example.  But, isn’t a small sacrifice in quality one worth making?   (By the way, overall, people in Japan are in much better health than Americans are.  Likely because they can all receive health care, even if it is a bit inferior.)

Regarding the latter, if universal health care in some sort of socialist perversion, what do you call Medicare, Medicaid, and the health care system for our military and all other government employees?  Simply put, there are some things the government has to be responsible for so that all citizens get a fair shake.  What could be more important than the health of a country’s citizens?

Another argument against universal health care and health reform in general is that the present system works, so why fix something that isn’t broken.  Well, yes, it does work for Americans who have a job that offers health care coverage, but I wonder how that’s working out now for the 9-10% of Americans who are presently unemployed.  (And for the life of me, I cannot understand why corporate America has gone along with and supported a system that makes them responsible for providing health care to the American people.  The cost it adds to employing people would make one think that corporations would have demanded universal health care years ago.) 

The true fact is that the system doesn’t even work that well for those who do receive health insurance through their employers.  When I started my present job, because I have dual employers, one in the US and one in Japan, I decided to take both the universal care coverage in Japan and the coverage from my US employer (just in case, you know).  I insured my entire family of four and was paying a monthly premium of around $500.  This was a quarter of the total premium, meaning my employer was spending $1,500 each month.  In total, it was costing 2,000 DOLLARS a month, or $24,000 per year, to cover my family and me.  I really couldn’t believe it. 

Even looking at my relatively small portion of the total coverage amount made me incredulous.  This totaled $6,000 a year if you do the math.  My salary is and was high enough where I could cover the premiums without any real concern, but I started wondering about employees in the same company who might make only $40,000 a year.  How could they possibly afford to spend over 10% of their gross incomes on insurance premiums?  I even brought this up with the human resources manager at one point, but the response was uninteresting. 

After that, the premiums started going up 10-15% a year to the point where I had had enough, and so I dropped my family coverage.  I guess I got to a place where I just didn’t care and wasn’t going to worry about it anymore.  If I were to be precluded from returning to the States because of a health condition, then so be it. 

Eventually, for me, the US health care system would become the proverbial straw that broke the camel’s back; if my country didn’t care enough about its citizens to provide a system that would look after everyone, then I had to seriously question whether it was a country worth living in.

More next time, with some very interesting statistics that hopefully will get you also thinking about this particular state of affairs…

A Very Taxing System – Part 2

Back onto the subject of the US federal tax code.

As I mentioned previously, in 2005, the Bush Administration attempted something positive by creating the President’s Advisory Panel on Federal Tax Reform.  A great idea and a step in the right direction.  Here are excerpts from a list the panel developed describing in general terms the present inadequacies and complexities of the tax code at that time:

*Tax provisions favoring one activity over another or providing targeted tax benefits to a limited number of taxpayers create complexity and instability.

*The current tax system distorts the economic decisions of families and businesses.

*The complexity of our tax code breeds a perception of unfairness and creates opportunities for manipulation and the rules to reduce tax.  The profound lack of transparency means that individuals and businesses cannot easily understand their own tax obligations or be confident that others are paying their fair share.

*The tax system is both unstable and unpredictable.  Frequent changes in the tax code, which often add to or undo previous policies, as well as the enactment of temporary provisions, result in uncertainty for businesses and families. 

*The objectives of simplicity, fairness, and economic growth are interrelated and, at times, may be at odds with each other.  Policymakers routinely make choices among these competing objectives, and, in the end, simplification is almost always sacrificed.  Although these objectives are often in tension, meaningful reform can deliver a system that is simpler, fairer, and more growth-oriented than our existing code.

*We have lost sight of the fact that the fundamental purpose of our tax system is to raise revenues to fund government.

As far as I know, and certainly based on what I have seen on the IRS website and from my own federal taxes, little if any progress has been made towards reform.  And this reform report was issued several years ago.  No doubt that millions of taxpayer dollars were spent in the production of this very enlightening and telling report, and we can bet little or no action was taken from it.  Typical government waste and inaction.

But everyone in Washington, including our President, knows the tax code is a real problem that requires dealing with.  Here’s a February 2011 quote from President Obama on the subject: “Cutting annual spending alone won’t be enough to meet our long-term fiscal challenges…  If you’re really serious about the deficit – not just spending, but you’re serious about the deficit overall – then part of what you have to look at is unjustifiable spending through the tax code, through tax breaks that do not make us more competitive, do not create jobs here in the United States of America.”

Talk is cheap, of course, as it is with most politicians.  We’ll see whether the President has the fortitude to really take the issue seriously and try to push something through Congress.

Using another country’s system as an example, in Japan, except for those self-employed, most taxpayers are not even required to file a tax return.  They submit a few documents to their employers, who do some simple calculations comprising one or two pages and then submit the information to the tax authority.  Any refund or additional tax is adjusted in the employee’s December pay.  A person can submit documents to receive some tax deductions on a few items such as charitable contributions or life-insurance premiums, but that’s about the extent of it. 

Basically, most Japanese taxpayers are in the same boat and receive almost the exact same tax treatment, regardless of individual circumstances other than level of income.  Dividend and interest income and capital gains are taxed and paid at the source at the same rate for everyone, so these don’t even come into play at the time of year-end tax filing. 

As far as I can tell, there are few special interests at work when it comes to Japanese personal income taxes.  The system seems to me, although I am not an expert on the subject and could be incorrect, to be a model of efficiency and fairness and resources that are not lost.  What a concept!

I am certain that the majority of Americans would more than welcome a simpler tax code.  But I seriously doubt any meaningful reform will ever take place.  After all, it’s not about what the American people want and desperately need in this case; it’s about Congress and the multitude of special interests for which they ostensibly work.

Let me give you the perfect tax–related example of the incompetence of our elected friends in the legislative branch of our federal government.   

Did you know that in 2010 there was effectively no federal inheritance tax (aka the “death tax”) because all inheritances could be passed tax-free during that year?  That’s right – the tax rate was 0%!  In 2011, an actual exemption amount, of $5 million, was reinstated with a top tax rate of 35% on the remainder.  Where federal inheritance taxes will go from here is anyone’s guess, making it difficult or impossible for anyone to plan properly since no one knows what the future holds.

Going back to 2010, it was a very good year for your benefactor to die if you were expecting a sizeable inheritance.  Doesn’t it seem insane that death should be free one day (December 31) and possibly cost benefactors a bundle the next (January 1)?  But this is an example of the kind of lame-brain ideas that our Congress and, big surprise, the Bush Administration conjured up. 

The inheritance tax rate had been coming down for several years until it has reached the effective 2010 rate of 0%.   I don’t know all the details of the logic behind steadily increasing an exemption amount and reducing a tax rate over several years and then changing everything again at the stroke of a clock.  I don’t need to know because what I do know is that it was the result of a government action, or inaction, which is explanation enough. 

This entire scenario represents not only the questionable behavior of those representing us in government but also the unfairness of our tax system.  The inheritance tax itself exemplifies how our government uses every possible means to unfairly rob us of our hard-earned dollars.  Certainly, I am in no way against taxes in general, but I am certainly against them when they are blatantly unfair. 

Proponents of the death tax would say it is fair because the benefactors didn’t earn the money so why should they get to receive it free of tax.  Well, using the same logic, the government didn’t earn the money either or have any connection to it whatsoever, so why should they get a slice of the pie? 

Most of the money and other types of assets passed on during inheritance have already been taxed.  If the money were earned, it was taxed at the federal, state, and local levels.  If it were an investment, it was taxed on its growth when it was cashed.  If it were a house or some other type of real property, it was taxed year after year through property taxes.  You get the point. 

A lot of countries in the world, including one such as the socialist, tax-hungry state of Sweden, have done away with inheritance taxes, basically because they are considered grossly unfair.  Those countries are all staying in business as far as I know.

A Very Taxing System – Part 1

Well, enough about US foreign policy for a while and on to some pet peeves regarding domestic issues.  The first is our federal tax system (I’ll leave state tax systems out, though they are likely the same), which is worth a post or two on this blog. 

Let me start with an example of exactly what the problem happens to be:

On July 31, 2009, Representative Thaddeus McCotter of Michigan introduced in the House of Representatives the HAPPY Act as HR 3501.  HAPPY stands for Humanity and Pets Partnered Through the Years.  Representative McCotter would have liked taxpayers to be able to deduct $3,500 per year in pet-care expenses.  [We must infer here that Thaddeus personally owns a lot of pets, has a lot of family or friends who own pets, or is working hard for that pet-owner vote in the next election.  Otherwise, why would he introduce something so inane?  Personally, since I don’t have any pets, I’m more in favor of a deduction for plant-care expenses.]  

This act, which ultimately went nowhere, could potentially have cost billions of dollars of lost tax revenue and is a prime example of the ridiculous nature of the US tax code. 

The Internal Revenue Code runs more than 3 million words, and the instructions for the 1040 form take up over 100 pages.  It’s a small wonder that the majority of people either pay someone else to do their taxes or use tax software. 

Why is our tax system so complicated?  This is one more thing you can blame on Congress.  Legislators use the tax code not only for its assumed purpose of collecting revenue but also to encourage and reward specific activities. 

The revenue potentially lost through targeted tax subsidies like the HAPPY Act will soon reach $1 trillion per year.    Basically, these subsidies are the same as fiscal expenses, just under a different format.  They all work toward increasing the country’s debt. 

Now, I have no problem with reducing taxes (as long as there are equal reductions in expenditures), but the above represents the amazing complexity of the tax system and how much of it is designed to benefit, once again, special interest groups by targeting certain segments of the population.  Wouldn’t it be easier and fairer to just get rid of the deductions and credits and just lower tax rates so that each and every person enjoys the same benefit and does so without the insidious and constant attempts by our representatives in Congress to tailor the tax code to suit special interests?

There’s been a lot of push for reform, but it never seems to get anywhere.  Here’s a quote from a GOP aide, commenting on why reform never gains ground: “The major reason is that a lot of the complexity benefits various people. So you have a vast lobbying effort that depends on some of the various carve-outs that Congress was able to create and that they’re able to get inserted into legislation. Today, each one of those adds complexity to the system.”

And this has been going on for year and years, bringing us the mess we unpleasantly experience today.  You cannot blame the IRS; they simply enforce the rules handed to them by Congress.  Yes, I again repeat that Congress is responsible for today’s complex tax code, and they are the ones who will prevent any real reform.  It’s another example of how our country’s leaders, instead of making our lives better, make our lives harder and more complicated.

You have to deal with taxes each year, so you know how onerous of a task filing these taxes can be.  But to give you a better idea of the burden the tax system places on us as a group, read the following two statistics from a 2005 report to Congress from the General Accountability Office of the US government:

*Anywhere between $67 and $104 billion is spent on compliance costs each year by individual Americans to tally and pay federal income taxes.  This does not include the compliance costs to businesses of between $45-80 billion/year nor does it include any figures related to filing state taxes. 

*Turn those dollars into hours and you get a figure of 6.4 billion hours being spent annually by individuals, businesses, and non-profit organizations working on US Treasury forms.

Next time, I will continue on this subject and even give some credit to the former G.W. Bush administration for at least putting some effort into tax reform, although, as with many things attempted in Washington, it never went anywhere.

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