“Let Me Go Crazy on You” Heart

With the State of the Union speech coming up on Monday and Martin Luther King’s birthday just past, I thought I would  “dream” a bit and imagine that President Obama would have his “Nixon goes to China” Presidential moment on Monday night:
******************
Good evening, member of Congress and the American people. I am going to give a very different State of the Union speech this year. Unlike most Presidential addresses, it will be completely non-political. I won’t talk much about the successes of this Administration or  Congress or our past individual or collective failures. Further, I won’t be talking about many policy areas such as foreign policy, immigration, energy, infrastructure to name a few, which though important won’t be the focus of this speech. Instead, I want to talk about what we need to do as a country that will be the best for the long run economic and financial health of the United States and all of its citizens. I and many others believe that the U.S. is at a financial precipice and if we don’t act soon, we risk an economic depression that may rival the 1930s in length and intensity and will harm our way of life for decades to come.

First, we need to understand that federal government spending, our annual deficits and our national debt  are still completely out of control. For the past three decades, we have continued to spend far more than we have collected in taxes and government revenues and this problem has been exacerbated since the economic recession of 2008. Although we have made a little progress in the past couple of years with the sequester and the recent budget deal for 2014, our government is still scheduled to spend $3.8 trillion in fiscal year 2014 which is  40% more than in fiscal year 2007  and more than twice what we spent ten years ago. And while we have made some progress on the deficit reducing it to $0.7 trillion in the most recent fiscal year from average levels  of $1.3 trillion per year (during fiscal years 2009-2012), even this level of deficit is still higher than it is EVER been prior to fiscal year 2008. As a result, our national debt totals more than $17 trillion almost twice what it was just 6 years ago, and more than 16 times higher than what it was in 1980. And as bad as our financial record has been historically and as economically dangerous as our debt levels are today, these are only expected to grow far worse as Social Security and Medicare and other mandatory spending as well as interest we must pay on our debt is expected to grow very rapidly in the future.

Second, our Federal Reserve Board has been engaging in an unprecedented monetary policy designed to accommodate our high deficit debt levels by printing large number of dollars and using them to buy back our debt. This has been done to keep interest rates very low in order to help the overall economy grow and recover from the 2008-09 economic recession. Further, the $8 trillion dollars of additional borrowing that we have done in just the past  5 years has made it increasingly difficult to sell our debt to our citizens and others around the world. As a consequence since 2009, we have more than QUADRUPLED the amount of US dollars in circulation from $0.8 trillion to more than $3.6 trillion today. But this massive amount of money printing does have major long-term costs , which will come in the form of very high inflation with very negative consequence for the US economy and the relative strength of the US dollar around the world. Though the Fed has recently reduced the rate of money creation and is expected to taper the rate of money supply growth in the future, we are still printing at an annual rate of $0.8-0.9 trillion per year which is dangerously high.

Third, we have a miserably complex and inefficient tax code which is costing the US economy trillions of dollars per year. Because of its complexity, an estimated $0.4 Trillion PER YEAR is spent on individual and corporate tax compliance or some 2-3% per year of the TOTAL US economy. This money is simply wasted as it doesn’t produce anything of long-term value for the US economy and consumers. Also, because of the complexity, our tax code is difficult to enforce resulting in a large underground economy of untaxed income which wastes $100s of billions in potential tax revenues. Finally and most importantly, the current tax code gives consumers and businesses incentives to borrow, consume beyond their means , AND at the same time provides DISINCENTIVES to save or invest. Our countries savings rate is among the lowest in the world, and even several years after the recovery our corporate investment levels are still very low. As all economists know, savings and investment are the key to long-term productivity and economic growth. This seriously compromises our long-term economic growth for decades to come.

The state of our US economic health and the federal government’s role in that health is NOT a matter of debate. We have borrowed way to much; we live well beyond our means; our dollar is increasingly at risk as  a valued currency and our tax system is extremely wasteful and compromises our long-term economic growth. The long-term consequences of all of these realities are not a matter of debate. We face serious economic problems in the future if we don’t change our ways including a dollar that will no longer be the world’s reserve currency, very high inflation and a long-lasting serious depression. I am very concerned for the future of my children. Unlike our parents who saved and invested in America, we are literally consuming and borrowing against our children’s future.

However, the good news is that there are solutions to our problems and it is NOT too late to try to implement them. But action is needed now and NOT later. Accordingly, I am proposing five specific policies which will go a long way to solving our problems and can and should be implemented beginning in 2014:

First, beginning with FY 2015, I am proposing a 5% per year cut in federal government spending for the next five fiscal years across all agencies in the Federal Government. The only exceptions to these cuts will be “mandatory” expenditures for Social Security, Medicaid, Medicare, food stamps, unemployment and disability insurance. As part of these cuts, I will immediately institute a freeze on all government salaries (except for non-officer enlisted military) and a freeze on hiring of any new government employees except where specific approval is authorized by Congress. In order to make achieving the cuts easier and more efficient, actions that privatize various departments, agencies, bureaus or divisions of the government or the use of user fees will be counted towards the achieving the budget targets.

Second, in order to curb growth in government pensions and Social Security, I am proposing instituting a CPI-1% inflation adjustment so that benefits will grow more slowly. Further, I will be raising the retirement age for full benefits in several steps to 70 years by 2020 and 72 years by 2025 and for partial benefits to 65 years of age from the current 62 years. Finally, I will fully fund the system thru the new tax system I will describing below.

Third, in order to help fund Medicare and control costs. I will propose a series of changes to the system to move it to greater long-term solvency. On the revenue side , I  am proposing a tax on all forms of sugar in all food  and drink products (and an elimination of all federal sugar subsidies) to help discourage the overconsumption of sugar and to help fund Medicare/Medicaid. Medical experts overwhelmingly agree that there is a close correlation between sugar consumption, high blood sugar, obesity, diabetes and other dangerous  health conditions.  A relatively small 1 cent per gram tax would raise approximately $80 billion per year. On the cost side,we need to make sure that Medicare is tiered so that basic coverage (akin to the “Bronze” plan in Obama Care) is available to all at no charge but that greater levels of benefits and coverages are only available thru additional payments by individuals. This not only would help reduce the net outlays of Medicare, but might help better police some of the fraud that Medicare has been subject to, because now individuals who are paying for higher levels of optional care are presumably incentivized to make sure they are getting what they pay for.

Fourth, I will be proposing a completely new tax system to replace our unfair and inefficient tax code. This new tax system would eliminate ALL current federal taxes in the US such as the social security payroll tax, the Medicare Tax, the federal income tax, the capital gains tax and estate tax. Replacing this will be the Fair Tax system. (See fairtax.org). This is the same as a single National Sales Tax rate on all goods and services in the US economy. It would be “revenue neutral” or in other words, would raise the same amount of revenues as the current tax system. In order to make sure this system is fair and progressive, it will include a tax “prebate” on all taxes paid up to the poverty level which means the working poor or unemployed will pay ZERO net federal taxes. This is in stark contrast to today where all workers pay federal payroll taxes and even working poor pay some federal income taxes.

The advantages of such a consumption tax based system are clear. We will be encouraging much-needed savings and investment, discouraging excessive borrowing, no longer subsidizing some industries, corporations and consumers at the expense of the country as a whole. We will also be leveling the playing field so that foreign companies will have the same tax burdens as US companies. Further, our tax code by its simplicity will no longer have special exemptions and deductions and will no longer require scores of wasted resources on tax accountants, tax lawyers or tax lobbyists. In fact, our tax code will be so simple that no tax forms will need to be filed, and there will be no withholding. Also, the IRS as we know it today will no longer be needed and can be substantially scaled back. Economists who have studied this system universally agree that such a system will increase economic growth, improve real wages and thereby increase tax revenues. In other words, it is tax reform that is good for virtually everyone in the US economy and will play a critical role in fixing our serious financial problems. We will phase the new system in over the next five years in order to give our citizens and companies time to adjust. 

Fifth, I will immediately instruct Congress to make it illegal for the Federal Reserve Bank to print any more dollars (through purchases of our treasury debt) beginning in 2015 and for three years thereafter. Further, I will be proposing a move back to a gold standard for the United States. This system will allow us to back our dollar with confidence and give confidence to our international trading partners in the full faith and credit of the United States.

These five broad steps will constitute broad legislation “The Federal Economic And Financial Reform Act of 2014” which I will ask Congress to pass in the next 90 days. I believe that this legislation is for the good of ALL Americans and as such should be non-controversial. This legislation should be simple and easy to understand and contains NO additional riders or exemptions or other special clauses. I will have the White House provide a first draft of this legislation for Congressional consideration in 2 weeks time.

I realize that some of these changes will be viewed as abrupt and even controversial by some. Further, there will likely be other measures to control Medicare and other federal health care spending that we will need to implement. However, I fully believe that we MUST act now to preserve the US economy, our way of life in the US and our children’s future.

************************

I admit I am just dreaming. And President Obama is about as likely as to give this speech as he is to start singing “Let me go crazy on you” on Monday night. But can you imagine the look on the faces of Democrats and Republicans in Congress if he were to give this speech? Now, that’s a State of the Union address I would really want to see.