Tax me to help us

This is not my typical post. I came across the following rather interesting news story on the BBC website and thought of sharing it with the readers of this blog. What are your thoughts? 

Rich Germans demand higher taxes

http://news.bbc.co.uk/2/hi/europe/8321967.stm

A group of rich Germans has launched a petition calling for the government to make wealthy people pay higher taxes.

The group say they have more money than they need, and the extra revenue could fund economic and social programmes to aid Germany’s economic recovery.

Germany could raise 100bn euros (£91bn) if the richest people paid a 5% wealth tax for two years, they say.

The petition has 44 signatories so far, and will be presented to newly re-elected Chancellor Angela Merkel.

The group say the financial crisis is leading to an increase in unemployment, poverty and social inequality.

Simply donating money to deal with the problems is not enough, they want a change in the whole approach.

“The path out of the crisis must be paved with massive investment in ecology, education and social justice,” they say in the petition.

Those who had “made a fortune through inheritance, hard work, hard-working, successful entrepreneurship, or investment” should contribute by paying more to alleviate the crisis.

The man behind the petition, Dieter Lehmkuhl, told Berlin’s Tagesspiegel that there were 2.2 million people in Germany with a fortune of more than 500,000 euros.

If they all paid the tax for two years, Germany could raise 100bn euros to fund ecological programmes, education and social projects, said the retired doctor and heir to a brewery.

Signatory Peter Vollmer told AFP news agency he was supporting the proposal because he had inherited “a lot of money I do not need”.

He said the tax would be “a viable and socially acceptable way out of the flagrant budget crisis”.

The group held a demonstration in Berlin on Wednesday to draw attention to their plans, throwing fake banknotes into the air.

Mr Vollmer said it was “really strange that so few people came”.

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Health Care Bill — Where is the reform?

Don’t let anyone fool you — Health Care reform is essential. Why? Because from spending 1 out of $20 on health care in 1960 we have arrived at a point that we are spending 1 out of every $6 on health care now. And of course, this cost is expected to sky rocket. President Obama is right — exponentially growing health care costs, completely independent of making health care universal, will sink the American economy.

Strangely enough though, the current bill being considered by the House of Representatives is not about reform driving cost down and funding universal health care but universal health care without any meaningful reform. 

 Section 1 — CBO Report

To build the case though, allow me to start with some key facts and data points from the Congressional Budget Office’s (CBO) “Long Term Budget Outlook” published in 2007 regarding Health Care:

1. On Total Health Care Spending

A> “Total spending on health care in the United States, including both private and public spending, increased from 4.7 percent of GDP in 1960 to 14.9 percent in 2005, the most recent year for which such data are available.”  That is a greater than 300% increase in share of spending on health care obviously at a loss to other facets of life.

B> The report identifies the primary cause for this increase as, “Most analysts agree that the most important factor contributing to the growth in health care spending in recent decades has been the emergence, adoption, and widespread diffusion of new medical technologies and services.”

C> Other factors for cost increase identified in the report are rise in disposable family income, rise in insurance coverage and aging of the population.

2. On  Medicare Program

A> Overview of Medicare: “Medicare provides federal health insurance for nearly 43 million people who are aged (about 85 percent of enrollees) or disabled or who have end-stage renal disease. The elderly become eligible for Medicare at age 65; the disabled become eligible 24 months after their Social Security benefits start.”

B> Medicare is funded via various sources, payroll tax of 2.9% of taxable income, being a primary source. Think of it as money you are putting aside to be paid for medical care when you get old or, god forbid, disabled. CBO report also states, “As of June 2007, 18 percent of Medicare beneficiaries were enrolled in private health plans under the Medicare Advantage program,” i.e. were paying additional for enhanced coverage.

C> In 2006, Medicare spending totaled $382 billion.

3. On Medicaid Program

A> Medicaid is a joint federal–state program that pays for health care services for a variety of low-income individuals. The program was created in 1965 by the same legislation that created Medicare, replacing an earlier program of federal grants to states to provide medical care to people who have low income. The federal government’s share of Medicaid’s spending for benefits varies among the states and currently averages 57 percent.

B> In 2006, the total spending was $160.9B and total beneficiaries were 60.9M people. Out of which children accounted for 29.5M – approx. 50%.

Section 2 — some more key data points:

1. Americans spend $2.5T (trillion) annually on healthcare.

2. Medicaid is only 6.7% of the total healthcare bill for USA and hence hardly the cause for the crisis.

3. Kaiser Health Tracking Poll from June 2009 finds, “Struggling to afford needed care — The survey continues to find that a majority of Americans (55 %) say that they or another member of their household have put off some sort of needed medical care because of the cost over the past 12 months. About 1 in 4 say they have skipped a recommended test or treatment, and a similar percentage have chosen not to fill a prescription. 26% say they or a family member had problems paying medical bills over the past year, similar to the proportion reporting problems in our April tracking survey. This number rises to nearly half (48 %) among those suffering health problems, and is nearly as high (43 percent) among the uninsured.

Section 3 — Key observations based upon the above data

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The real bailout prescription

Banks Only

It seems like I am in a statistical state-of-mind lately.
If you were to go to the IRS website you will find the total number of Individual Income Tax Returns for the year 2008 is: 156,297,000 (Source: http://www.irs.gov/taxstats/ –>Filing Season Statistics –>Filing Season Weekly Reports –> Report for filing year 2008 –> End of Year End Report.)

Let’s take the top 25% of tax payers out and we are left with 117 million individuals.
Next, let’s take the $3.8 Trillion (anticipated government spending across current and pending stimulus and bailouts including Bush bailout) and distribute it evenly to the 117M individuals that filed taxes.

You will arrive at the astounding number of $32,478!

That’s what we all could have gotten (except for the top 25% of earners who shouldn’t need it) instead of the current morass of bailouts and stimulus.

Let’s play this hypothetical scenario out a little further:
Imagine how fast our economy would have recovered if we were given this money, income tax free in a special account, to spend within two years within United States including purchase of airline tickets to fly out of United States (money spent abroad will not count). For any one with credit card loan or mortgage default, there would be additional stipulation that they pay off the loans/mortgage first. I am sure IRS can think of many other stipulations (and that would be fine). At the end of each of the two years we all would have to submit receipts to ensure we complied with the stipulations.

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Foxes vs. Hedgehogs

A certain aspect of Mr. Kristof’s New York Times article dated 3/26/09 , “Learning How To Think”  really caught my attention. 

In the article he provides results from research conducted by Philip Tetlock, a professor at the University of California, Berkeley. The research is conducted on Expert Opinion provided by Experts and its accuracy. Dr. Tetlock  tracked 82,000 predictions by 284 experts over two decades. The experts’ forecasts were tracked both on the subjects of their specialties and on subjects that they knew little about.

The result? It appears the experts were, on average, only a tiny bit better than random guesses! More confounding, it made no difference what their education level or experience level was.

Next, to quote from the article:

 “Indeed, the only consistent predictor was fame — and it was an inverse relationship. The more famous experts did worse than unknown ones. That had to do with a fault in the media. Talent bookers for television shows and reporters tended to call up experts who provided strong, coherent points of view, who saw things in blacks and whites.  People who shouted — like, yes, Jim Cramer! “

I consider it important to interject a note here: Mr. Kristof and Dr. Tetlock seem to be soley focused on opinionators in the media and the opinions they aired in public. However, the way the column is written it is misleading since it seems to undermine all expert opinion. That is not the point I agree with or I am focused on.

I am more interested in creating more foxes vs. hedgehogs, you will soon see what I mean.

Quoting the paragraphs that are most important for the purposes of this post:

 “Mr. Tetlock called experts such as these the “hedgehogs,” after a famous distinction by the late Sir Isaiah Berlin (my favorite philosopher) between hedgehogs and foxes. Hedgehogs tend to have a focused worldview, an ideological leaning, strong convictions; foxes are more cautious, more centrist, more likely to adjust their views, more pragmatic, more prone to self-doubt, more inclined to see complexity and nuance. And it turns out that while foxes don’t give great sound-bites, they are far more likely to get things right.

This was the distinction that mattered most among the forecasters, not whether they had expertise. Over all, the foxes did significantly better, both in areas they knew well and in areas they didn’t. “

This I believe in. 

Mr. Kristof ends his column (not quoted here) by talking about putting a system in place that measures the success ratio of experts that are paraded out in the media. While important, I think he missed the opportunity to make a more fundamental point: How do we train people to be more like foxes than hedgehogs?

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Why AIG Bonus is an important issue?

I know the furor on AIG bonuses is behind us but I didn’t come across any article that really hit the mark on why it is so important to focus on it — at least to my satisfaction.

Admittedly, Mr. Blow, in his column at the New York Times   came close. On the other hand, another NYT columnist, the famous Mr. Brooks,  in his recent column minimizes the issue — he doesn’t get it.

This is not about the $165M and the pittance it is in comparison to $2T required to “fix” the banks. It is about values that 95% (I believe) of us live by: a value system that has in-built checks within the system and more importantly within us as individuals that prevents us from conducting daylight robberies at the same companies that provide us sustenance. In AIG’s case it is obviously worse — they are not just stealing from the company money they don’t deserve, they are stealing from the American Treasury and the American people. We want to be ensured that we ALL understand the world the same way. This is a very important point — otherwise the foundation for a civilized society is pulled from underneath it. It is akin to driving by making your own rules — there will be accidents and deaths galore. Secondly, and equally importantly, unless we “fix” the thinking that afflicts Wall Street, I don’t know how people like Mr. Brooks and others imagine that we can “fix” the current situation? Despite the $2T bailout.

So in ending, it is not as much about revenge or repatriation, it is about making us believe that we all have the same understanding of rights and wrongs. It is about restoring confidence in our leaders and system more so than restoring confidence in our markets. I would like my leaders to restore my confidence in the following saying: “With great power comes great responsibility,” and stop convincing me that with great power comes great opportunity to fleece the system and unsuspecting people.

What do the people of the world think? – Part II

The Good — In Part I, published on Feb 23rd, we covered the nations with net positive results, i.e. countries viewed favorably by the world populace — at least the populace of the countries that the poll was conducted in.

The Bad — In Part II, I cover the nations with net negative less than 10 points, i.e. countries viewed unfavorably by the world populace but too badly.

The Ugly — In Part III, to be published at a later date,  I will cover the nations with net negative greater than 10 points, i.e. countries viewed  really unfavorably by the world populace.

So without further ado, Part II (China and United States):

Section 1: A re-cap on the poll. 

BBC World Service Poll in conjunction with Program on International Policy Attitudes (PIPA) at the University of Maryland conducted  13,575 in-home or telephone interviews across a total of 21 countries between 21 November 2008 and 1 February 2009.

The poll asked if the individual’s view of a countries’ influence was “mainly positive”, “mainly negative” or “neutral?” The question was asked about 16 countries. 9 out of 16 countries had a net positive influence and 7 had a net negative influence per the poll (see graph below).

world-poll-2009

 Section 2: Comments on some of the countries with net negative scores.

Rank 10: China

 China is the country with the least net negative points — 1 point —  but has had a swing in the negative direction of 13 points compared to last year. Similar poll in early 2008 showed net positive of 12 points for China.

I believe Olympics has done more harm for China than good: firstly, it brought renewed focus to the annexation of Tibet and the continued supression of human, religious and other rights and secondly, the widespread coverage of pollution in Beijing laid bare the callous approach taken by the Chinese Government towards the environment, natural resources  and forced human migration. The tainted toys and milk scandal also must have contributed to the negative trend.

In general, the communist regime, its mind wash program that still continues via controlled media and demonizes other nations it doesn’t like and its overall cloak and dagger mode of operation leads many to not trust the Chinese establishment.

Rank 11: United States of America

The USA reduced its net negative points from 12 to 3 in one year (2009: 40 positive vs. 43 negative) .  Almost all of that positive bump can be attributed to the huge sigh of relief that emanated from across the globe as President Bush’s term ended. The mindless violence caused by US invasion of Iraq, its unwavering support of Israel despite its draconian measures against Palestinians in peace time and war time alike, and its interference in internal matters of many countries — mostly leading to negative affects — had left little trust for the Bush administration and its policies.

On the other hand, the humanitarian work done by the Bush administration in Africa, the humanitarian causes supported by the people of America at large, the spirit of innovation and the ideals of freedom, equality and prosperity (at least for those living in the US) always gets the USA some support in prosperous and poor countries alike.

I will be watching the 2010 report anxiously. For, despite Obama administration’s positive moves on a various fronts– from investment in alternative energy sources, closing down Guantanamo prison, separation of Science and Politics to withdrawal from Iraq and reaching out to Russia, Iran and Syria — it is the ominous global economic situation caused by, in many peoples minds, by US imposition of broken down form of capitalism on to the globe that will likely drive US popularity down. And I am sure there will be a real battering of American image if the recession continues for a long period of time or gets worse.

Is this why Obama went to Canada?

The likes of Mr. Rich, the New York Times columnist, are scratching their heads trying to figure out what they would do to stop the meltdown of the financial system. And of course since they can’t figure out a solution they believe President Obama must be in an equal bind. To quote from Mr. Rich’s recent article, The Ecstasy and the Agony, “Therein lies the Catch-22 that could bring the recovery down. As Obama said, we can’t move forward without a functioning financial system. But voters of both parties will demand that their congressmen reject another costly rescue of it. Americans still don’t understand why many Wall Street malefactors remain in place or why the administration’s dithering banking policy lacks the boldness and clarity of Obama’s rhetoric.”

Given Mr. Obama’s moves to fundamentally restructure the American social and economic landscape, I believe a more likely solution to the banking problems of America is what Theresa Tedasco hints at in her article the “The Great Solvent North.” She points out that the World Economic Forum ranked the Canadian Banking System at # 1 in terms of stability. The Canadian Banking system, in short, is five large banks that are very carefully regulated by the Government and prevented them from taking huge risks and securitizing their loans.  And because it was only five banks it was easy for the regulators to regulate.

I think President Obama, more than to shake Mr. Harper’s hand, went to Canada to learn from the Federal Regulators how to manage banks and save them from themselves. President Obama and Mr. Volcker, former chairman of the Federal Reserve, both have talked up the virtues of the Canadian system.

If President Obama is seriously considering the Canadian model, the interesting part will be of course the journey — the transition from thousands of banks in the US to only five to ten consolidated banks. I watch the next year with baited breath.