Friday, February 22, 2013

Health Care Wellness and Remembering the Family Dinner

Imagine living a healthy lifestyle AND having fun, eating tasty, and returning to some of the stuff you loved to do as a kid. Sounds like a advertisement, doesn't it? Well, it might be but it's also a big part of the future of medical care.

We hear the term "wellness" and are bombarded by health plan and employers' "wellness programs". Yes, this is the latest and last long-term health care cost savings challenge within our current technologies. 

The Wellness Movement grew out of Disease Management movement of the 1990's. Disease Management has been a huge success in helping people with chronic conditions avoid complications, worsening, and unnecessary hospital care. 

We are the best chance at lowering suffering and costs through better health and care.

Wellness programs and disease management programs cost much more money in physician office visits and diagnostic testing, but save far more dollars in hospital emergency room, intensive care, and surgery as well as additional rehabs, nursing homes, and disability payments for unnecessary adverse events.

Wellness_program : Abstract word cloud for Workplace wellness with related tags and terms

Also there are the less mentioned but increasingly recognized savings in workplace absenteeism, presenteeism, employee-to-employee and employee-to-customer relations  that we put under the catchall "workplace health" or "workplace productivity". 

Wellness_program : Abstract word cloud for Health promotion with related tags and terms Stock Photo

Unfortunately, in the mad rush to invest in wellness programs, issues with effectiveness and effectiveness measurement arise ... and are heavy subjects of debate in the industry as I write. 

One short, easy to understand book that explains it all, as well as offering common sense solutions, would be "Why Nobody Believes the Numbers" by Alfred "Al" Lewis, CEO of the Disease Management Purchasing Consortium Int'l, first president of the Disease Management Association of America, and one of the people who formed the disease management movement. (No, I didn't write it nor do I profit from it except by learning.) 

Despite the measurement issues, the concepts ... and results ... of Wellness Programs cannot be denied. Wellness, prevention, and disease management works. 

Most programs involve filling out health and lifestyle questionnaires to raise awareness and financial bonuses or health club contributions to encourage exercise. 

I like one that involves helping parents restore the family dinners where families bonded, communicated, ate well, played together ... and reduced stress. The family dinner was a tradition that we baby boomers and older remember ... and miss. 

Here's the summary of one that uses YMCA's or health club networks as facility partners:


"Family Cornerstone is a wellness program that fulfills the universal desire by parents for family dinners. Gathering together for cooking and eating homemade foods while talking, teaching, and playing seems innate, a tradition that crosses generations and cultures.

"Parents want to have frequent family dinners but fewer and fewer have them. That’s the problem. Increasingly, American households lack enough time, energy, or money.. or simply have fallen out of the routine. In convenience samples, all respond quite positively to the idea.

"Family dinner more than a lost tradition; it’s foundation of a healthy family!

"Working 2, 3, even 4 jobs between them takes a toll on parents. By the time they realize the effects, parents feel overwhelmed by stress, inertia, and helplessness to restore what they lost.

"Stress is a proven killer. Feelings of inertia and helplessness usually deter activity and lead to depression. Inactivity and depression leads to heart disease. Depression leads to absenteeism and presenteeism too. All of these lead to less productivity and more curative care outlays.

"Family Cornerstone answers both parents’ inner cry for help in restoring the family dinners and employers’ demand for reduced chronic care and event units.

"People are more likely to comply with a regimen if they want to do it. Family Cornerstone offers something which family people want to do!

"Family Cornerstone competes with the fast food drive-thru and the potato couch with a family dinner drive-to with tasty-yet-healthy dinners and natural-and-healthy activities.

"Family Cornerstone offers families 3 evenings per week at food & fitness facility. 

"They can plan and prepare the dinners together with our dietician and swim, jog, bike, etc. with our fitness coaches. Also, for 20 minutes per week, adults, as individuals or family will meet onsite with a social counselor t0 work out stressful issues and screen for greater care needs. They can use the fun facility throughout the week, not just on Family Cornerstone evenings.

"Family Cornerstone offers YMCA-YMHA or health club facilities additional revenue streams as membership fees and draws from them the facilities’ reputations, locations, and staffing. These places have been struggling to generate new cost-effective revenue sources.

"Family Cornerstone offers employers health care and productivity savings. Employers recognize the problem and are not satisfied with available solutions … yet. The wellness industry has not come through with accurate measurement or effective programs. "

(For more information contact me.)

Wednesday, February 20, 2013

Just 4 rule changes can repair the Wall Street financial services sector and avoid another meltdown .. Really!!

Imagine that the 1929 financial market collapse and 2008 financial market collapse could have been prevented with 4 simple guidelines, perhaps just one: keeping the Glass-Steagall Act intact. Imagine that we didn't have to live under the threat of an endless cycle of collapse & bailout then collapse & bailout then collapse & bailout ...

The global financial system worked rather well, meaning no major meltdowns, from 1933 up until 1999. After the 1929 financial sector collapse caused an economy-wide (world-wide) depression, the rules of the game were changed and more strictly enforced. Those 1933 changes have prevented another such meltdown for 75 years. But, starting in 1970's, the rules started peeling off with the biggest and final straw happening in 1999. 

The rules of the game, like in baseball, were simple, just, and transparent: Everybody understood the rules and umpires were permitted enforced the rules. Complications created to specify and clarify the rules actually weakened the rules.

Complicated rules are designed to address each and every possible situation. That's unnecessary, impossible, and harmful to everyone in the marketplace -- the financial services industry, investors, and issuers.

In reality ... in effect .. rule complications are created to build technicalities that exempt profitable, yet harmful, financial products. 

It's been said that the devil is in the details. Certainly, bad stuff seems to abound.

How do you feel when you hear that a scandal monger "gets off on a technicality"?

People are creative and ingenious. Many of us will figure out new situations for better investing and some will figure out how to design new situations specifically to evade detailed, complicated rules. 

Like Grisham's Law says: "The bad drive out the good". Shaving the truth is as bad as shaving the gold off coins. The shaved coins become nearly the only coins used in commerce because no one wants to be stuck with them and everyone passes them along while keeping the good coins.

Perhaps, we should go back to basics when the standard of whether an activity or instrument breaks the rules was clearly evident, especially to a judge and jury -- the umpires of our economy. 

Listen to your grandmother: "You know the difference between wrong and right. Do the right thing."

Glass Steagall Act and Regulatory Agencies: In 1933, Congress separated financial services sector into its 3 component industries: Banking, Brokerage, and Insurance -- no cross-over permitted. Also, reflecting the 3 different types and levels of risk, each of them was required to maintain 3 levels of reserves.

Commercial banks, which serve business credit and transaction financial needs, were only allowed to be commercial banks. Insurers were insurers and only insurers. Brokerage Houses (also called Investment Banks) were only Brokerage Houses. 

Additionally, Savings & Loans were created to prevent a crash in the housing market from also taking down the business credit market ... and visa-versa. Savings Banks were created with deposits (up to a limit per account) insured a government-run public-private Federal Deposit Insurance Company "FDIC" and the Savings Banks paid a percentage of their total collective deposits in premiums. 

You see, during the 1920's, we experienced nearly the same speculation with savers and insureds money and that led to the 1930's Great Depression. President Franklin Roosevelt and (predominantly Democrats in) Congress tightened regulations to prevent another economy-wide, depression-causing financial sector collapse. And, until now, for 75 years there were not any more.


In response, the US governments passed the Investment act of 1933, popularly known as the Glass-Steagall Act, which clearly, legally separated commercial banking, insurance, and investment banks, allowing companies to do only one of the three. 

President Roosevelt and Congress also formed the regulatory agencies: Security Exchange Commission (SEC) plus others targeted at commercial banks, savings banks, savings & loans, and insurers.

The Glass-Steagall Act was repealed in 1999.

Stacy Mitchell, reporter for the Institute for Local Self-Reliance, makes a solid argument for bringing back Glass-Steagall.

The primary problem with merging banks with insurers with brokerages mainly lies with the different levels of risk appropriate to each and the counterbalances of each type of risk were different: Government insures bank savings; government requires 100% reserves on insurance policies; and partnership ownership restrained brokerage extremes. 

Brokerage, or investment banking, appropriately takes a lot of risk with the bank's money -- sometimes very risky.

Banks sell safety, the safest possible investments.

Insurance, well insurance sells the antidote to risk. 

Let's separate the 3 very different financial services businesses.

Let's bring back Glass-Steagall.

FORM OF OWNERSHIP: The Brokerage Houses were owned by partnerships of the licensed securities dealers -- the members of the firm. That means that (a) these businesses can only be formed as partnership or sole proprietorship -- not corporation -- and (b) these businesses can only be owned by the professionals licensed to practice the services at the core of these businesses -- licensed securities dealers.

Banks were owned either by individual families, partnerships, or depositors. 

The Brokerage House's form of ownership and owner restrictions reflected that of only physicians owning medical practices and only lawyers owning legal practices.


Until 1970, the dominant New York Stock Exchange prohibited investment banks from going public (offering stock) when they repealed that rule. Goldman Sachs was the first Brokerage House to make an initial public offering ... IPO ... going public. Soon nearly all of the Brokerage Houses, Banks, and Insurers went public.

Allowing brokerage houses (investment banks) and other banks to go public was the first major mistake, the first removal of the armor protecting our economy from another financial sector collapse -- the armor put on in response to the 1929 Wall Street Crash and consequent Great Depression.

As a public equity stock, brokerages are very different from nearly any other kind of business because their value, the value of a share of stock, varies by 100+%. The trades, essentially, are funded often by many short-term loans -- some lasting minutes, hours, and days as well as weeks or months. 

Even worse, when Brokerage Houses were owned by partners, the made sure that their floor traders were "more careful" with the partners' money. When they went public, the Brokerage Houses were not longer risking the partners' money; they were risking stockholders' money. 

Brokerages started taking higher risks, more often ... until it became so routine that senior management didn't even know what was being traded, except approving new financial products and approving actions over a policy-determined maximum risk level.

Commercial Banks also had this possibility of wide instant variations in stock value. When they no longer had to answer to the partners and had the option of issuing more stock whenever they needed massive infusions, they took bigger loan risks ... routinely.

Do you remember South American loan crisis faced by American Commercial Banks? More recently, do you remember the Mexican and then South Asian nation's credit crises in the 1990's?

In 1998, just prior to the 1999 repeal of Glass Steagall, Slate magazine published an interesting article: "Why investment banks go public?"   Did you notice how Brokerage Houses evolved their industry into the name investment banks?

In 2004, University of Oxford (England) professors, Alan D. Morrison and William J. Wilhelm, Jr. published the research paper: "The demise of investment banking partnerships: Theory and Evidence"

In 2008, Andrew Ross Sorkin, Editor-at-Large at The New York Times, in his column DealBook, wrote "A partnership solution for investment banks?"


In the 1970's, we were shown what could ... or would ... happen if we removed Glass-Steagall when Congress starting to allow Savings & Loans to move beyond individual residence mortgage & home equity loans and into large-scale developer loans. Massive amounts of depositor money ... and stockholder money ... pursued big developers because the interest rates on their loans paid lots more than home loans and turned over more quickly (as the tracts of property and buildings were sold). 

President Jimmy Carter expressed concern when the Savings & Loans' defaults accumulated to approximately $20-billion. He wanted to remove the looser loan changes to their regulations. His successor, President Reagan, did not want any changes. 

After the deep recession of the early 1980's, we were hit in the late 1980's by the Savings & Loan Crisis. In 1989, President George H.W. Bush and Congress funded a $128-billion taxpayer bailout and enacted stricter restrictions on the Savings & Loans. They formed the Resolution Trust Corporation (RTC) to liquidate failed Savings & Loans into mergers with healthy banks.

The 1989 Savings & Loan Crisis ... and $128-billion taxpayer bailout ... was the canary in the mine. We were warned.

America ignored the warning.


In 1999, President Clinton and Congress repealed the Glass-Steagall Act. Banks, brokerages, and insurers were free to merge or go into each other's industries. 

Repealing the Glass-Steagall Act was the second, and most encompassing, removal of the armor we wore to protect our economy from another Wall Street Crash ... and consequent depression.

In 2010, Daniel Gross of Slate magazine published the MoneyBox column: "The Gang of Five and how they nearly ruined us -- The little known reason investment banks got too big, too greedy, too risky, and too powerful."

In 2011, Dylan Matthews, of the Washington Post, in his WonkBlog column "Research Desk" answers the question "Should investment banks be private?"

Perhaps, for reasons similar to why law firms must be owned by lawyers and physicians must own medical practices, we should return to only brokers owning investment banks.

Forbidding investment banks to go public -- requiring them to remain partnerships -- would ensure that investment bank executives would pay careful attention to the risks taken by their traders and others who handle the firms house account. No regulations necessary there!


Call investment instruments what they really are in colloquial, transparent, and easily understood words -- especially so they follow the rules of what they really are. 

Credit Default Swaps are insurance policies (on Collateralized Debt Obligations and Mortage-Backed Securities) and should be following the rules behind insurance policies to ensure they are covered bets. Insurance policies, by law, must be 100% collateralized. If the Credit Default Swaps had been classified and collateralized as insurance policies, then there would be fewer of them and they would not be toxic -- the 2008 Crash would have been less severe.

CDO's (Collateralized Debt Obligations), MBO's (Mortage Backed Securities) would have faced a different market and the investment banks would have had cleaner, more solid balance sheets if we did so.

A financial instrument is either an equity, currency, debt, option, or insurance.


The Credit Default Swaps became bets ... gambling ... that specific Collateralized Debt Obligations, mainly Mortgage-Backed Securities, would default: The homeowners would default on their mortgages. CDS owners had to pay annual premiums like insurance policies. But, in every other way they were gambling that tragedy would happen to someone else ... which also gives them an interest in having that tragedy occur.

Did you know that you can take out a life insurance policy on someone else? In fact, employers often take out life insurance policies on employees. 

In the insurance-business jargon, these are called "Dead Peasant Policies". Officially, they are called "Corporate-Owned Life Insurance" or "COLI" (as in e-coli). Usually, the employees don't even know that the policies exist! The employer company gets a tax-free windfall when employees die!

The business press, like The Wall Street Journal in a 2002 article, has been reporting on these for 10 years, although few people, if any, not involved with the policies are aware of them.

These "Dead Peasant Policies" are not policies taken out on senior management ... executives considered major financial losses to a company should they die ... are called "Key-Person Insurance" and usually negotiated above the table, even some are in the executive contracts. "Dead Peasant Policies" COLI are taken out on the rank and file. 

Walmart and Dow Chemical have been called-out by dead employee families in law suits charging "unjust enrichment". In one case, Walmart settled with families of 73 million employees in Oklahoma and agreed to pay a total of $5.1 million to the families. 

Let's take the gambling on other peoples tragedies off the table.


So these are the 4 steps I recommend we, as nations, look at towards removing the threat of another 1929 crash and 2008 crash. 

(1) Like baseball, keep the rules simple, transparent, and easily understood by everyone and empires really enforcing the rules. Nix the technicality generating complications.

(2) Separate commercial banking from investment banking from insuring, by restoring the Glass Steagall Act.

(3) Return investment banking  / brokerage firms to partnership and proprietorship owned only by licensed securities dealers.

(4) Ground the fancy, complicated financial instruments in simple, easily understood wording consistent with whether they are an equity, currency, debt, option, or insurance policy ... and specifically call Credit Default Swaps insurance and require they follow insurance product regulations. 

Of course, I would like to see betting on someone else's tragedy ... like house fire, death, and mortgage default ... banned. But it's not necessary for preventing another Wall Street Crash.

What do you think?

By Steven J. Reichenstein

Wednesday, February 13, 2013

Close 4 Failed Tax Loopholes

Tax Loopholes:

Tax policy is like prescribing prescription drugs: Identify the problem, choose the remedy, decide the dosage, and remember to end the treatment. Neither are cut & dry sciences. Both claim to be.

Tax loopholes are targeted tax cuts aim at specific problems in the economy. These are intended to change business, investor, or consumer behavior. 

For example, when technological advances significantly change the employment requirements for a job type or an industry, the government creates a tax loophole that encourage employers to train current and new employees in the new technologies. 

For example, when an industry is becoming increasingly dependent on a material which is mainly sourced from dangerous locations, then the government creates tax loopholes that divert the market towards more attractive alternative materials. 

For example, because so many other key manufacturing, industrial, and service industries are impacted by new home building and the renovations associated with existing home resales, the US government created and continues a mortgage interest deduction to encourage widespread home ownership. (There might be other good reasons as well for creating and maintaining this loophole.)

Generally, voters and politicians tend to refer to loopholes well liked, such as the home mortgage deduction, as tax breaks and those not well liked, such as for rewarding outsourcing, as loopholes.

Just like prescription drugs: Some work as intended; some don''t work as intended; some have unacceptable side effects; and sometimes the doctor just forgets to get you off a drug after it's done the job intended. (A few drugs are long-term or life treatments, but few are and they usually treat large population groups.)

These 3 failed tax loopholes didn't work as intended, have unacceptable side-effects, and should have been closed long ago. 

Social Security, Medicare, and Unemployment Insurances suffer nasty side-effects from these 3 loopholes: (1) Social Security Insurance Tax income ceiling; (2) Federal Unemployment Insurance Tax income ceiling; (3) Capital Gains income exemption from payroll taxes; and (4) Capital Gains rate for consistent annual high gainers. 

(1) Social Security Tax's "income ceiling": Having a total personal income above which no Social Security and no Federal Unemployment Taxes are paid. It has been about $110,000 over the past 20 years and this year goes up to $113,700. Perhaps even more ridiculous, only your first $7,000 in annual income is subject to Federal Unemployment Insurance tax and, therefore the FUCA rate is unnecessarily high at 6.0%. 

(2)  Federal Unemployment Insurance Tax's "income ceiling": Although only employers pay the Federal Unemployment Insurance Tax (called FUTA for Federal Unemployment Tax Act), they only pay it on the first $7,000 of annual income. That means employers pay FUCA tax of $420 annually per employee. 

To collect the same total FUCA insurance premiums annually nationwide, we could eliminate the income ceiling and drop the rate down from (FUTA rate 2013) 6.0% to an estimated .38% (based on estimated number of U.S. householdstotal U.S. personal income annually, and total estimated federal unemployment insurance taxes collected).

At the U.S. median household income of approximately $60,000, employers would pay Federal Unemployment Insurance Tax of $266 per employee annually instead of paying FUCA of $420 per employee annually, which saves employers an estimated $154 per employee annually.  For every 390 employees, an employer saves the median income of 1 full employee (or can hire one more employee at median income).

What employer, especially large businesses, should oppose median saving $266 per employee per year?

(3) Capital Gains income's complete exemption from paying any payroll taxes until 2013 when it becomes subject to Medicare tax of 3.8% but still not Social Security payroll tax of 12.4% and Federal Unemployment Tax (FUTA) of 6.0%.  

Since its inception during the 1930's depression, the Social Security  system was funded sufficiently because it's tied to income, which has increased over the decades, plus a small rate increase every 5 years to account for increased lifespans. Typically, the rate increased by 1% to reflect longer average lifespans. 

Then in 1981 government confronted the facts that (a) that people are living, hence collecting benefits, a lot longer from major scientific advances and (b) baby-boomers would be reaching the age of 65 in 2010 creating a 20-year hump in benefit payments. 

In response, Republican President Reagan and a Democratic Congress made 2 major changes: They raised the Social Security benefits eligibility age to 67 and raised the Social Security tax rate. 

The rate was increased by more than it had been since the beginning of the program because it had to deal with both problems, each having a bigger than normal impact. 

The simultaneous Social Security tax rate and benefits eligibility age increases, without corresponding benefits increase, had the effect of a sustained period of significantly increasing our balance in the Social Security Trust Fund between 1983 and 2010. They started saving upfront in order to ease the burden in 2010.

The Social Security Trust Fund has been around for a long time, contrary to common belief. 

All Social Security tax receipts are deposited daily into the SSTF and all Social Security benefit payments are paid out from the SSTF. You can see the actual monthly and annual transactions through the Social Security website

The Social Security Trust Fund deposits are automatically executed as buying "Special Issue" US Government Bonds that ONLY the Social Security Trust Fund can purchase and which can be redeemed at ANY time by the Social Security Trust Fund from the US Government. The interest rates paid to the Trust Fund are determined, usually based on current market rates, at the end of each month for the bonds of the following month.

For example, in 2011, the $905-billion in Social Security tax receipts deposited into the Trust Fund exceeded the $809-billion in Social Security benefits payments withdrawn from the Trust Fund by approximately $95-billion. So the Social Security Trust Fund balance was increased from $2.430-trillion to $2.525-trillion. 

The average monthly interest rate paid on the special issue bonds issued during 2011 was 2.417%. This rate is high, compared to newly issued rated now, because many of these bonds were issued before the interest rate cuts after the 2008 crash.

In this example, the Social Security Administration purchased $905-billion in these special issue Social Security Trust Fund (SSFT) bonds from the US Treasury and sold $809-billion in the bonds back to the US Treasury.

The balance in the Social Security Trust Fund has increased every year since the 1983 "fix" and continues to increase to date.

Much has been joked and derided about the Social Security Trust Fund. Some say that it was repeatedly raided and that caused the shortfall we will face in about 10 years. That might be true. 

However the Fund also has encountered the "income ceiling" and capital gains exemptions from paying Social Security tax, meaning that a very disproportionately higher share of income from increased GNP went to those households already earning above the $110,000 income ceiling and/or in the form of capital gains. 

Without a healthy increase in Social Security tax revenue increases reflecting at least the cost-of-living increases in Social Security benefit payments, the Social Security Trust Fund savings levels planned for the Baby-Boomer bump were not met.

The Social Security Trust Fund did not save enough funds to handle (a) the continual improvements in health care that continue to extend life and (b) the projected benefits needed during the baby-boomer retirement bubble. (Graph below shows this.)

Actually, two problems got in the way: 

First, early retirements by baby-boomers who have been displaced by globalization and the current economic depression. 

As well as second, essentially all new income from 1983-2010 GNP growth went only to those already earning above the Social Security "income ceiling" and nearly 50% of that income came from capital gains. (See charts below.)

The Social Security tax "income ceiling" and Social Security tax exemption for Capital Gains income have cost the Social Security Trust Fund an estimated $300 billion annually over the past 20+ years (that's an estimated $6 trillion over the 20+ years). 

Consequently, essentially none of the new income from GNP growth paid Social Security taxes. If new GNP growth income is not taxable then at a constant rate the Social Security tax receipts do not grow with the cost of living and workforce growth. That's a recipe for a disaster destiny. Talk about "starving the beast". 

From 1941-1979, new income from GNP growth was split among income groups by the natural economic forces of balance of economic influence and tax policies. 

From 1980-present, the income of the top 1% of household earners rose from approximately $500,000 up to nearly $2 million annually yet all other households' remained flat or dropped. So none of the nations growth in income was taxed for Social Security. It was starved. 

The chart below shows that, from post-WWII 1949 until 1976, per capital income growth for those earning below the Social Security tax income ceiling grew at a healthy rate and a rate comparable to those earning above the income ceiling. It also shows that from 1976 income went to those earning above the Social Security tax income ceiling.

So the Social Security "income ceiling" and the capital gains "payroll tax exemption" tax loopholes have starved Social Security, Medicare, Unemployment, and other payroll tax funded insurance pools of tax revenue paid from inception to 1979 and expected to continue in the 1981 changes.

There were "income ceilings" on Social Security taxes from inception. The difference since 1980 has been that all new personal income generated by GNP growth has gone to those already earning above the income ceiling.

This change in distribution of income, since 1980, has worked against the 1984 Social Security tax changes intended to address retirees' longer lives and the baby-boomer retirements. 

Tax rates were raised and eligibility age raised, so middle and low income Americans paid more and got less for nothing. 

The Social Security "income ceiling" tax loophole now needs to be closed ... or modified to stimulate economic growth by removing the income ceiling and cutting the Social Security payroll tax rate from a total of 12.4 down to 8%. That means a reduction for employers from 6.2% down to 4% and reduction for employees from 6.2% down to 4%.

The differences between having the income ceiling and, instead, having Social Security tax applied to all income levels but at a reduced tax rate is found in the fact that the money multiplier (a.k.a. velocity of money) is lower for upper income households than lower income households (the more money earned the larger the percent of income saved and not spent); the fact that both employers and employees get a tax cut; and the fact that I propose cutting the tax only by 1/3 whereas the additional income taxable now (that above $113,700) represents more than 1/2 of all personal income.

Personally, I recommend just eliminating the income ceiling loophole completely and letting the additional revenues fully fund the Social Security Trust Fund and increase Social Security benefits paid to more realistically reflect the increased costs of living. 

The capital gains "payroll tax exemption" needs to be modified to a $500,000 exemption so that lower and middle income American retirees benefit as intended. 

(4) Close the capital gains special lower income tax rate (than earned income) tax loophole.

Last, but not least of the 3 failed loopholes to close ...

A Congressional Research Service study released in December 2012 and then revised and re-released in mid-February 2013, by Thomas L. Hungerford, the Congressional Research Service's public finance expert, directly sought to determine correlations between productivity and economic growth (GNP) ... and ... the maximum income tax and capital gains income tax rates.

Here is a excerpt from the Congressional Research Service study:

"The results of the analysis in this report suggest that changes over the past 65 years in the top marginal tax rate and the top capital gains tax rate do not appear correlated with economic growth. The reduction in the top statutory tax rates appears to be uncorrelated with saving, 
investment, and productivity growth. The top tax rates appear to have little or no relation to the 

size of the economic pie. But as a small proportion of taxpayers are affected by changes in the top 

statutory tax rates, this finding is not unexpected. 

"However, the top tax rate reductions appear to be correlated with the increasing concentration of 
income at the top of the income distribution. As measured by IRS data, the share of income 
accruing to the top 0.1% of U.S. families increased from 4.2% in 1945 to 12.3% by 2007 before 

falling to 9.2% due to the 2007-2009 recession. At the same time, the average tax rate paid by the 

top 0.1% fell from over 50% in 1945 to about 25% in 2009. The statistical analysis in this report 

suggests that tax policy could be related to how the economic pie is sliced—lower top tax rates 

may be associated with greater income disparities." 

The Congressional Research Service study demonstrates that lowering top income tax rates and capital gains tax rates have not advanced the government's original intent of spurring additional economic growth (GNP) and productivity and intent of encouraging more savings and investment among the majority of American households. 

Instead of encouraging higher productivity and economic growth, the lower capital gains tax rate encouraged:

     (a) high-income Americans, who have such an option, to convert most of their income from earned to capital gains; 

    (b) businesses to focus on shorter-term ROI expectations; and 

    (c) shorter-term holding of stocks, bonds, and derivatives to just 1+ years.

The intended purpose of lower and middle income American households would have helped the economy. But in reality it has generated these awful side effects. It runs counter to the key economic policy position of nearly every Administration: Encouraging long-term investments. 

I'm open to amending the capital gains lower tax rate loophole to exempt income under $500,000 annually or make the lower rate simply a few percent under the earned income tax rate for the particular household. In other words, make it progressive by tying the capital gains rate to each households earned income (regular) income tax rate.

As it stands, the low tax rate for capital gains loophole has not fulfilled its original purpose and appears to be hurting the economy. So close it.

Added importance and urgency for closing these tax loopholes due to share of total government revenue:

Personal income tax revenue has been representing an increasingly larger share of total federal government tax revenues while corporate income tax has been representing an increasingly smaller share.

This As of World War II, personal income and corporate income taxes each represented 40% of total federal government revenue. However, while personal income taxes have ranged 40%-50%, corporate income taxes steadily have declined as a percentage of total federal government revenue. Corporate income taxes now represent only 10%.


American budget spending and insured benefits payments are not too high, especially given the current economic conditions. 

The 3 income tax loopholes have perverted the system. 2 of the 3 have failed to achieve their stated purposes. All 3 are benefiting fewer and fewer Americans. All 3 are working against the broader interests in a broadly sustained economic growth.

Social Security benefits should not, and do not need to be, cut. It simply has to be funded as originally planned, and as it had been for 50 years. Closing the Social Security income ceiling (even if some of that windfall goes to cutting the tax rate) will go far towards (re)building the Social Security Trust Fund and increasing benefits.

Even our total federal government budget would not be on a sustained deficit course.

If new national income from GNP had continued to be shared somewhat among all American income groups, as it had been from 1942-1979, and if capital gains tax rates not been slashed since 1980, then all Americans would be paying the normal tax rates and the federal budget would not be in such deficit. 

On a personal note ... My grandfather worked for a super-successful global pharmaceuticals giant from 1916-1965, never earned more than $20,000 annually, and was proud to pay his full income taxes and payroll taxes. He even avoided some deductions he could have taken. My other grandfather was an entrepreneur who did well and also proudly paid his full taxes.

Restore the American pride. Restore the American middle-class. Restore the American Dream.

By Steven J. Reichenstein

Friday, February 8, 2013

Apple can raise the quality-of-life for factory workers worldwide

Apple has built its business sales side by respecting its customers -- putting customers at the top of all product decisions. Yet, Apple has built its products by putting factory employees at the bottom of all manufacturing decisions. They failed to remember the lesson of Ford's "five dollars a day, five days a week".

Apple built a huge cash pile by building low and selling high. After touching all potential customer who could afford and had opportunity to use Apple products, Apple essentially relies upon repeat customers. Apple ignored the need to grow the customer base, starting with the leadership of ensuring that their employees can afford their products.

Hey Apple, spend much of that pile of cash on what you should have been doing: Market to your employees. After all, they suffered to build those unbalanced profits. 

Apple sits on $137 billion -- that's $137,100,000,000 -- in cash while paying the people who build Apple products less than $20 per day. 

Picture this: In Apple headquarters, there are people who know that they are piling up huge profits year-after-year and also know that they are forcing other people to work in deadly conditions, for ungodly hours, for poverty pay.

Apple's cash pile exceeds the annual revenue of Hewlett-Packard and more than the Gross National Product of the nation of Viet Nam.

Apple cash grew by $39 billion between 1st quarter 2012 and 1st quarter 2013. That's an increase of $39,500,000,000  in just one year.

Apple brags that 200,000 factory employees have taken free classes, even some college-level classes, since 2008, fully paid by Apple

But, Apple still sits on nearly $200,000 for each of those 200,000 factory employees. That's more than 10 years of pay for these people.

Apple's 1-year cash increase of $39.5 billion could have fully funded a 4-year college degree at America's most expensive universities (or a 4-year college degree and 4-year medical degree if they went to state universities) for each of those 200,000 factory workers.

Apple's $1,000,000,000 advertising budget in 2012 could have more-than-doubled the salary of those 200,000 factory workers.

Apple asked the Washington D.C.-based Fair Labor Association to visit its plants abroad and report on factory work conditions. In March 2012, investigators from the Fair Labor Association reported that Apple factory work conditions are bad ... very bad. 

At Apple's vendor Foxconn's factories, workers were subjected to 60-hour work weeks without overtime pay and 70-hour weeks during November-December. The legal maximum work week in China is 49 hours per week and the Chinese government, rightly, announced that it has begun cracking down on these abuses. 

How would we feel when shopping for and opening those new iPhone and iPad boxes during the Christmas holiday season if we knew that, while we are celebrating the "Peace on Earth, Goodwill toward Man" spirit, the people who are building those iPhones are working non-stop for 12-hours per day, for less than $20 per day, 6 days per week? 

The i-Phones and i-Pads that you pay hundreds of dollars each are made by factory employees paid less than $20 per day. 

How does that make you feel? How does this compare to the Apple brand? Or, the Apple TV commercials with a young, hip, 21st century guy or its famous "1984" commercial? 

What's my point? Am I just panning Apple? No. Please, read on.

Apple has built its business, or at least built its products, on the near slave labor conditions and pay of people who have no alternative. 

Apple's and Apple's vendors' factory employees are sacrificing in China, Bangledesh, Indonesia, Viet Nam and other developing nations for a better future for for their children and grand children ... like our parents and grandparents did for us.

This should hit home. We the children and grandchildren of immigrant employees of sweatshop have the opportunity -- and obligation -- to do for the Apple factory employees what we wish someone could have done for our parents and grandparents: Improve work conditions and pay. 

History repeats itself in cycles; this is one of them.

Globalization in developing nations now is what American immigrants suffered during our industrial revolution's Guilded Age ... that led to fair labor laws in U.S. by Presidents Teddy Roosevelt and Franklin Roosevelt. The deplorable factory conditions nearly led to armed revolution in the U.S. ... really ... that's how Americans felt about experiencing it.

Such deplorable factory work conditions and pay has been at the heart of Americans' angst over outsourcing to developing nations. It repeats the American experience on a global stage. Manufacturers make big profits at the onerous cost of fellow human beings' lives. 

Manufacturers, successful giants like Apple, have the opportunity to reduce the negative feelings about outsourcing to developing nations and demonstrate that the hard work at lower wages and conditions do not have to be. And this only would cost Apple a fraction of its annual increases in extra cash from the success of those factory employees efforts.

You see, it's smart business.

Apple has reached the pinnacle of the American success story: From garage to gargantuan through products and services that change lives for the better ... and a brand that has defined a cultural personality. 

Apple's brand, brought to life in that hip fellow in their TV commercials, is not consistent with the deplorable factory conditions and pay of Apples behavior in reality. We would be more likely expect that behavior from the "suit" fellqw in their TV commercials. Right?

Apple should walk the walk, live its brand, do in the dark what it does in the light. 

Apple should apply its brand across the company, all the way to the factory floor. Make the TV ad man the same as the factor floor man. 

Apple should treat its employees as well as it famously satisfies its customers. 

And, Apple has the money to do it. 

By Steven J. Reichenstein

Wednesday, February 6, 2013

Why privatizing or closing the US Postal Service limits democracy

You can describe the US Postal Service "The Post Office" as employing 500,000 people to deliver 50% of the planet's mail from its 461 distribution centers and 32,000 post offices. 

You can describe the US Postal Service as hand delivering mail to every household for everyone in the nation's 3.7 million square miles overnight or in a few days ... for less than 50-cents. 

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You can make the argument that the US Postal Service binds the nation together at the most fundamental level as it touches more Americans than any other federal government agency and ensures that any American can contact any other American ... and We the People can contact our government and our government can contact each of us at any time. 

You might note that the USPS does not cost taxpayers any money at all: Not a penny. The US Postal Service operates independently and usually earns a profit ... even at the basic first class letter rate under 50-cents. 

US Postal Service has been semi-independent for 30 years; it's not a governmental department like it had been since Benjamin Franklin was appointed our first Postmaster General by the Continental Congress in 1775. 

You might note that Franklin was quite the businessman but recognized and dedicated himself to building a nationwide postal service. Before building the US Postal Service, Ben Franklin had been the Philadelphia postmaster and then the Postmaster General for the Crown.

You might note that during good economic times we don't think much about the USPS unless our letter or package arrives later than expected, when we run into someone you know at the post office, and at Christmas. During bad economic times, postal businesses and politicians target the Postal Service for privatization. 

Oh, the post office gets no respect, Rodney.

This time around, the politicians have pressured the US Postal Service and scared We the People when Congress passed and President Bush signed a The Postal Accountability & Enhancement Act that:

(a) requires the Postal Service to fund the next 75 years of estimated pension payments within a 10 year period. That over-funding amounts to about $5 billion annually. The US Postal Service has 10 years to pay for 75 years of estimated pension.

(b) limits the US Postal Service rate increases to the Consumer Price Index percentage and NOT the competitive process of balancing increasing costs versus the price patrons are willing to pay ... the free market economic concept

(c) limits the US Postal Service debt.

That law enacted in 2006 set up a pincer strategy that forces the current debate on whether to privatize the US Postal Service or let the post office die ... or remove the pincer so We the People can count on the US Post Office to go on serving and binding us. 

Note that the US Postal Service posted its 13th straight quarter of increased productivity, and these continual improvements in productivity balance most of the USPS loss in revenue, such as in 2012 when mail quantities were down 5% year-to-year and first class letters have been declining approximately 7% per year

So the USPS lost $4.8 billion on $81 billion in total operating expenses in 2012 due to fewer mailings handled. BUT the USPS lost an additional $11.1 billion purely to pay into the its Congressional mandate to fund 75 years of future pensions in just 10 years. That's the hammer. Limiting price hikes and limiting operational borrowing are the anvil.

During the worst recession, since the 1930's Great Depression, the US Postal Service lost 5% in total units processed and $5 billion in accounting loss per year. I'd say that their doing pretty well in surviving this recession and increasing productivity, especially considering that packages, overnight express, and business mailings are expected to go down during a recession. 

But the USPS cannot survive the pincer law, Postal Accountability & Enhancement Act, passed by Congress and signed by President Bush in 2006. 

Benjamin Franklin took on Postmaster General from his experience as a publisher who was constantly looking for getting his own publications to his readers throughout the American Colonies -- safely, consistently, timely, and less expensively. 

Benjamin Franklin bound Americans together throughout the land through his own publications as well as the published words of Patrick Henry, Thomas Paine, and other Founding Fathers. 

So, most likely, our Founding Fathers would raising a ruckus over the Postal Accountability & Enhancement Act of 2006. They would say this is an American devolution!

Our Founding Fathers saw a US Postal Service as so important to the ability for government to stay connected at all times to We the People that they enshrined it in the United States Constitution, that specifically states in Article 8 the Congress shall have the power "To establish post offices and post roads". For example, U.S. Route 1 has also been called "Old Post Road". 

Economically,  US Postal Service has been an engine of American growth and prosperity as well as political, social, and personal connection.

The drive by industry to develop further and further west needed, at first, The Pony Express, and then the railroads "mail by rail" connecting local businesses to each other and their customers. Then, USPS provided the connection infrastructure that allowed small businesses to grow and operate as regional and, later, national companies.  

Personally, I remember as a kid my first letter carrier. His name was Jack. He pushed mail bags saddled on a 3-wheel cart. And, most important at the time, Jack handed out Fruit Striped chewing gum to all of us kids. (I liked green the most.)

I also remember writing letters to Superman, Batman, Green Hornet, and Santa Claus. Don't you? I remember writing thank you notes and the privacy of writing letters to girlfriend, colleagues, and family. 

We all have Postal Service stories ... good and bad.

When you get your mail, don't you first recognize, and open, the handwritten ones? Letter writing will return in force as the communications and privacy pendulum swings back into balance. 

If it doesn't, then those of us who love to receive and write letters, small notes, and cards will continue to do so even if the price of first class stamps rises to a full 50-cents, even to 75-cents or a dollar. What a bargain!

Benjamin Franklin, Patrick Henry, and Thomas Paine were smart businessmen and effective politicians. 

They would have seen clearly that the Postal Accountability & Enhancement Act was a political time bomb planted for the benefit campaign supporters who see the opportunity to make a lot of money and by plutocrats who want to further weaken the United States as a We the People government.

I believe that this tug of war on what kind of nation we want to be, between democrats and plutocrats, is natural and best debated in public. I'm for democracy and against plutocracy.

I believe that private businesses, such as DHL, UPS, and FedEx, naturally would push for a privatized or outsourced US Postal Service. But that too should be publicly debated. I'm for keeping the US Postal Service we've got and opposed to privatizing or outsourcing it. 

Raise your pens and voices for repealing the Postal Accountability & Enhancement Act. Send a handwritten letter to your Senators, Representative, and the President. Mail letters-to-the-editor to all newspapers you read.

By Steven J. Reichenstein