Bad Economics at the BBC

The BBC doesn't seem to understand basic economic theory. That's a shame.

As further evidence I point to this overwrought article penned (electroned?) by Linda Yueh, identified as the BBC's Chief Business Correspondent. She describes Japan's most recent data on aggregate household savings as constituting "another blow" to Prime Minister Abe. Japan's net aggregate household savings turned very slightly negative according to the data.

Ms. Yueh has gotten the story exactly backwards. First it's important to understand that saving is simply deferred consumption. Saving is neither virtuous nor sinful in and of itself. A young adult could easily be quite foolish to try to save instead of borrowing to invest in a university education, for example.

The Japanese Prime Minister's entire economic program is premised on trying to get businesses and consumers to spend more on present consumption. Consequently he'd be rightly pleased that Japanese households have shifted more of their future potential consumption to the present, because that consumption is needed now to pull the Japanese economy out of its doldrums, not 20 years from now. Yueh correctly reports the disappointment in household consumption data (also down), but the shift away from savings is fantastic news, not "another blow."

Moreover, why should old people save so much? That is, Japan has an aging population (as Yueh also points out), and older people really should spend more, now, on themselves, their children and grandchildren, on charities -- anything they like. That's quite reasonable and proper.

There might be some concern that declining net overall household savings could mean a shortage of capital, but that's not at all Japan's problem. Japan has been stuck at the zero lower bound for a couple decades. Investment capital is plentiful and cheap. Yueh's own reporting bears that out since she notes that Japanese corporate balance sheets are strong, i.e. they're sitting on lots of cash.

Anyway, Prime Minister Abe ought to be delighted that Japanese households are finally reducing their hoarding of cash. That particular part of the Japanese economic story is great news. It's too bad the BBC's Chief Business Correspondent didn't grasp that reality.

Boris Johnson: Another Wealthy, Cheap F**k

Boris Johnson, Mayor of London, was born in the United States and is thus a U.S. citizen. As with every country on the planet, citizens are subject to the laws of their state of citizenship no matter where they live. For example, it is illegal under U.S. law (the Foreign Corrupt Practices Act) for U.S. citizens to commit bribery.

Last month Mayor Johnson announced to the world that he was refusing to obey U.S. tax law, specifically that he was refusing to pay U.S. personal income tax on a portion of the net gains on the sale of his home in London. Reader comments posted to the linked article are brutal, and understandably so. They boil down to this central point: it's outrageous that Boris Johnson thinks he's above the law, that he thinks he can enjoy the rights and privileges of U.S. citizenship without also living up to its obligations. And it is outrageous. Johnson has a net worth of approximately $185 million according to press reports. He's one cheap f**k if he's refusing to pay a rather modest capital gains tax. (What is it with rich people nowadays? What, modest taxes and immense wealth that would have made Julius Caesar blush aren't enough?)

Let me explore the basic facts more fully to give readers a fuller idea of just how cheap and outrageous Johnson is.

First of all, Johnson is under no obligation to keep his U.S. citizenship. He could have terminated his U.S. citizenship as early as age 21 (now age 18). When he was 21 years of age it was free of charge to apply for a U.S. Certificate of Loss of Nationality (CLN). Now it costs as much as $2350, though that's just a bottle of mediocre whiskey to Boris Johnson. It does require two visits to a U.S. consulate or embassy, though conveniently there's one in London, the city where Johnson is mayor. Why two visits? In the first visit the consular officer explains the process and ramifications of terminating one's U.S. citizenship, including the fact it's irrevocable, and assesses whether the applicant is legally competent (not drunk, for example) and renouncing voluntarily. Then the applicant is sent home in order to allow time for careful consideration. In the second visit the consular officer verifies that the applicant won't be stateless after loss of U.S. citizenship, re-verifies competence and the voluntary nature of the act, and then completes the process. Then the deed is done. The U.S. government reported that 2,999 individuals in 2013 completed this very process and terminated their U.S. citizenships.

So why has Boris Johnson kept his U.S. citizenship? He's had about 29 years to terminate it, and it's about the same effort as getting a bunion removed but far less painful. I'll offer some more detailed, informed speculation on this question in a moment. Johnson has claimed it's difficult, but no, it really isn't (as many commenters have correctly pointed out). The bottom line, self-evident answer is this: Johnson maintains his U.S. citizenship because he values the rights and privileges associated with his U.S. citizenship. He just wants to complain about one of its obligations.

Let's take a look at that specific obligation. The United States requires its citizens (and its nationals, and its permanent residents) to pay personal income tax in certain circumstances. Approximately 6% of Americans residing outside the United States owe any U.S. income tax whatsoever. That's roughly 400,000 Americans (out of about 7 million), including (this year) Boris Johnson. Under U.S. tax law the United Kingdom gets paid first. However, the U.K. doesn't tax the gains on primary residences (as defined in the U.K. tax code), even if your primary residence is more lavish than Buckingham Palace. So, Johnson's U.K. tax rate on the sale of his primary residence is zero. Had it been something other than zero, the U.S. tax code would have given him full credit for the foreign tax, dollar for dollar.

But it was zero, so now Johnson is subject to the U.S. income tax on the sale of his home. However, the U.S. exempts the first $250,000 ($500,000 if he files a joint tax return with his spouse) of gains on the sale of his home. And, furthermore, those gains are net of costs. If Johnson spent a small fortune renovating his whiskey cabinet in his home, the cost of that renovation would likely be a cost that could be subtracted from his gains. If all that's not enough, the U.S. will also take into full consideration all his other foreign (presumably mostly U.K.) income taxes paid on all other passive income he received. If the U.K. taxed him above U.S. rates on his gains/dividends/interest from his other investments, the U.S. tax code gives him full credit for that differential. The U.S. tax code even lets him carry forward those excess foreign tax credits up to 10 years in the future (and up to one year in the past), to offset possible future (and past) U.S. income taxes on passive income.

Oh, but wait, there's more! The U.S. tax code also grants him an annual personal exemption, standard deduction, and (if he has dependents), further deductions and credits. If the gains on his home exceeded his limit, and if he couldn't offset them with excess foreign tax credits (even from other tax years), then he can fall back to his annual income exclusions/exemptions/deductions. And, if his spouse isn't a U.S. citizen but owned 50% of the home (as is typical), he has the option to file a separate tax return (without his non-citizen spouse, also typical) and thus only be responsible for 50% of the gains. If his non-citizen children owned shares in the home, that would further dilute his U.S. tax obligations. Indeed, any legitimate ownership interest dilutes his taxable share.

No, wait, there's even more! While he owned the home the U.S. tax code provided a generous mortgage interest deduction. At the very least this deduction most likely helped Johnson accumulate ("bank") foreign tax credits in the U.S., even if (as likely) he didn't owe any U.S. income tax. In other words, the U.S. tax code heavily subsidizes home loans. I don't remember Boris Johnson complaining about that.

For the record, the maximum U.S. capital gains tax rate for 2014 is 23.8%, including the Medicare surtax. Johnson owes something less than this percentage on his net gains. How much less depends on his exact circumstances, but it will be less. Unless he did not pay the tax owed on time, in which case he could owe interest and penalties.

And now we turn to more details on why Johnson maintains his U.S. citizenship: because it's probably a really good financial deal for the most important person in the world, Boris Johnson. In particular, an individual with a net worth of $185 million (or thereabouts) obviously has a lot of financial wealth to manage and to attempt to grow in internationally tax-efficient ways. As a U.S. citizen, Johnson enjoys privileged access to Wall Street and other U.S. financial accounts, some with U.S.-U.K. tax treaty protection. Unlike foreigners, he is not subject to mandatory 30% tax withholding on his U.S. financial accounts, and thus he does not have to (in effect) provide an interest-free loan to the IRS until his exact U.S. tax liability (if any) is determined.

Some commenters have speculated that Johnson would be subject to the U.S. exit tax if he renounces U.S. citizenship. It appears not. Johnson is living in his other country of citizenship, a citizenship he has held from birth, and he has not been a U.S. resident for 10 years or more within the past 15 years, thus (it appears) he would legally qualify for a full exit tax exception. For the record, if it applies the U.S. exit tax simply requires a "settling up" on the date of expatriation: mark-to-market of your worldwide assets, then standard U.S. capital gains tax rates applied to the calculated net gains. (Your cost basis is also reset, and typically you can credit your U.S. exit tax to your foreign tax return.) You must have a net worth of at least $2 million, or have paid about $150,000 or more in U.S. income tax for the past 5 years, in order to be considered for the exit tax. You also get a $680,000 exemption. For example, if your net worth is $3 million but the cost basis on that net worth is $2.5 million, when you renounce U.S. citizenship you won't owe a dime in exit tax because the net gain ($500,000) is less than your exemption ($680,000). All that is moot, though, because Johnson appears to qualify for a full exit tax exception.

As mentioned above, Johnson could terminate his U.S. citizenship for the price of $2350 and two visits to the U.S. embassy in London. His termination would not change anything that happened in the past in terms of his tax obligations, understandably, but if U.S. citizenship were such a terrible burden he has an easy, near-immediate out. The fact he hasn't within the past 29 years speaks volumes. In short, he's a cheap f**k.

What happens if Boris Johnson doesn't pay his U.S. taxes? As basic, routine steps the IRS could place tax leins against any assets he holds in the United States. The IRS could also order financial institutions that do business with him in the United States to begin mandatory tax withholding. Meanwhile, interest and penalties will accumulate. If those steps don't result in Johnson's compliance with his tax obligations then the IRS could escalate, asking the U.S. Department of Justice to issue an arrest warrant for criminal tax evasion. An outstanding arrest warrant would effectively bar Johnson from travel to the United States (including transit) and, no doubt on advice of his attorneys, from travel to any country that could conceivably extradite him to the United States for tax evasion. (That's a shorter list of countries than the number of countries with U.S. extradition treaties, but there is a list.) Johnson's tax compliance problems could also conceivably, negatively affect U.S.-U.K. relations, at least unofficially. The IRS could suddenly become somewhat less responsive in returning HMRC's phone calls regarding particular HMRC international tax fraud investigations, for example. So much of international relations relies on mutual trust and adherence to behavioral norms. Johnson is p*ssing where he shouldn't.

All of these hypothetical compliance escalations are just that, hypothetical. My prediction is that Johnson, if he hasn't already, will quietly pay his U.S. tax bill. I do not predict that he will terminate his U.S. citizenship. He's a cheap f**k, and that's why he won't.

Update: Boris paid his U.S. tax bill.

How to Link LAX to the Metro

Duncan Black succinctly highlights the problems with the Los Angeles MTA's current thinking on how to link LAX (the airport) to the Metro public transit system. He's of course correct: it doesn't make any sense to build two separate train systems, one for LAX and one for the metropolitan region, instead of one, integrated system.

But let's turn to the practicalities of building one, integrated transit system that ties LAX to the Metro. The first problem is that LAX isn't actually one place. As this map of LAX shows, it's at least 9 places: Terminals 1 through 8 plus the Tom Bradley International Terminal. OK, Terminals 5, 6, 7, and 8 are linked, so maybe LAX isn't as many as 9 separate places, but it's much more than one stop.

The second, related problem is that many passengers at LAX don't actually want to leave LAX. They simply want to transfer from one terminal to another, preferably without re-clearing security as they often must today. (Though due to current regulations most passengers arriving in the U.S. on international flights must re-clear security before connecting to another flight, even an international flight.) Terminal-to-terminal transportation is typically the role a local airport shuttle bus or train -- a "monorail," for example -- serves. These connecting passengers require higher frequency service over longer hours than the Metro might want to run over an entire hypothetical line serving LAX.

The third problem is that governments aren't always smart in how they fund public projects. Airport transit tends to get funded from passenger ticket taxes (PFCs for example) and fuel excise taxes (mostly paid by general aviation). The FAA administers those funds. The Metro and other mass transit projects receive their funding through other, separate sources, mostly from another part of the U.S. Department of Transportation. Each bucket of money has different rules associated with it.

Now that I've described the three basic problems that confront the MTA, I'll describe the best solution in two simple words: single track. Here's how it would work.

The MTA would extend the Crenshaw Line to LAX in the form of a single Metro track that runs in a loop around LAX. Passenger platforms would be constructed at each stop along that one track: one airside (inside security), one landside. (The Tom Bradley Terminal might not get an airside platform, but see below.) That loop would converge into the standard dual track Metro system at the first traditional Metro stop outside LAX, and there would also be a single track that closes the loop within LAX. Terminals 5 and 6 would probably share one pair of platforms, and Terminals 7 and 8 would probably share another pair. (It may be possible for other terminals to share stations.)

OK, that's the track, and those are the platforms and stations. Now how do the trains run? First of all, all trains are Metro trains. There is no separate LAX-only equipment. With the exception of some extra luggage racks across the entire line, train equipment, power systems, signaling, automation, maintenance -- everything is the same. That saves a lot of money both in initial acquisition and in ongoing operational costs, and it also provides tremendous flexibility in equipment dispatching across the entire system.

Then there are two types of trains: airside and landside. The airside trains operate on the closed LAX loop on that single track. The airside trains are inspected, especially before coming into service on airside runs, to make sure nobody left a gun aboard (for example). When they stop, only the airside doors open, and passengers get on and off. (At the Tom Bradley Terminal only egress would be permitted from the airside trains. So there probably would be separate doors and a separate platform, but it would only serve exiting passengers. No passengers would be permitted to board an airside train from the Tom Bradley Terminal.)

The landside trains would typically operate in conventional Metro fashion, running the full line. At each stop within LAX (on the same track), only the landside doors would open for the landside platforms. Passengers could both enter and exit, including to/from the landside platform at the Tom Bradley Terminal.

The plan so far only leaves one gap: landside Terminal 1 to landside Terminal 8 (or vice versa, depending on whether the trains run clockwise or counterclockwise over the single track). There are a couple ways to close that gap. My favorite solution would be to modify the plan slightly, taking those airside trains and partitioning them. For example, if they are 6 car trains, partition them between car 3 and car 4. Make the first 3 cars landside and the last 5 cars airside. (I'm assuming the heaviest flow between terminals is airside rather than landside in this example, but any partition point is fine.) Doors on the left open airside, and doors on the right open landside (or vice versa, as applicable). Thus the trains that travel over the closed LAX loop serve both airside and landside passengers within LAX, and the "long distance" Metro trains open only their landside doors and only stop at each LAX station in one direction along the loop. Every train uses the same track (except for the track segment that closes the LAX loop), all train equipment is the same (albeit securely partitioned and with luggage racks) -- the whole system is integrated, cohesive, and just plain (or plane) super.

About that funding. Will that be a problem? In a word, no. There's nothing in the FAA's grant rules that forbids this sort of approach. Indeed, the FAA would likely warmly receive this sort of funding application. Airport-related funds can be directed to the whole LAX portion of the project including the single track that closes the loop and including the required number of trains for operating the LAX loop. The MTA then gets their LAX Metro stations and track basically free and only needs to pay for incremental costs, and there won't be many of those. If a hypothetical LAX-only monorail project is cheaper -- probably not -- then the FAA might want to see those numbers and only fund to that level. Maybe the MTA isn't used to working with its funding sources this way -- and with new funding sources like the FAA -- but I don't see any particular impediment. Nothing in the FAA's rules says you can't have the same train equipment and track at your airport as your Metro has. Fortunately also the U.S. Secretary of Transportation can intervene to help the MTA navigate the funding process across DoT agencies.

What about Metro ticketing? No problem. These are Metro stations, remember. You can have any fare system you want. For the airside loop there'd be no fares. For the landside loop everybody could "pay" a fare, but if you remain within the LAX loop the fare might be free or at least trivial. Pick up a recyclable fare card when you enter and drop it off when you exit.

Even more important than the funding advantages -- yes, advantages, including especially for taxpayers -- is the fact that the passenger experience with one, integrated system will be far better than two separate systems. Passengers won't have to cope with moving luggage any more than they have to. Every passenger would benefit.

Duncan Black is absolutely correct. Please, MTA, make it one integrated system: same track, same trains.

Thoughts on Mobile Phone Service in Singapore (Hint: Prepaid)

Singapore's mobile phone service market is fairly competitive and consists of 3 major carriers (Singtel, StarHub, and M1) plus a couple niche carriers such as Grid Communications. Prepaid mobile service is particularly competitive, and that's something to keep in mind if you want to get service here. Unless you're an extremely heavy user, and maybe not even then, postpaid (contract) mobile phone service is unlikely to ever make financial sense.

Among the prepaid services there have been some recent changes: one for the better, and one not. Let's start with the bad news. If you are a light mobile phone user then prepaid service seems to be getting a bit more expensive. That's because the carriers are finding ways to make it slightly harder to keep your balance active for the traditional 180 day maximum. StarHub, for example, appears to have increased the minimum top up amount to S$18 if you want that top up value to be valid for 180 days, and then only if you buy a physical top up card. If you go online to top up your account then you have to pay S$20 (which adds S$23 in value) to extend the validity of your balance another 180 days.

That's the bad news. The good news is that you can pay as little as S$23 for 50 days (or maybe 49 days due to recharge rounding effects) of basic service. That basic service includes free incoming calls and text messages, 120 minutes of outgoing local calls, 500 outgoing local text messages, and S$12 added to your credit balance for that same period to spend on other services (such as international SMSes). And that's exactly what I do. That comes out to about 47 Singaporean cents per day for reasonable mobile phone service. StarHub offers substantially the same deal for S$2 more.

M1 sells SIM cards for S$5 if you shop around. (They also sell them for S$15. For purposes of the 50 day plan, just buy the S$5 card.) Mini- (standard) and Micro-SIM sizes are readily available, though at this writing the Nano-SIM size is hard to find in a prepaid SIM. That's OK, though, because you can find shops that'll cut the SIM down to proper size for you.

Another tip: if you go with StarHub, and especially if you live in Singapore, do not buy the "Tourist Prepaid" SIM card. That card is a decent offer if you're only going to stay in Singapore less than 90 days. However, the problem is that you can never extend the credit balance on that SIM more than 90 days, unlike StarHub's normal prepaid SIM cards which allow 180 day credit balances. Yes, Singapore's mobile carriers are "clever." Too clever.

In my view Singapore's IDA, the regulatory agency that's supposed to keep an eye on the mobile carriers, is much too passive. Carriers need to be much clearer and simpler in their communications with consumers, and they must provide accurate (and easily understandable) disclosures. They're not doing that, and that's causing consumer confusion. IDA ought to do a better job. While they're at it, IDA should insist on number portability across postpaid and prepaid services, in both directions. IDA's job is not to protect carriers. It's to ensure a well functioning mobile service market that serves consumers' best interests. In these two areas, disclosures and number portability, IDA is not fulfilling its responsibilities in my view.

Plan B: The FDA Must Comply

The U.S. Food and Drug Administration (FDA) is still dragging its heels and, as I write this, has not complied with a court order to make emergency contraception available without prescription and over-the-counter to anybody who wants it without any obstacles except normal payment.

Please excuse my using strong language, but here's the reality. At any age, women and girls seeking emergency contraception have semen already inside them. They have only 24 hours to take emergency contraception to have the best chance of preventing pregnancy. The idea that anyone should impede access to emergency contraception is utterly repugnant. I don't care what age we're talking about. Unless the woman wants to become pregnant, the only choice with sperm already swimming to find her egg is emergency contraception. Nobody sane would want otherwise for her. In fact, a parent aware of the situation who didn't try to help a young daughter avoid pregnancy should be thrown in jail as an unfit parent.

Yet the FDA is still responding to the insane who think somebody should put an obstacle in front of a woman or girl who needs this miracle medicine called Plan B that prevents unintended pregnancy. Plan B is medically proven safer than aspirin. Hundreds of medications are sold over the counter every day without anybody having to show a passport, driver's license, or birth certificate. (Most teenagers don't have those IDs.) Nobody is going to pay the selling price for Plan B to gulp them like Tic Tacs, and even Tic Tacs are more dangerous to human health.

Study after study demonstrates that Plan B doesn't encourage sexual intercourse. Not that that matters, but it doesn't. What Plan B does do is prevent abortions and unwanted babies.

Of course 13 year old girls should never have semen swimming inside them. Frankly if I had a daughter I would be delighted if she wanted to live in a convent until at least age 28. However, any girl of any age should be able to get Plan B with zero obstacles because semen swimming to find her egg is an emergency that requires no court, no consent, no debate, no bullshit. After that there may also be some idiot/criminal male thrown in prison or a gift box of condoms, but regardless of whether that happens no girl should get pregnant because some other idiot unduly influencing the FDA thinks she should show a passport in a CVS or Walgreens.

I'd go further, in fact. Plan B should be available everywhere. If Chuck E. Cheese's wants to sell Plan B, great, let them. Plan B should be available in restroom vending machines everywhere, too, including in schools. First aid kits should include Plan B as a standard item, and wherever condoms are sold Plan B should be sold as well.

GUBI Part 3: Can America Afford It?

Building on Part 2 of my ideas for America's Guaranteed Universal Basic Income, one popular question would undoubtedly be, "How could America possibly afford GUBI, at least as you describe it?"

Quite easily, actually. America is a wealthy country, and GUBI would make America wealthier and happier.

First keep in mind that government at all levels spends an enormous amount of money on programs and tax breaks that would be entirely or mostly eliminated with GUBI. I mentioned several previously, but there are others: Medicare and Medicaid (replaced with universal $10/visit and $10/drug basic healthcare at public and some contracted facilities), student loans ($5000/year public universities and technical colleges would replace those), Pell Grants, farm subsidies and price supports, trade adjustment benefits, Railroad Retirement benefits, and school lunch programs, among others. The government twists itself it knots trying to "target" assistance so much that the end result is an expensive mess that grifters and rentiers exploit. Social Security is America's most popular, most effective, and comparatively simplest program, and it should be enhanced and expanded with GUBI, particularly now in these distressing economic conditions. GUBI would also help many more Americans take entrepreneurial risks, leaving jobs they hate (or that left them), retraining, relocating (even overseas), and so on.

But let's take a look at the basic numbers. The annual GDP for the U.S. is about $16 trillion. Ignoring GUBI's GDP-boosting benefits -- and that's a big omission! -- let's assume 300 million Americans receiving an average of $11,500 in GUBI. (Both numbers are probably too large due to children, noncitizens, idle rich with no W-2s to qualify, and overseas/expatriating Americans, but this is a basic calculation.) That's $3.45 trillion, and that's about 21.6% of GDP. Let's round up to 22%. That's a big hunk of GDP, sure. However, current total government spending at all levels in the U.S. is about 37%, so GUBI would leave about 15% of GDP for public education, healthcare, military, public transportation, and other remaining government functions. That's enough, actually, particularly with the GUBI-associated healthcare changes I've included which would dramatically improve the cost efficiency of healthcare. And much of the military's budget is payroll which would drop quite a lot since servicemen/women would receive GUBI just like everyone else, and therefore the market-clearing price for volunteer soldiers should also fall. ("It depends," but that's a likely result. The military budget is far too large anyway.) The same is true for public education and healthcare which are labor-intensive, although the impacts should be modeled to quantify them. Crime- and prison-related expenses would also likely fall significantly with the elimination of poverty and the expansion of higher educational opportunities, and the victims of remaining crime would get more help.

On the revenue side, it works. The income threshold for the 50% marginal tax rate could be set low enough to fund at least GUBI, but that math works, particularly given the big drops in household medical and higher education outlays. A simple corporate income tax with loopholes eliminated, the estate tax, and a carbon tax would likely take care of the rest. Transition costs would likely be funded with debt (at record low bond interest rates).

In short, GUBI is very doable within generally accepted ideas of government and its role (and size) within the overall economy.

GUBI Part 2: Elder Benefit Refinements, Work Terms, and More

In Part 1 I introduced my ideas for the Guaranteed Universal Basic Income, or GUBI for short. One of the questions people might ask is, "Wouldn't there be many people who would choose not to work?  Is that a problem, and what would be the solution?"

Yes, there would be some people who decide not to work in non-stay-at-home, non-volunteer occupations, although living just above the poverty line is not too attractive. That's precisely the point, though: if you're a U.S. citizen your country will never allow you to be destitute, period.

However, there are a couple conditions:

1. That $20,000 GUBI for Americans 65 and older? Well, that would be the average. The minimum would be the adult GUBI ($11,500 in 2013 dollars but with the Chained CPI-E kicker and the 5 year survivor kicker if your spouse living in the same household dies). The maximum would be $30,000. Employers would continue to send W-2 forms, and you'd get points toward boosting your retirement benefit above $11,500 up to the $30,000 maximum based on your lifetime W-2s. For perspective, today's average Social Security retirement benefit is about $15,000 per year, and the maximum is barely over $30,000. Today Social Security has no minimum benefit and certainly no benefit based exclusively on citizenship.

2. As today, but also for women, you would be required to serve your country if the United States Congress votes to institute a military draft. The draft must be income- and wealth-blind (meaning no student deferments beyond the end of the academic year), military assignments must be free of political influence, and all able bodied children, grandchildren, nieces, and nephews of all members of Congress must be the first drafted. (Non-able bodied draftees who are still mentally capable would still serve albeit stateside.) The draft must be reauthorized at least every 18 months.

3. There would be a limited ability for the government to require adult GUBI recipients under age 62 to work outside the home to maintain benefits. That requirement would kick in only if there are neither minor children nor disabled adults in the same household (or if there is at least one nonworking parent already at home), the adult has not worked at least 20% of full time for the past 5 years (with students making satisfactory progress and disability/medical absences counted as working), the recipient has reached his/her 23rd birthday, and the recipient is at least mentally able to work. At least three distinctly different part-time jobs must be offered, and all must be either workable at home or reachable within a 45 minute commute on public transportation. All positions must be of a predominantly public/social benefit nature. One of the jobs may include a hazardous, extra exertion, off hours, and/or distant work bonus, and that difference must be clearly disclosed if offered. There would be reviews for satisfactory job performance. These work requirements would not kick in unless labor force participation for 23 to 61 year olds (inclusive) drops below 65% (assessed at a state level), i.e. unless there's a genuine problem. (On edit: a somewhat simpler way to do this, and one that would be constitutionally less problematic, is for the government to offer a variety of $1/hour jobs. Those jobs would generate W-2s, etc., and the Social Security Administration would warn affected recipients if the past 5 years shows less than, say, $2500 of W-2 reported income. The recipient would then have time to report the applicable work-equivalent exemption, if any, or to generate more W-2 earnings. And the government would always be the $1/hour employer of last resort.)

4. Remember that employers can set any compensation they want, and that can include supplemental group medical benefits or not. (Such benefits would be taxable as personal income but would be deductible as business expenses.) The minimum wage would end. However, they would have to offer sufficiently high compensation to induce people to work, and there would be harsh penalties for employing non-work eligible foreigners. That would be great: no American would be truly desperate to work (and thus vulnerable to exploitation), "internships" would need to be genuinely valuable, and employers would have a tougher time setting up modern sweatshops in rural America, in particular. The vast majority of employers would be thrilled with GUBI, though, precisely because they'd escape minimum wage and medical insurance requirements, and because GUBI would stimulate consumer demand for their products and services.

The Guaranteed Universal Basic Income: An Introduction

I'd like to introduce my ideas for the Guaranteed Universal Basic Income (GUBI) in the United States, starting with the fundamental terms then digging into the details.

Let's start with the headline: every U.S. citizen adult would receive $11,500 per year (2013 dollars), and every U.S. citizen child would receive $4,500, paid monthly. At age 65 the benefit would increase to $20,000 per year. Rich or poor, it doesn't matter: everybody receives the benefit. (The under 65 figures are very slightly over the U.S. poverty line, for reference.)

Simple, yes! Expensive? Not really, because here's a partial list of government programs that would be terminated: Social Security retirement benefits, Social Security disability benefits, Social Security survivors' benefits (mostly, except that orphaned children would receive the adult amount, and widows/widowers would receive an additional amount for up to 5 years equal to the child benefit), unemployment benefits, workers' compensation benefits, food and nutritional assistance programs (such as SNAP), "Section 8" housing benefits, home heating support programs, foster care and adoption assistance (mostly), Native American benefit programs, some veterans' benefits, and numerous tax expenditures (such as the Earned Income Tax Credit and Child Tax Credits), among others.

The minimum wage would be abolished. However, labor unions would be free to organize through "card check" (e.g. independently administered Internet voting) and to negotiate "closed shop" contracts with management in every state if both agree.

Benefits would be administered and paid through the Social Security Administration. GUBI would be 100% free of federal, state, and local taxes.

Benefits would be indexed to inflation. Since "chained" inflation indices seem fashionable, OK: Chained CPI-U will be used in general to adjust benefits. However, if using the Chained CPI-E results in a higher benefit amount than the Chained CPI-U (both calculated from the 2013 base year), then Americans age 62 and older will receive a benefit based on the higher CPI-E amount. The CPI-E better reflects inflation experienced by older Americans, but they will never be penalized even if their inflation experience is less than general inflation.

Individuals age 57 and older when GUBI begins would be able to join GUBI (immediately if they wish) or receive Social Security retirement benefits under the existing program and formula, including COLAs and taxability. Once they start receiving benefits under either formula the decision is irrevocable. Note that Social Security payroll taxes would be abolished for GUBI recipients, so nobody would "lose" anything. The maximum retirement benefit is currently just over $30,000 at age 66 (increasing to 67) compared to GUBI at $11,500 until age 65 and $20,000 (average) thereafter (with different inflation, taxability, and survivor terms). Some older Americans (with relatively high incomes and long working careers resulting in maximum Social Security contributions) might want to stay in the existing program (and in existing Medicare), even if it means waiting for benefits. Other Americans would and should want the immediate tax free GUBI benefit.

Taxes would change a lot and for the better. As mentioned, Social Security payroll taxes would be abolished for all but "classic" Social Security participants. Only older Americans already receiving classic Social Security or those who opt out of GUBI (among those 57 and older when GUBI starts) would continue paying payroll taxes. General revenues would fund GUBI and its transition, and the tax system would be radically simplified. GUBI would be tax free, but there would be no personal deductions or exemptions, no child tax credits, and no earned income tax credits. Tax rates would be progressive and start at 15% (from dollar one excluding GUBI) and increase smoothly up to 50%. (Remember, there are no payroll taxes under GUBI.) That is, there would be no brackets per se but rather a smooth formula of gradually increasing marginal rates up to the income threshold for the top 50% marginal rate. There would be no weird "bubble brackets" in the effective tax rates because there would be no deductions or credits to phase out. Interest, dividends, and capital gains would be treated as ordinary income but all gains would be subject to inflation adjustment like GUBI. That is, you'd only pay tax on the after-inflation gains. Tax preferences for retirement savings would be abolished since everybody is getting a guaranteed GUBI annuity already, since GUBI helps working people save more, and since taxing only after-inflation gains encourages saving. The threshold for the top rate would also be adjusted for inflation. The mortgage interest deduction and primary residence capital gains exemption would be eliminated, although almost no one would owe capital gains on long held property due to inflation indexing and maintenance expenses. Deductibility of state and local taxes would be limited to income taxes based on a simple percentage of federal income tax. Charitable, medical, and educational deductions would be mostly or completely eliminated, as examples.

Estate taxes would start at a 15% rate for estates above $1 million in value and rise smoothly to a 50% rate on estate amounts above $20 million. Annual gift limits would be set equal to the GUBI. Loopholes would be firmly closed, as always.

GUBI benefits would be very well protected. "Reverse annuity" contracts for GUBI benefits would be illegal and unenforceable. GUBI benefits would be protected against child support/divorce judgments and creditor claims. GUBI could be suspended to those who are not tax compliant, but the beneficiary would have the opportunity to dispute the suspension if true poverty would result. Partial GUBI benefits could be awarded under court order as restitution to a victim of a crime (and/or survivors) but only for the duration of a beneficiary's incarceration. Parole boards may not consider GUBI impacts in their decisions. Back GUBI would be paid to anyone wrongly imprisoned but would not be counted against any other awards for wrongful imprisonment.

GUBI benefits would be payable to Americans living overseas at 75% of full GUBI, reflecting the fact that many possible overseas locations have lower costs of living. Overseas Americans would be responsible for paying any gap between U.S. and overseas taxation (and only the gap), and any foreign taxes paid on their 75% GUBI would be refundable from the U.S. (with caveats). Expatriating Americans would have to pay back the net present value of GUBI payments they've personally received (i.e. the current GUBI amount multiplied by the number of months they received GUBI), and they would have to "mark their financial assets to market," i.e. pay the capital gains taxes owed if they sold all assets, as with today's "exit tax."

GUBI data access would be fairly heavily restricted to protect privacy.

Since GUBI benefits would be contingent on citizenship (and quite attractive) there would need to be a change to automatic birthright citizenship. But it should be a very narrow limitation. For example, it might be that a child born in the U.S. to foreign parents is not a U.S. citizen unless the mother has a legal, long-term (non-tourist) right to stay or unless the child has continuously resided in the U.S., even illegally, for his/her first 18 years of life (with the presumption that he/she has). To facilitate GUBI eligibility determinations and administration all beneficiaries would be able to obtain and renew U.S. passport cards free of charge, although there would be a modest fee ($20) for replacing a lost card.

Paired with GUBI, the federal government would also be responsible for two important public goods: healthcare and education. The government would operate (partly directly, partly on a contract basis not to exceed 50% of the system) a national network of medical centers and elder care facilities offering $10/visit and $10/drug care to every GUBI recipient and covering all "essential" medical care. Much of this system would be a relatively simple expansion of the VA, the best part of U.S. healthcare. And government would be responsible for delivering free K-12 education and $5000/year public university and technical colleges, primarily building on the existing state institutions. The Pentagon could continue to offer recruitment bonuses such as paying the $5000/year for higher education, cutting the medical co-pays in half, and pushing veterans to the front of the line for elective procedures (maximum 15 days wait instead of 45). Public medical and higher education expenses could be deducted from the beneficiary's next monthly GUBI payment if the beneficiary chooses to pay that way. The aforementioned passport card would facilitate access to these services.

The Federal Reserve would be granted the authority, as part of its stabilization mandates, to inject cash into the economy through GUBI rather than through the banking system to prevent or to reduce the impacts of financial crises. The Fed must exhaust GUBI policy responses before resorting to banking system injections in crises.

That's GUBI, at least in introductory form. It's simple, effective, and fair. It reduces the economic distortions of government and gives the American private sector tremendous competitive advantages. Practically everybody wins, even wealthy Americans who would benefit tremendously from the wealth generation GUBI would unleash.

Thoughts on "Wiki Weapons"

I watched an interview with Cody Wilson, founder of Defense Distributed. Defense Distributed is trying to create a "wiki weapon," a set of downloadable blueprints for one or more gun models that anyone can use to print one or more guns using a 3D printer. Such guns would be plastic and have no serial numbers. I had a few reactions:

1. It'd probably be relatively easy to trace such guns to the printers that constructed them, thence to the owners of those printers. Especially if 3D printers are already inscribing small identifiers in the products they produce.

2. Those printers don't produce the explosive charges required for working ammunition.

3. The NRA, which comments on everything gun-related, won't comment on this new reality. I'm sure that's because it would harm the gun industry the NRA really represents if it became popular. But of course the NRA can't admit that truth, so they're saying nothing.

4. If you're the sort of person that believes you need a gun to fight against an overbearing government, then you don't actually need to stockpile guns any more. You just keep a 3D printer nearby and a set of digital plans. That's much safer and cheaper, because you don't actually need to blow your budget on 3D printing supplies unless and until you need your gun(s). And another reason not to stockpile is that the designs are bound to get better and better, so why fight your revolution with yesterday's model?

5. If you're the sort of person who thinks you'd win an arms race against a modern government, you're naive. Wiki guns don't change that.

6. If the price of 3D printing continues to fall expect a broad group of patent holders to try to do something political, much like Hollywood has convinced Congress to extend copyright protection to ridiculous lengths. Said another way, gun manufacturers are among those who like the status quo just fine.

Revising U.S. Taxes

I just saw a video clip from CBS's "60 Minutes." U.S. Republican presidential candidate Mitt Romney said that he thinks it's fair that he pays a lower tax rate than someone earning $50,000 per year.

Even Ronald Reagan said that was unfair. But wealthy Americans like Mitt Romney have had great success convincing Congress and the last U.S. president (George W. Bush) to revise the U.S. tax code in ways that are highly favorable to the wealthy and to corporations. The compromised tax code is one of the three major reasons why the U.S. economy is weak and why deficits are moderately high. (The other two reasons are privatized medical care rather than single payer, and too much spending on wars of choice, including the "war on drugs" and other contributors to the high incarceration rate in the U.S.)

I've posted my ideas for fixing the U.S. tax code before, but here's a simpler version:

1. Raise the top income tax rate to at least 40%, or add a new rate;
2. Tax all interest, dividends, and capital gains at the ordinary progressive income tax rate after adjusting for inflation (i.e. index the gains first);
3. Eliminate all Social Security and Medicare payroll taxes on the first $15,000 of income, with that amount adjusted for inflation every year;
4. Eliminate the income cap for payroll taxes, and extend payroll taxes to interest, dividends, and capital gains;
5. Eliminate the "carried interest" and other loopholes involving financial assets.

I'd also like to see the U.S. federal government, through the U.S. Postal Service, enter the supplemental defined benefit pension business. That is, you could visit any Post Office to open a modest retirement account, and you'd have a guaranteed retirement benefit above Social Security. Those retirement accounts would be managed (and taxed) just like any other classic, private sector defined benefit pension. The Post Office would also be allowed to provide basic banking services (but not loans), including low cost international remittance services.