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The US Infrastructure Problem: How Trump Should Address It

 5 min read / 

According to the American Society of Civil Engineers, US infrastructure is in dire condition. The ASCE gave a D+ in its most recent report card. The report card, broken into sections, analyses aviation (D), bridges (C+), dams (D), drinking water (D), energy (D+), hazardous waste (D+), inland waterways (D), levees (D), parks and recreation (D+), ports (C+), railways (B), roads (D), schools (D+), solid waste (C), public transit (D-) and wastewater (D+) resources.

Consequently, President Trump has proposed $1trn in infrastructure spending to address this issue. However, more government funding is not a sustainable solution. Even as state governments continue to increase funding for infrastructure, the situation has gone from bad to worse. The only solution is to privatise America’s entire infrastructure network – from airports to road and highways.

The Case for Privatising

Under a system of private infrastructure, the government would not fund or build roads. Its only role would be to enforce contracts and protect property. In a private highway system, roads and highways would have tolls that drivers pay either every time they use the roads or on a monthly or annual basis.

The first argument for privatisation of the highway system is that it would save billions per year in annual spending, as well as bring in further revenue for the government, which finds itself deeply indebted. If Amtrak, a government-funded passenger rail service, was privatised, it would provide the federal government with $6bn. Given that the highway system and air travel are used much more frequently than passenger rail, privatising those would give the federal government much more than $6bn.

Secondly, the idea that private roads and highways would allow road owners to hold drivers and businesses (indeed, the economy) to ransom. However, this claim can be refuted by the fact that there are several ways to get from A to B. It is highly unlikely that there is only one route from New York to Pennsylvania. In addition, the ability for toll roads to become monopolies is severely limited by the fact that the longest toll road is 100km.

Further, a road or highway is not the only means of transport. There is also travel by rail and air. Not only are there alternative methods of travel, but historically there was even competition in the American railroad industry, an industry that is far more likely to be monopolistic than roads. For example, during the 1880s, there were an estimated 200 railroad companies competing.

Consequently, the years between post-Civil War and the ‘progressive era’ (1870-1913), saw freight prices continuously fall. As a result, the threat of other modes of transport and competition from another road-owner would give roadbuilders and operators the incentive to lower toll rates over time, whilst also making road travel as safe as possible. Further evidence can be seen in the aviation industry.

Thirdly, the cost of paying tolls would cost drivers less every year than under the current system. According to the US Department of Transportation, the average interstate toll road costs 6 cents per mile. Last year, Americans travelled an average of 13,000 miles per driver, meaning tolls would cost drivers an average of $800 per year.

On the other hand, the average driver consumed 650 gallons of fuel per year, with the federal, state and local gas taxes of 45 cents per gallon in total. As a result, drivers are paying an average of $290 per year. However, government ownership of roads means that government monopolies have no incentive to fix potholes, to extend existing routes and so on.

The result is that congestion and traffic are far worse than under a private system. This government inaction costs drivers an average of $1,200 per year. This puts the annual economic cost to drivers at just under $1,500 per year.

Of course, under a private system, there would still be traffic. However, it would be greatly reduced. This is because if there were large amounts of traffic on a private road, this would put upward pressure on toll rates. This would send a signal to the owners to expand the length of the road, increase the number of lanes and to fix potholes. Consequently, roads would be in better condition, hence reducing traffic times and therefore cost to drivers. As a result, the total annual economic cost to drivers under private system would be similar.

Privatizing Rail (Amtrak)

Amtrak is a rail service that is funded mainly by the federal government, but the trains are operated by for-profit corporations. In 1971, when Congress took over the passenger rail industry, rail fares were cheaper than airfares, and hence Congress thought Amtrak could pay for itself. However, over time, air fares have fallen (as they are private) and freight fares fell 60%, whilst Amtrak fares have increased 60%.

This implies that government ownership of transportation does not reduce prices, hence travellers would be better off using private means of transport. To make sure there isn’t a pure monopoly, passenger rail that is based on a region could be sold to different companies, so that the railroad competition seen during the late 19th century can be replicated.

Conclusion

Once the infrastructure has been privatised, what should the government do with the revenue? The best solution is not to reduce the deficit. This is because the deficit will be $600bn this year, and privatising infrastructure and other state-owned companies would unlikely cover the whole $600bn.

Hence, the best solution is to return the money to the purchasers, so they can use it to make capital improvements. Lastly, just because local governments no longer build roads or parks does not mean people have to pay to use them. Residents of a community can all contribute to building and maintaining a road or park or benefactors can donate to parks, much like how museums are funded by donations.

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Americas

US Healthcare: Income Disparity and the ‘$1trn Toll’

 6 min read / 

US Healthcare
Income disparity is arguably one of the top issues facing societies today. This is especially true in the United States where income concentration exceeds all relevant peers in the developed world.

Valued at $18.62trn, US GDP ranks third in purchasing power parity behind China’s $21.29 and the EU’s $19.97trn. Considering China’s population of 1.38 billion, the EU’s 516 million and the US’s 326 million inhabitants, US production is impressive. But what those goods and services yield to society is what matters. In the US, over $3trn of the GDP is derived from healthcare. Of this total, at least $1trn is a regressive toll; a tax that exacerbates income disparity, stifles creativity, hurts competitiveness, and returns negative yields to society. It is unsustainable.

The toll is the difference between what the US spends on healthcare per GDP compared to western counterparts.

Healthcare expenditures in the United States as a percentage of GDP peaked in 2010 at 17.9% before falling to a current level of 17.1%. Despite this downward trend, US outlays easily remain the highest in the modern world.

Other countries’ healthcare expenditures as a percentage of GDP are: Sweden 11.9%, France 11.5%, Germany 11.3%, Cuba 11.1%, Canada 10.4%, Japan 10.2%, Australia 9.4, U.K. 9.1%, Israel 7.8%, Russia 7.1%, Iran 6.9%, China 5.5% and India 4.7.Averaging western powers Australia, Canada, France, Germany, Japan, and the U.K. comes to 10.31% of GDP—meaning the U.S. spends a staggering 65% more than its peers.

The Issues with Comparisons

Parallels can be problematic. Comparing nations’ healthcare costs and outcomes is not the equivalent of comparing apples to apples. Each country has unique attributes: obesity levels, median age, youth dependency, elderly dependency, total dependency rates and more. However, contrasting nations is not apples to oranges; it’s more like comparing two different types of apples.

Thus, costs and outcomes can be reasonably assessed. What is so unnerving about the US is that the median age and elderly dependency ratio, both key drivers of overall healthcare costs, are lower in the US than all its western competitors. At 43.3%, Japan’s elderly dependency ratio is nearly double that of the US.

No matter how one slices and dices key metrics, healthcare costs to US citizens are disturbing. Obscene adult obesity levels plague the nation. Maternal death rates run 1.5 to 3 times higher than direct competitors. Infant mortality rates run closer to Russia’s pathetic healthcare outcomes than US allies. Lastly, life expectancy in the US is one to five years less compared to the UK, Germany, France, Canada and Japan.

Many argue the premium that America spends on healthcare funds ground-breaking research, leading technology, and revolutionary drugs. Yet, for the majority of the lower and middle-class, these investments have failed to generate expected returns. The reason is the underlying financial model employed by the United States. While most modern societies utilize some form of universal insurance, the US rejects it—labeling it socialism.

Instead, America administers an inferior structure designed to generate revenues from a plethora of tests and dispensed medicines after disabling diseases, chronic ailments and incapacitating disorders are on set. The arrangement explodes costs and diverts monies from wellness and preventive care. If best-practices were implemented, more efforts would be directed to proven strategies prior to an illness that lead to positive outcomes.

More importantly, budget-busting end of life decisions would become more rational and humane – saving countless billions over time. Instead, Americans have been brainwashed to accept negative yields from their healthcare investments in the name of capitalism.

The Conservative View

Most conservatives scoff at these suggestions and believe that a return to pure capitalism would cure America’s healthcare crisis. The problem is free-markets tend to lean towards profits calculated in dollars, not outcomes. Equally, the good old days of healthcare delivered under free-market principles is a fallacy. The capitalistic principles in America’s healthcare have been defiled since WWII. The most egregious example is employer healthcare costs subsidized by federal and state governments that encourages massive fraud and abuse. These write-offs totalled $235bn in 2017 and are by far the single largest tax expenditure in the budget.

A prime example of the power of universal insurance is national defence. It protects all citizens equally. The free market then allows individuals to scale upon that – i.e. 2nd amendment rights. To achieve the best relative returns in healthcare, the same concepts should be applied. Base blanket coverage should be offered for all citizens with free-market alternatives available for those who want supplemental benefits. The additional coverage should be available for purchase from any insurer in the world—at true risk-adjusted market rates—without any tax implications.

In summary, to reverse the growing menace of income disparity, the most effective initiative the US can implement is universal healthcare. If provided, positive effects would be immediate. Employment costs would plummet, enabling companies to hire additional staff. For the majority, the soul-crushing financial costs and unknowns of healthcare would be lifted. The multiplier effect would be supercharged as incomes expanded and expenses pared. Mental health would improve and further reduce healthcare costs. The gains are incalculable.

Unfortunately, without a Democratic supermajority, the prospect of universal coverage is a pipe dream. America beware. If current levels of income disparity continue or even widen as anticipated by the new tax bill, expect the upper class to become complacent and the disenfranchised to disengage – it’s human nature. The consequences: up and down society, competitive spirits will be subdued. American hegemony will be jeopardized.

Conclusion

Implementing universal care is not the be-all-end-all answer to what ails America. But doing so will reduce costs and redirect monies to other social products and services that better serve society. Then, regardless of wealth or status, everyone will be afforded one of the necessary pillars to thrive in a competitive world—good health. What is more valuable than that? If the proverb “Give a man a fish and you feed him for a day; teach a man to fish and you feed him for a lifetime,” is accepted as gospel, then providing basic fundamental healthcare cradle to grave should be too. Status quo is not an option. If income disparity is left unchecked, the United States risks entering a death spiral—it’s called an “American Spring.”

Keep reading |  6 min read

Americas

In Praise of the IRS

 5 min read / 

IRS US

It is tempting to characterize the IRS as the enemy and its employees as agents of the dark side, zealots in pursuit of taxpayers’ hard-earned dollars. The reality may differ. The National Taxpayer Advocate Service (NTAS) has just produced its Annual Report to Congress. The NTAS is an independent body within the IRS that exists to help taxpayers resolve difficulties with their taxes. It consists of 1,800 employees, 1,400 of whom are caseworkers.

There is obviously work to be done: the report weighs in at just over 1,000 pages, over sixty percent longer than the Tax Cuts and Jobs Act 2017. The report is well written – at least the portions read by this author –  and contains a mass of fascinating information.

The report advocates for more funding for the IRS. The money – approximately $500m – is needed to enable to IRS to implement the Tax Cut and Jobs Act (new forms; new regulations) and to provide the service taxpayers will need to assist them with compliance.

Is It Helpful?

The information provided by the report, though fascinating, may not be useful. The volume of information is the first but not the only problem. Shane Snow wrote a brilliant article for Contently.com in 2015. Its focus was reading levels and their impact on readability.

Typically, when a piece of writing is run through a spell check in Microsoft Word, the result is a pop-up box showing information about the document – the number of words, characters etc. –  and the readability score. Readability score assesses the grade level at which one must be able to read to comprehend the document.

Snow found an inverse correlation between the grade level at which an author writes and their readability. Or, put differently, the more difficult a book is to read, the less popular it is. The first sentence of this paragraph earned an “F”, with college-level reading skill required. The second sentence earned an “A” with a reading level of just below seventh grade. The NTAS report requires a post-graduate reading level. Although well written, as Snow points out, more than ninety percent of the population is not reading at this level. How helpful can it really be to taxpayers?

The Sharing Economy

Presumably, the target audience for this report is less the average taxpayer than it is the leadership of the IRS and the politicians that approve its funding. Small government ideology is inevitably constrained by the need to collect funds to drive the programs it does approve. Ironically, the party of supposed ‘small government’ – the Republican Party – has just passed tax reform that will increase the deficit over the next ten years by $1.5trn and will, therefore, require even more heavy lifting by the IRS.

The report estimates that approximately 25% of the US workforce participates in the sharing economy: Uber; Lyft; Airbnb; Task Rabbit. The report defines the sharing economy as follows:

The “sharing” economy (also known as the gig economy) can be described as “collaborative consumption” or a “peer-to-peer market” that links a willing provider to a consumer of goods or services (coordinated through a community-based online service).

The problem highlighted is that those involved in this economy – the service providers and the platform operators – are not consistently aware of their tax obligations. Some platforms clearly are: Uber and Lyft provide their drivers with a very user-friendly service that many prefer to the alternative of managing their own accounting. Others, apparently, are less efficient.

The issue is not minor. NTAS estimates growth in revenue from this sector of the economy from $15bn in 2013 to $355bn by 2025. It is aware that many of the platforms have set up online forums for discussing tax problems and recognizes that the anonymous nature of these forums contributes to their usefulness. The concern is that advice given may be incorrect per se or because of different taxpayer circumstances and NTAS notes that:

“anti-government/anti-IRS sentiment may skew the forum discussion, to the point where high-risk tax avoidance techniques may be accepted as norms.”

The other significant risk for service providers is that, while they may receive timely and accurate information about revenue collected through the platform on Form 1099, they may not have made appropriate estimated tax payments or saved sufficient cash to pay their taxes when due.

Responsive?

NTAS clearly shows the friendliest face of the IRS. Advocacy for the taxpayer is it mission after all. It notes, however, that the IRS manages to answer only 6 of 10 taxpayer phone calls during the filing season; and only 4 of 10 outside that season. A sizeable number of tax queries go unanswered and may be assumed to lead to incorrect filing.

For those who do get through, the result can be helpful: IRS officials default setting is not to be obstructive, but rather to assist in compliance. NTAS is somewhat creative in seeking to address the problems. One of the recommendations is that its representatives should participate in platforms such as Reddit.

NTAS notes that, while the IRS has been responsive in developing a specific website devoted to the sharing economy, more could be done in terms of providing check-lists or wizards to assist taxpayers. Branding firm Siegel & Gale, whose core principle is to keep things simple, lists the IRS as one of its clients. Evidently, the IRS recognizes the challenge.

It remains to be seen how forthcoming Congress is in authorizing the $500m requested to comply with the obligations imposed by tax reform. More taxpayer confusion is the likely result – but don’t be too quick to blame the IRS!

Keep reading |  5 min read

Americas

President Oprah?

 2 min read / 

Oprah President

Two of Oprah Winfrey’s close friends have said the US television star is “actively thinking” of running for President.

Both of the friends have also suggested that many around the 63-year-old television personality have been actively persuading her to declare her candidacy for the 2020 Presidential election.

Her acceptance speech at the 2018 Golden Globes Award ceremony on Sunday night was considered to be heavily laden with tips of a potential presidential run in 2020.

Referring to the recent Weinstein scandal that has plagued Hollywood, Oprah gave a message of hope to all the young girls that “a new day is on the horizon”.

Although ostensibly referring to the #MeToo movement, some have suggested that it could become a potential campaign slogan.

Oprah’s wealth and fame across America some believe would make her the ideal Presidential candidate. A self-made woman, she would inevitably be contrasted to the incumbent Donald Trump, who had inherited a large part of his fortune.

Whether America would elect another celebrity is still an open question but the social media storm for “Oprah 2020” and “President Winfrey” following her Golden Globes speech suggest that unlike Trump, who based his campaign on his outsider status, she is already considered a serious candidate.

(Picture source): Bill Ebbesen

Keep reading |  2 min read

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