Issues of Public Policy I Often Wonder About ....

ALL POSTS PRIOR TO 2021 HAVE NOT BEEN REVIEWED NOR APPROVED BY ANY FIRM OR INSTITUTION, AND REFLECT ONLY THE PERSONAL VIEWS OF THE AUTHOR.

While I blog, otherwise write and speak about fiduciary issues, I have other thoughts about many of the public policy issues of today.

Lacking the depth of knowledge in any particular area, these are more like questions, rather than viewpoints I have adopted. On this July 4th weekend, I thought I might share a few of these questions with those who dare to read this post.

I Wonder About ... Dysfunction in the U.S. Congress.

• There seem to be a lot of hard-working, dedicated U.S. Senators and U.S. Representatives. Why don't these individuals get more credit for at least trying?
• There seems to be far too much allegiance to political parties, and too little allegiance to personal values and the pursuit of the "truth" and "better solutions."
• Why should a Senator or Representative vote her or his conscience on every vote - not just when the "leadership" says it's "o.k. to vote your conscience on this one"?
• I've always thought of the U.S. Congress as a weighing mechanism. The views of conservatives vs. liberals (and other contrasting points of view) are all taken into account, compromises are made, and a moderate, more middle-of-the road solution is achieved as a result. But this seems to have broken down in recent decades.
• Was the past in Congress, decades ago, truly different, and more as I described?
• And, if so, how do we get back to a Congress that works?

I Wonder About ... "It's Just Politics"

• When did it become semi-acceptable to lie, then have the person who made the lie (or an observer) state "it's just politics"?
• I was taught to never be critical of another person - by gossip, by calling names, or by otherwise being critical of the person or her/his motives. Saying something bad about a person just comes back to haunt you - whether in one's personal life, the world of business, or the world of public policy. I've not always been successful in my allegiance to this principle. But I try.
• One can question a person's policy position, without questioning his or her integrity.
• Why doesn't our press call those who unnecessarily call others names, or question their motives, to task?
• Is it possible for any person to be - honest, well-reasoned, and hence not "newsworthy" - and still get elected nowadays? Or do only those who make headlines - through outrageous statements, falsehood after falsehood, or extreme positions - have a chance of getting elected to national office today?
• Is it possible for any person to run for state or national office and refuse all contributions from organizations (be they corporations, unions, political parties, political action committees, etc.), and only accept contributions from individuals - and even then only up to a certain amount (such as $100 or less)? Would that person ever stand a chance?
• Why do Presidential inaugurations cost so much (and lead to large corporate contributions, as a result)? Seems like those who want to party should pay for it - not by encouraging more money in politics.
• For that matter, how can we get the "money" out of "politics"? Is a Constitutional amendment our only option at this point? And what would such an amendment state?
• Why can't Congress be better stewards of our tax dollars?
• The cost to produce the one-cent coin increased to 1.5 cents during 2016, for example. Time to eliminate the penny.
• Small changes to save money, made repeatedly, add up. Especially over time.

I Wonder About ... The Size of Government.

• Dear Republicans, government is not inherently "evil." Government does have a role to play in establishing standards (through law and regulation), and proper means for enforcement of standards (through private rights of action, primarily, and through government enforcement when private rights of action are wholly insufficient to deter improper conduct).
• Dear Democrats, government should not be large. Government is not the proper solution to every problem. Nor do we, as a nation, possess unlimited resources.
• Dear Members of Both Parties ... Look for ways to make government regulation simpler.
• A prime example is our system of defined benefit and defined contribution plans. A huge number of different types of plans. A huge number of options, that just create costs for employers and employees who participate in the plans. As I've written about previously - simplify, simplify, simplify. It's possible!
• Dear Republicans and Democrats ... Let's not "layer" government, by having different levels of government involved.
• How can we remove federal "oversight" of states and municipalities, in their various government programs? Can we recognize that many times the costs of multiple layers of government outweigh the benefits?
• How can we encourage states to consolidate various jurisdictions? For example, can we consolidate county and city/town governments, for greater efficiencies, in many areas? How about school districts, in other areas?

I Wonder About ... Technology and Jobs.

• Technological innovation is likely to displace tens of millions of jobs in the next couple of decades. Will new jobs be sufficiently created?
• We have a big educational gap, at present. We need many more skilled workers. Our colleges and universities are not providing sufficient number of graduates - especially those with technical skills (2-year degree, or certificate, holders). How can we address this better?
• Apprenticeships do appear to be part of the solution. But are current proposals likely to end the needed greater support of technical skills training by other means?
• Disintermediation is a powerful force. It is often resisted by enacting laws and regulations that, in effect, prevent change from occurring. Can we be more cautious about "protecting industries" from disintermediation and/or other changes?

I Wonder About ... Some Tax Reform Issues.

• Many, if not most, income tax deductions today favor those who are high-earners. Few deductions matter much to those who pay no income tax, due to low incomes, or who are in only 10% or 15% marginal federal income tax brackets. Fair?
• We need to abolish double taxation of corporate profits - once at the corporate level, then at the personal level (when dividends are received in taxable accounts, or when stock buybacks are received in taxable accounts). What's the best way to do this?
• Democrats ... eliminate most corporate tax deductions. Restore depreciation expenses to occur over the projected lives of property (with only some acceleration of deprecation, if only to reflect the time value of money). Eliminate most tax credits. And then reduce corporate income tax rates, to enable a lower cost of capital for U.S. corporate activities. This will likely bring more jobs back to the U.S., as well.
• Should not everyone pay some federal income tax, even if only 1%? Paying tax is participating in the funding of our country's needs. This leads to persons having a feeling of contributing - i.e., greater dignity.
• Abolish the AMT. Abolish deductions and special tax treatments, first, where possible. Then you won't need to have the AMT system. It's really, really complicated, and leads to some perverse tax-driven moves by individuals.
• Should the federal government apply a 2% flat income tax rate, on top of existing federal income tax rates, which 2% collected would then go to the states from which the 2% would be collected? Would this deter states from seeking to compete with each other through tax policy?
• States could lower other taxes, as this new federal revenue comes in.
• Why do some states permit new corporate (and even individual) taxpayers to pay less (or no) state income taxes, for a period of time, to attract new jobs? Seems unfair to existing taxpayers.
• Should a federal law prohibit states and localities from providing tax breaks (from state income taxes, sales taxes, property taxes, etc.) to corporations, as a way of preventing states from showering benefits on a few, at the expense of the many?
• In some states, state income tax rates are actually regressive, not progressive. Why? The deduction (when itemizing) of state income taxes paid on the federal income tax return.
• For example, a person paying a 39.6% marginal federal tax rate (and that's not even the highest marginal tax rate, due to the net investment income tax and the phase-out of certain deductions), paying Kentucky's 6% maximum personal individual state income tax rate, effectively only pays 3.624% marginal taxes after taking into account the itemized deduction (assuming fully deductible, due to other itemized deductions, such as real estate taxes, etc.). In contrast, a Kentucky resident with $15,000 of taxable income in Kentucky pays at a 5.8% tax rate; such a person (or couple) is likely to have higher actual income due to personal exemptions and the standard deduction; but the 5.8% income tax paid likely results in no deduction for federal income tax purposes (as the person does not itemize).
• Even if the income is a bit higher, and there are other itemized deductions that add up to exceed the standard deduction, the Kentucky resident is likely in only a 10%, 15% or 25% marginal federal tax bracket - making the effective state income tax rate - based on 5.8%, less federal income tax deduction taken - either:
• 5.22% (for 10% federal marginal tax bracket);
• 4.93% (for 15% federal marginal tax bracket); or
• 4.25% (for 25% federal marginal tax bracket).
• In each example above, the lower income tax earner pays a significantly higher tax rate than the higher income tax earner - for purposes of state income tax. Does the fact that this state's income tax brackets are so regressive, after taking into account the deduction of state income taxes - bother anyone else other than me?
• As a long-time estate tax planning attorney, I applaud some recent changes in estate tax law.
• Spousal portability was long overdue. It really simplifies estate tax planning for most married couples. Should we keep it? (In my mind, absolutely.)
• A $5.5 million (approximate) exemption this year, per person (effectively, close to $11 million for a married couple) on its face seems about right. Especially since the exemption now increases each year with inflation.
• But, is this a sufficient exemption amount to protect most "small businesses" and "family farms"?
• How do you define "small"? What does a "family farm" look like today?
• The 40% federal estate tax rate imposed on assets exceeding the exemption seems like a quite high percentage. Is the rate too high? Should the rate be brought back down to 30% - especially if the exemption amount remains as it exists under current law?
• Should we eliminate the use of family limited partnerships and similar strategies by bringing back family attribution rules.
• Should we keep the federal estate tax, but with a lower rate applied lessen its burdens on the very few to whom it still applies?
• We have great wealth disparity, and income disparity, in this country. We enacted the federal estate tax to minimize the risks of wealthy families owning most of America, through "dynasties."
• Oh, by the way, should we eliminate the continuation of dynasties through generation-skipping trusts (which is a way around the federal estate tax)?

I Wonder About ... The Future of Democracy.

• Democracy is a great experiment, that will continue to be tested. We have to always support it, and work to make it better.
• Democracy is hard. In fact, it's very hard. I may spend decades of my life advocating for a certain position. Then, standing next to me tomorrow, or the next day, may be a person who publicly advocates for the exact opposite position, at the top of her or his lungs. This obviously would troubles me, as it would anyone. But, freedom of speech must be preserved.
• I may fervently disagree with what you have to day, but I will always defend - to my utmost ability - your right to say it.
• We have a republican form of government, not a pure democratic form of government. (I don't refer to our current political parties with this terminology. If you are unfamiliar with these terms as they are utilized, look them up.) Regardless, essential to our democracy is participation by as many as possible in the political process. Primarily this is done via voting.
• Throughout our history we has disenfranchised persons from voting - those not owning property, those who were slaves, those who were women, those who were minorities, etc. In today's modern society, we continue to see efforts to reduce participation in the voting process. This seems troubling to me, and an abuse of the rights of each individual.
• Why don't we hold elections over the weekend, when more persons can vote?
• Why don't we make it easier to vote early, or via absentee ballots, than it is now?
• Why don't we investigate why some voting precincts have long lines, time after time (which deters voting), while other precincts in the same county (or other jurisdiction) consistently have much smaller lines?

I Wonder About ... The Regulation of Financial Services.

• How will we move, steadily forward, toward a profession for financial and investment advisers that:
• Has, at its foundation, adherence to a bona fide fiduciary standard of conduct.
• Has, at its foundation, the requirement for greater financial and investment education than required to obtain licensure today?
• Provides effective rule making and oversight by the professionals themselves via one or more "professional regulatory organizations" - and which controls (subject to some government oversight, in order to avoid the formation of guilds) the regulation of those who are permitted to practice, and the right to sanction or expel those who do wrong - via a peer review process?
• Undertakes a "light touch" to oversight, respecting of our status as professionals (and not treating us as criminals)?
• But which undertakes frequent inspections on assets custodian, i.e., "asset verification" - in order to deter and detect actual fraud, and to prevent Ponzi schemes (which start small and usually due to financial pressures on advisors) from becoming larger?
• Lessens regulatory burdens that currently exist, some of which just provide things for securities examiners to examine? Examiners tend to focus on documentation requirements, and disclosures, because they are usually not competent to address issues of due care; private rights of action, and peer review, are the answers in these areas.
• Provides appropriate advice to members of the profession, so that we don't engage in the dreaded "regulation by enforcement." (See my recent post posing some questions about this.)
• Can we recognize that pure capitalism is not appropriate - and that standards of conduct are properly applied (through principles-based regulation), in today's complex financial world where such a great disparity of knowledge and expertise exists as between investment and financial advisers and individual consumers? 
• Why do we permit those who argue against the fiduciary standard to frame the debate as one in which "choice should not be restricted"? At its core, the fiduciary standard restrains conduct - it prohibits certain conduct, and it mandates certain responsibilities. These, in turn, restrict choice - by eliminating bad choices. It's disconcerting to hear from the new SEC Chair that a fiduciary standard should be adopted that "does not restrict consumer choice" (to paraphrase) - when that's exactly what the fiduciary standard is all about.
• Why does the SEC permit mutual funds to report "portfolio turnover" as the lower of sales or purchases (divided by net assets), rather than the average of the two? Seems misleading, especially for funds that have a high percentage of inflows and/or outflows during a period. (I know why; I just don't think it's fair.)
• Why was "suitability" - a concept that actually reduces the standard of "ordinary care" applicable to most service providers, and a standard that may have been correct when stockbrokers main functions was undertaking trades for clients - ever extended to the selection of mutual fund managers (i.e., investment managers)? The result seems to be lack of accountability of broker-dealer firms for giving investment advice.
• Why are titles not appropriately regulated in financial services? If you call yourself a "financial / investment / wealth / estate" + "planner / advisor / consultant / manager" - should you not be held to account for holding yourself out in that manner. (Via the application of the fiduciary standard.)
• Why did the SEC permit brokers to provide so much "advice" while not being held to the fiduciary standard? It really goes against the plain meaning of the requirements for the exclusion from investment adviser registration.
• Why does the SEC permit dual registrants to disclaim away (or have clients waive) core fiduciary duties, especially given the anti-waiver provision contained in Section 215 of the Advisers Act?
• Why don't we just do away with most of the disclosure requirements (in the new DOL rules) found in BICE, and 84-24? Let's just rely on the Impartial Conduct Standards.
• Disclosures are largely ineffective, in the financial services world. That's why we go to the trouble of imposing fiduciary standards.
• Disclosures never, alone and without much more, defeat the requirement to act in the client's best interests.
• Informed consent is required, when a conflict of interest is present. And no client would ever consent to be harmed.
• Why don't we just acknowledge that you cannot serve two masters at the same time?
• Bona fide fiduciaries represent the client, and only the client.
• Bona fide fiduciaries don't represent their firm (by selling proprietary products), nor do they represent other product manufacturers (by receiving product-based compensation).
• Why do certain financial industry participants refuse to recognize this plain truth: fees and costs matter. The higher the product-based fees, however, paid, the lower the returns to investors, all other things being the same.
• Why don't we realize that ... economic incentives matter?
• Why do we ever allow the provision of tax-efficient investing advice, when constructing an investment portfolio for a client and choosing proper investments, to be disclaimed by any investment adviser, financial planner, broker-dealer, or others providing advice on such issues? Tax drag matters - a great deal.
• How can we more effectively stop the revolving door between the SEC and Wall Street (and the law firms that serve Wall Street firms and insurance companies)?
• Is the Volcker Rule too complex? Are the regulatory structures in place too costly? Would it be simpler, and better for our economy, to reinstate Glass-Steagull?
• How can we better educate those who provide investment advice and portfolio management about ...
• the requirements of the fiduciary standard of conduct?
• the requirements of the prudent investor rule? (When it is applicable.)
• what "works" in investing?
• what does not "work" in investing?
• why "investing" as a fiduciary advisor, on behalf of a client, should not involve "speculation" - except in those rare instances when the client desires speculative strategies be employed (and, assuming the prudent investor rule application is not mandated).

I Wonder About ... Health Care. (A lot of questions here. Do you dare to read?)

• Is health care a "right"? Is food? Is housing?
• We subsidize the provision of food a great deal, through government programs.
• We subsidize the provision of low-income housing a great deal, through government programs.
• But we don't "guarantee" either food or housing to all. Charitable organizations may be better suited to "fill in the gaps."
• Yet, charitable organizations seem ill-equipped to provide substantial health care assistance to those who fall in the gaps. Hence, we indirectly provide for health care assistance through obligations imposed on hospitals to provide care to the indigent - at least some amount of care. Is this fair?
• Am I comfortable with, according to some estimates, 20,000 more Americans dying each year if the current proposals pass, due to lack of access to health care?
• Is such a statistic accurate? Does it overestimate or underestimate? Who knows. But, there would be more deaths.
• Such a statistic seems abstract. Let me try to put it in terms that are more local to me. If there are 100,000 who live in my city of Bowling Green, that means (on average) there would be 6 more deaths in my city, each year, as a result of this legislation.
• I regard myself as a moral person. I am greatly troubled by this statistic. Should I not be troubled by it?
• There is no question that the Affordable Care Act created some perverse disincentives.
• Small employers are disincentivized from crossing the "50 full time employee threshold."
• Why are small employers treated so unequally from large employers? Is this fair?
• All employers are disincentivized from hiring more full-time workers, in favor of hiring part-time workers (no more than a certain number of hours worked per week).
• At least some of those on Medicaid, due to low incomes, may possess a disincentive to seek employment.
• The Affordable Care Act had some very positive reforms to insurance regulation.
• The new legislation would appear to permit states to opt out of covering preexisting conditions - for some plans.
• If you know anything about insurance, this violates the principles of insurance. Set up different rules for coverage, for different types of plans, and the healthy will migrate to the cheaper, less costly plan (or opt out of coverage altogether). This leads the unhealthy stuck in the more expensive plan - which then gets more and more expensive, leading to more persons dropping out. Yes, this is an insurance policy death spiral.
• I have taught a course in principles of risk management and insurance. The proposed legislation would permit states to essentially violate the principle of insurance, if they so choose. Those with pre-existing conditions would, in the end, lose coverage as their insurance policies collapsed.
• The Affordable Care Act was never titled "Obamacare" by the way. Nor is the new legislation titled "Trumpcare." Why does the press use what are clearly political terms for these bills / laws, thereby exacerbating the feelings of those who participate in debating these issues? Can't we hold the press to a higher standard?
• Yes, health care legislation is complicated. But why are we not addressing efficiency in the delivery of health care coverage, as a means of bringing costs down?
• The major problem with health care remains its costs and how to fund its costs.
• Should we not endorse the greater use of community health care clinics?
• The Affordable Care Act increased the availability of patient's electronic records, leading to certain efficiencies in coordination of care (and, hence, better patient outcomes). Let's preserve this initiative.
• I'm not a fan of "big government." But, is health care appropriate for for-profit businesses? Or should we turn to another solution?
• Depending upon how you define them, non-profit businesses are a significant portion of the U.S. economy.
• Should only "mutual insurance companies" (essentially, not-for-profit companies, owned by policy holders) be permitted to be the "payers" in health care systems in the United States?
• Can we fashion not a "single-payer system," but markets (perhaps by state) in which mutual insurance companies or other types of not-for-profits compete to provide comprehensive health care coverage? And, in so doing, can we eliminate much of the billing and associated paperwork, and hence make health care more efficient?
• As the richest nation in the world, why are we the only (or one of the few, depending on who you listen to) nation(s) who don't provide comprehensive health care coverage for all of its citizens?
• Why should U.S. corporations shoulder the burden of group health care insurance premiums. Corporations in other countries generally don't. Does this make U.S. corporations less competitive?
• If we remove the huge burden of health care costs from American business, would it make U.S. corporations more competitive, and/or bring more jobs back to the U.S.?
• Why does the focus on the low wage growth of the past 4 decades not include, as part of the statistics often utilized, the "total compensation" (including the employer portion of health care insurance premiums paid, etc.) provided to employees. If this were done, would the statistics look substantially different?
• If we remove the requirement that large corporations provide health care coverage, and move to a system in which health care coverage for all is provided via some other means, would not wages go up substantially?
• Again, I don't like the disparity in government regulation, as between large employers and small employers. Why should small employers not bear the burdens of health care costs, when large employers are required to bear such costs, under the Affordable Care Act? And, as stated above, these regulations create some interesting distortions in our employment markets.
• Why not adopt a new funding means for health care costs?
• Tied to a combination of the annual income and net worth of each individual (or family).
• Net worth seems to be necessary to include. As the current tax law permits a lot of "income" to not be reported (through tax-deferred or tax-free accumulations, such as 401k, traditional IRAs, Roth IRAs, non-qualified annuities, life insurance cash values, non-realization of capital gains and losses, etc.).
• A certain amount of net worth would be excluded, from computations done each year. For example, at age 20 a person might be able to exclude $100,000 of net worth, by age 30 this would have risen to $200,000 of net worth, etc., etc.
• Values for real estate would be "market values" as undertaken by property appraisers.
• Most assets would be valued as of December 31st, for purposes of the next year's computation.
• Tax returns would include a page for calculation of net worth.
• Perhaps a small percentage of net worth, above and above the excluded amounts, would be required to be devoted to health insurance premiums - as part of the total contribution an individual makes to premium contributions.
• Annual income would be based upon an estimate provided by each person. This estimate could be changed, online, each month - as a person's employment and income changes.
• As a person's income increases, so does their contribution to health care insurance premiums.
• If the amount of income, upon filing of a person's federal income tax return for that year, is lower, a "refund" of insurance premiums paid would occur for that year.
• If the amount is higher, an extra payment would be paid (with a person's tax return) for that year, plus a fixed rate of interest.
• Each person's contribution to premiums would go up with each $1,000 increase in either net worth (above excluded amounts) or income. No huge increases once certain thresholds are crossed, as often occurs under current tax laws. In this way, there is no huge disincentive to accumulate more assets, nor to have more income.
• The government steps in to subsidize premiums for those who are the poorest - in terms of a combination of net worth and income.

I Wonder About ... Religion. (Now, this is a touchy subject.)

• Can we recognize that while religion is a very powerful and mostly positive contributor to our society, at times religion has been used incorrectly?
• Should we never say we are doing an action because "God has said it is right." How do we know this? Isn't it better to say that our values and our view of what is right, and wrong, are provided to us in large measure by our religious beliefs. But our actions are determined by what we view as right. (We should not presume to speak for God.)
• Can we recognize that humans have certain inalienable rights ... rights that cannot be defeated even by religious beliefs? Religion should not be used to oppress, such as by defining that women must be subordinate to men (in some religions).
• How strongly can we advocate against religious oppression, without questioning ...
• Why women can't be priests in certain religions?
• Why a woman cannot become Pope?
• Can we question, without being disrespectful, those who advocate for "tradition" even though their arguments have some type of discriminatory effect?
• Can we recognize that change in our society at times occurs gradually, and at other times occurs more rapidly. Can we at times we respect gradualness, while at other times - such as when core fundamental rights are at issue - respect that we must act to embrace more rapid change, even though disruption occurs?