June 14, 1946 or how to pay for universal healthcare

As I’ve mentioned before, the guy who had universal healthcare figured out was the gruff former Congressman Pete Stark. His Americare bill from 2009 should be updated and made the Democratic alternative to the Senate bill (which, as I write this Monday, is a jump ball for passage this Thursday).

The clever thing Stark did was realize that the $1 trillion currently paid as private health insurance premiums (mostly by employers, private and governmental) isn’t seen by anyone as a tax, while raising $1 trillion in new taxes (as the John Conyers and Bernie Sanders single payer plans do) would most assuredly be seen as the largest tax hike in history. What Stark proposed is allow employers to voluntarily shift premiums from private insurers to the public Americare plan. Stark, and independent analysts who’ve studied plan (as detailed in link above); believed that the lower premiums of the Americare plan would cause such a rapid shift to public plan that we’d soon have a de facto single payer system (Medicare would be kept separate for the time being but everyone on Medicaid would be folded into system). Since the world is full of people who just want to watch the world burn (when they’re not watching Fox News), I’d tilt the playing field even more by limiting the employer-paid health insurance tax deduction ($260B/yr) to only those premiums paid into Americare. Freedom loving employers could still honor the covenant George Washington made with the insurance lobby (or whatever their reasons to oppose a system like Medicare for everyone, who knows) by buying private insurance… and then the taxes levied on said premiums would go to Americare. If they stop paying for employer health insurance altogether, the $3,000 an employee penalty Obamacare imposes would help pay for their employees Americare coverage.

As I alluded to in my last piece, there’s another source of revenue available to fund a transition from Obamacare to Americare which involves cutting spending instead raising taxes. In a sentence, our government should stop paying more than nominal interest to bondholders seeking a safe harbor for their money in the world’s safest bank, the US Treasury. Remember, the FDIC bank account guarantee is limited to $250,000. If you’re a high roller seeking Uncle Sam’s full faith and credit, you must cut out the middle man and buying Treasury bills, notes or bonds (bills are 1 year or less, notes 1 year to 10 years, bonds have no duration limit, so 30 yr Treasurys are always bonds). In January, the CBO projected that over the next decade, Treasury will pay bondholders $5.2 trillion for depositing their money with Uncle Sam (which CBO calls “net interest” because it excludes interest Treasury pays to its own accounts and trust funds.

Isn’t it curious that the CBO tracks such a huge expenditure that Congress has no say over? Look at this chart published on CBO website…

No member of Congress today has ever voted to increase or decrease net interest costs, and yet it is something eminently within Congress’s control. During World War II, Treasury and the Fed cooperated in a rate peg, Treasury Bills could not exceed 0.375%, the long bonds rate (though if I remember correctly, they were actually 10 yr Treasury Notes) couldn’t exceed 2.5%. The rate peg worked by the Fed promising to buy (in secondary markets) any and all Treasurys at the pegged rate. The two point spread between bills and notes, then and now, is unnecessary from Treasury’s perspective. If someone wants a safe, long duration security, go buy a municipal bond already. It’s just wasted debt service cost to Treasury. The rate peg would have worked better if the Fed were allowed to pay interest on reserves, which it has been allowed to do since 2008 TARP Act and if it could levy bank transaction fees in overheated markets (to account for the indirect cost of inflationary pressure from each transaction) as it has been allowed to do since Monetary Control Act of 1980. So here’s how you increase funding for healthcare without raising taxes: Congress bans any further sales of notes and bonds until a subsequent act of Congress says otherwise (eliminating the budgetary cost of the interest rate spread) and then for the remaining T-bill auctions, lock in the World War II T-bill rate (would be nice to eliminate the debt ceiling at same time, but let’s not go crazy).

Conveniently for us, this rate peg continued for a couple years after the war, which means Congress could declare that the Secretary of the Treasury shall issue no T-bills for more than the Treasury bill rate peg as of June 14, 1946 and further order that the Federal Reserve cooperate with Treasury maintaining orderly T-bill markets just as it did as of June 14, 1946 and that the Fed’s interest on reserve rate would not exceed the June 14, 1946 T-bill rate peg and, finally, any fees levied on banking system transactions by the Federal Board of Governors to counter the indirect cost of inflationary pressure of said transactions (inclusive of any surcharge placed on mortgage and other loan rates) would pass through 100% to Treasury General Fund (that is, member banks of Fed don’t get their 1.5% or 6% vig of Treasury rebate). The Fed could also control inflationary pressure with its authority to adjust: prime rate, bank reserves & capital minimums, investment account margin rates, and loan downpayment requirements.

Economist Thomas Palley has written extensively about the tools the Federal Reserve has to adjust monetary policy without increasing interest rates. Considering that each 1% point in higher interest rates works out over a decade to around $1 trillion in federal net interest costs, its astonishing Congress hasn’t looked at this issue since Wright Patman ran the House Banking Committee.

Oh yeah, in case you haven’t guessed, June 14, 1946 was the day Donald Trump was born. Inflation was rather high that year but that wasn’t due to low interest rates, it’s because Congress abruptly ended wartime price controls and rationing instead of slowly phasing it out to allow manufacturers time to convert from war production back to civilian products. The important thing for us is going back to 1946 rate (or as many, many very smart people will call it, the Trump rate) and selling only T-bills will cut net interest cost by more than 90%, $5 trillion in budgetary savings over the next decade and even more in the decades to come. Reallocate every penny (less any tax cuts needed to to buy GOP votes) to the universal Americare healthcare plan and you and I will be living in a better world. It’ll be Yuge!

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