Taxpayers As Captive Shareholders of America

Every American taxpayer is a captive shareholder in the United States of America with nowhere to run, financially speaking, to escape decades of flawed policies, mismanagement of our taxpayer dollars and questionable ethics in many facets of society, including the government sector. If we were shareholders in a publicly-traded company and disapproved of management’s handling of the business, we would either sell our shares or become activists to bring about change for the better. It appears that the latter is the only option open to those of us who care deeply about America.

With each passing day America is getting deeper into a financial abyss that is weakening the country’s standing in the world and its ability to borrow money to fund its spiraling debt, which is over $46 trillion if off balance sheet liabilities, such as Medicare, Social Security, etc. are included. According to a report written earlier this year by former Wall Street analyst Mary Meeker entitled USA, Inc., the U.S has had a negative cash flow for 9 consecutive years through 2010 and has a negative net worth of $44 trillion.

While by no means all inclusive, the discussion that follows provides some thoughts and proposed solutions for some of the key money-draining practices and ethics flaws that exist in America today. Before contemplating cutting Social Security or Medicare benefits, it is crucial that losses stemming from corruption, fraud and ill-conceived government programs be tackled first. The task will require the effort of every individual, corporation, government employee and policy maker to get America back on track—and it’s not too late.

• Convert all public employee pensions from defined benefit to define contribution plans where employees select investment options and contribute their own money each pay period toward their retirement. Public pensions are grossly underfunded, partly because they adhere to an estimated return on investment of 7.5% – 8%. Over the past few years America has not seen, and is not reasonably expected to see, rates of return on “safe” investments at these levels in the foreseeable future. This shift to defined contribution plans has been occurring in the private sector for years. For those enrolled in the defined benefit plans prior to conversion, they would receive benefits from those plans upon retirement. From the conversion date forward, they are responsible for designating a percentage of their wages to be deducted from their pre-tax wages each pay period and they choose from a selection of investment options, usually mutual funds.

• Crack down on fraud associated with contract awards, including kickbacks, padded payrolls and contract term manipulation. Dramatically increase oversight of the projects through completion and insist on a firm fixed-price contract where the contractor bears the financial responsibility of the project and where cost overruns cannot revert to the government entity, and ultimately taxpayers, for payment. Kickbacks and underbidding to get the job are rampant in the system, costing taxpayers millions, if not billions of dollars. Under the low-bid scenario, contractors come in low to get the job, then renegotiate and escalate costs throughout the term of the project .

• Blacklist those contracting firms that have committed fraud against a municipality or broader government entities. Contractors involved in the CityTime fiasco in New York that drove the cost up from $63 million in the year 2000 to $760 million in 2010, mainly as the result of fraud, are still bidding on government contracts. Even more shocking is the fact that the Metropolitan Transit Authority (MTA) selected Science Applications International Corp, the major player in the scandal, for a contract totaling $105 million. Fortunately, last December New York State Comptroller Tom DiNapoli blocked it from moving forward. Unfortunately, the MTA’s current selection is Alcatel-Lucent, a company whose subsidiaries pleaded guilty to bribery charges to win contracts and have paid fines to the tune of $147 million. This latest contractor selection is under review. There may actually be a substantial number of honest contractors around that simply don’t bid on government contracts because of the dealings that go on behind the scenes. By cleaning up the process, reputable bidders would be drawn into the mix.

• Put an end to ballooning Medicaid fraud among the general population by implementing much more stringent asset checks on perspective Medicaid recipients. Broad based Medicaid fraud mostly involves hiding assets so that people can qualify for free health services and it is spreading like wildfire. Just to provide some overall perspective on the growth in Medicaid eligibility over the years, one in fifty Americans received Medicaid in 1965; in 2010, one in six received it, according to Mary Meeker’s USA, Inc. report. There are many reasons for this, not all of which involve fraud, but the point is that funding this trajectory with taxpayer dollars is clearly unsustainable.

The Cato Institute published a report written by Michael F. Cannon in April 2011 that states, “Medicaid has spawned a cottage industry of elder-law attorneys who offer to hide or shelter the assets of well-to-do seniors so that they will look poor on paper” to qualify for benefits. American citizens from foreign countries with assets overseas have it much easier and can accomplish the task through word of mouth among friends and relatives, or what appears to be a mid tier of “consultants” who are liaisons between potential Medicaid recipients and the Medicaid system. They often work out of doctor’s offices or independent, smaller healthcare entities and advise people on how to work the system. It seems that if you can move all your assets out of your name for about a week around the time you sign up for Medicaid benefits, the consensus is that no one from Medicaid will ever check again. Once you qualify for Medicaid, then food stamps, welfare and various other benefits, including housing in some states, paid for by taxpayers, follows. Our elected officials must take action and in doing so can save taxpayers billions of dollars.

• Install a biometric system tied to a national database to eliminate fraud in the welfare system by unscrupulous people who are collecting multiple benefits through a variety of false identities. Fingerprints and other biometric markers such as the iris of the eye are extremely accurate identifiers. The system can also be used to prevent voter fraud by requiring this form of identification. With all the challenges facing America, the degradation of our voting process is something we cannot morally afford as a nation.

• Stop funding foreign governments for the purpose of being America’s puppets. While there are legitimate American “interests” around the world, our elected officials must not use Americans’ taxpayer dollars to “buy” friendships of these foreign nations. It does not say much for our ability to negotiate if the only way we can garner support for our initiatives is to pay people off. Adding to this flawed scenario is that there is often no mechanism or desire to determine whether our dollars are being allocated as intended in those countries.

• Require political candidates to disclose their FICO credit score to voters, the logic being that If people cannot handle their household finances in a responsible way, then they surely should not be responsible for handling taxpayer money.

On a final note, let us hope that our elected officials are learning some important lessons about fiscal policy from the mistakes of other countries around the world. It has become evident over the past couple of years that large underground economies where the fair share of taxes are not paid combined with extensive entitlement programs and government corruption are a recipe for disaster.

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