Our Economic Problems Will Only Be Solved Through Comprehensive Reforms

There's been a lot to talk lately about tax and spending reform, which is expected and welcome given the situation created by the looming threat of austerity measures coinciding with the expiration of the Bush tax cuts.  But one of the things that worries me is how many people want to approach the problems of our economy one policy at a time when what we need is wholesale structural reform. 

If reality was like my dream world and Congress asked me to devise a plan for restoring the fiscal health of America, I would advocate the following reforms:

1. Comprehensive tax reform involving at least the following:
• Reduce individual marginal tax rates to rates similar to 1986 reforms
• Subject all income, earned and unearned, to ordinary tax rates
• Eliminate most deductions and contributions, keeping some including:
• Some version of the EITC
• Charitable contributions, although turn it into a non-refundable credit worth a percentage of the contribution
• Deduction for employer-provided health insurance
• In my world, once we setup the tax system and make initial adjustments, we would stop screwing with it except to index it for inflation.  Then, all budget decisions would be worked out on the spending side instead of subjecting it to constant manipulation for political purposes.
2. Regulatory Reform
• We have to start penalizing individuals at companies who engage in fraud, abuse, or unduly risky behavior.  The existence of the entity known as the C-Corporation (publicly traded companies fall under this distinction) and LLCs (many investment firms) has led us to a point where executives can make risky decisions and reap rewards from their successes, and then they are not only sheltered from the risk of the losses, but are in fact able to consistently make a profit no matter the outcome of the decision.  They can even take on massive debt to make those bad decisions, and then have the debt relieved at the taxpayer's expense during the bankruptcy process, continuing to operate after reorganization.
• I think we should limit executive compensation at any entity with limited liability to be a certain ratio to the average worker salary.  The limit on compensation would reduce a lot of the overly risky behavior by executives because it takes away the financial incentive associated with excessive earnings.  It's crazy our system allows management to take out excessive debt, pay themselves exorbitant sums, and then file for bankruptcy at the taxpayer's expense when things get rocky (or avoid bankruptcy altogether with a taxypayer-funded bailout).  If individuals want to reap the rewards of salary and bonus payouts on successful high risk investments, that's fine, but they need to also be subject to risk if the investment fails, so they should only be able to do it as an LLP, general partnership, or sole proprietorship.
• We must enforce auditor independence.  I contend that an auditor can never be truly independent when being paid, hired, and fired by the company being audited.  This relationship creates an inherent conflict of interest that while possible to overcome, it can easily cause problems.  I don't think that public accounting firms should be allowed to perform audits for publicly traded employees.  I think the SEC (or FASB, or some other regulatory agency) should create an audit department, which would be funded by quarterly membership fees paid by registrants.  The cost would likely be much less to perform a more effective audit in this sort of structure for a variety of reasons, so I would think the required fees would be lower than current audit fees.
3. Medicare/Medicaid Reform
• The current state of Medicare and Medicaid operations is uancceptable.  The systematic outsourcing of operations to third party contractors has made the system absurdly complex and extremely costsly, not to mention highly vulnerable to fraud and abuse.  We need to turn these programs into true single payer systems like the VA.  We could consider offering temporary student loan forgiveness for working at a Medicare/Medicaid hospital or clinic to recruit doctors if necessary. This type of reform would likely create tens, if not hundreds, of billions of dollars in annual savings. 
4. Widespread Operational Reform for Government Departments
• We need to perform widespread operational assessments for all government programs in order to identify areas to improve efficiency.  Every time I have dealt with a client related to the federal government, opportunities for improvement were screaming out left and right (but we could never make those types of recommendations).  Instead of just cutting funds from programs, we need to look at existing programs to identify obvious ways to save money by doing things in a more strategic manner.
• I would like to see a change in the culture around hiring for government/contractor jobs.  I once had an auditor for a major department of the federal government overseeing contractors remark to a coworker and me (after he finished performing the audit of the documentation of our audit of the client's provider audit department) "It has been really nice to meet you ladies.  If you ever want to have a job where you don't have to work for a living, give us a call and come work for the federal government."  We might not have so many problems with inefficient government if government employees didn't have this sort of work ethic, and we also might be able to reduce the size of some programs if our workers were more efficient.  Government jobs exist because they are needed to serve a purpose that was deemed important by the American people, and our staffing decisions should reflect that truth.