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InsiderOnline Blog: October 2009

Not Every “Cadillac” Plan Gets Taxed

Can Congress do anything without carving out special benefits for politically favored groups? The Senate Finance Committee’s health care bill creates a new 40 percent tax on health insurance premiums above certain thresholds ($8,000 annually for individual plans and $21,000 annually for family plans). But it will be easier for some to avoid the tax. For those who are retired, work in an occupation deemed high-risk (police officers, firemen), or who buy insurance in one of 17 states, the premium thresholds are higher. The 17 states given higher premium thresholds do have higher insurance premiums, but that’s because of excessive mandates passed by those states’ legislatures. Giving those states a tax break is essentially a subsidy for foolish policy.

In fairness, there is a real policy problem that tends to be associated with expensive health care plans. As many economists have explained, the unlimited tax exclusion for employer-provided health insurance encourages the purchase of health plans that are not really insurance at all, but rather function as pre-payment plans. Such plans contribute to health care inflation by making consumers insensitive to prices. The exclusion also makes health insurance cheaper relative to other goods, which must be purchased with after-tax dollars. Thus, the exclusion encourages the over-consumption of health care.

It would seem, however, that the simple way to fix a problem caused by an unlimited tax exclusion would be to cap it. And if coupled with an offsetting tax cut (such as tax credits for individually purchased health insurance), such a policy change need not add to the overall tax burden. But as Heritage fellow J. D. Foster notes, the Senate Finance Committee botched this issue in every which way possible: The insurer pays the tax, but the cost is undoubtedly passed on to the consumer, so there is a lack of transparency. There is no offsetting tax cut; this is just designed to raise more revenue to pay for bigger government. And there will now be a new cottage industry in special interest wheeling-dealing—getting Congress to designate certain professions as “high-risk.” Foster suggests: “[E]conomic forecasters may be categorized as high risk given their recent performance.”

Posted on 10/30/09 05:27 PM by Alex Adrianson

Is the Pay Czar Constitutional?

The office of the “pay czar” is unconstitutional, according to Stanford University law professor Michael McConnell. McConnell writes in the Wall Street Journal:

The Appointments clause of the Constitution, Article II, section 2, provides that all “Officers of the United States” must be appointed by the president “by and with the Advice and Consent of the Senate.” This means subject to confirmation, except that “the Congress may by Law vest the Appointment” of “inferior Officers, as they think proper, in the President alone, in the Courts of Law, or in the Heads of Departments.”

There is no doubt that Mr. Feinberg is an “officer” of the United States. The Supreme Court has defined this term (Buckley v. Valeo, 1976) as “any appointee exercising significant authority pursuant to the laws of the United States.” Mr. Feinberg signed last week’s orders setting pay levels for executives at Bank of America, AIG, Chrysler Financial, Citigroup, GMAC, General Motors and Chrysler. They have the force of law and are surely an exercise of “significant authority” pursuant to an Act of Congress. He is not a mere “employee,” acting at the direction of a superior. That means his office is subject to the requirements of the Appointments Clause.

While somewhat more disputable, Mr. Feinberg’s is probably an “inferior” officer, defined as one subject to supervision and removal by a member of the cabinet. Although he has substantial discretion and independence, Mr. Feinberg reports to the secretary of the Treasury, who can fire him any time for any reason. This means that Congress could, if it wished, vest the appointment of the pay czar in the secretary, without any need for Senate confirmation.

But Congress has not done so. On the contrary, it vested the authority to implement TARP’s compensation provision in the secretary of the Treasury. The secretary may sub-delegate that power to someone else—but that someone must be an “officer” properly appointed “by and with the advice and consent of the Senate.”

Posted on 10/30/09 03:53 PM by Alex Adrianson

Edmunds.com: Most “Cash for Clunkers” Purchases Would Have Happened Anyway

Most of the cars purchased with rebates from the Cash for Clunkers program would have been purchased anyway, according to a new analysis from Edmunds.com. Analysts for Edmunds looked at sales data for luxury cars and other cars not included in the Cash for Clunkers program and then used the historic relationship between those sales and the sales of the vehicles included in the program to estimate how many of those cars would have been sold anyway. Edmunds found that, of the 690,000 cars for which $3 billion worth of rebates were given, only 125,000 would not have been purchased anyway. If you do the math, that works out to $24,000 per marginal purchase.

The program offered car buyers rebates of between $3,500 and $4,500 for turning in their gas guzzlers. Supposedly, that trade in produced an environmental benefit, but it also added to the economic cost, as the cars traded in still had value. If the average value of the cars destroyed by the program was just $2,000, then the program resulted in the destruction of $1.38 billion worth of assets. And as a result of the reduction in the stock of used cars, used car prices have skyrocketed. The Manheim Used Vehicle Value Index, a measure of used car prices, reached a record high in September. That’s good for anyone looking to sell a used vehicle, but bad for first-time car buyers.

Posted on 10/29/09 05:44 PM by Alex Adrianson

Opportunities Slipping Away Because Congress Won’t Pass the Panama Free Trade Agreement

The Panama Free Trade agreement, like trade agreements with Colombia and South Korea, remains unapproved by Congress. That’s too bad, reports Heritage fellow James Roberts, because approving the agreement would mean new opportunities for U.S. companies and workers:

Panama is undertaking one of the biggest construction projects in its history. Total spending to expand the Panama Canal is expected to exceed $5 billion and, without the FTA in place, U.S. companies are at a competitive disadvantage. For example, after the canal “reverted” from the U.S. to Panama in 1999, Hong Kong-based Hutchison Whampoa, Ltd., signed long-term leases with the Panamanian government to operate the strategic commercial ports at both ends of the canal: Cristobal on the Atlantic and Balboa on the Pacific.

More recently, in July 2009 a $3 billion-plus contract to design and build a wider, third set of locks for the Panama Canal was awarded to a Spanish-Italian engineering consortium, which beat out a bid by a group led by Bechtel of the U.S. Some analysts have speculated that the continuing failure by Congress to approve the FTA may have led to the decision by the Panama Canal Authority to choose the European firms over Bechtel.

With an FTA secured, however, U.S. companies would be better positioned to win such lucrative construction bids. Much of the equipment that will be used to build the third set of canal locks, for example, could be manufactured in the U.S., providing thousands of good jobs to Americans in places like Peoria, Illinois (headquarters of Caterpillar).

Roberts also points out that fears about jobs going to Panama are overblown, since 96 percent of all Panamanian exports already enter the U.S. duty-free.

Posted on 10/29/09 05:43 PM by Alex Adrianson

VAT’s Up with That?

Dan Mitchell: Adding a value added tax on top of the complicated income tax code will only lead to more government spending and higher income taxes, too:

Posted on 10/28/09 05:36 PM by Alex Adrianson

Worth Checking Out: Evade the Censors, Read the Classics, Toast Liberty

• “Ideas for a Free Society” is a CD compilation of the essential texts in the literature on liberty. Produced by the International Policy Network, the CD contains over 100 articles (in pdf form) by scholars such as Nigel Ashford, Frederic Bastiat, Peter Bauer, Eamonn Butler, Milton Friedman, Rose Friedman, Friedrich Hayek, Henry Hazlitt, John Locke, Tibor Machan, Ludwig von Mises, Michael Novak, Tom Palmer, Ayn Rand, Lawrence Reed, Murray Rothbard, Julian Simon, Adam Smith, Hernando De Soto, Alexis De Tocqueville, and many others. This compilation is perfect for the student or anybody who wants to deepen his understanding of the free society.

Begging for Billionaires is a new film that tells the stories of ordinary citizens around the country who, in the aftermath of the Supreme Court’s infamous Kelo decision, have had their homes or businesses taken from them by city governments seeking to reward powerful political allies.

The Atlas Freedom Dinner and Conference, on Monday, November 9, will celebrate heroes in the fight for liberty. The dinner program will feature a keynote address from Alan Charles Kors and toasts to freedom from think tanks leaders Maria Corina Machado (Sumate, Venezuela), June Arunga (Black Star Line, Kenya), Natasha Srdoc (Adriatic Institute, Croatia), and Chung Ho Kim (Center for Free Enterprise, Korea). The conference, sponsored by the Atlas Economic Research Foundation, will conclude on Tuesday with a ceremony recognizing the winners of the Templeton Awards. The Templeton Awards are given every year to those think tanks that demonstrate excellence in promoting freedom around the world.  

NewMexicoWatchdog.org is a new investigative reporting project of the Rio Grande Foundation. Edited by Jim Scarantino, the Web site will report on the doings and misdoings of New Mexico state government. The site currently features a story reporting that at each of its meetings in 2005 the New Mexico State Investment Council unanimously followed the advice of an investment advisor who has admitted stearing the committee toward investments he pushed in order to benefit politically powerful individuals.

• The Independent Women’s Forum’s annual college essay contest is an opportunity for college women to win $5,000. Entrants are asked to write an essay (no more than 750 words) on the topic: “Many campus coffee shops boast that they ‘proudly serve fair trade coffee,’ but does the fair trade movement actually make a difference in the lives of the poor and disadvantaged? Is free trade also fair trade?” The deadline for entry is December 1, 2009.

TextImage and Censortive are two new WordPress plugins that should be especially helpful to any bloggers trying to reach audiences “protected” by government censors. TextImage converts the text of a blog post into a .PNG image so that filtering software won’t recognize forbidden words like “Falun Gong” or “Dalai Lama” even though a human can still read the post. Censortive does the same thing except only for specific words that the user specifies. The plug-in then replaces those words with an image of the word, leaving the rest of the text searchable. (Hat tip: Cord Blomquist at Technology Liberation Front.)

Posted on 10/28/09 05:01 PM by Alex Adrianson

Rapping the Employee Free Choice Act

Card check and binding arbitration discussed in song:

Posted on 10/28/09 12:51 PM by Alex Adrianson

Hasnas, Dalmia, Hannan Win Bastiat Prizes

About five months ago, we thought John Hasnas’s Wall Street Journal commentary, “The ‘Unseen’ Deserve Empathy, Too,” was worth quoting in this space. Yesterday, the International Policy Network announced that Hasnas’s article was worth a Bastiat Prize. Every year, the Bastiat Prize recognizes journalists who, like Frederic Bastiat, eloquently and wittily explain the institutions of a free society.

Hasnas’s won for the single Wall Street Journal article, published shortly after President Obama had nominated Sonia Sotomayor to the U.S. Supreme Court. Hasnas’s article took issue with the idea, put forth by President Obama and others, that a Supreme Court Justice should have the “quality of empathy, of understanding and identifying with people’s hopes and struggles.” “Paraphrasing Bastiat,” wrote Hasnas, “if the difference between the bad judge and the good judge is that the bad judge focuses on the visible effects of his or her decisions while the good judge takes into account both the effects that can be seen and those that are unseen, then the compassionate, empathetic judge is very likely to be a bad judge.”

This year, IPN also awarded its first Bastiat Prize for online journalism. Sharing the award this year were Shika Dalmia and Dan Hannan. Dalmia won for several articles published in Forbes and Reason. In “Government Intervention Might Delay the Economic Recovery,” published by Reason, Dalmia explained how “the rubble of every recession contains the seeds of its own regeneration,” pointing to the Pony Express, the steel industry, and the dot-coms as examples of how the rise and fall of particular industries is all a part of the process of economic growth. The other articles for which Dalmia was nominated were “Obama’s Hypocrisy,” “Obama’s Health Care Reform Tactics,” and “Dear GOP, Please Choose Liberty,” all published by Forbes.

Dan Hannan won for numerous of his blog posts at The Telegraph, including one “In Which Pooh Meets the Eurocrats”: “‘Stop being such a bunch of xenophobes,’ said Rabbit briskly. ‘The EU Values the Diversity of its Member States. It Respects the Principles of Subsidiarity and Proportionality. Standardising its units of measurement is no more than Customary Procedure…’ ‘What does crustimoney proseedcake mean?’ asked Pooh humbly. ‘It means the Thing To Do. Talking of which, Pooh, I can’t help noticing that that jar of honey in your paw violates Regulation 92/102 on the Packaging and Labelling of Apian Produce. Hand it over, will you? We Value Diversity…’”

Posted on 10/27/09 06:04 PM by Alex Adrianson

Stimulus Spending: The Long Run Arrives Pretty Quick

The gap between what the Obama administration promised the stimulus spending would accomplish and economic reality is only going to grow, according to projections by economists John Cogan, John Taylor, and Volker Wieland. The Obama administration has said that the stimulus bill, which spends $787 billion over ten years, will create or save 3.5 million jobs by the end of 2010; but already the unemployment rate is a full percentage point higher than what the administration said it would be without a stimulus bill.

According to Cogan, Taylor, and Wieland the best-case scenario is that by 2010 the stimulus bill will have saved or created about half a million jobs—or only one-seventh the amount that the Obama administration claims. Other than that the current trends don’t favor the administration’s estimates, what makes the Cogan/Taylor/Wieland estimates more believable?

Cogan, Taylor and Wieland describe their approach in an article in the inaugural issue of the Hoover Institution’s new journal, Defining Ideas. The primary virtue of their estimates is that they are based on a model that does not make the unrealistic assumption that there is no long-run tradeoff between government spending and private sector spending. Rather, the Cogan/Taylor/Wieland model assumes that over time interest rates must rise in response to increased government spending, which will crowd-out private sector investment. Cogan, Taylor, and Wieland estimate that by the fourth quarter of this year, each additional dollar of government spending reduces private sector spending by 11 cents. And the negative impact grows over time. By the fourth quarter of 2012, each dollar of stimulus spending reduces private sector spending by 60 cents.

By the way, Cogan, Taylor, and Wieland’s model is based on the “new Keynesian” approach to macroeconomics. New Keynesians believe that government spending can boost economic growth in the short run, but that in the long run an increase in government spending simply shifts resources away from more productive uses in the private sector. According to Cogan, Taylor, and Wieland, it doesn’t take very long for the long run to arrive: Their model predicts that beginning in 2013, the stimulus bill has a negative effect on gross domestic product.

Posted on 10/27/09 04:05 PM by Alex Adrianson

Let Me Rise: The Struggle to Save School Choice in the Nation’s Capital

The Heritage Foundation has an affecting new documentary that tells the stories of the many children who have benefited from the D.C. Opportunity Scholarship Program. Unfortunately, Congress decided to kill the program earlier this year, which means that poor children in the nation’s capital will no longer have an option to attend other than some of the worst-performing and most violent public schools in the country.

Posted on 10/26/09 05:07 PM by Alex Adrianson

Just How Obscene Are Health Insurer Profits?

If excessive profits are the reason to subject an industry to government-sponsored competition, then liberals have misplaced their priorities in seeking to create a “public option” health care plan. According to the latest Fortune magazine ranking, there are 34 industries (out of 53 listed) that are more profitable than health insurance. In 2008, health insurers had a profit to revenue ratio of only 2.2 percent. Among the industries with higher profit margins: pharmaceuticals (19.3 percent), crude oil production (11.5 percent) financial data services (11.3 percent), household and personal products (8.7 percent), food services (7.1 percent), and electronics (6.5 percent).

Health insurer profits were higher before the recession year of 2008, but so were the profits of many other industries. The relative rankings don’t change much if you go back a few years: In 2007, health insurance was only the 28th most profitable out of 52 industries ranked by Fortune; in 2006, it was 33rd out of 51; and in 2005, it was 21st out of 50. (Last month we reported that Yahoo Finance ranks health insurance as the 86th most profitable industry out of 215 industries ranked. According to Yahoo, health insurers’ profit margin is 3.3 percent.)

Posted on 10/26/09 02:41 PM by Alex Adrianson

Recycling Junk: Private Industry v. Government

Private companies beat government-run programs when it comes to recycling obsolete electronics, says a new Pacific Research Institute report (“California’s E-Waste Waste,” by Daniel Ballon). The report observes:

Even after the [California Integrated Waste Management Board] spent $1.1 million to enlist a PR firm, Ogilvy Public Relations Worldwide, most Californians remain unaware of the government-run e-waste recycling program they fund. According to a June 2008 survey, only 36 percent of state residents “were aware of the fee placed on the purchase of new electronics to help pay for their proper disposal.” In addition, when asked “where they would go for more information about how to recycle an old television or computer monitor,” only 14 percent responded that they would contact the government.

In stark contrast, industry-led efforts to recycle cell phones have resulted in widespread public awareness. According to a nationwide survey conducted by CTIA – The Wireless Association, 84 percent of respondents understood that they could recycle their mobile phones, and 69 percent could identify specific industry programs. [Internal citations omitted.]

Posted on 10/23/09 12:04 PM by Alex Adrianson

Worth Checking Out: The Berlin Wall Fell 20 Years Ago, Ayn Rand’s Ideas Endure

• The conference, “Ronald Reagan and the Fall of the Wall: Reflections from Yesterday, Lessons for Today,” on November 6 will commemorate the 20th anniversary of one of the most significant moments in the history of human freedom. The conference, co-hosted by the Reagan Library and The Heritage Foundation, will feature speakers Ed Meese III, George Schultz, Richard Allen, Vaclav Klaus, Steve Forbes, Leszek Balcerowicz, Mart Laar, John O’Sullivan, Lee Edwards, Peter Robinson, and many others giving their reflections on why the wall fell and what it meant for the world.

• The forum, “The Life and Impact of Ayn Rand,” takes a new look at the writer who made the case for laissez faire capitalism with the philosophy of rational egotism. The forum, October 28 at 5 p.m. at The Cato Institute, will feature the authors of two recent books on Rand: Jennifer Burns, author of Goddess of the Market: Ayn Rand and the American Right; and Anne C. Heller, author of Ayn Rand and the World She Made. Rand fans should also note that in November, reason.tv will feature a series of videos celebrating Rand and her ideas.

Order in the Court.org is a new Web site from The Heritage Foundation that provides a database of activist judicial decisions—instances where judges departed from the law in order to promote their own public policy preferences. The site also features helpful definitions of the nine different types of judicial activism.

The Sound Money Essay Contest, sponsored by the Atlas Economic Research Foundation, invites students and young thinkers to write an essay on what sort of monetary system is appropriate for a free society. The contest is open to those who are 35 or younger and either a legal resident or a full time students in the United States. The winning essay will receive a cash prize of $5,000. The deadline is for entry is November 24, 2009.

Posted on 10/23/09 11:37 AM by Alex Adrianson

Progressive Taxes Make for Volatile Revenues

The more progressive the tax, the more volatile will be the revenues collected, as the chart below from the Congressional Budget Office (via Megan McArdle) shows:

The recession has caused revenue from corporate taxes and individual income taxes to fall sharply, but revenue from payroll taxes has stayed about the same. Corporate and individual income taxes, of course, are progressive systems, but payroll taxes actually hit low- and middle-income workers harder than high-income workers.

McArdle observes: “There are a lot of reasons why we can’t pay for all the new spending Obama wants just with taxes on the rich, but this may be one of the most compelling: if we do [rely on taxing just the rich], we’ll be forced to borrow massively every time there’s a slowdown.”

Posted on 10/23/09 09:47 AM by Alex Adrianson

Less Michael, Moore Liberty

Does Michael Moore reveal a libertarian streak when his movie Capitalism: A Love Story attacks taxpayer bailouts of big business and other instances of government playing favorites? Reason magazine’s Brian Doherty isn’t buying that interpretation:

There’s a lot of trying to figure out what Moore must be implying when thinking about this movie, and all his works. That’s because the only legible throughline is generally, no matter what the movie is supposed to be about or what point it’s supposed to prove, that: here’s a story that’s apt to strike lots of viewers as aggravating or sad, and I’m going to make the average viewer blame it on whatever villain I’ve chosen to target. What larger point about the world one is supposed to glean is often uncertain.

In Capitalism: A Love Story, he is pretty ham-handed about a moral: he hates capitalism, thinks it’s an evil that must be destroyed, and wants it replaced with “democracy”—which means the use of the machinery of state to control property, wealth, and decisions. He’s already shown that that state is often an agent of pure theft, though he implies, again without stating it because no real fact could support this, that this is all changing because Barack Obama was elected, although nothing Obama has done or seems apt to do will ameliorate any of the evils or crimes Moore focuses on.

Posted on 10/22/09 04:10 PM by Alex Adrianson

Highest Teenage Unemployment Ever

Teenage unemployment now stands at 25.9 percent, according to the Bureau of Labor Statistics. Before this year, the highest teenage unemployment rate ever was 24.1 percent in 1982.

Is this result just an unfortunate consequence of a recession? The overall unemployment rate, while high at 9.8 percent, is still a full percentage point below the 1982 high of 10.8 percent. But teens these days face an obstacle that workers with more skills don’t: Congress has increased the federal minimum wage 41 percent over the past three years. As economist Mark Perry notes, that is the largest inflation-adjusted minimum wage increase over a three-year period in more than 50 years.

It should be no surprise that increases in the minimum wage lead to more unemployment among the least-skilled workers. Their labor may be worth less than what the law says they have to be paid, in which case it does not pay an employer to continue employing those workers. The Heritage Foundation has assembled a bibliography of research on the minimum wage—much of it finding that, indeed, employers respond to minimum wage increases by employing fewer teenagers.

Posted on 10/22/09 02:14 PM by Alex Adrianson

News You Can Use: Failing Companies Not a Good Investment

The most unsurprising statement of the week that still qualifies as news: “It is extremely unlikely that the taxpayers will see a full return on their TARP investments.”

But the SIGTARP’s latest quarterly report does helpfully note some frequently overlooked costs of the Troubled Asset Relief Program:   

Moral Hazard: Market behavior is bound to be impacted by the massive infusions of Government capital into the very institutions that caused the crisis; by the modifications of mortgages for homeowners who may have borrowed irresponsibly; and by the provision of cheap, non-recourse loans to incentivize the purchase of the same volatile and over-valued asset-backed securities (“ABS”) that were a major cause of the current crisis. The firms that were “too big to fail” last October are in many cases bigger still, many as a result of Government-supported and -sponsored mergers and acquisitions; the inherently conflicted rating agencies that failed to warn of the risks leading up to the financial crisis are still just as conflicted; and the recent rebound in big bank stock prices risks removing the urgency of dealing with the system’s fundamental problems. Absent meaningful regulatory reform, TARP runs the risk of merely re-animating markets that had collapsed under the weight of reckless behavior. …

Government Credibility: The Government’s capacity to address financial crises depends in no small measure on its credibility, both with market participants whose confidence is essential to stabilize the financial system and with the American public whose confidence is essential to underpin the political support required to take the difficult (and often expensive) steps that are needed. Unfortunately, several decisions by Treasury — including Treasury’s refusal to require TARP recipients to report on their use of TARP funds, its less-than-accurate statements concerning TARP’s first investments in nine large financial institutions, and its initial defense of those inaccurate statements — have served only to damage the Government’s credibility and thus the long-term effectiveness of TARP. Notwithstanding TARP’s role in bringing the financial system back from the brink of collapse, it has been widely reported that the American people view TARP with anger, cynicism, and distrust. These views are fueled by the lack of transparency in the program.

Posted on 10/22/09 11:40 AM by Alex Adrianson

Do We Know Where Our Bits Are?

A “digital Pearl Harbor” is coming, says John Avalon. Writing in Forbes (and City Journal), Avalon warns that a massive cyber attack could come from Al Qaeda, from China, or from a “hacktivist” who derives perverse joy from throwing a wrench into society’s cyber gears. And unless we are prepared for this attack, we can expect more than a temporary disruption in our cell phone and Internet service. A well-executed cyber attack could shut down ATMs, traffic lights, 911 calls, and air traffic control systems; remotely gain control of systems controlling dams, railroads, and nuclear power plants; and destroy personal and financial data. How do we know we have a problem? Consider:

Seized al-Qaeda computers show details about Supervisory Control and Data Acquisition (SCADA) systems in America, which control critical infrastructure, including electrical grids, nuclear plants, fiber-optic cables, oil and gas pipelines, dams, railroads and water storage and distribution facilities. … [IBM researcher] Scott Lunsford successfully test-hacked into a nuclear power plant in 2007, despite assurances from the Nuclear Regulatory Commission that it would be nearly impossible. “It turned out to be one of the easiest penetration tests I’d ever done,” Lunsford told Forbes. “By the first day, we had penetrated the network. Within a week, we were controlling a nuclear power plant.” … In 2007, the House Committee on Oversight and Government Reform gave the Department of Defense, the State Department, the Treasury Department and the Nuclear Regulatory Commission an “F” on the Federal Computer Security Report Card. … In 2008, both the Obama and McCain presidential campaigns were infiltrated by electronic spies believed to be from China, who accessed internal position papers and travel plans as a way to gain information about the next president of the U.S.

President Obama has appointed some 30 “policy czars” to advise him on various policy issues, but has yet to follow through on his pledge to name a czar for cyber security.

Posted on 10/21/09 05:20 PM by Alex Adrianson

Entitlements (Almost) Always Exceed Cost Projections

For some reason, the Senate Finance Committees health care bill has come to be regarded as a model of fiscal restraint for spending only $829 billion for the first six and a half years of operation. Be that as it may, in the history of government health care programs, cost estimators have a solid track record of being way too optimistic. The Wall Street Journal, in its Review and Outlook section today, notes some of the discrepancies between projections and actual spending for government health care programs: When Medicaid was created in 1965, it was supposed to cost only $238 million, according to the House Ways and Means Committee, but the first-year costs ended up being $1 billion. That same year Congressional budgeters projected that Medicare would cost $12 billion by 1990, but instead the program spent $90 billion that year. And, notes the Journal: “The Medicare program for renal disease was originally estimated in 1973 to cover 11,000 participants. Today it covers 395,000, at a cost of $22 billion. The 1988 Medicare home-care benefit was supposed to cost $4 billion by 1993, but the actual cost was $10 billion, because many more people participated than expected.”

The one health care entitlement that has come in below budget projections, observes the Journal, is the Medicare prescription drug program that Congress created in 2003. Unlike Medicare, which is essentially a system of price controls for doctors and hospitals, the prescription drug entitlement is provided through private plans that compete to serve beneficiaries. Then-Director of the Congressional Budget Office—and current White House budget director Peter Orszag—explained the budgetary savings: “the pricing is coming in better than anticipated, and that is likely a reflection of the competition that’s occurring in the private market.”

Posted on 10/20/09 11:47 AM by Alex Adrianson

Make Your Content Available on Kindle

If your organization has a blog or other RSS feed content, you should make that content available to Kindle users through Amazon’s Kindle store. Kindle is Amazon’s e-reader device. And there’s no time like the present to submit your blog to the Kindle store, because Amazon just launched an international version of Kindle last week.  

To submit your blog, just visit the Kindle Publishing for Blogs page, create a new account, and submit your blog’s RSS feed. You can submit as many feeds as you like. Amazon will review your submissions and decide on a monthly subscription price (either $.99 or $1.99). Amazon will give you 30 percent of the subscription revenue your feed earns.

See Amit Agarwal’s article, “Publish Your Blog on Amazon Kindle & Earn Revenue,” for more on how to get your content to Kindle users.

Posted on 10/19/09 01:50 PM by Alex Adrianson

Why Was It Called Stimulus?

The graph below, from Veronique de Rugy’s article “So How Is the Stimulus Working Out?” published at The American, might be illuminating:

Posted on 10/16/09 10:55 AM by Alex Adrianson

Happy 90th, James Buchanan!

Wednesday was James Buchanan’s 90th birthday. Buchanan won the Nobel Prize in Economic Sciences in 1986. According to Don Boudreaux, however, Buchanan is in an even more elite club than that of Nobel Prize winners. Boudreaux, Buchanan’s colleague at George Mason University, says Buchanan is one of only six winners of the prize whose work has changed fundamentally the way economists see the world (the other five Boudreaux includes on that list are Paul Samuelson, Kenneth Arrow, Gerard Debreu, Ronald Coase, and Frederich Hayek). Here is what Boudreaux has to say about Buchanan’s work:

Jim’s single greatest contribution is to make crystal clear the fact that political activity does not fundamentally differ from market activity.

Jim’s work warns us not to be distracted by labels and by superficial appearances. Politicians might be called “public servants” – but, being steeped in Buchananism, we understand that the root motivation of “public servants” is no different than the root motivation of corporate CEOs, lumberjacks, taxi drivers, or college professors.

A bureaucracy might be called the “consumer product safety commission,” but being steeped in Buchananism, we look not at its name but at the incentives faced by its operatives to judge how likely this agency really is to promote consumer safety as opposed to other goals.

By challenging us to understand that exchanges take place not only within conventional markets – not only when the exchanges are mediated by money – but instead are a ubiquitous and many-faced phenomenon of human action, Jim Buchanan has expanded the scope and subject matter of economics intelligently and more productively than has any other living scholar.

Posted on 10/16/09 10:44 AM by Alex Adrianson

Nine Reasons to Worry About a Senate Health Care Bill

Who knows what a final Senate health care bill will end up looking like? But, with the Senate Finance Committee having completed work on its version of a bill, we know some of the elements that are in play, and they are not good. Here is a rundown of some of the big problems with the Senate Finance Committee’s health care bill:

1. New health care entitlements created by the bill will grow at 8 percent per year, according to the Congressional Budget Office—faster than either the economy or tax revenues will grow. The federal government, meanwhile, is currently over $60 trillion short of fully funding the obligations it already has. Creating another entitlement won’t help.

2. The 10-year cost of the bill is $829 billion according to the Congressional Budget Office, but CBO’s estimate made an assumption that has already been demonstrated to be false: that Congress would allow planned cuts in Medicare reimbursements to doctors to take effect. In order to satisfy the doctors lobby, Congress has overridden those planned cuts every year since 2003. True to form, a bill has now been introduced in the Senate that will override the planned cuts for the next 10 years at a cost of $247 billion. By using a separate piece of legislation to increase doctors’ Medicare reimbursements, the Senate effectively rigged the CBO scoring of the health care bill. To its credit, the CBO saw this coming when it added the proviso: “These projections assume that the proposals are enacted and remain unchanged throughout the next two decades, which is often not the case for major legislation.” Indeed, the proposals look to remain unchanged throughout all of one week.

3. Much of the bill’s new health care spending will not begin in until 2013, which means that the CBO’s 10-year projection is closer to a six-year projection of the costs. According to estimates by Cato’s Michael Tanner, the cost of the bill over the first ten years of operation would be more like $1.3 trillion.

4. The cost to the federal government is not the total cost of the bill. By expanding Medicaid, the bill also adds $33 billion in costs to state budgets for the next decade. And then there is the cost of private sector mandates. Massachusetts health care reforms include many of the same elements that are now being proposed at the national level, namely reliance on health insurance exchanges and mandates on insurers. Cato’s Michael Cannon notes that the Massachusetts Tax Foundation has calculated that 60 percent of the cost of Massachusetts’s health care reforms have been paid by the private sector. If the same proportion held true for current proposals, then the 10-year cost exceeds $2 trillion.

5. The bill will impose a tax on some 3,000 medical devices. Those taxes, which will ultimately be passed on to consumers, are expected to bring in $180 billion over ten years. In effect, the bill taxes those who need medical care in order to subsidize the purchase of health insurance by the healthy.

6. Under the bill, people who don’t buy the type of insurance that the government says they should buy will have to pay a fine, and those who don’t pay the fine will go to jail, according to the Joint Committee on Taxation.

7. The bill effectively kills Health Savings Accounts through its requirements on actuarial value. Under the bill, all health insurance plans must cover 70 percent of the expected medical costs of those it insurers (based on demographics). But the requirement does not count HSA deposits toward a plan’s actuarial value. Currently 8 million people find HSAs attractive enough that they have decided to enroll in them. Under the bill, those people won’t get to keep the insurance they like.

8. The bill imposes a 40 percent excise tax on health insurance premiums that exceed certain levels ($8,000 annually for individuals and $21,000 annually for families). That tax, which will be passed on to consumers, is expected to bring in $201 billion over ten years. According to the Joint Committee on Taxation, 87 percent of the tax on “Cadillac plans” will be paid by those earning less than $200,000 per year, and 50 percent will be paid by those earning less than $100,000. The Heritage Foundation estimates that more than 570,000 families that pay no income tax or are in the 10 percent income tax bracket would be subject to the tax on “excessive” health benefits.

9. The bill would add up to 30 percentage points to the effective marginal tax rate facing low-income workers. The bill provides generous subsidies for those below the poverty line and then phases those subsidies out as income rises. The way James Capretta figures it, a family of four that increases its annual income from $24,000 to $48,000 would see its health care subsidies decline by $7,400 ($7,400 / $24,000 = 0.308). And, Capretta notes, if that implicit marginal rate is combined with that of the Earned Income Tax Credit (21 percent) as well as the individual income tax rate (15 percent) and payroll taxes (7.65 percent), then “the effective, implicit tax rate for workers between 100 and 200 percent of the federal poverty line would quickly approach 70 percent — not even counting food stamps and housing vouchers.” Even for middle-income families, according to former CBO Director Doug Holtz-Eakin, the implicit marginal tax rates produced by the bill’s subsidies would be quite high: 23 percent for a family of four earning $54,000 per year.

Oh, and one more problem with the Finance Committee bill: Given the way the legislative process works, it probably won’t get any better. As The Heritage Foundation’s Mike Franc puts it, “this legislative monstrosity is the Right Wall”:

Projecting ahead, one sees the potential for the Senate Finance bill to sprout new and even more hideous heads. It is entirely conceivable, for example, that the Senate will grant Senator Schumer his fondest wish and add a lethal public-plan option to the bill. A public option could become in short order our largest health-entitlement program, enrolling even more Americans than do those other out-of-control health entitlements, Medicare and Medicaid. Pressure to shelter more low-income Americans from the costs of the individual mandate could result in an even larger Medicaid expansion. And union-inspired objections could convince lawmakers to jettison the Senate Finance tax on high-cost Cadillac health plans (no bargain) and replace the lost billions with the House’s preferred option, a 5.4% surtax on the incomes of the wealthiest Americans (an even worse one).

Posted on 10/15/09 07:41 PM by Alex Adrianson

A Vicious Cycle

Luigi Zingales, writing in the inaugural issue of the journal National Affairs, worries about the long-run consequences of the bank bailouts that have happened over the past year:

If the free-market system is politically fragile, its most fragile component is precisely the financial industry. It is so fragile because it relies entirely on the sanctity of contracts and the rule of law, and that sanctity cannot be preserved without broad popular support. When people are angry to the point of threatening the lives of bankers; when the majority of Americans are demanding government intervention not only to regulate the financial industry but to control the way companies are run; when voters lose confidence in the economic system because they perceive it as fundamentally corrupt — then the sanctity of private property becomes threatened as well. And when property rights are not protected, the survival of an effective financial sector, and with it a thriving economy, is in doubt.

The government’s involvement in the financial sector in the wake of the crisis — and particularly the bailouts of large banks and other institutions — has exacerbated this problem. Public mistrust of government has combined with mistrust of bankers, and concerns about the waste of taxpayer dollars have been joined to worries about rewarding those who caused the mess on Wall Street. In response, politicians have tried to save themselves by turning against the finance sector with a vengeance. That the House of Representatives approved a proposal to retroactively tax 90% of all bonuses paid by financial institutions receiving TARP money shows how dangerous this combination of backlash and demagoguery can be. …

The pattern that has taken hold in the wake of the financial crisis thus threatens to initiate a vicious cycle. To avoid being linked in the public mind with the companies they are working to help, politicians take part in and encourage the assault on finance; this scares off legitimate investors, no longer certain they can count on contracts and the rule of law. And this, in turn, leaves little recourse for troubled businesses but to seek government assistance.

Posted on 10/14/09 06:14 PM by Alex Adrianson

Worth Checking Out: Personal Stories of School Choice; Looking for Liberty in the All Right Places

Let Me Rise: The Struggle to Save School Choice in Our Nation’s Capital, a 30-minute documentary from The Heritage Foundation, provides a compelling look at the D.C. Opportunity Scholarship Program, as told through the voices of the children whose educational futures hang in the balance. The film premieres Tuesday, October 20, 2009, at 6 p.m. at The Heritage Foundation.

• The WSJ Guide to ObamaCare collects all of the Wall Street Journal’s editorials and opinion pieces on President Obama’s health care proposals in one place. With the Senate Finance Committee’s health care bill now moving to the Senate floor, this collection couldn’t be timelier.

Climate Chains is a new 22-minute documentary produced by the Cascade Policy Institute that exposes extreme environmentalism and the misguided pursuit of cap-and-trade legislation. The movie was just released last week and can be viewed online.

Religious Practice in America: What the Research Says is an annual conference dedicated to sharing high-quality social science research on how religious practice affects American life. This year’s conference will address questions such as: What is going on in American teenage souls? Does a father’s religious affiliation affect the growth and development of his young children? How does religious involvement affect marital satisfaction and fidelity? The event, hosted by The Heritage Foundation, the Baylor Institute for the Studies of Religion, and Child Trends, will be held at the Ronald Reagan Building and International Trade Center in Washington, D.C on Thursday, October 29, 2009.

America’s Finest Hour: The 20th Century’s 75-Year War, a lecture to be delivered by Paul Rahe, will examine the crucial role played by the United States in the world between the start of World War I and the end of the Cold War. Rahe, a professor at Hillsdale College, will deliver the talk as part of Hillsdale’s First Principles on First Fridays lecture series. The event begins at 7:30 a.m., November 6, 2009, at The Heritage Foundation.

Liberty-Finder is a new Google-based search site that aggregates 527 Web sites containing libertarian or classical liberal content.

Posted on 10/14/09 02:57 PM by Alex Adrianson

Aren’t All Abortions Unsafe?

Unsafe abortions kill 71,000 a year,” a Guardian headline proclaims.  But later in the story the reader learns: “There were 41.6m terminations worldwide in 2003.”

The 71,000 figure represents the number of women who died as a result of clandestine abortions performed in countries where abortion is illegal. But aren’t the other 41,529,000 abortions unsafe as well? After all, someone died as a result of those procedures, too.

Posted on 10/14/09 02:40 PM by Alex Adrianson

Yes, There Is a Debate on Global Warming

Al Gore recently took some questions about global warming from reporters at a conference for environmental journalists. The clip below shows what happened when Phelim McAleer asked Al Gore a question:

Not Evil Just Wrong, a new documentary by McAleer and his wife Ann McElhinney, provides the skepticism that is largely absent from so many other treatments of the issue. You can catch the movie on October 18 in what is being billed as the largest ever simultaneous film premiere. The makers of the film are bypassing Hollywood distribution and sending the movie directly to individuals/organizations who have signed up to host a premiere party.

If you’re in the area of Washington, D.C., you can catch the premiere at The Heritage Foundation.

Posted on 10/13/09 12:05 PM by Alex Adrianson

Things to Check Out

Downsizing the Federal Government, a new Web site produced by the Cato Institute, provides a department-by-department review of government spending. For each department, the site provides the latest data on spending, provides a historical timeline of the department’s growth, identifies the wasteful or unnecessary spending that can be cut, and offers background readings for those who want to delve deeper.  

Not Evil Just Wrong, Ann McElhinney and Phelim McAleer’ long-awaited documentary—“the most controversial film of the year”—on the errors, exaggerations, and the consequences of global warming hysteria premieres October 18.

• A Policy Boot Camp, conducted by the Institute for Policy Innovation, will get interested citizens up to speed on health care, taxes, government spending, and how the political process works. This event should appeal especially to Texans and others who have made their voices heard at town hall meetings or at tea party rallies. The event will be held October 17, 9 a.m. – noon, at the Lakewood Theater in Dallas.

Posted on 10/09/09 10:35 AM by Alex Adrianson

Calorie Disclosure Law Increases Calorie Consumption

Fast food patrons in New York City ordered slightly more calories per meal after the city started requiring chain restaurants to provide calorie counts on their menus, according to a new study by researchers at New York University and Yale. That’s not what the authors of the law wanted to happen. The law, which went into effect last July, was intended to combat obesity. In the study, published this week by Health Affairs, researchers looked at about 1,100 customer receipts collected from both before and after the law went into effect. They found that before the law, customers purchased an average of 825 calories; but after the law they purchased an average of 846 calories per meal. Researchers also examined calorie consumption at Newark chain restaurants and found no significant change over the same period examined in New York. Newark does not require restaurants to provide calorie information on their meals.

Posted on 10/08/09 04:54 PM by Alex Adrianson

You Know Your Government Is Too Big When …

The House Subcommittee on Communications, Technology and the Internet has approved a bill instructing the Federal Communications Commission to determine the acceptable volume on TV commercials. Speaking to The Hill newspaper, subcommittee chairman Rick Boucher (D-Va.) explained: “All of us have had the experience of enjoying a favorite program only to find ourselves scrambling for the remote control at the commercial break.”

Exactly right. Everybody knows that getting Congress to pass legislation is much easier than pressing the mute button.

Posted on 10/08/09 04:00 PM by Alex Adrianson

AMA: Medicare Leads in Denial

Medicare is more likely to deny payment for a medical service than private sector insurers are, according to the American Medical Association’s 2008 National Health Insurance Report Card. This finding is seemingly at odds with one of the main arguments for a government-run health insurance plan: that greedy private insurers are denying too many claims for needed care. The AMA survey reports that Medicare denied 6.85 percent of claims submitted from March 1, 2007 to March 10, 2008. None of the seven private insurers included in the report had a higher denial rate than Medicare. The highest was Aetna at 6.80 percent, followed by Anthem (4.62), Health Net (3.88), CIGNA (3.44), Humana (2.90), Coventry (2.88), and United Healthcare (2.68). (Via David Weinberger at The Foundry.)

Posted on 10/08/09 02:29 PM by Alex Adrianson

Who Is Locking Up Content?

The world without network neutrality regulations:

In 1989, a consumer could purchase a Tandy 500 Professional System home computer with a 20 MHz processor and 2 MB of RAM – advertised in newspapers as “the most powerful computer ever” – for $8,499, or about $15,000 in 2009 dollars. Today, a consumer can buy a computer a thousand times faster, with a thousand times more memory, for less than $500.

In 1992, storing 1 terabyte worth of data cost $5 million. Today, storing the same amount of information costs about $110, and advances in technology will drop that cost to a penny by 2018. To put that in terms consumers readily understand, an iPhone with 8 GB of data storage capacity costs about $200. Storing that much data in 1992 cost $1 million.

Total Internet traffic in the United States has risen from a little more than 1,000 terabytes per month in 1996 to more than 1 million terabytes per month in 2008, and it continues to climb. [Internal citations omitted.]

That’s from James Lakely’s recent Heartland Institute paper, “Neutralism: The Strange Philosophy Behind the Movement for Net Neutrality.”

Posted on 10/08/09 11:43 AM by Alex Adrianson

Is Regulating Campaign Finance an Enumerated Power of the Federal Government?

Most people think of controversies over campaign finance laws as First Amendment issues, but there may be an even stronger constitutional barrier to laws regulating campaign finance. Independence Institute fellow and law professor Rob Natelson reports that his recent research has uncovered previously unexamined evidence suggesting that the authors of the Constitution never understood regulating campaign finance to be one of the enumerated powers of the federal government:

Regulation of campaign finance is said to be part of Congress’s power to govern the “Manner” of congressional elections under the Time, Manner, and Place Clause (Article I, Section 4, Clause 1). That provision says the states shall prescribe “the Manner of holding Elections for Senators and Representatives,” but that Congress may (with one restriction) “make or alter such Regulations.” …

State regulations of the “Manner of holding Elections” were already quite common when the Constitution was adopted. Although the precise scope of the phrase “Manner of holding Elections” varied somewhat, its widest meaning was not broad enough to include campaign finance laws. And the Constitution’s use of the phrase was narrower than the widest meaning. As the Constitution used the phrase, it meant to regulate the voting: that is, to specify what officer was to oversee elections, who was to do the counting, how results were to be recorded, whether open or secret ballots were used, whether the winner needed a majority or only a plurality, and the like.

That’s not all. During the ratification fight, advocates of the Constitution were insistent in assuring the public that this power of Congress was quite narrow. They explained that the power would be exercised rarely, and only to correct serious state abuses, and that its principal purpose was to enable the federal government to preserve itself if one or more states refused to hold federal elections.

Posted on 10/07/09 05:18 PM by Alex Adrianson

The Lab Results Are In

Relying on government mandates to fix the health insurance market, observes Stephen Spruiell, has failed miserably in Massachusetts:

Since the enactment of Commonwealth Care in 2006, premiums have gone up significantly faster than has the national average, primarily because requiring everyone to purchase a “minimum” level of coverage empowers the state to define “minimum” — and, inevitably, health-care providers and other interest groups have worked hard to make sure that “minimum” actually means “quite expansive.”

As Michael Cannon of the Cato Institute has noted, lobbyists in Massachusetts have successfully pushed for the inclusion of prescription drugs, preventive care, drug-abuse treatment, hospice services, fertility treatments, prosthetics, telemedicine, and numerous other mandates in the definition of “minimum.” So even if you already had insurance you were happy with, the new rules forced you to upgrade to a more expensive plan that the state ruled acceptable. …

As in Maine, health-care subsidies in Massachusetts are proving far more expensive than proponents of the plan predicted — 20 percent higher for FY2009. Revenue sources are falling short in Massachusetts as well, so state officials are turning to new taxes to cover their losses. The state has added $1 per pack to its cigarette tax and imposed $89 million in new fees and assessments on health-care providers and insurance companies. And since no taxpayer-funded health-care program would be complete without a special commission to control costs, Massachusetts created one in 2008. The commission has already recommended “exclud[ing] coverage of services of low priority/low value.” Translation: The government will exclude the services of those providers who aren’t as good at lobbying as, say, the fertility-treatment guys.

So why would anyone think that such mandates could work on a national scale? Depends on what they mean by “work.” Spruiell:

The implementation of Obamacare would represent a subversion of federalism: Rather than acknowledge that their preferred policies have failed in a handful of Justice Brandeis’s little laboratories, the Democrats would disguise those failures by forcing all 50 states to adopt the policies. Their imposition on a national scale would, not coincidentally, rescue the strongly Democratic states of New England from the consequences of their failure. In a way, Obamacare would function as yet another Washington bailout, and, as with the other bailouts, the responsible would pick up the tab for the reckless.

Posted on 10/07/09 04:26 PM by Alex Adrianson

Michael Moore Supports Tax Cuts—But Only for Hollywood

Filmmaker Michael Moore fashions himself a champion of the little guy, but he’s also a champion of tax breaks for big corporations—or at least big corporations that make movies. Peter Schweizer reports that the Michigan native and maker of the anti-capitalist agit-prop film, Capitalism: A Love Story, relocated his post-production team from New York City to Michigan in order to take advantage of Michigan’s tax credits for movie makers. Under the program, for every dollar a filmmaker spends making a movie, he gets 42 cents back in the form of a tax credit. And Moore, appointed to the Michigan Film Office Advisory Council by Michigan Governor Jennifer Granholm, is also a big promoter of the program. “When Hollywood comes calling, do not jack up your prices, or they will not be back,” he recently told the Michigan weekly Northern Express. In 2008, Michigan gave $48 million worth of tax credits to Hollywood to create 2,800 part-time jobs.

Posted on 10/07/09 03:44 PM by Alex Adrianson

Health Care Perversion

Cato’s David Boaz has identified a mental tic that seems to be rampant among the press: referring to legislation that moves policy in liberal directions as “reform.” Since “reform” means an improvement of something, this habit amounts to giving liberals the benefit of the doubt on everything they propose. As Boaz notes, this tendency has been especially pronounced in the debate over health care. Journalists aiming for neutral reporting should say “health care overhaul” instead of “health care reform”; and for those who want to debate the issue, some good antonyms of reform would be “abasement,” “corruption,” “degradation,” “perversion,” or “subversion.” For more on health care perversion see our post titled: “A Great Plan—Unless You Need Medical Care, Are Poor, or Have Kids.”

Posted on 10/07/09 11:58 AM by Alex Adrianson

Health Care Overhaul Introduces New Disincentives to Work

Under the health care overhaul put forward by Sen. Max Baucus (D-Mont.), low-income workers are facing a hike in their implicit marginal tax rate of up to 30 percentage points, according James Capretta’s calculations. The Baucus plan provides generous subsidies for those below the poverty line and then phases those subsidies out as income rises. The way Capretta figures it, under the Baucus plan, a family of four that increases its annual income from $24,000 to $48,000 would see its health care subsidies decline by $7,400 ($7,400 / $24,000 = 0.308). As Capretta points out, if that implicit marginal rate is combined with that of the Earned Income Tax Credit (21 percent) as well as the individual income tax rate (15 percent) and payroll taxes (7.65 percent), then “the effective, implicit tax rate for workers between 100 and 200 percent of the federal poverty line would quickly approach 70 percent — not even counting food stamps and housing vouchers.”

Posted on 10/06/09 05:41 PM by Alex Adrianson

A Great Plan—Unless You Need Medical Care, Are Poor, or Have Kids

From a new Heritage paper by Robert Book, Guinevere Nell, and Paul Winfree, some perverse consequences that would follow from the health care overhaul put forward by Sen. Max Baucus (D-Mont.):

Under the bill’s mandate that individuals must purchase health insurance, many moderate-income workers would be required to purchase the health insurance offered through their employers. As a result, moderate-income workers at firms with high average wages could be forced to buy expensive insurance designed for high-income workers willing to pay for more extensive coverage. Insurance provided by employers is not free to the employee: Ultimately it comes out of the compensation that employers are willing to pay their employees.

The bill places an excise tax of 35 percent on the amount of any health insurance plan’s price that exceeds $8,000 for individual plans or $21,000 for family plans. While the tax is nominally placed on the insurer, the customer bears the cost in the form of higher prices. Data from the Current Population Survey and the Medicare Expenditure Panel Survey show that more than 570,000 families that pay no income tax or are in the 10 percent income tax bracket would be subject to this punitive 35 percent tax on “excessive” health benefits. In all, 7.2 million households—almost 94 percent of those who would pay the tax—would pay higher taxes on their health insurance than on their income. Some employees could avoid this tax by opting out of their employer’s health insurance and purchasing insurance through state-sponsored health insurance exchanges, but that would trigger an additional cost (see next bullet point).

The bill places a tax on employers (companies with more than 50 employees) for every employee who gets insurance from a state-sponsored health insurance exchange instead of from the employer. Again, the cost of that tax would ultimately be passed back to the employee in the form of lower wages. But if an employee is earning near the minimum wage, then the employer would be limited in his ability to pass the costs of the tax back to the employee in the form of lower wages. In those situations, the employer might decide to fire the worker because his costs exceed his value to the firm. In effect, the tax for these workers is like an increase in the minimum wage, a policy that hurts those on the bottom rungs of the economic ladder the most because it threatens their jobs.

The structure of the employer tax penalizes firms that hire low-income workers with families to support. The subsidy provided to a worker who purchases insurance through a state health insurance exchange would vary by family income and family size. Workers with lower family incomes or bigger families get a bigger subsidy, and, thus, the employer would have to pay a bigger tax penalty. Hiring a high-income worker with no children to support would incur a lower tax penalty. Businesses would thus be encouraged to skimp on support staff. Again, this is a policy that hurts most those workers who need help the most.

The bill places a tax on medical devices, places a tax on branded drugs, and increases the thresholds for deducting medical expenses—in effect taxing those who are sick and need health care in order to subsidize health insurance for the healthy.

Posted on 10/06/09 04:26 PM by Alex Adrianson

New Gun Rights Case May Have Implications for Economic Liberty, Too

The new gun rights case that the Supreme Court accepted last week—a challenge to Chicago’s gun control laws—may have implications beyond the Second Amendment. In the 2007 District of Columbia gun rights case (Heller v. District of Columbia), the Court ruled that the Second Amendment protects an individual right to keep and bear arms. The natural question that now arises in any challenge to state or local gun control laws is whether the Second Amendment applies to the states as well as to the federal government (D.C. is a federal jurisdiction). The normal pattern is that the Court considers whether a right enumerated in the Bill of Rights is “incorporated” into the protections of the 14th Amendment’s Due Process or Equal Protection clauses.

Reason magazine’s Brian Doherty reports that Alan Gura, lead lawyer for the plaintiffs, plans to ask the Supreme Court to go beyond the Due Process and Equal Protection clauses and revisit the Privileges or Immunities Clause—the section of the 14th Amendment that was eviscerated by the Supreme Court in the Slaughterhouse Cases of 1873. Why is this big news? The Privileges or Immunities Clause says: “No State shall make or enforce any law which shall abridge the privileges or immunities of citizens of the United States.” Roger Pilon and Kimberly Shankman, in a 1998 paper for the Cato Institute, argue that in Slaugherhouse the Court adopted a narrow view of the rights protected by the Privileges or Immunities Clause and thus stripped the Constitution of its intellectual foundation in natural rights theory. That move, they note, helped paved the way for the New Deal progressive jurisprudence that demoted economic liberties to a kind of second-class group of rights.

Adding substance back to the Privileges or Immunities Clause would help reaffirm the original logic of our constitutional order: that while government possesses only those powers enumerated by the Constitution, citizens possess many rights beyond those enumerated—like the right to earn an honest living at a trade of one’s choosing!

Posted on 10/05/09 08:17 PM by Alex Adrianson

What’s to Celebrate?

Yesterday was the 60th anniversary of Mao Zedong proclaiming the People’s Republic of China, which in less politically correct times was called “Red China.” Curiously, the Empire State Building chose to mark the occasion with a display of red and yellow lights.

What were the proprietors of New York’s now tallest building celebrating? In the latest edition of Freedom House’s annual Freedom in the World report, the PRC scores a 7 (the lowest score possible on a 1-7 scale) in political rights and a 6 on civil liberties—scores that put China in Freedom House’s “Not Free” category. The low ranking reflects the fact that despite economic reforms, the Chinese Communist Party has retained its monopoly over political activity and in some ways has regressed in political and civil freedoms. Leaders of opposition parties are routinely detained. “According to official statistics obtained by the Duihua Foundation, the number of arrests for ‘endangering state security’ more than doubled from 2007 to 2008, reaching a total of 1,623 new detentions,” notes Freedom House. Detainees have few legal protections: China has no independent judiciary (in 2008, a party crony with no legal training was appointed chief justice); and:

Torture remains widespread, with coerced confessions routinely admitted as evidence, and police conduct searches without warrants. Endemic corruption exacerbates the lack of due process in the judicial system. Many suspects are deprived of court hearings altogether, detained instead by bureaucratic fiat in “reeducation through labor” camps. These facilities are estimated to hold between 300,000 and three million detainees, with a majority in some camps reported to be political and religious prisoners. The use of various forms of extralegal detention has also increased in recent years, including secret jails and psychiatric arrest of petitioners and dissidents.

And that’s just the record for recent years. According to historian R.J. Rummel, author of Death by Government, between 1949 and 1987, the People’s Republic of China murdered 77 million of its own people.

Heritage fellow Walter Lohman has a good idea for the owners of the Empire State Building: They should make amends and recognize the accomplishments of the free Chinese on Taiwan. They can do that by lighting up the Empire State Building red and blue on October 10 to celebrate Taiwan’s national day.

Posted on 10/01/09 04:58 PM by Alex Adrianson

Smart Growth’s Role in the Housing Bubble

The housing bubble that wrecked financial markets last year was not a nationwide phenomenon, but rather, says Cato fellow Randal O’Toole, tended to be confined to states with strong growth management—AKA “smart growth”—laws:  

[T]he biggest housing bubbles were in six states. Five of the states—Arizona, California, Florida, Maryland, and Rhode Island—have growth-management laws …. In all of these states, inflation-adjusted prices rose by 80 to 125 percent after 2000 and dropped by 10 to 30 percent after their peak. Even though several of these states are located at opposite corners of the country, the price indices are very similar. …

Altogether, housing prices bubbled in 16 states, meaning inflation-adjusted prices grew by at least 45 percent after the beginning of 2000 and then fell by at least 5 percent after peaking … . These 16 states housed 45 percent of the population in 2008. Virtually all of these states have some form of growth management, though in some cases, such as Minnesota, it is practiced only by major urban areas in the state.

Housing prices did not bubble—meaning that prices grew by less than 45 percent after 2000—in 29 states housing nearly 54 percent of the nation. Other than Tennessee, none of these states have statewide growth management, but a few, such as Colorado and Wisconsin, contain urban areas that have written growth-management plans. The only no-bubble states with significant price declines are Michigan and Ohio, and those declines are due to contractions in manufacturing, not a housing bubble.

Easy credit, government subsidies, and other policies may have artificially increased the demand for single-family housing, says O’Toole, but in states without smart growth’s limits on development home builders responded to increased demand by building more houses which moderated price increases. In short, according to O’Toole, we would not have had a disastrous housing bubble had it not been for “smart growth.”

Posted on 10/01/09 03:42 PM by Alex Adrianson

We’d Like a Different Menu, Please

Gustatory hypotheticals are a great way to make a point.

Writes the ever-quotable Mark Steyn:

It’s a good basic axiom that if you take a quart of ice cream and a quart of dog feces and mix ’em together, the result will taste more like the latter than the former. That’s the problem with the U.N. … When you make the free nations and the thug states members of the same club, the danger isn’t that they’ll meet each other half-way but that the free world winds up going three-quarters, seven-eighths of the way. That’s what happened in New York last week.

Writes the ever-quotable Don Boudreaux:

In a letter appearing in Sunday’s Washington Times, protectionist William Hawkins accuses Adam Smith of being “dreadfully wrong” to insist that the ultimate goal of economic activity is consumption rather than production.

Alas, the dreadfully wrong one is Hawkins. He confuses means with ends. Flour, sugar, apples, an oven, and labor are necessary ingredients for baking an apple pie, but these means are valuable in this use only if someone wants to consume the pie. If no one wants to eat apple pie, then using these ingredients to produce the pie would be wasteful.

Adam Smith correctly understood that the desire to consume is what justifies production, and not vice-versa. If Mr. Hawkins were correct that the ultimate goal of economic activity is production, then he should be just as pleased to have set before him for dessert a fresh-from-the-oven sawdust-and-earthworm pie as he is to have an apple pie.

Posted on 10/01/09 12:01 PM by Alex Adrianson

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