The howls of outrage that have greeted the report of the bipartisan National Commission on Fiscal Responsibility and Reform shows two things:  1) most Democrats have no interest in reducing the size and cost of government; and 2) few Republicans are actually serious about it.

From the initial reaction, one would think that the Commission has slashed government to the bone, throwing the elderly, poor and sick into the street.  In reality, the Commission report is far from a radical document.  It proposes a reduction in government spending from 24.3 percent of GDP today to 21.8 percent over the next 15 years.  That’s a start.  But as recently as 2000 total federal spending was just 18.4 percent of GDP — and people were hardly dying in the streets during the Clinton years.  

In fact, the Commission doesn’t actually “cut” federal spending.  Under the Commission’s proposal, it would rise from roughly $3.5 trillion today to more than $5 trillion by 2020.  So, under the terrible “cuts” that the Commission is recommending, federal spending would still increase faster than inflation.  This is the old Washington game of calling a slower increase than previously projected a “cut.”

But Democrats appear unwilling to support even this modest slowing in the growth of government.  Instead they call for simply raising taxes to support a virtually unlimited amount of federal spending.  Republicans, meanwhile, talk about reducing government, but fall back on bromides about reducing waste, fraud, and abuse when faced with the need to make specific cuts.

If we were serious about reducing the size, cost and intrusiveness of government, we should roll back spending to Clinton-era levels.  (My colleague Chris Edwards has shown how that can be done.)  That would eliminate the need for the tax increases that the commission proposes. 

Alas, we still await political leadership with that amount of courage.

Still Not Serious About Cutting Spending is a post from Cato @ Liberty - Cato Institute Blog

Like the sequel to a horror film, the politicians in Washington just passed another stimulus proposal. Only this time, they’re calling it a “jobs bill” in hopes that a different name will yield a better result.

But if past performance is any indicator of future results, this is bad news for taxpayers. By every possible measure, the first stimulus was a flop. But don’t take my word for it. Instead, look at what the White House said would happen.

The Administration early last year said that doing nothing would mean an unemployment rate of nine percent. Spending $787 billion, they said, was necessary to keep the unemployment rate at eight percent instead.

So what happened? As millions of Americans can painfully attest, the jobless rate actually climbed to 10 percent, a full percentage point higher than Obama claimed it would be if no bill was passed.

The President and his people also are arguing that the so-called stimulus is responsible for two million jobs. Yet according to the Department of Labor, total employment has dropped significantly — by more than three million — since the so-called stimulus was adopted. The White House wants us to believe this sow’s ear is really a silk purse by claiming that the economy actually would have lost more than five million jobs without all the new pork-barrel spending. This is the infamous “jobs saved or created” number. The advantage of this approach is that there are no objective benchmarks. Unemployment could climb to 15 percent, but Obama’s people can always say there would be two million fewer jobs without all the added government spending.

To be fair, this does not mean that Obama’s supposed stimulus caused unemployment to jump to 10 percent. In all likelihood, a big jump in unemployment was probably going to occur regardless of whether politicians squandered another $787 billion. The White House was foolish to make specific predictions that now can be used to discredit the stimulus, but it’s also true that Obama inherited a mess — and that mess seems to be worse than most people thought.

Moreover, it takes time for an Administration to implement changes and impact the economy’s performance. Reagan took office in early 1981 during an economic crisis, for instance, and it took about two years for his policies to rejuvenate the economy. It certainly seems fair to also give Obama time to get the economy moving again.

That being said, there is little reason to expect good results for Obama in the future. Reagan reversed the big-government policies of his predecessor. Obama, by contrast, is continuing Bush’s big-government approach. Heck, the only real difference in their economic policies is that Bush was a borrow-and-spender and Obama is a borrow-and-tax-and-spender.

This raises an interesting question: Since last year’s stimulus was a flop, isn’t the Administration making a big mistake by doing the same thing all over again?

The President’s people actually are being very clever. Recessions don’t last forever. Indeed, the average downturn lasts only about one year. And since the recession began back in late 2007, it’s quite likely that the economic recovery already has begun (the National Bureau of Economic Research is the organization that eventually will announce when the recession officially ended).

So let’s consider the political incentives for the Administration. Last year’s stimulus is seen as a flop. So as the economy recovers this year, it will be difficult for Obama to claim that this was because of a pork-filled spending bill adopted early last year. But with the passing of a supposed jobs bill, that puts them in a position to take credit for a recovery that was already happening anyway.

That may be smart politics, but it’s not good economics. The issue has never been whether the economy would climb out of recession. The real challenge is whether the economy will enjoy good growth once the recovery begins. Unfortunately, the Obama Administration policies of bigger government — combined with the Bush Administration policies of bigger government — will permanently lower the baseline growth of the United States.

If America becomes a big-government welfare state like France, then it’s quite likely that we will suffer from French-style stagnation and lower living standards.

Son of the Stimulus is a post from Cato @ Liberty - Cato Institute Blog

Or it may even be worse.

This morning, President Obama released his latest health care blueprint, which he hopes will breathe life into his moribund effort to overhaul one-sixth of the U.S. economy.  The new blueprint is almost exactly the same as the House and Senate health care bills that the public have opposed since July.  It mostly just splits the difference between the two.

One new element, however, is the president’s proposal to impose a new type of government price control on health insurance premiums.  I explain here how those price controls are a veiled form of government rationing that helped sink the Clinton health plan.

If anything, those price controls make the president’s new plan even more bureaucratic and government-heavy.  The Senate bill would take an ill-advised stab at cost-control by imposing a tax on the highest-cost health plans.  That president proposes to pare back that excise tax and instead have a panel of federal bureaucrats cap the growth in health insurance premiums for all health plans.  Those new government powers could make it even harder for people to obtain the coverage and care that they need.

Meet the New Plan, Same as the Old Plan is a post from Cato @ Liberty - Cato Institute Blog

• Jeffrey Miron on Obama’s bank fees: “Bailing out the banks was wrong, but a new tax won’t make it right.”

• What Constitution? If Congress can order you to buy health insurance, why stop there?

• Don’t poke the bear: There is a proposal in the Senate Foreign Relations Committee to rearm the country of Georgia.

• Why the tragedy in Haiti cries out for swift action from private donors and yes, governments.

• Podcast: “Obama and Immigration in 2010” featuring Daniel Griswold.

Weekend Links is a post from Cato @ Liberty - Cato Institute Blog

As my colleague Jeffrey Miron noted earlier today, when grilled by George Stephanopolous on whether the so-called “individual mandate” is a tax increase, Obama replied, “Nobody considers that a tax increase….You can’t just make up that language and decide that that’s called a tax increase…My critics say everything is a tax increase.”

Where do Obama’s critics get these wacky ideas?  From a bunch of nobodies, that’s who!

Princeton economist Uwe Reinhardt, quoted by Larry Summers (1987):

[Just because] the fiscal flows triggered by mandate would not flow directly through the public budgets does not detract from the measure’s status of a bona fide tax.

Economist Larry Summers, Obama’s National Economic Council chair (1989):

Economists have generally devoted little attention to mandated benefits regarding them as simply disguised tax and expenditure measures… Essentially, mandated benefits are like public programs financed by benefit taxes… [If] the mandated benefit is worthless to employees, it is just like a tax from the point of view of both employers and employees…There is no sense in which benefits become ‘free’ just because the government mandates that employers offer them to workers.

Columbia University economist Sherry Glied, Obama’s appointee to HHS Assistant Secretary for Planning and Evaluation, in the New England Journal of Medicine (2008):

The mandate is in many respects analogous to a tax. It requires people to make payments for something whether they want it or not. One important concern is that the government will provide insufficient funds for the subsidies intended to accompany the mandate. In that case, the mandate will act as a very regressive tax, penalizing uninsured people who genuinely cannot afford to buy coverage.

Congressional Budget Office (2009):

Under some proposals, firms would be required to make payments to the federal government if they chose not to offer health insurance to their employees, and individuals who did not comply with the requirement to  obtain insurance would have to pay a penalty. Such payments would be equivalent to a tax or a fine, and the government’s receipts should be recorded in the budget as federal revenues.

Here’s a question: if an individual mandate is not a tax, why exempt anybody?  If an employer mandate isn’t a tax, why exempt small businesses?

Nobody Considers Health Insurance Mandates a Tax? Really?? is a post from Cato @ Liberty - Cato Institute Blog

In their attempt to defeat Obamacare, Republicans have focused their criticism on the public option, painting it as the most objectionable feature of existing proposals. Senator Max Baucus, (D-Mont.), has now proposed a plan without the public option. This leaves the Republicans in an awkward position, especially since Baucus’s plan is projected to cost less than earlier proposals.

If Republicans oppose the Baucus plan, they surely risk the ire of voters who will be told during the mid-term elections, “The Republicans blocked a plan that would have covered the uninsured and reduced the deficit.”

The problem is, the public option was never the crucial issue; instead, it was the mandate to purchase insurance. Once government mandates insurance coverage, it gets to define what constitutes insurance, which means it can ban pre-existing condition clauses and the like. The mandate also”justifies” large subsidies for insurance, to avoid non-compliance with the mandate. So, an individual mandate, which the Baucus plan includes, implies a rapid takeover of the entire health care system by the federal government.

Something like the Baucus plan will pass. It will either cost far more than existing projections, if government administrators fail to impose the restrictions on reimbursements that generate the projected cost savings, or it will involve massive rationing of care.

The Democrats played it perfectly. The Republicans got sucker-punched.

C/P Libertarianism, from A to Z

Have the Democrats Outsmarted the Republicans on Health Care? is a post from Cato @ Liberty - Cato Institute Blog

Cato health care policy experts offered live-commentary to President Obama’s address to Congress on Wednesday night. To review their comments, click the replay button below.

The video player has the speech in full.

Cato Health Care Experts Live-Blogging Obama’s Address is a post from Cato @ Liberty - Cato Institute Blog

“Death panels” are a dominant motif in the debate over health care regulation, a fact that spins off political flares like a roman candle.

Extremists on both sides have taken their extreme positions: Some literally fear President Obama and his health regulation plans; others are outraged that anyone could possibly feel that way.

Charges of special-interest organizing meet counter-charges of unfairness and false accusation. Good video from town hall meetings and volleys of “Nazi” and “socialist” give cable news networks another short reprieve from their long slow decline. It’s all manna for the writers at Comedy Central.

But let’s talk substance: Health care is a scarce good, so it will always be rationed. The core question is whether government should take the dominant role in health care rationing over from insurance companies, or whether reform should restore rationing decisions to patients advised by doctors. 

Though they would never have the name or the form, the “death panel” label roughly (and unfairly) describes what would happen if health decisions were turned over to government bureaucrats under the leading proposals today. The bureaucracy would do exactly what “reform” asks it to do(!): prioritize cost savings and efficiency over the unique, individual interests of patients and their families.

The bureaucracy would serve its own interests too. Bureaucracies are subject to capture by special interests, of course, and they can be corrupted. These things are easier when the people who might die look like statistics.

Many people feel very strongly that problems with health care today indicate the need for President Obama’s and Congress’ health care plans. But what’s wrong with health care doesn’t mean that these proposals would make things better. Because they would move control of health care in the wrong direction, they would make things worse.

Everyone has a personal story about health care, and I have one too. On the day my mother passed away, my family and I were called to the hospital and met by a social worker. He showed us to a small anteroom at the entrance to the intensive care unit, where he guided us through a lengthy conversation about my mother’s wishes and the family’s circumstances. He then called in the doctors to offer their prognosis and advice, which we took.

It was a death panel. It was our death panel — because my parents had fully prepared for this eventuality by buying insurance.

Just like health care will always be rationed, there will always be death panels. The question is who runs them. To the extent our public policy drives people away from financial responsibility for their own health care, it sets them up for death panels that are administered by government bureaucrats, not by loved ones and doctors.

Political debate is rollicking and unfair and full of inaccuracy. And in the terms of today’s health care debate, we don’t want “rationing” — meaning we don’t want government rationing. And we don’t want death panels — meaning we don’t want government death panels, because government death panels will deny people and their families an essential dignity of life: choosing how it ends.

In that sense I say with apologies to Patrick Henry: Give me liberty or give me death panels.

Give Me Liberty or Give Me Death Panels is a post from Cato @ Liberty - Cato Institute Blog

According to CNS News:

In a sign that intra-party negotiations continue to drag on, [House Democratic Majority Leader Steny] Hoyer [MD] declared that no single provision was sacred, not even President Obama’s coveted government-run “public option” plan.

“I want to see the Senate give its proposal so that in September we can contribute to having a conference that’s productive and results in health care reform,” said Hoyer. “I don’t think there’s any specific item that is absolutely essential to reform.”

You can say that again.

Then Let’s Call the Whole Thing Off is a post from Cato @ Liberty - Cato Institute Blog

It was good of Ari Schwartz to respond last week to my recent post querying whether the Center for Democracy and Technology outright opposes a national ID or simply “does not support” one.

Ari says CDT does oppose a national ID, and I believe that he honestly believes that. But it’s worth taking a look at whether the group’s actions are consistent with opposition to a national ID. I believe CDT’s actions — most recently its support of the PASS ID Act — support the creation of a national ID.

(The title of his post and some of his commentary suggest I have engaged in rhetorical excess and mischaracterized his views. Please do judge for yourself whether I’m being shrill or unfair, which is not my intention.)

First I want to address an unusual claim of Ari’s — that we already have a national ID system. If that is true, his support for PASS ID is more sensible because it is an opportunity to inject federal privacy protections into the existing system (putting aside whether it is a federal responsibility to manage a state system or systems).

Do We Already Have a National ID?

I have heard a few people suggest that we have a national ID in the form of the Social Security Number. I believe the SSN is a national identifier, but it fails the test of a national identification card or system because it is not used for identification. As we know well from the scourge of identity fraud, there is no definitive way to tie an SSN to a person. The SSN is not used for identification (at least not reliably and not alone), which is the third part of my national ID definition. (Senator Schumer might like the SSN to form the basis of a national ID system, of course.)

But Ari says something different. He does not claim any definition of “national ID” or “national ID system.” Instead, he appeals to the authority of a 2003 report from a National Academy of Sciences group entitled “Who Goes There?: Authentication Through the Lens of Privacy.” That report indeed says, “State-issued driver’s licenses are a de facto nationwide identity system” — on the second-to-last substantive page of its second-to-last substantive chapter

But this is a highly selective use of quotation. The year before, that same group issued a report called “IDs — Not That Easy: Questions About Nationwide Identity Systems.” From the beginning and throughout, that report discussed the many issues around proposals to create a “nationwide” identity system. If the NAS panel had already concluded that we have a national ID system, it would not have issued an entire report critiquing that prospect. It would have discussed the existing one as such. Ari’s one quote doesn’t do much to support the notion that we already have a national ID.

What’s more, CDT’s own public comments on the proposed REAL ID Act regulations in May 2007 said that its data-intensive “one person — one license/ID card — one record” policy would ”create a national identification system.”

If a national ID system already existed, the new policy wouldn’t create one. This is another authority at odds with the idea that we have a national ID system already.

Support of PASS ID might be forgiven if we had a national ID system and if PASS ID would improve it. But the claim we already have one is weak.

“Political Reality” and Its Manufacture

But the heart of Ari’s claim is that supporting PASS ID reflects good judgment in light of political reality.

Despite the fact that there are no federal politicians, no governors and no appointed officials from any party publicly supporting repeal of REAL ID today, CDT still says that repeal is an acceptable option. However, PASS ID would get to the same outcome, or better, in practice and has the added benefit of actually being a political possibility. . . . I realize that Harper has invested a lot of time fighting for the word “repeal,” but at some point we have to look at the political reality.

A “Dear Colleague” letter inviting support for a bill to repeal REAL ID circulated on the Hill last week. How many legislators will hesitate to sign on to the bill because they have heard that the PASS ID Act, and not repeal of REAL ID, is CDT’s preferred way forward?

The phrase “political reality” is more often used by advocates to craft the political reality they prefer than to describe anything truly real. Like the observer effect in experimental research, statements about “political reality” change political reality.  Convince enough people that a thing is “political reality” and the sought-after political reality becomes, simply, reality.

I wrote here before about how the National Governors Association, sensing profit, has worked diligently to make REAL ID a “political reality.” And it has certainly made some headway (though not enough). In the last Congress, the only legislation aimed at resolving the REAL ID impasse were bills to repeal REAL ID. Since then, the political reality is that Barack Obama was elected president and an administration far less friendly to a national ID took office. Democrats — who are on average less friendly to a national ID — made gains in both the House and Senate.

But how are political realities crafted? It has often been described as trying to get people on a bus. To pass a bill, you change it to get more people on the bus than get off.

The REAL ID bus was missing some important riders. It had security hawks, the Department of Homeland Security, anti-immigrant groups, DMV bureaucrats, public safety advocates, and the Bush Administration. But it didn’t have: state legislators and governors, privacy and civil liberties groups, and certain religious communities, among others.

PASS ID is for the most part an effort to bring on state legislators and governors. The NGA is hoping to broker the sale of state power to the federal government, locking in its own institutional role as a supplicant in Washington, D.C. for state political leaders.

But look who else was hanging around the bus station looking for rides! — CDT, the nominal civil liberties group. Alone it jumped on the bus, communicating to others less familiar with the issues that PASS ID represented a good way forward.

Happily, few have taken this signal. The authors of PASS ID were unable to escape the name “REAL ID,” which is a far more powerful beacon flashing national ID and all the ills that entails than CDT’s signal to the contrary.

This is not the first time that CDT’s penchant for compromise has assisted the national ID effort, though.

Compromising Toward National ID

The current push for a national ID has a short history that I summarized three years ago in a righteously titled post on the TechLiberationFront blog: “The Markle Foundation: Font of Evil II.”

Briefly, in December 2003, a group called the Markle Foundation Task Force on National Security in the Information Age recommended “both near-term measures and a longer-term research agenda to increase the reliability of identification while protecting privacy.” (Never mind that false identification was not a modus operandi of the 9/11 attacks.)

The 9/11 Commission, citing Markle, found that “[t]he federal government should set standards for the issuance of birth certificates and sources of identification, such as drivers licenses.” In December 2004, Congress passed the Intelligence Reform and Terrorism Prevention Act, implementing the recommendations of the 9/11 Commission, including national standards for drivers’ licenses and identification cards, the national ID system recommended by the Markle Task Force. And in May 2005, Congress passed a strengthened national ID system in the REAL ID Act.

An earlier post, “The Markle Foundation: Font of Evil,” has more — and the text of a PoliTech debate between myself and Stewart Baker. Security hawk Baker was a participant in the Markle Foundation group, as was national ID advocate Amitai Etzioni. So was the Center for Democracy and Technology’s Jim Dempsey.

I had many reservations about the Markle Foundation Task Force and its work product, and in an April 2005 meeting of the DHS Privacy Committee, I asked Dempsey about what qualified people to serve on that task force, whether people were invited, and what might exclude them. A month before REAL ID passed, he said:

I think the Markle Task Force at least sought balance. And people came to the table committed to dialogue. And those who came with a particular point of view, I think, were all committed to listening. And I think people’s minds were changed. . . . What we were committed to in the Markle Task Force was changing our minds and trying to find a common ground and to try to understand each other. And we spent the time at it. And that, I think, is reflected in the product of the task force.

There isn’t a nicer, more genuine person working in public policy than Jim Dempsey. He is the consummate honest broker, and this statement of his intentions for the Markle Foundation I believe to be characteristically truthful and earnest.

But consider the possibility that others participating on the Markle Foundation Task Force did not share Jim’s predilection for honest dialogue and compromise. It is even possible that they mouthed these ideals while working intently to advance their goals, including creation of a national ID.

Stewart Baker, who I personally like, is canny and wily, and he wants to win. I see no evidence that Amitai Etzioni changed his mind about having a national ID when he authored the recommendation in the Markle report that ultimately produced REAL ID.

Other Markle participants I have talked to were unaware of what the report said about identity-based security, national identity standards, or a national ID. They don’t even know (or didn’t at the time) that lending your name to a report also lends it your credibility. Whatever privacy or civil liberties advocates were involved with the Markle Task Force got rolled — big-time — by the pro-national-ID team.

CDT is a sophisticated Washington, D.C. operation. It is supposed to understand these dynamics. I can’t give it the pass that outsiders to Washington might get. By committing to compromise rather than any principle, and by lending its name to the Markle Foundation Task Force report, CDT gave credibility to a bad idea — the creation of a national ID.

CDT helped produce the REAL ID Act, which has taken years of struggle to beat back. And now they are at it again with “pragmatic” support for PASS ID.

CDT has been consistently compromising on national ID issues while proponents of a national ID have been doggedly and persistently pursuing their interests. This is not the behavior of a civil liberties organization. It’s why I asked in the post that precipitated this debate whether there is anything that would cause CDT to push back from the table and say No.

Despite words to the contrary, I don’t see evidence that CDT opposes having a national ID. It certainly works around the edges to improve privacy in the context of having a national ID — reducing the wetness of the water, as it were — but at key junctures, CDT’s actions have tended to support having a U.S. national ID. I remain open to seeing contrary evidence.

Assessing the Claim that CDT Opposes a National ID is a post from Cato @ Liberty - Cato Institute Blog

According to Don Johnson of The Health Care Blog:

Speculators seem to be betting that a watered down health insurance reform bill won’t hurt health insurers, hospitals, drug makers or medical device and supply manufacturers.

Stocks for almost all of these health sectors and for exchange trade funds that track health stock indexes turned higher last week.

In other words, those with real money at stake don’t believe that health reform will hurt the firms that make a living off of America’s highly inefficient health sector — President Obama’s assurances notwithstanding.

Johnson provides seven possible explanations for this development, including:

3. If the very liberal Coastal Democrats who lead Congress and most of the five committees drafting health insurance legislation want to get the support of Democrats from Western, Midwestern and Southern states, they’ll have to up Medicare payments to providers in those states. This is bullish for hospital chains, which operate mostly in the fly-over states…

6. Proposals to tax millionaires to pay for covering the uninsured and increasing benefits for others are in trouble, if not dead on arrival.  The economy’s in no shape to be stalled by tax hikes, and there appear to be enough Democrats opposed to the tax to stop it.

7. While the so-called Blue Dog Democrats are stalling health insurance reform for economic and ideological reasons, the Congressional Black Caucus has made it clear that it won’t support a bill that the Blue Dogs will support. Throw in the opposition by anti-abortionists who don’t want the legislation to use taxpayers money to pay for abortions, and you have a pretty complex political problem for President Obama, Sen. Majority Leader Harry Reid (D-NV) and Speaker Nancy Pelosi (D-CA). While the Speaker claimed Sunday that she has the votes to pass health insurance reform, few believe her.

Market Bets that ObamaCare Won’t Cut Costs is a post from Cato @ Liberty - Cato Institute Blog

The Cato Institute will launch an ad campaign Thursday highlighting under-reported poll data showing Americans’ concerns that current health care reform plans will raise costs, limit choice and reduce the quality of their health care.

The campaign will feature full-page ads in major national newspapers, in addition to radio spots focusing on why government-run health care cannot address the problems of growing costs and lack of coverage for many individuals and families. The campaign will expand in the weeks ahead.

“Our goal is to help the American public navigate terms like ‘a public plan’ and ‘individual or employer mandates’ to understand what is really happening here,” said Ed Crane, founder and president of the Cato Institute. “The bottom line is, most of the plans coming from the White House and congressional leadership will result in a government-run health care system that is really not the best option for most Americans.”

A poll by the Washington Post and ABC News conducted June 18-21 showed that 84 percent of respondents were “very” or “somewhat” concerned that “current efforts to reform the health care system” would increase their health care costs. The survey also showed that 79 percent of respondents were concerned that current efforts would limit their choices of doctors or medical treatments.

As part of the campaign, Cato is running radio ads in major cities across the country. You can listen to them below, and embed them on your own blog using the code on the official campaign site.

Cato has also created a new website, Healthcare.cato.org, to promote more free market-oriented health care reform proposals.

Cato Institute to Launch Ad Campaign Against Government-Run Health Care is a post from Cato @ Liberty - Cato Institute Blog

President Obama will hold a press conference tonight to answer questions about his health care reform proposal. This is what I would ask him:

Mr. President, during your campaign, you said, “I can make a firm pledge…Under my plan, no family making less than $250,000 a year will see any form of tax increase.”  You also said that “no one will pay higher tax rates than they paid in the 1990s.”

Your National Economic Council chairman, Larry Summers, has written that employer mandates “are like public programs financed by benefit taxes.”  Under the House health reform bill, an uninsured worker earning $50,000 per year, with no offer of coverage from her employer, would face a 15.3-percent federal payroll tax, a 25-percent federal marginal income tax rate, an 8-percent reduction in her wages (to pay the employer penalty), plus a 2.5 percent uninsured tax.  In total, her effective marginal federal tax rate would reach 50.8 percent.

Do you stand by those pledges, and would you therefore veto any employer mandate or individual mandate as a tax on the middle class?

(Add it to the questions I posed here and here.)

My Question for the President is a post from Cato @ Liberty - Cato Institute Blog

Earlier this week, SEC Chair Mary Shapiro appeared before Congress to suggest ways to fix the failings in our credit rating agencies.   Sadly her proposals miss the market, although that shouldn’t be so surprising as her suggestions appear to rest upon a misunderstanding of the problem.

The thrust of the SEC’s current approach is more disclosure, such as releasing “pre-ratings” that debt issuers may get before final issuance.  Additional disclosure of ratings methodology and assumptions is likely to be useless.  Almost all that information was available during the building housing bubble.  The problem is that the rating agencies had little incentive to go beyond the consensus forecasts of increasing to at most modest declines in home prices.  These same assumptions were the foundation of almost all government economic forecasting as well, yet few believe that forcing CBO or OMB to disclosure more of their forecasts will cure our budget imbalances.  What is needed is a change in incentives.

Here again the SEC seems to misunderstand the incentives at work, but then recognizing such would force the SEC to admit its own role in creating those some perverse incentives.  The SEC’s notion that agencies issue favorable ratings in order to gain business misses the most basic fact of the ratings business – they don’t have to compete for business, any debt issuer wanting to place “investment grade” debt has to use the agencies, and often has to use more than one of them.  Due to a variety of SEC and bank regulations, there is almost no competition among the rating agencies.  They have been given a government created monopoly.  If the rating agencies were, as the SEC proposes, competing strongly for business, then they wouldn’t have been earning huge profits on that business.  Competition erodes a business’ profits.  During the housing boom, the rating agencies continued to make ever more profits – more the sign of a monopoly than one of competition.

The truth is not that the agencies were captive to the debt issuers, but the other way around.  And like any monopolist, the agencies became lazy, slow and fat.  The real fix for the failure of the credit raters is to reduce the excessive reliance on their judgements inherent in most securities, banking and insurance regulations.  An investment grade rating should never serve as a substitute for appropriate due diligence on the part of investors (especially pension fund managers) or regulators.

End the Credit Rating Monopoly is a post from Cato @ Liberty - Cato Institute Blog

The New York Times reports that House Democrats want to raise money for health care with a $550 billion tax hike on people who produce the most wealth. The Times says,

the proposal is perhaps the clearest expression yet of the mandate that Democrats believe they won last November, when voters expanded Democratic majorities in Congress and sent Barack Obama to the White House.

If Democrats think they won a mandate for huge tax increases — without talking about them — then 2010 ought to be fun.

Mandate for Taxes? is a post from Cato @ Liberty - Cato Institute Blog

Pat Michaels and I have written an op-ed on the climate change bill due for a vote tomorrow in Congress, and our opinions on its provisions are summarized pretty well there. In short, the bill appears to offer very little in the way of reduced global warming in return for harm to the domestic economy and to international relations.

Yesterday’s New York Times energy and environment section (online) contains an article picking up on the increasingly harmful trade-related parts of the bill. Apparently the House Ways and Means Committee is trying to assert language that would make imposing carbon tariffs more likely than did the original Energy and Commerce Committee bill, bad enough that it was.

So what say you, Rep. Charles Rangel (D-NY), chairman of the House Ways and Means Committee and a powerful voice on trade?

[Rangel] downplayed the significance of his proposals. “I don’t think there will be many changes there,” he said. “There are just provisions in there that deal with trade and the poor. It’s not changes, it’s just vacuum.”

Assuming the quote was not taken out of context, for the leading House voice on trade to be so dismissive of important (if somewhat under-the-radar) provisions is irresponsible to say the least.

Charles Rangel Keeps a Cool Head is a post from Cato @ Liberty - Cato Institute Blog

Len Nichols is the top health-policy guy at the New America Foundation.  He’s spent the past few months trying to negotiate a compromise between the Left and the far Left over the creation of a new government health insurance program that would compete with private insurers.  With John Bertko, Nichols wrote a paper on how to create a level playing field between a government program and private insurance.

Yesterday’s CongressDailyAM, however, had an interesting article that sheds light on Nichols’ sense of fair play.  According to the article:

Nichols has floated the idea of writing into law a requirement that certain changes to the system would require a two-thirds vote to pass rather than a simple majority.

Never mind that such a requirement would guarantee that the new program would breed even more stagnation and death than Medicare and Medicaid do.

What Nichols proposes is that a Democratic Congress should be able to create a new Fannie Med by a simple majority vote in each chamber, but if a subsequent (Republican?) Congress wanted to repeal it, they should face a higher bar.

Keep that in mind when you hear talk about a level playing field.

You’re for Fair Competition, You Say? is a post from Cato @ Liberty - Cato Institute Blog

Former Clinton administration adviser Stanley Greenberg has an illuminating article in The New Republic.  Greenberg compared the polls he did during the Clinton health care debate to his recent polling on President Obama’s proposed reforms:

Perhaps I should know better than to have sensed any profound changes in the country. And, when I got the results for the new survey, I looked at each question warily, remembering how it all went badly wrong. As I reached the last of the questions, I exclaimed: “Oh no. It can’t be. Nothing’s changed.”…

The country divides evenly on whether the greater risk is an unchanged status quo or government reforms that “create new problems.” And, finally, Obama might want to pay attention to how closely his situation echoes Clinton’s. Then and now, more people favor the president’s health care plan than oppose it, but the supporters make up less than a majority.

If anything, I found on most of these questions that the desire for change and support for reform was slightly stronger 16 years ago, underscoring the importance of learning some lessons from that history…

Our inability to talk credibly about how we would reduce health care spending or costs for individuals and the country built a contradiction into all our efforts–the more we talked about the comprehensiveness of our plans, the more voters worried this would yield higher premiums or higher taxes. Very quickly, voters came to conclude that their families would face higher costs.

And those dynamics are still in play. In my recent polling, I found that voters are skeptical about claims that reform will reduce costs and personal health outlays. Claims about simplicity, information-technology modernization, and best practices don’t seem to be enough to persuade them otherwise…

It may surprise you that Obama has already lost seniors, according to our current survey–only one-third approve of his plan. It doesn’t take a rocket scientist to see there isn’t much in it for them. There is already talk of carving out major savings from Medicare and, unlike during Clinton’s battle, no offer of a new drug benefit. Clearly, they need to see health care gains for themselves too…

With few illusions about the old system, union households are strong supporters of Obama’s proposal. Yet the members will ultimately judge whether the plan is good for their families–and I’m certain that all the talk about taxing insurance contributions has not gone unnoticed…

[W]hile voters have great confidence in Obama and his administration, they are worried about the deficits and spending and the government bailouts of the irresponsible. So, while voters want to see a rebalancing away from greed and toward the public good, almost half the citizenry is worried the government may get it wrong.Ross Perot is a distant memory, but his more libertarian, blue-collar male voters are very much alive. They are pretty certain government will mess this up–and only about 30 percent support Obama’s health care plan right now. With Republicans reciting their mantra about no “government takeover” of health care, the plan’s opponents have found a common text…

Most are not at all satisfied with a system that has forced them to trade higher wages for continued health insurance coverage and other compromises. But those personal compromises to get satisfactory coverage will mean people can live a little longer with the status quo and want to make sure the proposed changes really will make things better for their families.

Those who support real health care reform should take note.

“Why Health Care Reform Could Fail Again” is a post from Cato @ Liberty - Cato Institute Blog

As I note in my New York Post op-ed today, Republicans are fond of implying that President Obama is a big-spending socialist. But the House GOP recently offered a spending cut plan that was able to find savings worth less than one percent of Obama’s budget.

As Tad DeHaven and Brian Riedl have also pointed out, the GOP spending reform effort is rather pathetic. It proposed specific annual budget cuts of about $14 billion per year.

Consider that the center-left budget wonks at the Brookings Institution put their heads together a few years ago and came up with a “smaller government plan” that proposed about $342 billion in annual spending cuts (by 2014). The Brookings authors note:  

These cuts are achieved by reducing government subsidies to commercial activities ($138 billion); by returning responsibility for education, housing, training, environmental, and law enforcement programs to the states ($123 billion) . . . by cutting entitlements such as Medicaid, Social Security, and Medicare ($74 billion); and by eliminating some wasteful spending in these entitlement programs ($7 billion).

Thus, the Brooking’s scholars found cuts more than twenty times larger than the House GOP leadership cuts, and Brookings proposed its plan back when the deficit was about one-fifth of the size it is today. (Note that both the Brookings and GOP plans would also put a cap on overall nondefense discretionary spending, in addition to these specific cuts).

My point in the New York Post piece is that the GOP needs to challenge Obama’s big spending agenda at a more fundamental level. They need to do some careful research, pick out some big spending targets, and go on the offense.  Why not propose to eliminate the Departments of Education and Housing and Urban Development? Why not sell off federal assets, such as the Tennessee Valley Authority, in order to help pay down the federal debt? Why not open up the U.S. Postal Service to competition?

Obama won’t agree to these reforms at this point, but they would hopefully open a serious national debate about reforming our massive and sprawling federal government. Ronald Reagan in 1980 and the congressional Republicans in 1994 didn’t win by splitting hairs with the Democrats over 1% of spending. They offered a more fundamental critique.

At least, GOP leaders need to offer up spending reforms as bold as those of the Brookings Institution.

GOP 99% Socialist is a post from Cato @ Liberty - Cato Institute Blog

A draft of Sen. Ted Kennedy’s health care reform bill is finally available, and it is difficult to overstate how far he would move us to a government-run health care system. An initial read-through reveals among the key provisions:

• An individual mandate, requiring that every American purchase a “qualified” insurance plan. (Sec. 161(a)) The mandate will be enforced through the tax code with Americans required to pay a penalty if they fail to comply.  In an extraordinary delegation of congressional authority, the Kennedy bill would give the Secretaries of Treasury and Health and Human Services the power to determine what this penalty should be. Individuals would be required to submit information on their insurance status over the previous year to the Secretary of HHS, along with “any such other information as the Secretary may require.” (Sec. 6055(b)(2) and (3)). Individuals who already have insurance could keep it. However, if they changed plans (or presumably changed jobs), their new insurance would have to meet the definition of “qualified.”
• A “pay or play” employer mandate requiring employers to provide all workers with health insurance and pay a minimum amount of the premium, or pay a tax (Sec 162). Again, the amount of the new tax is left to the discretion of the Secretaries of HHS and Treasury. Some small employers would be exempt from the mandate, but the size of those firms remains TBA. (Sec. 3113(g)) Companies with fewer than 250 workers would be forbidden to self-ensure. (Sec. 2720)
• A new federal bureaucracy, the Medical Advisory Council, which would determine what benefits will be required to be part of your “qualified” insurance plan. (Sec. 3103(h) and (i)). Lest anyone think Congress won’t get involved. The Council’s decisions can be disapproved by Congress if, say, they don’t mandate inclusion by a favored provider group or disease constituency. (Sec 3103(g)).
• Massive new federal subsidies. Medicaid would be expanded to individuals earning 150 percent of the poverty level, and the federal government would pay all incremental costs of the increased enrollment. (Sec 152.) Single, childless adults would become eligible for Medicaid. Even more egregious, individuals and families with incomes between 150-500 percent of the poverty level ($110,250 for a family of four) would be eligible for subsidies on a sliding scale-basis.(Sec. 3111(b)(1)(A-G)).
• Insurers would be required to accept all applicants regardless of their health (guaranteed issue) and forbid insurers from basing insurance premiums on risk factors (Community rating). There does not appear to be any exception for lifestyle factors, such as smoking, alcohol or drug use, diet, exercise, etc. Thus, not only will the young and healthy be forced to pay higher premiums to subsidize the old and unhealthy, but the responsible will be forced to pay more to subsidize the irresponsible.
• A “public option” operating in competition with private insurance (Section 31__). How this plan would be funded, the level of premiums, etc. is left mostly TBA. In response to criticism, the Kennedy bill does require that the public plan pay providers 10 percent above Medicare reimbursement rates. (Sec 31__(B)). That would still allow for a considerable degree of cost-shifting to private insurance. And, we should recall that such promises are ephemeral. When Medicare began, proponents promised it would reimburse at the same rate as insurance. That promise didn’t last long.
• States would be prodded to set up “gateways,” similar to Massachusetts’ “connector.” (Sec 3104(a)) If a state fails to do so, the federal government will set one up for them. (Sec. 3104(d)) The federal government would provide grants to states to help them set up these gateways. The amount of the grants is, you guessed it, left to the discretion of the Secretary of HHS. Gateways may also fund their operations by assessing a surcharge on insurers. Sec. 3101(b)(5)(A)/
• A new federal long-term care program (Sec 171).

Kennedy does not include any estimate of how much his plan would cost, nor any proposal for how to pay for it.

More details will undoubtedly emerge, but it is very clear that the Kennedy plan would put one-sixth of the US economy and some of our most important, personal, and private decisions firmly under the thumb of the federal government.

Kennedy’s Health Bill: A First Look is a post from Cato @ Liberty - Cato Institute Blog