Vikings and Pirates and Taxes, Oh My!
Today’s episode of “Hagar the Horrible” could be an epigraph for the new Fall 2009 issue of Cato Journal.
This issue includes Greek economists Michael Mitsopoulos and Theodore Pelagidis on “Vikings in Greece: Kleptocratic Interest Groups in a Closed, Rent-Seeking Economy” as well as Peter Leeson, author of The Invisible Hook: The Hidden Economics of Pirates, writing (with David Skarbek) on the effects of foreign aid. As for taxes, well, editor Jim Dorn has assembled a number of useful papers:
- Andrew T. Young on taxing, spending, and “fiscal illusion”
- Michael J. New on the “starve the beast” hypothesis
- Alan Reynolds on Paul Krugman’s misunderstanding of the monetary and fiscal lessons of the Great Depression and Japan’s lost decade
And on the general rapaciousness of the state, don’t miss Jason Kuznicki’s careful review of government racial discrimination from the end of Reconstruction until the civil rights movement.
Filed under: Cato Publications; General; Tax and Budget Policy
More Trade News
My colleague Dan Griswold pointed out yesterday some unfortunate editing in the Washington Post. Here are a couple of other trade-related items in the news recently:
I think often the United States has to lead,” Baucus said, noting that what lawmakers come up could be used as a model for other countries to copy.
So the U.S. would saddle its consumers with higher prices in exchange for little benefit environmentally and in the process risk retaliation and alienating countries who it insists are necessary for global cooperation on climate change?
Some leadership.
And it may well be that the Chinese have the jump on the United States here, in any case. They’re proposing to introduce a carbon tax of their own, to prevent double-taxation in the form of carbon tariffs by the developed countries (banned under WTO rules) and to keep the carbon tax revenue — collected, remember, from U.S. consumers! — for themselves, all while seeming to play nice on climate change. I bet those who proposed carbon tariffs are sorry they spoke out now. (HT: Scott Lincicome)
Filed under: Energy and Environment; Trade and Immigration
Health Care: Not Close to Over
The fat lady hasn’t even started to warm up yet.
The narrow 220-215 victory in the House on Saturday night was a step forward on the road to a government takeover of the health care system. But as close and dramatic as that vote was, that was the easy part. The Senate must still pass its version of reform—which will not be the bill that just passed the House. Nancy Pelosi was, after all, able to lose the votes of 39 moderate Democrats. Harry Reid cannot afford to lose even one. A conference committee must reconcile the two vastly different versions. And then, Pelosi must hold together her 3 vote margin of victory (if it gets that far). Yet several House Democrats who voted for the bill on Saturday said they did so only to “advance the process.” Their vote is far from guaranteed on final passage. And, House liberals are almost certain to be disappointed by the more moderate bill that may emerge from the conference.
Among the more contentious issues:
Individual Mandate: This should’ve been low-hanging fruit. Democrats agreed on a mandate early in the process. But it became increasingly plain that a mandate would hit those with insurance as well as the uninsured — forcing people who are happy with their plan to switch to a different, possibly more expensive plan. With this mandate now being seen as a middle-class tax hike, qualms have developed. The House bill contains a strict mandate, with penalties of 2.5 percent of income backed up by up to five years in jail. The Senate Finance Committee, on the other hand, watered down the mandate’s penalties and delayed the mandates implementation.
Employer Mandate: The House bill also contains an employer mandate, a requirement that all but the smallest employers provide insurance to their workers or pay a penalty tax of up to 8 percent of payroll. The Senate, looking at unemployment rates over 10 percent, seems unlikely to include an employer mandate.
The Public Option: The House included, if not a “robust” public option, at least a semi-robust one. But moderate Democrats in the Senate are clearly not on board. Joe Lieberman (I-CT) says that he will join a Republican filibuster if the public option is included. Harry Reid is trying various permutations: a trigger, an opt-in, an opt-out. But as of now there is not 60 votes for any variation.
The Sheer Cost: Fiscal hawks like Sen. Evan Bayh (D-IN) say they will not support a bill that adds to the deficit or spends too much. But the house bill cost a minimum of $1.2 trillion.
Taxes: The House plan to add a surtax on incomes of $500,000 or more a year has no support in the Senate. At the same time, the Senate plan to slap a 40 percent excise tax on “Cadillac” insurance plans is unacceptable to key Democratic constituencies like labor unions.
Abortion: Conservative Democrats insisted on a strict prohibition on the use of government funds for abortion. The bill could not have passed without the inclusion of that provision. House liberal swallowed hard and voted for the bill, despite what they called “a poison pill” anyway with the expectation that it will be removed later. If the final bill includes the prohibition at least a couple liberals could defect. If it doesn’t, conservative Democrats won’t be on board.
Immigration: The Senate Finance Committee included a provision barring illegal immigrants from purchasing insurance through the government-run Exchange. The House Hispanic Caucus says that if that provision is in the final bill, they will vote against it.
As if these disagreements among Democrats wasn’t bad enough, public opinion is now turning against the bill.
President Obama has called for a bill to be on his desk before Christmas—the latest in a series of deadline that are so far unmet. It is hard to see how Congress can meet this one either. The Senate has not yet received CBO scoring of its bill and is not prepared to even begin debate until next week at the earliest. That debate will last 3-4 weeks minimum, assuming there are 60 votes for cloture. That means, the bill cant’ go to conference committee until mid-December, even if everything breaks the way Harry Reid wants. Privately, Democrats are now suggesting late January, before the State of the Union address, is the best they can do.
The fat lady can go back to sleep—this isn’t over yet.
Tea Party Conservatism and the GOP
This morning, Politico’s Arena asks:
Is Tea Party conservatism a help or a hazard for Republicans seeking a return to power?
My response:
Let’s start with some clarity: “Tea Party conservatism” stands for several things, but it is not the caricature one often finds in the mainstream media, to say nothing of the left wing blogs. It is a movement with deep historical roots, drawing its name and inspiration from the Boston Tea Party of 1773. As with that event, taxes brought it to the fore — on Tax Day, April 15. But taxes are simply the most obvious manifestation of modern government run amok, insinuating itself into every corner of life. Trillions of dollars of debt for our children, out-of-control government budgets, massive interventions in private affairs — the list of wrongs is endless, and under Obama has exploded. He stands for nothing if not for making us all dependent on the government he has promised us. That’s not America. That’s a foreign vision, which over the centuries countless millions have fled, searching for freedom.
To be sure, the Tea Party movement has its fringe elements, as did the revolt against British tyranny, which the establishment of its day disparaged. So too does the Obama administration, some of whom have already resigned. The basic question, however, is what does the movement stand for? What are its principles? And on that, the contrast with the Obama vision is stark: However much confusion there might be on specific issues, which is to be expected, the broad principles are clear. The Tea Party movement stands for limited constitutional government. At its rallies, on hand-written sign after sign, that was the message repeatedly seen. These are ordinary Americans – Republicans, Independents, and even Democrats — who want simply to be left alone to plan and live their own lives. They don’t want “community organizers” to help empower them to get more from government.
But they do need to be organized to bring that about — to get government off their backs. And the Republican Party should be the natural vehicle toward that end — the party, after all, that was formed to get government off the backs of several million slaves. But today’s Republican Party is a mixed lot: Some understand those principles; but others, as in the NY 23 race, are all but indistinguishable from their counterparts in the party of Obama. The problem in NY 23 was not that a third party entered the race. Rather, the party establishment botched things from the beginning, by picking a nominee who properly belonged in the Democratic Party, as her pathetic last-minute endorsement indicated, and that’s why a third party entered the race — with a novice of a nominee who nearly won despite the odds against him.
The question, therefore, is not whether Tea Party conservatism is a help or a hazard for Republicans seeking a return to power? To the contrary, it is whether the Republican Party is a help or a hindrance to the Tea Party movement? It will be a help only if it returns to its roots. The mainstream media, overwhelmingly of the Democratic persuasion, will continue to push Republicans to be “moderate,” of course – meaning “Democrat Lite” — to which the proper response is: Why would voters go for that when they can get the real thing on the Democratic line? If Tuesday’s returns showed anything, it is that Independents, a truly mixed lot, are up for grabs; but at the same time, they are looking for leaders who promise not simply to “solve problems” but to do so in a way that respects our traditions of individual liberty, free markets, and limited government. When Republican candidates stand clearly and firmly for those principles, they stand a far better chance of being elected than when they temporize. That is the lesson that Republicans must grasp — and not forget — if they are to return to power.
Filed under: Government and Politics; Law and Civil Liberties
‘Letting the Sick Die on the Street’
Blogger Matt Yglesias has described my CNN op-ed on health care as follows:
Meanwhile, in Harvard economist and Cato Institute senior fellow Jeffrey Miron’s dystopia, if your parents wind up with no money through bad luck or poor decision-making and then you get sick you’ll just die on the street for lack of money.
Did I really say such an outrageous thing? Well, I did not use exactly those words (as Matt makes clear), but yes, that is the logical implication of my position.
And I stand by it. Here’s why.
First, my assessment is that even with no government health insurance, hardly anyone would die on the street for lack of health care. The poor would use their income transfers to buy some health care or insurance. The poor would receive private charity. And health care would be far less expensive due to elimination of the distortions caused by government health insurance.
Second, my position is that government provision of health insurance is enormously inefficient: it means worse health care for everyone, and it wastes resources that can be put to other uses. So the negative of having a few people suffer without government health insurance must be balanced against the good of having better medical care for all and against the good that can be accomplished with those saved resources.
That good might be lower taxes for everyone, or more government spending on education, or greater public health spending to combat HIV in poor countries. Whatever the alternate uses turn out to be, one cannot escape the fact that a tradeoff exists between protecting the poor and other goals.
C/P Libertarianism, from A to Z
The World’s Best Tax Haven: In America, but Unavailable to Americans
Tax competition is an issue that arouses passion on both sides of the debate. Libertarians and other free-market advocates welcome tax competition as a way of restraining the greed of politicians. Governments have lowered tax rates in recent decades, for instance, because politicians are afraid that the geese that lay the golden eggs can fly across the border. But collectivists despise tax competition — for exactly the same reason. They want investors, entrepreneurs, and companies to passively serve as free vending machines, dispensing never-ending piles of money for politicians. So when a left-wing group puts together a ranking of the world’s “top secrecy jurisdictions” in hopes of undermining tax competition, proponents of individual freedom can use that list as a guide to world’s most investor-friendly nations. The good news is that an American state, Delaware, is number one on the list. And since being a tax haven is a magnet for investment, this is good news for U.S. competitiveness. The bad news is that American taxpayers are not allowed to benefit from many of Delaware’s “tax haven” policies. Here’s what a left-wing columnist in the United Kingdom wrote about the issue:
You’re a billionaire but you don’t want anyone, least of all the taxman, to know. What do you do? Head for a palm-fringed island paradise or a snow-covered Alpine micro-state? Wrong. The world’s most opaque jurisdictions – the ones that will best shield you and your cash from the light – are mostly in the heart of the most sophisticated and powerful global financial centres. London, Luxembourg and Zurich are in the top five most secretive jurisdictions, according the first comprehensive index of financial transparency ever compiled. Yet top of the pile, beating the British Virgin Islands, Belize or Liechtenstein as the best place to hide wealth, is Delaware. One of the smallest states in the US, it offers the best protection for anyone who does not want to disclose their identity as a beneficial owner of a company. That is one very good reason why the East Coast state hosts 50% of the US’s quoted firms and 650,000 companies – almost equivalent to one company per Delaware resident. …Delaware – the political power-base of the US vice-president, Joe Biden – offers high levels of banking secrecy and does not make details of trusts, company accounts and beneficial ownership a matter of public record. Delaware also allows companies to re-domicile within its borders with minimal disclosure, and allows the existence of privacy-enhancing “protected cell” or “segregated portfolio” companies, among many other stratagems useful for protecting the identity of those who do business there.
Filed under: Government and Politics; International Economics and Development; Tax and Budget Policy
If We Don’t Admit That Taxes Are an Issue, Can We Make the Issue Go Away?
The Washington Post devotes most of a page to summarizing the views of Virginia gubernatorial candidates Bob McDonnell and Creigh Deeds on the major issues of the election. (The article seems to have no real headline online, and isn’t linked from anywhere obvious, but in the actual paper, it dominates page C4 under the headline “Where do they stand on the issues? A Rundown of Competing 4-Year Agendas for Virginia.”)
And what are the issues the Post thinks are important? Education, transportation, energy and environment, abortion, gun control, health care, and labor. All fine issues to debate.
But what about taxes? Or government spending? Or the size and scope of government? McDonnell’s television ads focus heavily on Deeds’s apparent willingness to raise taxes, and he’s been rising in the polls as those ads have run. Could it be that the voters think taxes are an important issue?
Turn to a front-page story on New York’s special congressional election, and you’ll find Todd Harris, who has been a media adviser to John McCain, Jeb Bush, Arnold Schwarzenegger, and now Marco Rubio, making this point: “A lot of the establishment Republicans underestimated the grass-roots anger across the country about spending and the expansion of the federal government.”
The Post wishes that taxes weren’t an issue in Virginia. In fact, the Post wishes that voters wanted their taxes raised. But wishing won’t make it so.
Battle for Libertarian Voters in Virginia
Almost two months ago I quoted a Washington Post op-ed that said that this fall’s gubernatorial race in Virginia would depend on
the all-important independent voters — the disproportionately moderate, young, prosperous, suburban and libertarian-leaning people who typically decide Virginia contests.
It looks like Frank B. Atkinson, a high-powered Richmond lawyer who served in the Ronald Reagan and George Allen administrations and has written two books on Virginia politics, knew what he was talking about. At least on my television here in the Virginia suburbs of Washington, D.C., the race has been dominated by two kinds of ads: Democratic nominee Creigh Deeds tells us over and over again that his Republican opponent Bob McDonnell is a reactionary social conservative. McDonnell counters with endless plays of Deeds’s stumbling admission that he’d like to raise taxes.
Judging by the polls, it looks like people are more worried about taxes and the overreach of the Obama administration than about McDonnell’s career-long ambition to roll back social change.
Of course, the bad news is that both candidates are right: McDonnell is a reactionary social conservative, and Deeds will raise taxes. The even worse news: Deeds voted for the anti-marriage constitutional amendment in the Virginia legislature, though he later flipped his position; and as a legislator and attorney general, McDonnell backed transportation tax increases. So if you’re a pro-tax, anti-gay Virginia voter, you have a wealth of choices on Tuesday. Freedom-loving, “leave us alone” voters, a tougher day.
Filed under: General; Government and Politics; Political Philosophy
Putting Private Insurance Out of Business
Over at Think Progress, Matt Yglesias takes me to task for saying that the so-called public option in the House’s health care bill “would all but eliminate private insurance and force millions of Americans into a government-run system.”
Yglesias apparently still buys into the myth that the public option is, well, an option.
For people who receive health insurance through their employers, which is to say the vast majority of the Americans who currently have health insurance, the House bill would change very little. Or, rather, the biggest change would simply be the confidence that if, in the future, you cease to get health insurance from your employer (maybe you’ll lose your job or want to change jobs) that you’ll still be able to get health care. What’s more, of the minority of Americans who would be getting health care through the new “exchange,” the majority will probably sign up for private health insurance and everyone will have the option of doing so. If the government-run public plan is, for whatever reason, vastly more appealing than the private options then it will dominate. But if you believe the government can’t run health care well, there’s no reason to think that will happen. Whatever you think of that, though, the basic fact is that even if the public option does dominate the exchange most people will still have private employer-provided insurance.
That might be true if the new government-run program were going to compete on anything close to a level playing field. But, because the public option is ultimately supported by the taxpayers, the playing field can never be level. True, the bill does say that the new program is supposed to be self-sustaining, covering administrative and benefit costs entirely out of premium revenues. But remember that Medicare Part B was originally supposed to support 50 percent of its costs through premiums. That has shrunk to the point where premiums pay for less than 25 percent of the program’s cost.
And the government has a myriad of ways to prevent the true cost of the program from showing up in premium prices. For example, the government-run plan will not have to pay state or federal taxes, and unlike private insurance plans, who can be sued in state courts, the government-run plan could only be sued in federal court.
At the very least, the program carries with it an implicit guarantee against future losses. Suppose the public option prices its products too low and loses money. Can you imagine that Congress is simply going to let it go bankrupt, go out of business? Would a Congress that has bailed out banks and automobile companies because they are “too big to fail” resist subsidizing the government’s insurance plan if it began to lose money? Even without the actual bailout, such an implicit guarantee has a value. For example, the implicit guarantees behind Fannie Mae and Freddie Mac were estimated to have saved those institutions $6 billion per year.
All of this means that the government-run plan would be significantly cheaper than private insurance, not because it would out-compete private insurance or because it was more efficient, but because it had unfair advantages. The lower cost means that businesses, in particular, would have every incentive to dump workers from their current health insurance plan into the government plan. And, if other provisions of the bill make insurance more expensive, as is likely, the incentive for employers to shift workers to the government plan would be even greater. Estimates suggest that nearly 90 million workers could eventually be forced into the government plan.
As Robert Samuelson, dean of economic columnists, writes in the Washington Post, “a favored public plan would probably doom today’s private insurance.”
Samuelson is right. There is nothing “optional” about a public option. And that is just the way the Left wants it.
Feds Giveth Jobs & Cars, Then Taketh Away Again
The bad news this morning on the impact of both the federal stimulus and the Cash for Clunkers program should not come as a surprise to anyone who has paid attention to the history of government intervention in the economy.
New data that the jobs created by the stimulus have been overstated by thousands is compelling, but it’s really a secondary issue. The primary issue is that the government cannot “create” anything without hurting something else. To “create” jobs, the government must first extract wealth from the economy via taxation, or raise the money by issuing debt. Regardless of whether the burden is borne by present or future taxpayers, the result is the same: job creation and economic growth are inhibited.
At the same time the government is taking undeserved credit for “creating jobs,” a new analysis of the Cash for Clunkers program by Edmunds.com shows that most cars bought with taxpayer help would have been purchased anyhow. The same analysis finds the post-Clunker car sales would have been higher in the absence of the program, which proves that the program merely altered the timing of auto purchases.
Once again, the government claims to have “created” economic growth, but the reality is that Cash for Clunkers had no positive long-term effect and actually destroyed wealth in the process.
Right now businesses and entrepreneurs are hesitant to make investments or add new workers because they’re worried about what Washington’s interventions could mean for their bottom lines. The potential for higher taxes, health care mandates, and costly climate change legislation are all being cited by businesspeople as reasons why further investment or hiring is on hold. Unless this “regime uncertainty” subsides, the U.S. economy could be in for sluggish growth for a long time to come.
For more on the topic of regime uncertainty and economic growth, please see the Downsizing Government blog.
German Masochists
A handful of guilt-ridden wealthy Germans are asking to pay more tax according to a BBC report. They could just give their money to the state, of course, but they want to impose their self-loathing policies on all successful Germans. The amusing part of the story is that these dilettantes were puzzled that so few people showed up to their protest. Maybe next time they could do some real redistribution and announce that they will be tossing real banknotes in the air:
A group of rich Germans has launched a petition calling for the government to make wealthy people pay higher taxes. The group say they have more money than they need, and the extra revenue could fund economic and social programmes…
Simply donating money to deal with the problems is not enough, they want a change in the whole approach.
…The man behind the petition, Dieter Lehmkuhl, told Berlin’s Tagesspiegel that there were 2.2 million people in Germany with a fortune of more than 500,000 euros. If they all paid the tax for two years, Germany could raise 100bn euros to fund ecological programmes, education and social projects, said the retired doctor and heir to a brewery. Signatory Peter Vollmer told AFP news agency he was supporting the proposal because he had inherited “a lot of money I do not need”. He said the tax would be “a viable and socially acceptable way out of the flagrant budget crisis”. The group held a demonstration in Berlin on Wednesday to draw attention to their plans, throwing fake banknotes into the air. Mr Vollmer said it was “really strange that so few people came”.
But not all tormented rich people live in Germany. A few months ago, I had a chance to debate an American version of this strange subspecies.
Filed under: General; Government and Politics; Tax and Budget Policy
Yes, Mr. President, a Free Market Can Fix Health Care
At his White House forum on health reform back in March, President Barack Obama offered:
If there is a way of getting this done where we’re driving down costs and people are getting health insurance at an affordable rate, and have choice of doctor, have flexibility in terms of their plans, and we could do that entirely through the market, I’d be happy to do it that way.
In a new Cato study titled, “Yes, Mr. President, a Free Market Can Fix Health Care,” I take up the president’s challenge and explain that markets are indeed the only way to achieve those goals. I also explain how Congress can remove the impediments that currently prevent markets from doing so:
- Give Medicare enrollees a voucher (adjusted for their means and health risk) and let them purchase any health plan on the market,
- Reform the tax treatment of health care with “large” health savings accounts, which would give workers a $9.7 trillion tax cut (without increasing the deficit) and free them to purchase secure coverage that meets their needs,
- Free consumers and employers to purchase health insurance across state lines (i.e., licensed by other states), which could cover up to one third of the uninsured,
- Make state-issued clinician licenses portable, which would increase access to care and competition among health plans, and
- Block-grant Medicaid and the State Children’s Health Insurance Program, just as Congress did with welfare.
Unlike the president’s health care proposals (which, as Victor Fuchs explains, would merely shift costs), these reforms would reduce costs, expand coverage, and improve health care quality – without new taxes, government subsidies, or deficit spending.
Would a free market be nirvana? Of course not. But fewer Americans would fall through the cracks than under the status quo or the government takeover advancing through Congress.
There is a better way.
(Cross-posted at Politico’s Health Care Arena.)
Filed under: Cato Publications; General; Health, Welfare & Entitlements
Why the Democrats’ Health Care Overhaul May Die
The problem that Democrats have faced from Day One is finally coming to a head.
The Left and the health care industry both want universal health insurance coverage. The industry, because universal coverage means massive new government subsidies. The Left, because that’s their religion.
But universal coverage is so expensive that Congress can’t get there without taxing Democrats.
- Sen. Jay Rockefeller (D-WV) is the biggest opponent of Sen. Max Baucus’ (D-MT) tax on expensive health plans because that tax would hit West Virginia coal miners.
- Unions vigorously oppose that tax because it would hit their members.
- Moderate Democrats in the House oppose Rep. Charlie Rangel’s (D-NY) supposed “millionaires surtax” because they know it would hit small businesses in their districts.
And on and on…
But if congressional leaders pare back those taxes, they lose the support of the health care industry, which wants its subsidies.
- That’s why the health insurance lobby funded this PriceWaterhouseCoopers study saying that premiums would rise under the Baucus bill: the $500 billion bailout they would receive isn’t enough. They also want – they demand – steep taxes on Americans who don’t buy their products.
- The drug companies, the hospitals, and the physician groups are likewise demanding big subsidies, and will run ads to kill the whole effort if those subsidies aren’t big enough.
As always, health economist Uwe Reinhardt put it colorfully:
It’s no different from Iraq with all the different tribes…‘How does it affect the money flow to my interest group?’ They are all sitting in the woods with their machine guns, waiting to shoot.
Once the shooting starts, industry opposition will sway even Democratic members, because there are physicians and hospitals and employers and insurance-industry employees in every state and congressional district.
Can President Obama and the congressional leadership satisfy both groups? My guess is, probably not, and this misguided effort at “reform” will therefore die. Again.
The Problem Is Spending, not Deficits
Speaking recently a Steamboat Institute conference, I explain that big government is America’s fiscal challenge, not whether the spending is financed with taxes or borrowing.
This issue is important because the statists are trying to create the conditions for a big tax hike. We got huge spending increases under Bush, and now Obama has picked up the baton and is racing in the same direction. Needless to say, the politicians don’t care about deficits when they are spending money. But when it is time to discuss tax policy, deficits suddenly become a giant threat to the economy and turning more of our money over to the political class is the only solution.
The Q&A session also is interesting, as I pontificate about the financial crisis, Keynesian economics, the rule of law, and tax competition(both videos courtesy of the Center for Freedom and Prosperity).
Filed under: General; Government and Politics; Tax and Budget Policy
Hurting the Sick Is Not Good Politics
I was glad to see James Pinkerton engage my criticism of Louisiana Gov. Bobby Jindal’s (R) endorsement of federal price controls for health insurance. I was even more pleased to see that Pinkerton has his own blog devoted to developing a Serious Medicine Strategy.
If I understand Pinkerton, his argument is essentially: it’s all well and good for some unelectable wonk in the “citadel of libertarian thinking” to “uphold ivory-tower free-market purity” by opposing price controls. But Republicans need “art-of-the-possible solutions” to win elections, and 90 percent of the public support those price controls. “Everyone has a right to his or her principled position,” Pinkerton writes, “but the majority has rights, too.”
Two problems.
First, Pinkerton suggests that libertarians oppose price controls for reasons that only matter to libertarians, and therefore may be safely ignored. Problem is, price controls hurt people. Were Pinkerton to explore the merits of Jindal’s proposal, he would soon conclude that imposing price controls on health insurance taxes the healthy, reduces everyone’s health insurance choices, and creates even greater incentives for insurers to shortchange the sick. (Turns out that what Larry Summers said about price controls applies to health insurance, too.) As John Cochrane explains, those price controls also block innovative products that would provide more financial security and better medical care to the sick.
But Pinkerton’s advice for Republicans is, essentially: “Do what’s popular now, even if it hurts people and voters end up blaming Republicans for it later.” How is that a good strategy?
Second is this idea that “the majority has rights.” Majorities don’t have rights. Individuals have rights. For example, you have the right to negotiate the terms of your health insurance contract with the individuals at this or that insurance company. Majorities may attain power, but that’s the opposite of rights. (See the Bill of Rights.)
Finally, a couple of important odds and ends. Pinkerton suggests it is “un-libertarian” to be “pro-life,” or to “support the police, the military, and other upholders of public order,” or to “support government restrictions on…euthanasia.” Writing from the “citadel of libertarian thinking,” I can assure him he is wrong. Might I suggest Pinkerton read the relevant chapters from The Encyclopedia of Libertarianism? (The health care chapter is a page-turner!) Also, I did not “denounce Jindal” any more than Pinkerton denounced me. I criticized his ideas, and I respect the man.
(Cross-posted at Politico’s Health Care Arena.)
Filed under: Government and Politics; Health, Welfare & Entitlements
Revenge of the Laffer Curve, Part II
An earlier post revealed that higher tax rates in Maryland were backfiring, leading to less revenue from upper-income taxpayers. It seems New York politicians are running into a similar problem. According to an AP report, the state’s 100 richest taxpayers have paid $1 billion less than expected following a big tax hike. The story notes that several rich people have left the state, and all three examples are about people who have redomiciled in Florida, which has no state income tax. For more background information on why higher taxes on the rich do not necessarily raise revenue, see this three-part Laffer Curve video series (here, here, and here):
Early data from New York show the higher tax rates for the wealthy have yielded lower-than-expected state wealth.
…[New York Governor David] Paterson said last week that revenues from the income tax increases and other taxes enacted in April are running about 20 percent less than anticipated.
…So far this year, half of about $1 billion in expected revenue from New York’s 100 richest taxpayers is missing.
…State officials say they don’t know how much of the missing revenue is because any wealthy New Yorkers simply left. But at least two high-profile defectors have sounded off on the tax changes: Buffalo Sabres owner Tom Golisano, the billionaire who ran for governor three times and who was paying $13,000 a day in New York income taxes, and radio talk-show host Rush Limbaugh.
…Donald Trump told Fox News earlier this year that several of his millionaire friends were talking about leaving the state over the latest taxes.
The VAT Debate: Should Politicians in Washington Get a Huge New Source of Tax Revenue as a Reward for Overspending?
Based on five criteria, James Pethokoukis of Reuters connects the dots and warns that President Obama is going to propose a value-added tax.
Does President Obama have a secret plan to raise taxes on middle-class Americans — and,well, pretty much everybody else — with a European-style, value-added tax? Actually, it’s not such a big secret. …Obama’s campaign promise to not raise taxes on households making less than $250,000 a year was always considered a joke here inside the Beltway. …Maybe it was a joke inside the campaign, too. Since being elected, Obama has raised cigarette taxes and has advocated raising healthcare taxes, energy and small business taxes, in addition to corporate taxes. What’s more, economic advisers like Larry Summers seem eager to get rid of all the Bush tax cuts, not just those on so-called wealthy Americans. And it’s also no secret that economists love the idea of a VAT. It promotes savings over consumption, and its hidden nature may mean it has less behavioral impact on taxpayers. …Liberals love the idea of a VAT because it’s, well, so European — also because it does raise tons of revenue to expand government. And that is what Obama wants: more revenue to pay for bigger government. Is a VAT better than the soak-the-rich approach favored by Democrats such as Nancy Pelosi and Charlie Rangel? Sure. Of course, the concern is that a VAT would be in addition to new soak-the-rich taxes.
While the timing is unclear, his prediction is correct. The politicians in Washington want much bigger government, but they know that it will be difficult to achieve that goal without a big new source of revenue. The VAT would be perfect from their perspective. It is a form of national sales tax, but would be hidden in the price of products and therefore easy to increase. Moreover, every time they increase the VAT, they would use that as an excuse to raise income tax rates for “distributional fairness.” It is no exaggeration to say that the VAT is the biggest fiscal threat to the cause of limited government.
One final point about the column. Economists don’t love the VAT, per se, but they do view it as being less destructive – per dollar raised – than the income tax. But less destructive is still destructive. And since the VAT would be in addition to the taxes we have now (and actually create the conditions for higher income tax rates), its enactment would create a lose-lose situation for taxpayers.
The President’s Health Care Tax
As Michael Cannon discussed in an earlier post, the White House is trying to claim that health care “reform” does not mean higher taxes. This is a two-pronged issue. First, there is a mandate to purchase health insurance. Second, there is a tax (the White House calls it a fee) on people who fail to purchase a policy.
The White House claims this mandate is akin to state-level requirements for the purchase of health insurance, and that the newly-insured people will be getting some value (a health insurance policy) in exchange for their money. These assertions are defensible, but that does not change the fact that a tax is being imposed.
It might be plausible to argue that the mandate is not a tax if the value of the insurance policy to the individual was equal to the cost. But since these are people who are not buying policies, their behavior reveals that this obviously cannot be true. So this means that they will be worse off under Obama’s plan and that at least some of the cost should be considered a tax.
Filed under: Health, Welfare & Entitlements; Tax and Budget Policy
Nobody Considers Health Insurance Mandates a Tax? Really??
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?
Filed under: Cato Publications; General; Health, Welfare & Entitlements; Tax and Budget Policy
Obama: ‘Nobody’ Considers Health Care Mandate a Tax Increase
President Obama argued on TV talk shows this weekend that his proposed mandate for everyone to buy health insurance – or face a large financial penalty – is not a tax increase:
In a testy exchange on ABC’s “This Week,” broadcast Sunday, Obama rejected the assertion that forcing people to obtain coverage would violate his campaign pledge against raising taxes on middle-class Americans.
“For us to say you have to take responsibility to get health insurance is absolutely not a tax increase,” Obama said in response to persistent questioning, later adding: “Nobody considers that a tax increase.”
Well, I consider it a tax increase, so I guess that makes me nobody.
The real question is whether this tax increase is a good idea. My answer is no. If others disagree, then fine, let’s have that debate. But denying plain truths suggests that advocates of Obamacare are trying to pass something that Americans would not endorse if it were structured and explained clearly.
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