taxes

(Cross-posted)

I wish that I could write a paragraph that start “the problem with the health care bill is…” but there are so many problems with the health care bill that to single out just one is ridiculous. The bill is a monstrosity in the truest sense of the word – it is an excessively bad object of frightening size and complexity.

The size alone is enough to give pause. 1,990 pages of law that no representative (or representative’s staff) will read or understand in its entirety before (or after) it is voted on. I’m not going to argue that every bill should be read by every legislator before it is voted on. That seems unrealistic. But I’d like to know that it can be done and that the provisions of the bill can be understood both separately and when placed in their context. I think that some lawmakers will attempt to read and understand the bill with their staff, but undoubtedly they will come up with completely contradictory ideas of what is actually meant by the bill. The actual debate will be rushed (as it has been all year long) and a vote far to premature for the subject matter will be held. The only question mark over it passing the House is just how many Blue Dogs will actually stick to their positions.

Note to Blue Dogs: If you are going to claim to be fiscally conservative and socially liberal, then at some point you have to actually vote in a fiscally conservative manner. We (those of us citizens who actually are fiscally conservative and socially liberal) are getting sick of the charade.

The bill doesn’t (and can’t possibly) accomplish so many of the goals that it supporters claim that it does. Key example: Many supporters of this form of health care reform claim that a lot of the waste in the system is because insurance companies spend a lot of money lobbying the government that could be spent on health care (or reducing cost or whatever). Do they really think that by making the profits of those insurance companies more tied to government decisions that there will be less lobbying? That seems ridiculous on its face. If I ran an insurance company, then the more that my profits depended on government decisions the more money and effort I am going to spend on lobbying to make sure that I get the right contract or that lawmakers/bureaucrats make the decision in my favor. This isn’t that difficult of a concept: Big government leads to big lobbying. No matter what some people might argue big government doesn’t fight against big business – big government begets big business. Just ask the financial industry.

Another thing that I worry is the tax implications. Whether you “pay” for this (I put it in quotes because we should all recognize that, like social security and welfare, debt is what will really “pay” for the bill) with taxes on good health insurance plans or taxes on income, you are having some pretty bad outcomes. Tax good health insurance plans and companies have a disincentive to offer them – not only will the company have to pay (part of) the cost of the good health insurance plan, but they will have to pay the employee more to cover the cost of the extra tax the employee will have to pay (or the employee just functionally makes less money). Set a maximum level of health insurance that won’t get taxed and that is just where everyone is going to end up. There would be a disincentive to have better health care for everyone except for those at the very top who can afford it. And that won’t be enough to cover the costs of everyone else. Or just raise taxes on the highest earners and we are moving farther down a path that has, to this point, led to 57% of Americans paying 100% of the taxes. Seriously. A little over 43% of Americans pay zero federal income tax. Now, I don’t think that everyone should pay taxes. Some people can’t afford it plain and simple. They are impoverished and should be helped. But it is not true that 43% of Americans cannot afford to pay in to the system. Of course, if you don’t pay taxes, you don’t worry when taxes get raised. Especially if the raising of the taxes give you something. I know that our Country was founded on No Taxation Without Representation, but how long can we ignore the counter of that statement – that with representation comes the responsibility to put in to the system?

Am I arguing that nothing needs to be done with our heath care system? No. There clearly are problems with it that need to be solved. The employer based system needs to be replaced. Not with a public system, but with an individual based system.

Is it frightening where this particular bill leads us? Yes. Very much so.

HEALTH CARE - SO EASY A CAVE MAN CAN DO IT

1 - Restrict punitive damages in malpractice suits to $750,000.2 - Enact a federal coding standard... require all medical insurance companies to use the same system. If the industry won't standardize itself, this is an appropriate role for the federal government.3 - Repeal all laws that restrict which companies can operate in certain states.4 - Prohibit employers (including government) from providing health insurance for employees. Instead, require them to provide a cash amount consistent to what they are currently paying for the policy today.

This allows all insurance companies to operate anywhere, with no protected territories.This eliminates unnecessary overhead due to proprietary legacy billing systems.This eliminates the motive for trial lawyers to jack claims to get rich. Trial lawyers can't sue someone for 85 bazillion dollars for having a sponge sewn up inside them. Consequently, malpractice insurance is cheaper.Employers no longer have the overhead associated with administering a health care benefit.Each person/family can now go out and buy their own policy.

5 - Abolish Medicaid and Medicare.6 - Establish a reasonable income limit (use current Medicaid eligibility guidelines + 20%) and give the poor a voucher to go buy their own policy.

Cost to enact? The government will need a small bureaucracy to administer the voucher program. This would best be handled at the state or county level and should be funded federally with some of the money that we no longer spend on Medicaid or Medicare.

Benefits: Former state dependents (Medicaid recipients), now become empowered consumers. They probably can't add more cash to the amount of their voucher to buy an upscale policy. Many of them will become ruthless price hawks, trying to get the most coverage for that money.

A basic flaw our current system is that my health insurance does not work for me. They work for my employer. If they don't give me the service I want, I have no recourse. Under the plan I listed above, every insurance company will be responsible to every customer. They will be forced to compete in a market that they had previously not. If Single Mom has Allstate health insurance, and Geico offers free dental, don't you think she'll switch? If Busy Businessman is getting hassled trying to get his claims paid by Nationwide, don't you think he'll find a hassle free company? It's self policing.

Stigma - Do you know how hard it is to find a dentist that takes Medicaid? Some folks are also embarrassed having to tell someone that they are on government assistance. This plan removes that stigma. No health care provider will know how you paid for your insurance.

Some government oversight is in place because insurance companies will have to justify rate increases (affects the cost of vouchers) to Congress.

The Maine Legislature just pushed through a massive tax reform bill in the Pine Tree State.  This was not just a token "move the chairs around" reform bill - it was far reaching, ambitious and will genuinely help move Maine in the right direction on this issue.  The Wall Street Journal went as far as to call it the "Maine Miracle".

But here's the kicker - the bill was proposed by Democratic Governor John Baldacci, and overwhelmingly supported by Maine Democrats.  The Maine GOP naturally had several problems with the reform bill - many of which were legitimate, but at the end of the day we still have to realize that taxes were shifted from compulsory income taxes that were "progressive" and graduated, to a virtually flat income tax, with a shift to consumption taxes.

Don't get me wrong, if I were in charge of reforming the Maine tax system it would have looked dramatically different and provided a tax cut more quantifiable and more far reaching, but lets be honest here folks, this is at least a step in the right direction.

Baldacci is quite unpopular in the state, but its hard not to admire a lot of what he has done in his second term as Governor. He had barely even been sworn in again, and already he was pushing to consolidate the 152 school districts in the state down to 26.  He's also no fan of REAL ID, and was the first Governor in the United States to sign a same-sex marriage bill without being ordered to do so by a court - something I happen to consider a point in his favor.

Yes, I know, a few quality policies does not a good Governor make, and he still has things like Dirigo Health as major black marks - but still, he's done a lot right and we shouldn't be afraid to say so.

But whatever he has done right previously pales in comparison with the landmark tax reform bill he just pushed through and then signed.  The bill reforms Maine's tax structure in a number of important ways, but the crux of it comes down to the following changes:

• The states draconian and punative progressive income tax rate which topped out at 8.5% has been essentially changed to a flat tax (you heard me) of 6.5%.  The only exception to this is an additional 0.35% surtax charge for those making over a quarter of a million dollars.
• The state budget will be cut by 300 million to offset the losses, coupled with some tax loophole closings and extensions on the sales tax.

And to those critics of "tax cuts for the rich" that the new flat tax creates, Baldacci sounded off:

"Without employers, you don't have employees.  The best social services program is a job."

Incredible.  Well said, Governor.

Granted, the Republicans haven't had much of a chance to impliment this type of agenda since Jock McKernan was Governor (and he was hampered by an aggressive and hyper-partisan Democratic legislature), but it is to Baldacci's credit that he was the one - despite his party affiliation - who finally pushed through a comprehensive tax reform bill.

But, this betrays a larger question - why did Baldacci and the Democrats do this?  Are they converts of a fiscally conservative agenda (no), or is something else going on here?

The answer is pretty simple.  In 2004, Maine Republicans essentially split the Maine House and Senate 50-50 with the Democrats.  Maine is not a blue state.  Its not a red state either - as I've said before, its a gray state with a very slight blue lean, but it is completely winnable for competent Republicans with the proper message. 

But Maine Democrats rode the anti-Bush wave in 2006, and the Obama wave in 2008, and are now in complete control of every level of government.  However, now that they have power, unemployment is spiking high, wages are stagnant, young people are leaving the state and taxes are strangling the population.  Those of us in the know smelled major Republican gains in the House, Senate and even the Governor's Mansion.

Add to that the fact that Maine Republicans seem to be getting their act together.  Rather than the tired, poor choices presented to Maine voters in the 2006 election, there is actually an impressive crop of Republicans running for Governor in 2010 - cheif among them is Matt Jacobson, President and CEO of Maine & Company, an organization aimed at bringing businesses to Maine.

Jacobson has been carving out a decidedly pro-business, pro-growth, pro-jobs economic agenda for his candidacy, and it is already starting to resonate.  Indeed, Jacobson has been described as a "human jobs machine", as his position is literally devoted to doing just that - creating jobs.  In this environment, that type of economic message can quickly light on fire.

And Jacobson isn't the only one, other candidates such as Bruce Poliquin and Les Otten have cut their teeth in the business world, and will be hammering similar messages. Maine Republicans seem to have become clued into the fact that this brand of conservatism actually sells pretty well in Maine and are far more interested (for once) in talking about them now.  For the next two years Jacobson and the Maine GOP will likely be hammering that message non-stop, hoping it will sweep them back into prominence.

But in this one move, Maine Democrats attempted to cut Jacobson and other GOP primary candidates, as well as the statewide Republican message model off at the knees.

They are now able to campaign on the largest tax cut in Maine history.  They are now able to campaign on approving a budget that allocated fewer dollars than the previous year for the first time in three decades.  They can campaign on making Maine's business environment more friendly, and its tax burden less cumbersome.  Essentially, they out Republican-ed the Republicans, and may have just guaranteed themselves a continued majority for the forseeable future.

One wonders why national Democrats didn't take a similar strategy upon sweeping into power in 2008.  Imagine if the Democrats pushed for a balanced budget, fiscal discipline, and preached a more conservative fiscal policy.  After the Bush years and the gross excesses, massive government growth, huge budget deficits and fiscal irresponsibility that flowed from all that, they could have dealt a death blow to the GOP.  But they didn't do that.

Luckily for Maine Republicans, they have no such history of hypocritical behavior while in power - partly because they have been on the outside looking in for so long.  Thus, this newfound fiscal sanity by the Democrats won't necessarily be a crushing move, just a damaging one.

Fortunately (in a political sense), Maine has a long way to go in terms of taxes and business climate - they will still be in the middle of the pack for total taxation, and last year Maine was ranked as having the third worst business climate in the United States, and even this bold move won't suddenly mean Maine is out of the woods yet. 

Matt Jacobson is still a phenomenal candidate, and the Maine Democrats have already claimed about all the seats they are probably able to at this point, so 2010 is still looking up for the GOP in the Pine Tree State.

But with a bold stroke of political brilliance, the Democrats may have mitigated the damage a great deal.  I admire such a level of political accumen.

Paul Krugman is not concerned about how much universal health care will cost taxpayers.

I’m not that worried about the issue of costs. Yes, the Congressional Budget Office’s preliminary cost estimates for Senate plans were higher than expected, and caused considerable consternation last week. But the fundamental fact is that we can afford universal health insurance — even those high estimates were less than the $1.8 trillion cost of the Bush tax cuts.

Krugman waves away the matter of cost with "One way or another, the numbers will be brought into line".  However, in a 2005 interview with the Asian Times, Paul Krugman explained what he thinks we need to do...

"We should be getting 28% of GDP [gross domestic product] in revenue. We are only collecting 17%."

2008 tax revenue was 17.7% of GDP.  So, in Paul Krugman's ideal world, we would see a 60%+ increase in taxes.  But Krugman is "not that worried about the issue of costs."

This is what happens under a monopoly.  Consumer concerns about cost and value are called irresponsible, and the only "responsible" option - ever - is to gouge consumers for even more money.

If Democrats want to pass the health care legislation, then let's pass the tax hike necessary to pay for it simultaneously.  Let's bring those numbers into line and see how Americans feel about universal health care then.

Cato Budget Analyst Tad DeHaven says Republicans still aren't serious about the budget.  This is a major problem.  I don't think it's so much a lack of "courage" as it is a lack of ideas.  Republicans just don't have a vision for how a smaller government could be better, and how to get from here to there through the political process.  DeHaven's points are correct. - Jon Henke

A month ago, President Obama issued a list of proposed spending cuts that I dismissed as “unserious” due to the fact that they were trivial when compared to his proposed spending and debt increases.  Yesterday, the House Republican leadership released a list of proposed spending cuts.

I’d love to say I’m impressed, but I can’t.

Both proposals indicate that neither side of the aisle grasps the severity of the country’s ugly fiscal situation, or at least has the guts to do anything concrete about it.

The GOP proposal claims savings of more than $375 billion over five years, the bulk of which ($317 billion) would come from holding non-defense discretionary spending increases to no more than inflation over the next five years.

First, it should be cut — period.  Second, non-defense discretionary spending only amounts to about 17% of all the money the federal government spends in a year, so singling out this pot of money misses the bigger picture.  At least, defense spending, which is almost entirely discretionary, should be included in any cap.  But it has become an article of faith in the Republican Party that reining in defense spending is tantamount to putting a white flag in the Statue of Liberty’s hand.

The second biggest chunk of savings would come from directing $45 billion in repaid TARP funds to deficit reduction instead of allowing the money to be used for further bailing out.  That’s a sound idea as far it goes, but I can’t help but point out that the signatories to the document, House Republican Leader John Boehner and Minority Whip Eric Cantor, voted for the original $700 billion TARP bailout. Proposing to rescind the Treasury’s power to release the remaining funds, about $300 billion I believe, should have been included.

According to the proposal, the rest of the cuts and savings comes out to around $25 billion over five years.  Like the specific cuts in the president’s proposal, they’re all good cuts.  But the president detailed $17 billion in cuts for one year and I generously called it “measly.”  What am I to call the House Republican leadership specifying $5 billion a year in cuts?

 Take for example, proposed cuts to the Department of Housing and Urban Development (HUD), which is likely to spend around $65 billion this year.  Having recently spent a couple months analyzing HUD’s past and present, I can state unequivocally that it’s one of the sorriest bureaucracies the world has ever seen.  Yet, the House Republican leadership comes up with only one proposed elimination: a $300,000 a year program that gives “$25,000 stipends for 12 students completing their doctoral dissertation on issues related to housing and urban development.”  The only other proposed cut to HUD would be $1.7 billion over five years to the Community Development Block Grant (CDBG) program.  This notoriously wasteful program is projected to spend over $8 billion this year alone.  Eliminate it!

The spending cuts the country needs must be substantial, serious, and put forward in the spirit of recognizing that the federal government’s role in our lives must be downsized.  Half-measures are not enough, and from the Republican House leadership, wholly insufficient for winning back the support of limited-government voters who have come to associate the GOP with runaway spending and debt.  For a more substantive guide to cutting federal spending, policymakers should start with Cato’s Handbook chapter on the subject.

Tad DeHaven is a budget analyst at The Cato Institute.

C/P Cato@Liberty

A few weeks ago, Obama said it was an "outrage" for an organization "that finds itself in financial distress due to recklessness and greed" to pay "any bonuses" to employees.  Congress and President Obama ultimately passed punitive "clawback" legislation to tax these deals at an absurd 90%, basically nullifying contracts on a whim and after the fact.

It was the usual Democratic demagoguery (sadly, joined by many Republicans): "Somebody, somewhere is rich. And you're not.  Torches and pitchforks for everybody!"

Well, remember the "tax cuts" Obama promised?  Turns out the federal government itself is also "in financial distress due to recklessness and greed", and "The government is going to want some of that money back."

Clawbacks for everybody! (except politicians, who have yet to make any substantive sacrifices)

Bottom Line: Policies tend to have a lot more to do with preserving politicians, winning the news cycle and helping "favored political constituencies" than with establishing dependable, sustainable and objectively good rules.  Government has the biggest Principal-Agent Problem of all.

The recent explosion in spending is no secret.  The government has already pledged more than $4 trillion in its attempt to solve this economic crisis—more than the cost of World War II. As though that’s not enough, the government has committed to spend trillions more over the next few years, which will bring the grand total to a staggering $12 trillion in new spending. That’s more than 24 times the size of the New Deal. 

But lost in all these colossal figures and vast amounts of debt are the consequences endured by average Americans, both today and especially tomorrow. 

 In his weekly address, President Obama announced today that he has "begun scouring our budget line by line for programs that don't work so we can make room for those that do... it means reinstating the pay-as-you-go rule that we followed during the 1990s - so if we want to spend, we'll need to find somewhere else to cut."  He went on to add "Finally, in the coming weeks, I will be announcing the elimination of dozens of government programs shown to be wasteful or ineffective.  In this effort, there will be no sacred cows, and no pet projects.  All across America, families are making hard choices, and it's time their government did the same."

For a kid who grew up loving Kevin Kline's title character in Dave making room for a homeless shelter by cutting payments to non-performing contractors and an ad program to make people feel better about cars "they've already bought," this is music to my ears, and I would really love to see the Obama administration follow through on this. 

Any recommendations on where those cuts should be made?

Congress is buzzing about attacking health care after the Easter recess. Coming off the success of the tea parties nationwide, let’s carry that momentum to the fight to protect our rights as patients and Americans.

First, for those of you who are ready to act, the practical tools to get you started. Then, the background.

1. Sign this petition: It asks politicians to “First, Do No Harm” as they consider health reform. A quick look will give you plenty to shout about! 

2. Enter this video contest: Think about all your fellow Americans who need to understand why we believe as we do about health care. Why don’t we want the federal government making decisions about our health and controlling our insurance coverage? Make a creative video that will reach your neighbors and arrest their attention! 

What it’s all about:

If you’ve been focused on Tax Day and need a little catching up on health care, we’ve got you covered. The Health Policy Consensus Group, a coalition of free-market health policy experts, put together a statement expressing the dangers of proposals on the table. This gives a great rundown of what needs to be stopped, and why. Pass it around! [In case you’re wondering, the next Consensus Group statement will detail what we’re FOR – but first, we felt we needed to explain why we’re against these proposals.]

Some background:

Health care is a tax issue, too. We will be called upon to fund the $634-billion (some now say $1-trillion) health agenda of President Obama, and the billions for the Health and Human Services Department to head up health IT and comparative effectiveness research. But that’s only the beginning.

An individual mandate for health insurance – ordering everyone to purchase a certain government-determined policy – would carry tax penalties for those who don’t comply. In Massachusetts, where they’re a step ahead on this experiment, that annual penalty for noncompliance has passed the $1,000 mark and is rising. 

Even more likely: new mandates on businesses to provide a government-designated level of benefits and to pay the piper if they don’t. Punishing businesses for hiring people isn’t the way to help workers already struggling in this economy.

Each new tax chips away at our freedom. And there are other freedoms in the balance in this debate. The creation of a public insurance program, whether it looks like a Medicare-for-all or a slight knockoff, threatens our options for health insurance. The hallmark of Medicare and Medicaid, those huge government insurance programs, is paying doctors and hospitals at much lower rates. Private insurance – that is, the rest of us – makes up the difference now, but what if private insurance isn’t around any more?

A new public (and yes, that means government-run, even though The New York Times thinks that term is fearmongering) health insurance plan would be able to set its premium prices far lower than private insurance. What business can compete with tax subsidies and severe underpricing?

Along with the artificially low premiums, a public insurance plan would more than likely pay doctors and hospitals less for their services than private insurance does. Medicare doesn’t even cover health providers’ costs. If millions more Americans join a public plan that pays like Medicare, we could face a serious crisis just to keep doctors and hospitals in business. Considering we already have a shortage of primary care doctors, this doesn’t sound like a grand idea.

You spread the word and got fired up about your taxes. Now what about your health? Your health, your freedom to make choices about your family’s health care, not to mention MORE taxes – these are worth your time.  

Sign the petition

Enter the video contest

Once, Silicon Valley -- the center of American technology -- leaned Republican. In recent years, the industry and the region as a whole has moved left. The Reagan tax cuts removed government as an obstacle to progress, helping make possible the era of Apple, Microsoft, Google, and Facebook. And Bill Clinton was wise enough not to tinker -- by and large -- with the Reagan consensus on free enterprise and capital formation.

With the threat of government intervention removed in the economic arena, the Valley has been free to indulge its libertarian instincts on social issues. This has been a boon, electorally and financially, to Democrats. Larry Lessig's "free culture" has replaced free markets as the dominant ethos in the Valley. The irony here is that many of the entreprenuers who succeeded in the most unregulated environment possible -- the Internet -- are at once hyper-capitalist and socially-liberal Obama voters. (Good luck creating Twitter or Facebook in any industry as tightly regulated as the auto or banking sectors in the Age of Obama.)

The inherent contradiction of America's most capitalist region supporting America's most socialist politicians may be coming to an end. Especially if this Administration really is dumb enough to treat venture capital like hedge funds. Government would no longer be invisible when it came to raising capital for your startup. Government as the Problem, not the solution to our problems, would return to the economy and to Silicon Valley with a vengeance. And Silicon Valley entrepreneurs -- and the highly educated managers and developers whose interests are aligned with the entrepreneurs -- would be free to vote their pocketbooks once again.

Via TechCrunch comes this piece from James Freeman in the Wall Street Journal. In Tim Geithner's zeal to regulate every financial instrument known to man, it now seems that venture capital -- which had nothing to do with the housing bubble and credit-default swaps -- has been caught in the dragnet.

The Obama administration wants to regulate venture capital firms to prevent systemic risks. Silicon Valley residents are scratching their heads and asking: What risks? The rest of us should ask why Washington is targeting a jewel of the American economy that had nothing to do with the housing bubble.

The confusion began when Treasury Secretary Timothy Geithner recently told Congress that large venture capital (VC) firms should be forced to register with the Securities and Exchange Commission (SEC), and submit regular reports on their investors and portfolios. Data collected by the SEC would then be shared with a new risk regulator to ensure that VCs aren't "a threat to financial stability."

Virtually every successful technology startup in the last 20 years has been funded through VCs, creating tens if not hundreds of thousands of jobs, and fueling the engine of technology innovation in a way that's probably created millions more indirectly.

Bill Clinton was wise enough not to muck with this, and Al Gore actually works for Kleiner Perkins. Though tech companies are the most visible success stories, the next wave of big VC success stories will likely be in green energy and biotech, industries which have been hailed as the future by left and right alike.

If Obama's Geithner comes down on the side of more regulation, the right has a renewed opportunity to start capturing hearts and minds in Silicon Valley. And as a result, cast ourselves as the most forward looking and the enlightened party economically -- as the party of technology and free market solutions to the environment. Not only is there a constituency to be won, and new high-tech support to be had, but the macro issue frame helps us with the electorate at large.

Ironically, private equity and venture capital boomed in the Bush years precisely because of tighter government regulations on the public markets in the form of Sarbanes-Oxley. Sarbox dried up the IPO market on Wall Street and moved billions in financial services to London. In the midst of the housing crisis and in the wake of the dotcom bust, private capital was something of a safe haven. No more. And when capital is given fewer and fewer productive outlets, expect a backlash that will move votes as well as money.