Minor Thoughts from me to you

The Tax Foundation runs the numbers on Romney's tax plan.

The debate over Mitt Romney’s tax plan has largely revolved around the short term concerns of who gets what and how much, rather than the more long term concerns of economic growth, job creation, deficit reduction, and tax reform. This is unfortunate, especially in a time of record unemployment and debt levels. These serious issues have been put aside to focus particularly on the results of a single study by the Tax Policy Center (TPC), which finds Romney’s tax plan would require raising taxes on low- and middle-income earners to pay for tax cuts for high-income earners. However, to get there, TPC assumes that tax rates do not matter for economic growth, i.e., Romney’s plan to cut income tax rates by 20 percent across the board will have no effect on labor supply or saving and investment decisions. Only among Washington score keepers does such an assumption make sense, but it certainly has no credibility among academic economists.

So, what will be the effect of Romney's tax plan?

The results are considerably different from TPC’s. We find that fully 60 percent of the static revenue loss from Romney’s plan is recovered when the dynamic effects of economic growth are taken into account. We find that while the cuts in the individual income tax rates do not “pay for themselves,” they do grow the economy 1.8 percent over the long run. The biggest boost to the economy comes from the 10 point cut in the corporate rate, which grows GDP by 2.3 percent, the capital stock by 6.3 percent, and the wage rate by 1.9 percent. The corporate rate cut is so economically beneficial that it does pay for itself, when all federal revenue effects are considered. So does the elimination of taxes on capital gains and dividends for middle-income earners and the estate tax.

These benefits are widely shared. Every income group experiences at least a 7 percent increase in after-tax income.

That's reform I can get behind.

∞

A new paper from Georgetown University researchers suggests a third possible outcome: Absolutely nothing at all will happen. They looked at the three states – Maine, Georgia and Wyoming – that have passed laws allowing insurers from other states to participate in their markets. All have done so within the past two years.

So far, none of the three have seen out-of-state carriers come into their market or express interest in doing so. It seems to have nothing to do with state benefit mandates, and everything to do with the big challenge of setting up a network of providers that new subscribers could see.

Interesting. This is another argument in favor of spending out of pocket instead of purchasing healthcare through health insurance. You can negotiate and shop around immediately. You don't have to wait for an insurance company to set up a network and then pay them.

∞

Romney's tax plan is revenue neutral because he lowers rates while simultaneously eliminating exemptions, deductions, and other "giveaways to special interests". It's what I really want out of tax reform and it's one of the things that makes me look forward to a Romney administration.

Alex Brill, of the American Enterprise Institute, breaks down how the Romney plan would work and why the math, contra the Brookings Institute, doesn't point to a tax hike.

In summary:

Romney has proposed a bold tax reform that would broaden the tax base and lower statutory tax rates across the board. While maintaining preferential rates for savings and investment, his proposal repeals the tax expenditures that distort economic decisions and add complexity to tax returns.

Although Obama has no such plan for tax reform, his vision for the tax system appears clear. He has refused to endorse the recommendations of the Simpson-Bowles Commission, which would also have lowered statutory tax rates and broadened the tax base. Instead, his near-singular focus has been to raise statutory tax rates for high-income households and to leave untouched hundreds of special tax breaks for various political constituencies.

∞

Veronique de Rugy is worried that Romney / Ryan's talk about "protecting Medicare" means that they won't really push to reform it.

The only way to ensure that Medicare is there “for my generation, and for my kids and yours,” reform it. If when Representative Ryan says “protect” and “strengthen” he means “reform Medicare,” great. Reform can take many forms, obviously. But, then we can believe Ryan when he says “ladies and gentlemen, our nation needs this debate. We want this debate. We will win this debate.”

She lays out all of the reasons why Medicare desperately needs to be reformed, if it's to survive at all. It's worth a read, especially if you're not convinced about the necessity of reforming Medicare.

∞

A group of Tea Party activists has spent the last several months getting public input (including an open website vote) on ways to cut the federal budget. They recently unveiled a draft version of their plan.

It's quite ambitious. The group spends the first 9 pages of the document laying out the history of the project and the principles it was organized by. Then they dive into the specifics of the budget proposal.

I like their methodology and I think it shows that the Tea Party is capable of generating serious proposals, that it's not a know-nothing, knee-jerk reactionary movement.

Now we are ready to spell out the specifics of our plan. Before we do, we want to highlight some of its big-picture benefits. Here’s how the Tea Party Budget dramatically changes Washington:

1. Balances the budget in 2015, and keeps it balanced. Almost all of the proposed reforms take place in the first year, 2012, rather than after a phase-in, because it’s legally impossible to bind future Congresses. The best way to ensure reforms never happen is to postpone them till “tomorrow.”
2. Reduces total federal outlays by about 15 percent in the first year. This may sound like a deep cut, until we recall that spending went up by 19 percent in 2009.
3. Shrinks the government by 30 percent, relative to current law. Outlays shrink from today’s 24 percent of GDP to a more affordable 16 percent of GDP.
4. Reduces gross debt from 99 percent of GDP to 75 percent of GDP.
5. Reduces the publicly held portion of the debt from 68 percent of GDP to 47 percent of GDP. Reducing the debt is extremely important, because it’s the key to ensuring lower future interest rates and more robust economic growth.

Warning: the link goes to a PDF file.

∞

Veronique de Rugy talks about the immense size of our deficit and the impossibility of paying it off by raising taxes on "the rich".

This is where the middle class comes in. Politicians know the real potential for tax revenue lies with the middle class. Middle-income Americans far outnumber the rich and, at least for now, are taxed at relatively low rates. But even if we tapped the middle class, we’d have to raise tax rates by a staggering amount.

To balance the budget, we’d have to triple tax rates on every household earning over $100,000. Alternatively, we could merely double tax rates, but we’d have to do it on every household earning over $75,000. Not only are there not enough rich households to tax, there are barely enough middle-income households.

∞

John Goodman talks about what irritates him, in healthcare policy discussions.

It’s impossible to have a rational discussion about health policy when one side of the argument is irretrievably deceitful. Here are some things I find irritating, to say the least:

• A White House that claims the way to control health care costs is to follow “evidence-based” guidelines, doing only procedures that are cost effective.
• A White House that then uses taxpayer dollars to promote procedures that are not evidence-based or cost effective for blatantly political reasons.
• A sycophantic press corps and fellow-traveling health policy bloggers who either remain silent or actually apologize for this hypocrisy.

∞

On Saturday, the Obama campaign released this ad attacking the Romney Medicare proposal. The ad doesn’t walk some sort of narrow line between misleading and deceiving, it’s just simply a pack of lies from top to bottom.

Yuval Levin provides his own analysis of a recent Obama campaign ad, related to Medicare reform.

∞

on Saturday, the Obama campaign came out with a new ad, approved by the President, claiming that Mitt Romney’s Medicare plan could require seniors to pay $6,400 more a year for health insurance. That claim is not only false, but brazenly and incontrovertibly so. Indeed, almost everything in the ad is wrong except for the phrase “I’m Barack Obama, and I approved this message.”

Democrats making things up about Republican reform plans? I'm shocked, simply shocked!

∞

Economist Veronique de Rugy.

I have written a few times in the past about the growing evidence that, contrary to common belief, a political party that implements ambitious reforms or spending cuts won’t be punished by voters in the next election. In fact, it may even be rewarded.

Among other studies, there is a Goldman Sachs Global Economics study by Ben Broadbent called “Fiscal tightening need not be electorally costly, but it will test government unity.” It shows that spending cuts can actually be a good thing politically. “It is commonly assumed that cuts in government spending will be both economically painful and electorally costly,” he writes. And:

Neither is borne out in the data. We’ve written before about the limited (and sometimes positive) effects of spending cuts on economic growth, at least in open economies. Here we add some simple analysis on the electoral consequences and, like others, find no evidence that spending cuts reduce support for the incumbent government. If anything the opposite tends to be true.

∞

Avik Roy dives into the recent history of healthcare reform and details the bipartisan plan that the Democrats killed, in order to pass a partisan plan of their own.

Hence, a bipartisan health-care agenda at the federal level will necessarily look quite different than one at the state level. If liberals had bothered to ask, they could easily have elicited bipartisan support for a proposal that did the following: (1) set up the Obamacare exchanges for those under 400% of FPL; (2) applied the Ryan reforms to Medicare and Medicaid (or, alternatively, folded in Medicare and Medicaid acute-care into the PPACA exchanges); (3) equalized the tax treatment of employer-sponsored and individually-purchased insurance; and (4) not increase taxes or the deficit.

∞

Veronique de Rugy:

First, agencies often fail to follow basic decision-making principles and assume that more regulation is always necessary. Back in March, my colleague Jerry Ellig testified before the House Judiciary Committee and made the point that the regulatory system suffers from systemic institutional problems. For example, there is a broad-based consensus on what regulatory analysis should involve and what its role in agency decision-making should be (as I described in my prior post), yet academic research shows that, more often than not, agencies do not produce or use thorough regulatory analyses. This is true regardless of what party is in charge of the executive branch.

The second core problem with the current system is that the more regulation agencies generate, the harder it is for individuals and businesses to comply. In many cases, no one knows for sure how many of the regulations we have on the books are really necessary or effective.

∞

Here’s some more information about the changes that Kaukauna School District is making, thanks to Governor Walker’s much attacked public sector union reforms.

Then there are work rules. "In the collective bargaining agreement, high school teachers only had to teach five periods a day, out of seven," says Arnoldussen. "Now, they're going to teach six." In addition, the collective bargaining agreement specified that teachers had to be in the school 37 1/2 hours a week. Now, it will be 40 hours.

The changes mean Kaukauna can reduce the size of its classes -- from 31 students to 26 students in high school and from 26 students to 23 students in elementary school. In addition, there will be more teacher time for one-on-one sessions with troubled students. Those changes would not have been possible without the much-maligned changes in collective bargaining.

Teachers' salaries will stay "relatively the same," Arnoldussen says, except for higher pension and health care payments. (The top salary is around $80,000 per year, with about $35,000 in additional benefits, for 184 days of work per year -- summers off.) Finally, the money saved will be used to hire a few more teachers and institute merit pay.

∞

This is good news.

Mr. Frank, Rep. Ron Paul (R., Texas) and others will make the bill's language public Thursday. It would be the first bill of its kind ever introduced in Congress, the release said.

"The legislation would limit the federal government's role in marijuana enforcement to cross-border or inter-state smuggling, allowing people to legally grow, use or sell marijuana in states where it is legal," the release said.

"This is not a legalization bill," a spokesman for Mr. Frank said.

More than a dozen states have laws that allow the sale of marijuana for medical use, but the practice isn't legal under federal law, and federal authorities have raided marijuana dispensaries.

∞

Georgia Governor Nathan Deal recently signed a bill that removed state regulations that prevented small business owners from buying out of state insurance. Giving business owners more choices will do a lot to provide healthcare competition and help to bring down prices. More states should pass legislation like this and Georgia should open this up to all state residents, not just small business owners.

∞

William Voegeli takes on the idea that “it’s absurd to cut spending because we tax the wealthiest Americans less today than we did in 1955”.

First he illustrates that today’s rich pay more in taxes than the rich of 1955 did. (They pay more in real dollar terms, even if they do pay less in percentage terms.) Then he cuts to the core of the moral argument.

If the principle is that the rich should pay higher taxes because they can more easily bear the rates, then we should keep raising tax rates until the rich can no longer bear them—until, that is, they're no longer rich. One need not be rich to find this prospect disquieting. A government that can take whatever it wants strikes a lot of people as unfair, and unfree.

He also points out that (many) blue states are net federal taxpayers while (many) red states are net federal tax recipients because “states with wealthier residents pay higher federal taxes per capita thanks to the progressive structure of the income tax”. If you don’t like the idea of states subsidizing each others’ residents, you need to scale back (or eliminate) the progressivity of the federal income tax.

I like this welfare reform idea too.

Buckley would confine eligibility for [Federal] welfare state programs to Americans living in states whose median income was below the national average. Because Buckley thought it was economically and politically debilitating to "turn the skies black with criss-crossing dollars," his reform would ground a lot of those dollars. Federal welfare expenditures would shrink, as the number of people eligible for them was limited, and prosperous states would pay for their own welfare programs without the transit and administrative fees of sending them on to Washington and then back to the states.

This reform would do much to take power away from Washington, D.C.

Only the poorest states would receive moneys from Washington. The more well to do states would spend their own money on welfare programs. Of course, they do that today too. But right now, that money goes through Washington (in the form of federal income taxes), where policitians get to attach rules and conditions to it, before sending it back to the states (as Medicaid payments or transportation funds or something else). If this reform were implemented, policitians would have many fewer opportunities to meddle and states would have a much greater freedom of action. That’s what I call a win-win scenario.

∞

Division of labor, specialization, and mass production. The result: complex heart surgeries for $1,800 and the head doctor wants to bring the price down to just $800. Now that's healthcare reform.

∞

John Goodman looks at whether or not Obamacare will save lives. He starts out by defining the problem.

Being uninsured is like being unemployed. It happens to lots of people for short periods of time. Of all the people who are uninsured at a point in time, more than half will obtain insurance within 12 months and 90% will be insured within two years. So if you want to argue that being eligible for Medicaid is better than being uninsured for most people you have to have a theory that says that extending Medicaid to the temporarily uninsured saves lives.

It gets worse. Since Medicaid eligibility is conditional on income, people become eligible and ineligible as their incomes rise and fall. So like uninsurance, Medicaid eligibility also is a condition that affects a lot of people for short periods of time.

So now you need a theory that says that temporary enrollment in Medicaid for the otherwise temporarily uninsured adds to life expectancy. I know of no studies that test this proposition.

He then points out that, even if this is true, it's the exact opposite of what Obamacare does. Obamacare uses tax data (that can be up to two years out of date) to decide whether or not you can purchase health insurance on an exchange or whether you have to go on Medicare.

So what kind of reform would you want if you believe that temporary uninsurance is bad for health and continuous insurance is good? Obviously, you wouldn't want to enroll people in a plan where eligibility changes every time family income bobs up and down. You would instead want to encourage plans that cover people for long periods of time. The help (subsidy) you make available can bob up and down as income changes -- but enrollment shouldn't follow the same rollercoaster. The subsidy may be income dependent, but enrollment should not be.

Ideal health insurance actually would not include Medicaid at all. It would involve people enrolling in private plans that are portable, and travel with them from job to job. And this result is consistent with other research. For although there is some argument about how much difference health insurance makes, almost every study finds that private insurance is better than Medicaid.

Obamacare delenda est. Because it really is a bad way to solve the problem of health insurance.

Last Tuesday, the Senate passed a food safety bill. The House is expected to pass it easily and the President plans to sign it.

They shouldn't. It's a bad bill.

One of the biggest problems with food safety is that different agencies are responsible for different parts of the food supply.

In the case of the Wright County Egg salmonella outbreak which resulted in the recall of half a billion eggs earlier this year, the USDA was aware of problems such as dirt and mold in the Iowa facility. But the USDA did not notify the FDA, which has overall authority.

Moreover, the regulatory responsibilities often overlap, leaving agencies unsure who is in charge of what. As an example, Coburn pointed to frozen pizza:

Do my colleagues realize right now when we buy a pizza at the grocery store, if you buy a cheese pizza it comes through the FDA, but if you buy a pepperoni pizza, it gets approved by the U.S. Department of Agriculture? How many people in America think that makes sense?

This bill does nothing to change that. It should be rejected on that basis alone.

Second, food safety just isn't that big of a problem.

Indeed, according to the Centers for Disease Control, no more than three-thousandths of one percent of food-borne illnesses are fatal in the United States.

Senator Tom Coburn remarked on that as well.

We could spend $100 billion additionally every year and not make food absolutely safe. There are diminishing returns to the dollars we spend. But if you look at what the case is: In 1996, for every 100,000 people in this country, we had 51.2 cases of food-borne illness -- the best in the world, by far. Nobody comes close to us in terms of the safety of our food . But, in 2009, we only had 34.8 cases -- three times better than anybody else in the world. So the question has to be asked: Why are we doing this now when, in fact, we are on a trendline to markedly decrease it?

Third, this bill will be expensive.

The legislation will cost $1.4 billion over 5 years. This cost does not include an additional $230 million in expenditures that are directly offset by fees collected for those activities (re-inspections, mandatory recalls, etc.). The total cost of the bill is over $1.6 billion over 5 years. Of these costs, $335 million are for non-FDA programs - the food allergy grant program, implementation grants to assist producers, assistance grants to states and Indian Tribes.

Fourth, this bill gives the FDA new powers that it doesn't need and that it will probably abuse.

Most worrisome is the fact the bill as it currently is written would give the FDA the authority to require mandatory recalls of tainted food.

At first blush this seems reasonable, but the current system of voluntary recalls already resulted in a $100 million loss to tomato growers in the U.S. when a salmonella outbreak caused the FDA to recommend a recall. It turned out the problem was not tomatoes but jalapeno peppers, but by the time the real culprit was discovered the damage was already done.

Hart points out that bureaucrats with the power to order recalls would be very likely to jump the gun and order a huge recall before all the facts are in. Worse, it would precipitate a fight between the industry and regulators, who currently have a fairly good working relationship.

Coburn noted in his address that inspectors do not need the authority to order recalls

Why don't they need that authority? Because if you have a problem with your product in the food system in this country, you are going to get sued. You are going to get fined if you do not recall that product.

"You're going to see (inspectors) pull the trigger prematurely," Hart said, noting bureaucrats tend to be more worried about doing what's safe in terms of their jobs rather than what's right.

This is a bad bill. Rather than modernizing the food safety responsibilities of the federal government, it leaves authority split between more than 30 different agencies. It directly raises costs to small farms and producers. It gives the FDA a large incentive to order damaging recalls with no incentive to protect farmers from hysteria. Finally, it just isn't needed. America's food supply is already the safest in the world. Spending more money won't create any noticeable increase in food safety, only an increase in the price of our food.

For the good of the nation, the House should reject this flawed bill and President Obama should refuse to sign it.

(Note: The House was originally expected to pass the bill easily but now may not be able to, as the bill infringes on the House's constitutional rights. The Constitution states that all bills for raising revenue must originate in the House. This bill raises revenue and originated in the Senate. Oops.)

John Goodman recommends A Radically Different Approach to Health Insurance:

Middle-class families need health insurance to protect themselves from the financial devastation of a catastrophic illness. But many (arguably, almost all) of the most serious defects of the health care system are created by third-party payment of medical bills.

After 5 years of supporting the billing departments of different healthcare organizations (and using my own healthcare), I've come to agree. Increasingly, I want the choice to spend my own healthcare dollars with the doctor of my choice, for the services of my choice, without having to get approval from an insurance company first.

I truly believe that the lack of competition in our current healthcare system is what's killing American healthcare. And we won't see true competition until we stop relying on someone else to pay our healthcare bills. Sadly, Obamacare will only make this problem worse.

Do read John Goodman's recommendation. He describes how you could pay for healthcare yourself without bankrupting yourself.

Obamacare delenda est