Minor Thoughts from me to you

I've said before that McCain's healthcare plan is one of the few proposals he's made that I actually like. Robert Carroll explained some of the benefits in the Wall Street Journal.

The McCain health-care insurance tax credit may well be one of the most misunderstood proposals of this presidential election. Barack Obama has been ruthless in his attacks. But the tax credit is highly progressive and will provide a powerful incentive for people to purchase health insurance. These features under normal circumstances should endear Democrats to the proposal.

There has been a lot of rhetoric and misstatements, but what exactly does Sen. McCain have in mind? He would replace the current income tax exclusion for employer-sponsored health insurance with a refundable tax credit -- $5,000 for those who purchase family coverage and $2,500 for individual coverage. Mr. McCain would also reform insurance markets to stem the growth in health insurance premiums.

What many may not realize is that the federal government already "spends" roughly $300 billion to $400 billion through the tax code to encourage people to pay for their health care through employer-sponsored health insurance. This subsidy takes the form of the exclusion for employer-sponsored health insurance from both income and payroll taxes.

Consider the current exclusion. Its value rises with how much someone spends on health care, and how much of this spending is funneled through employer-sponsored health-care coverage. This creates an incentive for people to purchase policies with low deductibles, or which cover routine spending. These policies look a lot less like insurance and more like prefunded spending accounts purchased through employers and managed by insurance companies. Consider homeowners and auto insurance policies. Do these cover routine spending on cleaning the gutters or tuning up a car?

The subsidy encourages people to buy bigger policies that cover more, and leads to greater health-care spending. Moreover, lower deductibles and coverage of routine spending dulls consumers' sensitivity to price. Reducing the tax bias should result in insurance that is more focused on catastrophic coverage and less on routine spending.

By replacing the income tax exclusion with a fixed, refundable credit, the McCain proposal reduces the tax bias for large insurance policies. Because the credit is for a fixed amount, regardless of how much you spend on health care, it helps break the link between the existing tax subsidy and how much is spent on health care. This improves incentives in the health-care market by reducing the bias that has contributed to such a high level of health-care spending.

Moreover, the credit provides a powerful incentive for people to purchase insurance. The two tax provisions -- the new credit and the repeal of the income tax exclusion -- on net provide a substantial tax cut of $1.4 trillion over 10 years. Not only do most Americans receive a tax cut under the McCain proposal, but the tax cut is directed toward low and moderate income taxpayers.

What is striking about this picture -- and contradicts Mr. Obama's public comments -- is that the McCain tax credit for the purchase of health insurance exceeds the value of the current exclusion for all income levels shown. Indeed, it generally provides more resources to purchase health insurance than the existing exclusion. The total subsidy for health care would rise from about $3.6 trillion over 10 years today to roughly $5 trillion under his proposal.

Will the insurance that is purchased be a generous plan with first dollar coverage or low deductibles? It is much more likely to be a plan with higher deductibles that is more focused on providing true insurance against catastrophic losses rather than a more generous plan that includes a lot of prepayment for routine and predictable medical expenses. But this is precisely one of the objectives of the policy: to reduce the current tax bias that encourages people to funnel routine health expenses through insurance policies.

The elimination of the income-tax exclusion should reduce private health-care spending; to the extent this reduces the cost of health care, it should also put downward pressure on the growth of Medicare and Medicaid costs. Thus, by removing the tax bias for more generous health coverage, the McCain health credit also has the potential to provide important dividends to the entitlement problem down the road.

To be clear, I'm not wild about the subsidy that McCain's plan excludes. But I love the way it changes the current health insurance incentives. It not only gives people the motiviation to spend less on healthcare -- it also gives them the means to do so.

Too bad it has no chance of being passed into law. Even if McCain wins the presidency, the Democrat House and Senate would never pass this plan.

I agree with Congressman Jeff Flake.

Ethanol plants may be the next beneficiary of a federal bailout and Mesa congressman Jeff Flake is among those opposed to that idea.

U.S. Agriculture Secretary Ed Schafer said the federal government is considering outlays of as much as $25 million to help ethanol plants, which have been hit by volatile commodity prices.

Flake, a fiscal conservative, panned the plan Wednesday saying federal promotion of ethanol production is the problem. "The federal government's ethanol policies have driven up the price of corn," said Flake. "But rather than reforming the policies that have caused a spike in corn prices, the federal government wants to bail out ethanol producers who speculated on the price of corn. Only the U.S. Department of Agriculture could dream up a policy like this."

Sometimes the federal government is unusually annoying. This is one of those times.

Efforts to create new tax breaks to encourage home purchases are gaining attention on Capitol Hill, as lawmakers gird for a major debate this spring on how best to shore up the nation's troubled mortgage markets.

Some Democrats, among them Michigan Sen. Debbie Stabenow, have signaled support for expanded tax benefits. And the idea is proving especially popular among Senate Republicans, who are hoping to carve a distinct role as Congress takes up housing issues and often find tax cuts an appealing option. The discussions reflect a growing sense that the housing, mortgage and credit mess may require more expansive federal government action.

"The momentum on this thing has been good," said Sen. Johnny Isakson, a Georgia Republican. Sen. Isakson, a former realtor, is pushing a proposal that would provide a temporary tax credit to any individual purchasing a newly constructed house or a foreclosed home.

First, it's little surprise that a "former realtor" would want to help his friends in the biz by giving people more incentive to buy and sell houses. After all, realtors get a 6% cut nearly every time a house moves. Way to look out for #1 there, Senator. (This blog supported his primary opponent, Herman Cain, for the Senate. It's gratifying to see how right we were.)

Second, when have the feds ever seen a crisis that didn't "require more expansive federal government action"?

Thirdly, this proposal is flat out discriminatory. It prefers new homes to existing homes. It benefits banks stunk with foreclosed homes over homeowners who simply want to sell their house. It's a giveaway to home builders and banks. It's a slap in the face to responsible home owners. It stinks to the high heavens.

State Children's Health Insurance Program. It's a program created by Congress to provide health insurance for children whose parents are too poor for private insurance, but too rich for Medicaid. It's set to expire at the end of this month and Congress is fighting with President Bush over the terms of its renewal.

The House wants to double funding from $5 billion a year to $10 billion a year and cover about 3.4 million more children. The President wants to increase funding by only 20%, to $6 billion a year, and only cover children whose parents earn less than $34,340 -- twice the poverty line.

Bloomberg reported a heartwarming story from New Jersey about a family that uses SCHIP to pay for private school and basic cable.

If SCHIP weren't available, Carlie's parents could cover only the teenager through a $230-a-month policy with Horizon Blue Cross Blue Shield of New Jersey, according to the Web site ehealthinsurance.com.

What are the Siravo's spending their money on instead?

There's also $352 a month on a home-equity loan the Siravos took out to send Carlie to a private Catholic high school. Tuition is $9,000 a year.

The family's monthly bills consume most of their take-home income. Pulling out her checkbook, Lori said there's the mortgage ($1,500), utilities ($743), phones and Internet service ($200), car insurance and gasoline ($205), property taxes ($230), basic cable television ($48), food ($600) and credit- card payments ($325) on an outstanding $11,000 balance. That's $46,212 a year, not including clothes, school books and extra- curricular activities for Carlie.

New Jersery better be expensive. Between Vonage, DSL, and a two-line family plan, we only pay a little over $100 for phones and Internet service. We also don't spend anywhere near $600 a month for groceries. I'll grant that our daughter is only 7 months and Carlie is 16, but I'd be shocked if our grocery spending really quadruples over the next 15 years.

The Siravo's have every right to spend their money as they wish. But they don't have every right to take tax-payer subsidies for healthcare, then turn around and spend their savings on luxury goods. Private school, cable, and gourmet food? Give me a break.

Rolling Stone on ethanol. They're not complimentary.

The Ethanol Scam: One of America's Biggest Political Boondoggles

The great danger of confronting peak oil and global warming isn't that we will sit on our collective asses and do nothing while civilization collapses, but that we will plunge after "solutions" that will make our problems even worse. Like believing we can replace gasoline with ethanol, the much-hyped biofuel that we make from corn.

Ethanol, of course, is nothing new. American refiners will produce nearly 6 billion gallons of corn ethanol this year, mostly for use as a gasoline additive to make engines burn cleaner. But in June, the Senate all but announced that America's future is going to be powered by biofuels, mandating the production of 36 billion gallons of ethanol by 2022. According to ethanol boosters, this is the beginning of a much larger revolution that could entirely replace our 21-million-barrel-a-day oil addiction. Midwest farmers will get rich, the air will be cleaner, the planet will be cooler, and, best of all, we can tell those greedy sheiks to fuck off. As the king of ethanol hype, Sen. Chuck Grassley of Iowa, put it recently, "Everything about ethanol is good, good, good."

This is not just hype -- it's dangerous, delusional bullshit. Ethanol doesn't burn cleaner than gasoline, nor is it cheaper. Our current ethanol production represents only 3.5 percent of our gasoline consumption -- yet it consumes twenty percent of the entire U.S. corn crop, causing the price of corn to double in the last two years and raising the threat of hunger in the Third World. And the increasing acreage devoted to corn for ethanol means less land for other staple crops, giving farmers in South America an incentive to carve fields out of tropical forests that help to cool the planet and stave off global warming.

Here's the best single quote in the article: "'Corn ethanol is essentially a way of recycling natural gas,' says Robert Rapier, an oil-industry engineer who runs the R-Squared Energy Blog."

In Washington, Aid to Homeowners Debated - New York Times

Faced with a possible tidal wave of home foreclosures beginning this fall, Democrats and Republicans are battling over a philosophical question with huge practical implications: should the government ride to the rescue?

Both the Bush administration and Democratic leaders in Congress agree that legions of homeowners could be overwhelmed in the next 18 months, as low teaser rates expire on more than two million adjustable-rate mortgages, causing monthly payments increase sharply.

But the Bush administration and Congressional Democrats are ideologically divided about what Washington should do. Administration officials are reluctant to bail out people who bought homes they could not afford or simply gambled that easy credit and rising real estate prices would lead to quick profits.

Democrats, though opposed to a broad bailout, are proposing an array of measures to help lower-income people renegotiate their loans and stay in their homes.

The proposals would expand the program of insuring home loans under the Federal Housing Administration, part of the Department of Housing and Urban Development; create a national fund for "affordable housing"; expand the ability of Fannie Mae and Freddie Mac, the government-sponsored finance companies, to buy renegotiated subprime mortgages; and give bankruptcy judges more power to order easier terms for borrowers.

The Bush administration, with the Treasury Department heading the efforts, is looking for more limited solutions. Administration officials are working on their own ideas to let the F.H.A. insure slightly more expensive homes, which could make it easier for people with low incomes or weak credit to switch out of subprime mortgages and into more traditional fixed-rate loans.

I realize that bailing out overextended homeowners plays well in election years. But what's the long-term cost? If we bail out everyone that bought more than they could afford, if we bail out everyone who didn't ask hard questions before signing a $200,000 loan, if we bail out those too eager for quick riches to read the fine print, what message do we send?

A bailout is just another way of subsidizing risky, irresponsible behavior.

The government needs to let the housing market land however it lands. Everyone involved in the current crisis bears some responsibility for the crisis. Banks got a little too loose with their money. Would-be homeowners got a little too confident in an ever brighter tomorrow. Bad decisions were made all around.

A bailout would only convince people and banks that it's okay to take on huge risks -- Uncle Sam is waiting to save you and protect you from consequences. Ultimately, that's more dangerous to the economy than a turndown in the housing market.

Allied Drive jobs program struggling

A local Madison jobs training program has been in operation since January. It was intended to help residents of the Allied Drive neighborhood find decent jobs.

The START program prepares people to take entrance tests for trade apprenticeships. It began in January and has been touted as one of the best ways to lift people out of poverty.

Participants enroll in a six-week class of instruction and individualized tutoring in math, English and spatial skills. The training also covers safety standards, blueprint reading and interviewing skills.

After seven months and $75,000, how is the program doing?

Only two Allied Drive residents completed the program in the first five months. The contract goal for the year is 32. Only one of them passed an apprenticeship test, and only one got a job. The goal is 20 jobs for Allied Drive residents in 2007. ... A city analysis found 82 percent of the people who gained employment through the program live outside the city, including Prairie du Sac, Fall River, Sun Prairie and Janesville.

Something's not quite right here. Why aren't more Allied Drive residents participating in the program? And why is Madison heavily funding a program that is mainly being used by people who live outside of Madison?

Thankfully, I don't live in Madison so I don't have to worry about how long my property tax dollars will fund such an unsuccessful program.

Every politician has a pet charity. Unfortunately, politicians fund their pet charities through my income. In case you've wondered, this is why I love politicians so much.

State Rep. Gary Bies is just the latest politician to make my "dead to me" list. Dentists urge 2-cent tax on soda.

When state Rep. Garey Bies was growing up poor in a large family, he was thankful for a program in Oshkosh that made it financially possible for him to see a dentist.

That is why the Sister Bay Republican has authored AB 237, a bill that would impose a tax on soft drinks -- which dentists say increase risk of tooth decay -- to subsidize dental access for low-income people and to pay for dental education.

Come on. If Rep Bies really wanted to do something useful, he could travel the state talking about the value of dentistry and asking private donors to contribute. Trying to force Wisconsin's taxpayers to contribute is just tacky.

For once, however, an industry trade group actually offers robust opposition to a stupid idea.

"No one will argue that people need dental care and education. They also need vision care and obesity care. Should we tax certain products to pay for that type of help?" asked Brandon Scholz, president and chief executive of the Grocers Association.

"Say people need reading glasses, should we impose a tax of 10 cents on each newspaper? How would your publisher like that? You would say that's not fair to us or our customers, and we view the soda tax the same way."

Scholz added that if sugar causes tooth decay, why just pick on soda? How about ice cream or a bag of sugar?

"Once they go down that road, they will tax everything else," he warned. "And all that money won't go for the program. It would be diverted elsewhere."

So very true.

If you're in the capitol today, and you see Rep. Bies, grab his wallet and pull $10 out of it. I have a few charities I'd like to help. He should approve.

Wisconsin Congressman Ron Kind wants to reform the farm subsidy program.

Mr. Kind, a six-term congressman, has introduced legislation that would drastically reduce farm subsidies while pouring more money into land conservation programs and rural development. He gathered 200 votes for a similar bill in 2002 and says he believes he has additional momentum this time around.

To no one's surprise, Mr. Kind's crusade has raised the hackles of the powerful farm lobby and its supporters in Congress, who describe his proposal as naïve, ill conceived and even dangerous.

He argues that if Congress is going to overhaul the farm program, it has to do it across all commodities, including the dairy industry. Mr. Kind said his farmers realized that change was inevitable and would welcome more money and programs for beginning farmers.

Under Mr. Kind's proposal, subsidies would be reduced and replaced with "revenue management accounts" that would function like an individual retirement account, with the difference being that farmers could tap into it to pay for small losses that are not covered by crop insurance.

Over the next five years, Mr. Kind's proposal would increase spending on conservation by $6 billion, anti-hunger programs by $5 billion, renewable energy by $1 billion and rural development, $700 million.

I'm intrigued by this proposal. I'm somewhat surprised that a Wisconsin democrat would propose changing the farm subsidy program. (This state practically worships at the altar of farm subsidies.) I'd also like to know more about these "revenue management accounts". Are they funded by farmers or by the federal government? What kind of conservation spending is being increased? What do the anti-hunger programs do? Is renewable energy just a codeword for increased ethanol production? If so, how is that different from the existing subsidy programs that give money to corn growers?

These are just a few of the questions that I'd like to have answered. As soon as I find out more, I'll tell you.

Recently, Congress has been going nuts over ethanol production. Government money has been thrown at every imaginable ethanol-related project.

If the current tax credits, grants and loan guarantees are extended, the package would cost taxpayers an additional $140 billion over the next 15 years. New proposals under consideration in Congress could raise the tab to $205 billion.

The biggest single item would be an extension of an existing 51-cent-a-gallon ethanol tax credit, scheduled to expire in 2010. It would cost the federal government an extra $131 billion through 2022 under a fuel mandate that recently cleared by the Senate Energy and Natural Resources Committee. (It would cost $18.36 billion in 2022 alone.)

Besides the ethanol tax credit, other current incentives include a $1-a-gallon biodiesel tax credit, a subsidy for service stations that install E85 pumps, spending by the Agriculture Department on energy programs, and various other Energy Department grants and loan guarantees.

Some lawmakers want to provide aid for ethanol infrastructure since ethanol is too corrosive to be transported through existing gasoline pipelines. ... Another bill would establish a Strategic Ethanol Reserve for years when corn harvests were reduced by droughts. ... a House Agriculture subcommittee approved a proposed new energy provision that would provide $2 billion in loan guarantees for new biomass plants and $1.5 billion for research into cellulosic ethanol technologies.

The only problem -- nobody's quite sure how to pay for any of this. Especially as Democrat presidential candidates are proposing billions in new healthcare and education spending. All of those billion have to come from somewhere, but Democrats have been pledging to keep the budget balanced. Obviously, those are code words for "hike taxes on the rich to pay for our new toys", but even tax hikes on the rich only go so far. After all, how many separate billion dollar toys can repealing the tax cuts for people who earn $200,000+ really pay for?

As always, the best quote is saved for the end of the article.

Rep. Tim Holden, D-Pa., who chairs the House Agriculture subcommittee dealing with energy, contended that "we need a Manhattan Project ... we need to be less dependent on energy."

Less dependent on energy? As in, the entire nation should start using less energy? How? Ban air conditioning? Ban driving? Mandate thermostat limits in the winter? Take away our iPods, cellphones, laptops, and digital cameras?

I'm afraid Representative Holden is a bit nuts. As are all of these energy subsidies. Knock it off. When an innovator finally comes up with a better, cheaper way to produce energy, the world will stampede to his doorstep. Until then, quit throwing tax money at the problem. None of you idiots in Congress know how to produce energy any more efficiently, so stop using my money to pretend like you're making good investments.

You're worse than a trust-fund teenager taking Daddy's stock portfolio for a test drive. Knock it off already.

UPDATE: Not only that, but the rush to invest in ethanol could lead to a food shortage down the road:

A recent study conducted by the Center for Agricultural and Rural Development at Iowa State University (which receives funding from grocery manufacturers and livestock producers) reported that U.S. ethanol production could consume more than half of U.S. corn, wheat and coarse grains by 2012, driving up food prices and causing shortages. The study estimates that booming ethanol production has already raised U.S. food prices by $47 per person annually. In Mexico, protests have already erupted over the high price of corn tortillas, a staple food in the local diet.

Planting more corn is one solution, but that means planting less of other crops that are also widely used in foods, such as soybeans and wheat. Tilling fallow land could create more growing space for corn, but might lead to soil erosion and impacts on wildlife habitats.

According to a December 2006 study by the International Food Policy Research Institute, producing enough ethanol to fuel all of the world's vehicles would require five times more corn than is planted today and 15 times as much sugar cane.

So. Ethanol investment isn't just a waste of taxpayer dollars. It could also have some very detrimental effects on agricultural production, land management, and food prices. Quit distorting the market and have the patience to let a level playing field reveal the next energy technology. Please.

The U.S. Postal Service raised it's rates for first-class mail today. No longer will you be able to buy a $0.39 stamp. The day of the $0.41 stamp is upon us. The rate hike is annoying, but ultimately not all that relevant to my life. Aside from thank-you notes and renewing license plates, I don't really use the Postal Service.

However, the USPS isn't just raising rates on first-class mail. The Postal Regulatory Comission also decided to change the way it calculates rates for periodicals and magizines:

Starting in July, postal rates for some publications will rise by as much as 30 percent, and a growing number of critics say the new rates will saddle small, independent publishers with inflated costs and betray protections granted by the founding fathers to the press.

The U.S. Postal Service gave periodicals a special class of mail more than 200 years ago and averaged rates to make it cheaper to send a magazine than a letter, while still giving publishers first-class service.

The cost to the Postal Service of sending periodicals has also risen disproportionately to other types of mail over the past 10 years.

Very basically, here's how the changes in rates are calculated: The average cost increase to periodicals is 11.7 percent, but this rate skews lower or higher for many based on price-based incentives created to push publishers to streamline their mailing operation.

A 758-page document details the plan, which plugs many variables into a pricing equation: packaging, co-mailing, co-palletting, pounds, pieces, shape, sacks, drop-shipping, points of entry, distance traveled and editorial weight versus advertising weight.

Confused? So are many publishers. It doesn't help, they say, that the computer software created to help them solve this equation won't be available until mid-June.

Both sides agree that the issue is, at its core, an ideological debate between those who believe periodical postal rates should be averaged for all to protect the democratic dissemination of information and those who see averaging as a subsidization that hinders efficiency.

It's also a fairly pointless debate. The only reason it's happening at all is that periodicals have exactly one choice for delivery: the USPS. There is no competition for first-class mail delivery. By law, anyone who tries to compete with the USPS in first-class mail delivery commits a crime. Publishers are forced to use the government monopoly, instead of using whichever company gives them the best combination of price and service.

It's time to end these pointless, stupid debates over the best way to calculate postal rates. Allow Fed-Ex, UPS, DHL, and other carriers to compete with the USPS. Let publishers choose their own mail carrier. Some carriers might have rates that are less expensive than current Postal Service rates. Other carriers might have rates that are more expensive than current Postal Service rates. Regardless, they would be rates that publishers choose to pay, based on their unique needs. Everyone would get the best combination of price, speed, and service that they need.

Right now everyone gets the same combination of price, speed, and service -- whatever the Postal Regulatory Comission decides is best for the nation.

How un-American.

I don't always agree with Capital Times columnist Mike Ivey, but I do today. He writes about WalMart's appetite for corporate welfare:

Wisconsin's largest employer draws more in corporate welfare than it pays in state taxes. Wal-Mart pocketed $852 million in net profits in Wisconsin off value-hungry consumers between 2000 and 2003. Over that same period, Wal-Mart paid only $3 million in corporate income tax here. That's a tax rate of 0.35 percent, a fraction of the 7.9 percent rate corporations doing business in our fair state are supposed to pay.

Pardon my West High math, but if Wal-Mart paid the going tax rate here it would have owed closer to $67 million. The Arkansas-based retailer has benefited from more than $20 million in public economic benefits in Wisconsin, according to one national study. Good Jobs First reported in 2004 that Wal-Mart stores and distribution centers in Baraboo, Beaver Dam, Menomonie, Milwaukee and Tomah received at least $21.75 million in local tax subsidies, the report says.

I'm a fan of WalMart and I applaud their efforts to bring lower prices to shoppers. But what they're doing in Wisconsin is neither "capitalism" nor "free enterprise". It's looting, pure and simple. The local governments that decided to give tax money -- taken from individuals -- to a big business should be vilified, demonized, and run out off office on a rail.

It looks like the State is getting behind the Wisconsin goat industry:

State officials are putting their support behind Wisconsin's growing goat industry.

About 260 farmers, processors, state officials and lenders are expected to attend a conference - "Focus on Goats: Milk and Meat Production in Wisconsin" - on Thursday in Barneveld.

... The program is an extension of the Grow Wisconsin Dairy project, which has put an emphasis on high-quality dairy products. "Goat cheeses and other goat products are really becoming more popular," [Jeanne Meier, a spokeswoman for the Department of Agriculture, Trade and Consumer Protection and a leader in the dairy goat initiative] said. "There's great demand in the U.S."

Based on the article, it sounds like the goat industry is really taking off. Lots of farmers have already made big money with goat cheese, goat millk, and goat meat. Many more farmers are eager to get into the industry. Here are the questions that the article raises in my mind: why does the State need to help out the goat industry? Why do Wisconsin tax payers need to pay for an already successful industry to become even more successful? At a time when Governor Doyle wants to tax the oil industry for being too successful, why is his administration paying for another industry to become more successful than it already is? At a time when the state faces a $1.6 billion deficit, why are we spending scarce tax dollars to help businessman who apparently don't need help?