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Archive for July 20th, 2010

Even I am shocked about how politicians and bureaucrats are bilking the poor people of Bell, California. I wish I had this example reported by Bloomberg for my video on overpaid bureaucrats, but mostly I hope that taxpayers rise up in revolt against the way the insiders are scamming the system and ripping off society’s productive outsiders. 
Hundreds of residents of one of the poorest municipalities in Los Angeles County shouted in protest last night as tensions rose over a report that the city’s manager earns an annual salary of almost $800,000. An overflow crowd packed a City Council meeting in Bell, a mostly Hispanic city of 38,000 about 10 miles (16 kilometers) southeast of Los Angeles, to call for the resignation of Mayor Oscar Hernandez and other city officials. Residents left standing outside the chamber banged on the doors and shouted “fuera,” or “get out” in Spanish. It was the first council meeting since the Los Angeles Times reported July 15 that Chief Administrative Officer Robert Rizzo earns $787,637 — with annual 12 percent raises — and that Bell pays its police chief $457,000, more than Los Angeles Police Chief Charlie Beck makes in a city of 3.8 million people. Bell council members earn almost $100,000 for part-time work.

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Redistributionists hate the flat tax, and this sentiment is widely shared by other statists. These proponents of big government want the tax system to to punish success and generate loot that can be used to buy votes (though they don’t seem to understand that if they punish success too much, they won’t actually get any additional money to spend, but that’s a separate issue). This is why it’s been amusing to watch nations in Eastern Europe adopt flat tax systems and compete with each other to have the lowest tax rate. The people who actually lived under communism are the ones most anxious to jettison the notion that a tax system should be based on “from each according to ability, to each according to need.”
 
But this doesn’t mean the flat tax is a permanent feature of the fiscal landscape in Eastern Europe. The high-tax nations of Western Europe don’t like the flat tax. The bureaucrats at the OECD and European Commission don’t like the flat tax. The IMF and World Bank don’t like the flat tax. And, of course, there are always redistributionists in every nation who resent success and politicians who want more power. So it is remarkable that flat tax systems have been so durable. But I’ve seen several stories in recent weeks that the flat tax in Romania might be repealed and replaced with a class-warfare system. This would be bad news, and could be even worse news if it was the beginning of a trend. The good news, though, is that the Prime Minister just announced that there are no plans to change the system (notwithstanding the misguided views of the nation’s Financed Minister). Tax-news.com reports.
During a recent gathering of small- and medium-sized enterprises in Bucharest, Romania’s Prime Minister Emil Boc announced government plans to maintain the flat tax of 16% imposed on income and profits, while also confirming plans to abolish the minimum tax from the autumn. Emphasizing that maintaining the flat tax was a fundamental objective of the government, Prime Minister Boc confirmed that the existing system would not be replaced by a progressive system of taxation, as it would not serve to generate additional income for the state budget. The government therefore has no reason to abolish the flat tax, Boc reasoned, which is also a symbol of stability and coherence of economic activity. Romanian Finance Minister Sebastian Vladescu had urged the government to move from the flat tax system of income tax, representing a bygone era, to a system of progressive rates, vital to supporting the state.

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A major problem with America’s healthcare system, both before and after Obamacare, is the fact that consumers very rarely spend their own money when obtaining healthcare. Known as third-party payer, this problem exists in part because government directly finances almost 50 percent of healthcare expenditures. But even a majority of supposedly private healthcare spending is financed by employer-provided policies that are heavily distorted by a preference in the tax code that encourages insurance payments even for routine expenses. According to government data, only 12 percent of healthcare costs are financed directly by consumers. And since consumers almost always are buying healthcare with somebody else’s money, it should come as no surprise that this system results in rising costs and inefficiency. This is why repealing Obamacare is just the first step that is needed if policymakers genuinely want to restore a free market healthcare system (all of which is explained in this 4-minute video).

Unfortunately, many people think that market forces don’t work in the healthcare system and that costs will always rise faster than prices for other goods and services. There are a few examples showing that this is not true, and proponents of liberalization usually cite cosmetic surgery and laser-eye surgery as examples of treatments that generally are financed by out-of-pocket payments. Not surprisingly, prices for these treatments have been quite stable - particularly when increases in quality are added to the equation.

I just ran across another example, and this one could be important since it may resonate with those who normally are very suspicious of free markets. As the chart from the Alan Guttmacher Institute shows, the price of an abortion has been remarkably stable over the past 20-plus years. Let’s connect the dots to make everything clear. Abortions generally are financed by out-of-pocket payments. People therefore have an incentive to shop carefully and get good value since they are spending their own money. And because market forces are allowed, the cost of abortions is stable. The logical conclusion to draw from this, of course, is that allowing market forces for other medical services will generate the same positive results in terms of cost and efficiency.


None of this analysis, by the way, implies that abortion is good or bad, or that it should be legal or illegal. The only lesson to be learned is that market forces control costs and promote efficiency and that more government spending and intervention exacerbate the third-party payer crisis.

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