Feeds:
Posts
Comments

America’s health care system is a mess, and we can assign almost all the blame on government. Simply stated, we don’t have functioning and efficient markets because Medicaid, Medicare, tax-code distortions, and other forms of regulation and intervention have created a system that is crippled by a third-party payer crisis.

There’s no logical reason to expect consumers to be smart shoppers, after all, when they’re only responsible for directly paying just 11 cents for every $1 of health care they consume. And providers have little reason to be efficient when they know that consumers are largely insensitive to price.

Let’s now apply these insights to the political controversy over birth control. Except, as I explained in July, there is no fight over birth control. As far as I’m aware, nobody is trying to ban birth control.

The real fight is whether the government should mandate that health insurance plans include coverage for birth control (and certain abortifacients).

Writing for Bloomberg, Megan McArdle explains that Obamacare’s birth control mandate is silly because a modest and routine expense shouldn’t be covered by insurance at all.

I am not very patient with the political fights over the Affordable Care Act’s contraception mandate. …Generic birth-control pills are a cheap, regular expense used by many millions of people, exactly the sort of thing that insurance is not designed for. All this does is spread the cost around a bit while adding administrative overhead for your policy.

Moreover, the better policy is to allow birth control to be purchased without a prescription.

In other words, address the issue by reducing government regulation rather than imposing a mandate!

…make birth-control pills available over-the-counter rather than a prescription item. This is an excellent idea. It was an excellent idea before Obamacare passed, and it will remain a fine policy even if Obamacare somehow vanishes into dust. Physicians assess the danger of giving you birth control by asking simple questions you can ask yourself: Are you over 35, a smoker or troubled by a family history of early stroke?

Seems like a good idea, right? Particularly since it should appeal to Republicans that want less regulation and also appeal to Democrats that want easier access to birth control.

The Republicans are on board, as Byron York reports.

…the GOP has a new policy response… The idea is to make the birth control pill available over the counter, to all, 24/7, without a prescription. It’s becoming a trend among Republican candidates in Senate races around the country. In North Carolina, GOP candidate Thom Tillis recently embraced it. So has Ed Gillespie in Virginia. Mike McFadden in Minnesota. Gardner in Colorado. And one of the leading proponents of the move is a potential 2016 GOP presidential candidate, Louisiana Gov. Bobby Jindal. …Gardner first rolled out the proposal in a Denver Post op-ed in June. The birth control pill has safely been in use since it was first approved 44 years ago, Gardner argued. “When other drugs have that kind of track record, we approve them for purchase without a prescription,” he wrote. “Name-brand drugs like Advil, Pepcid, Claritin, Prilosec and many others were once sold by prescription only, but moved to over-the-counter sale once they’d been proven safe and unlikely to be abused.”

But some Democrats are hostile.

Indeed, a columnist for the Denver Post is very upset that some GOPers are supporting over-the-counter access to birth-control pills.

Following the lead of Colorado U.S. Senate candidate Cory Gardner, a handful of Republicans in midterm races across the country are now embracing over-the-counter sales of birth control pills without a prescription. Don’t be fooled. It’s a disingenuous move that could actually make the pill more expensive for women… But women already pay for those pills as part of the health care coverage they purchase through employers. Why would we want to pay for them twice? …What happens, however, if birth control pills are sold over the counter? Insurance companies will likely stop covering them. That means women will keep paying health insurance premiums, plus an additional out-of-pocket fee for pills. …And free doctor visits to discuss birth-control risks could also be replaced with fee-based pharmacy consults to determine whether women have risk factors like smoking, hypertension or migraines that prevent safe use of the pill, reports the American College of Obstetricians and Gynecologists. That’s hardly a “cheaper and easier” alternative — which is why Politifact rates Gardner’s claim as “mostly false.”

I strongly suspect that the author simply wanted to make a partisan attack on the Republican Senate candidate in Colorado. After all, more substantive and serious people on the left, including those at both Vox and Think Progress, favor over-the-counter access to birth control.

But let’s assume she really believes what she wrote. In which case she would get an F from any economics professors because health insurance companies obviously include predicted costs when pricing their policies. So if the mandate disappears and birth control is available without a prescription, then insurance companies will be able to lower the cost of the policies they sell.

In other words, women wouldn’t be paying twice. Indeed, they’ll pay less, though that will only be obvious to those who understand that employer-provided health plans are part of overall employee compensation.

There is another reason, other than partisanship, for some on the left to oppose Republican proposals to allow birth control to be sold over the counter. And you won’t be surprised to learn that self interest is playing a role.

Writing for The Federalist, Ben Domenech notes that Planned Parenthood wants to retain the current prescription-only approach.

You may think Ben made a big mistake, or that I misinterpreted. After all, isn’t that contrary to the organization’s ostensible mission of reducing unwanted pregnancies?

Well, Ben points out that Planned Parenthood may be more interested in maximizing handouts than it is in reducing pregnancies.

…interestingly enough, Planned Parenthood is pushing back on over-the-counter contraception. Why is this? Why would Planned Parenthood want to decrease the availability of contraception, and require women to see a doctor in order to get it? That seems awfully paternalistic of them. …birth control is a major lead generator for Planned Parenthood, to the degree that they can’t afford to lose their existing purpose as a source of prescribed contraception without it hurting their status as an institution. …Now you can understand why they wouldn’t want potential customers to be free to go to CVS or Walgreens or Rite Aid instead of heading to Planned Parenthood – providing those and other services is worth a lot of taxpayer money, $540 million in FY 2012 alone. And if you don’t provide those services, you can’t bill the taxpayers for them. …That’s why they want to keep the government’s ban on over-the-counter birth control intact.

Here’s a chart from Ben’s article that shows “what percentage of Planned Parenthood’s “services” are related to contraception.” As he notes, “it’s over a third of their activity.”

So I guess it makes sense – at least from an amoral perspective – that the organization wants to limit access to over-the-counter birth control.

By the way, the GOP plan for easier access to birth control is not a move to uncharted territory.

Here’s a map from a pro-reform left wing group that shows that over-the-counter birth control pills are easily available to most of the world’s women.

Let’s close by sharing one final – and very persuasive – piece of information from the experts at Reason.

Women already have over-the-counter access to Plan B, which involves larger doses of the hormones that are present in birth control pills.

…the Food and Drug Administration (FDA) has been considering making oral contraceptives available over-the-counter (OTC) for more than twenty years. “Plan B,” an emergency contraceptive, became available OTC last year. That one-step pill is simply a more potent dose of the same hormones that make up regular birth control pills. There’s no good medical justification for the differentiation. Yet in America, regular birth control pills remain stubbornly behind the pharmacy counter and behind the times.

In other words, the usual pro-regulation argument is that prescriptions are necessary because consumers can’t be trusted to make their own decisions with strong doses of medicine.

But the government already has made Plan B available over the counter while blocking similar access to birth control pills. Go figure.

P.S. Planned Parenthood is not the only interest group that has behaved in a disreputable and dishonorable fashion.

P.P.S. If you want to know what happens to healthcare in the absence of pervasive third-party payer, check out this remarkable chart.

P.P.P.S. Since today’s topic was birth control, let’s use this opportunity to revisit our collection of Sandra Fluke humor. Just in case you don’t remember, she was the 30-year old college student who got her 15 minuted of fame by demanding that other people pay for her expenses. Anyhow, if you want to laugh, check out this great Reason video, this funny cartoon, and four more jokes here.

P.P.P.P.S. On a separate topic, I added my two cents late last year to a debate inside libertarian circles over whether America’s plethora of welfare programs should be replaced by a single “basic income” grant that would be given to all Americans. Sort of a guaranteed minimum income.

I acknowledged that the current system is a mess, but I suggested that decentralization was a better approach.

…it seems that nothing could be worse than the current system. …But what about the idea of trashing what we have today and instead offering everyone some sort of basic income? …I agree, but only sort of. I like the idea of radical reform, but I think there’s a better road to Rome. It’s called federalism.

But what if someone held a gun to my head and said federalism wasn’t an option and demanded that I choose between the “basic income” and the status quo?

There’s not an obvious right answer, but I suspect I would prefer the devil I know because of fears that we might get more redistribution and even bigger government.

And I’m not the only one to have that opinion. Here’s what a proponent of more redistribution wrote about the concept.

Basic Income, unlike the programs we have now, will be politically easy to raise once it’s in place. …if you have one big, high-profile redistribution program, you can get enough popular support to overcome the concentrated opposition of the rich people footing the bill. …by endorsing Basic Income, libertarians are walking right into a trap. Anti-redistributionists’ great fear has always been that the masses will use the power of majority rule to simply vote themselves more money. As things stand, the fragmentation of our redistribution programs makes it easier for the anti-redistributionists to punch holes in the safety net. If the fragmented system were replaced with one universal, high-profile program, the result would be a huge political gift to redistributionists.

But maybe I’m just a pessimist. Tyler Cowen has a different perspective.

…let’s say a historical accident swept Basic Income proponents into power for a term and they passed that legislation.  Over time those income transfers would prove larger, more visible, and they would at least appear superficially more anti-work than the public stomach for them.  I predict they would be restricted along a number of possible dimensions, starting with (partial) work requirements for the able-bodied. Under most plausible assumptions about the Basic Income level, most people would not be recipients, nor would they expect to be potential net gainers from the program. …So I think the “why send money to people who aren’t working?” intuition will crowd out the “I want to think of myself as someone who helps other people” feeling.

I guess it depends on how the “basic income” is designed. If the government sends checks to everybody (as some are proposing), then Tyler’s “plausible assumption” about recipients would be wrong.

Which reinforces in my mind that my original idea was right. Let’s go with federalism and get Washington out of the business of redistribution.

The decentralized approach has been very successful in Switzerland and its also the system that’s consistent with the Constitution.

I’m very worried about the burden of government spending.

Moreover, I’m quite concerned that poorly designed entitlement programs will lead to fiscal disaster.

And I’m especially irked that Obama made the problem worse by ramming through yet another misguided and costly health care entitlement.

Given this background, you can imagine that I was very interested (and depressed) to see that Veronique de Rugy of the Mercatus Center put together some very important charts and analysis based on new fiscal policy projections.

After crunching the new numbers from CBO, here’s her bottom line conclusion.

…data from the Congressional Budget Office’s (CBO) recently released update to its Budget and Economic Outlook to show the trends and components of projected revenue and outlay increases. …growing entitlement obligations and net interest payments are projected to push outlays (spending) to grow faster than revenues over much of the next decade.

She also produced a chart showing the ever-rising burden of both taxes and spending. Pay close attention to how the numbers get worse at a rapid rate over the next 10 years.

There are two important takeaways from this data.

First, it should be abundantly clear that Washington is not suffering from inadequate tax revenue. Receipts are projected to rise in nominal dollars, in inflation-adjusted dollars, and as a share of GDP.

In other words, America’s long-run fiscal problems are solely a result of a rising burden of government spending.

Second, on the topic of government spending, it’s important to understand that the problem is overwhelmingly caused by entitlement programs. Social Security is part of the problem, but the real issue is government-run healthcare.

The President claimed Obamacare would “bend the cost curve.” But he wasn’t truthful since the White House implied the legislation would bend the curve down rather than up.

Here’s a second chart showing the breakdown of various spending categories.

As you can see, the problem is entitlements. And the healthcare entitlements deserve the lion’s share of the blame.

If this chart isn’t sufficiently depressing, then keep in mind that the numbers get even worse after 2024.

Simply states, the United States is doomed to become another Greece in the absence of genuine entitlement reform.

But let’s focus just on the next 10 years. Ms. de Rugy adds some detail.

…CBO projects three large budget categories—major health care programs (consisting of Medicare, Medicaid, the Children’s Health Insurance Program, and subsidies for health insurance), Social Security, and net interest payments on the debt—will account for 85 percent of the total increase in outlays from 2014 to 2024. Total outlays are projected to increase from roughly $3.5 trillion in 2014 to $5.8 trillion in 2024, for a total increase of $2.3 trillion. Major health care programs are projected to grow by $816 billion, which accounts for 32 percent of the total. Social Security spending will grow by $654.9 billion over the next decade, which constitutes 28 percent of the total increase in outlays.

Let’s close, though, with some good news.

The numbers in the previous charts are all based on what happens if government policy is left on autopilot.

But what happens if politicians impose a modest bit of spending restraint?

According to the latest CBO forecast, inflation is supposed to average almost 2 percent over the next 10 years. So if some sort of spending cap is imposed and outlays “only” grow by a commensurate amount, it turns out that there’s a remarkably quick change in America’s fiscal profile.

As seen in this chart, there’s a budget surplus by 2019. And more important, government spending by 2024 is about $1.5 trillion lower than it would be with the budget left on autopilot.

Here’s a video from a few years ago. The numbers are out of date, but the underlying analysis is still completely appropriate. Simply stated, it’s very easy to balance the budget if politicians simply follow the Golden Rule of spending restraint.

P.S. Since this was a somewhat depressing topic, let’s close with some humor.

A few years ago, I shared a satirical application form for bailout money from Uncle Sam. Well, the New Yorker has an application quiz for Syrian rebels seeking American dollars.

Why is President Obama so fixated on a class-warfare agenda of higher taxes on the rich and government dependency for the poor?

Is it because a tax-the-rich agenda is good politics, as determined by clever pollsters who have tapped into the collective mind of American voters (and as demonstrated by this cartoon)?

Or is the President ideologically committed to a redistributionist mindset, meaning that he will pursue class-warfare policies even if they rub voters the wrong way?

Since I can’t read the President’s mind, I’m not sure of the answer. I suspect he’s a genuine ideologue, but your guess is as good as mine.

But I can say with more confidence that his pursuit of class-warfare doesn’t resonate with voters.

Or, to be more specific, the American people aren’t susceptible to the politics of hate and envy so long as they’re offered a better alternative.

Let’s look at some new polling data on this topic.

Writing for the Wall Street Journal, William Galston explains that anemic growth is making it harder and harder for households to increase their living standards.

Over the next decade, there is one overriding challenge—recreating an economy in which growth works for everyone, not just a favored few.  …Recent reports underscore the extent of the challenge. …long-term trends continued to point in the wrong direction. The employment-to-population ratio is lower than it was at the official end of the Great Recession in mid-2009. The labor-force participation rate dropped to 62.8%, the lowest since the late 1970s. …from 2010 to 2013 median family income corrected for inflation declined by 5%, even as average family income rose by 4%. Only families at the very top of the income distribution saw gains during this period. Family incomes between the 40th and 90th percentiles stagnated, while families at the bottom experienced substantial declines.

That’s the bad news.

The good news is that the American people understand that class warfare and redistribution is not a route to a better life.

They are much more supportive of policies that increase the size of the economic pie.

Americans have strong views about the economic course policy makers should pursue. Surveys of 3,000 Americans conducted between January and March of 2014 by the Global Strategy Group found that fully 78% thought that it was important for Congress to promote an agenda of economic growth that would benefit all Americans. …Strategies to spread wealth more evenly and reduce income inequality received the least support; 53% believe that fostering economic growth is “extremely important,” compared with only 30% who take that view about narrowing income inequality. …These views have political consequences. By 59% to 37%, Global Strategy Group found that Americans prefer a candidate who focuses on economic growth to one who emphasizes economic fairness. By a remarkable margin of 64 percentage points (80% to 16%), they opt for a candidate who focuses on more economic growth to one who emphasizes less income inequality.

What makes these results especially notable, as pointed out by another WSJ columnist, is that the Global Strategy Group is a Democrat-connected polling firm.

Here’s some of what James Freeman wrote.

Now here’s something you don’t see every day. A prominent Democratic polling firm has found that voters don’t view reducing income inequality as a top priority. Instead, they want economic growth. …The results were released in April but until now have received almost no attention in the press. No doubt the findings would have rudely interrupted the months-long media celebration of Thomas Piketty and his error-filled and widely unread book on income inequality. And the survey data suggest that the core message of President Obama and his political outfit Organizing for Action is off target.the Obama economic message is all about redistributing wealth, not creating it. But as the liberals at Global Strategy Group felt compelled to observe, “Growth-focused candidates appeal to many more voters.”

I’m very encouraged by these numbers.

For decades, I’ve been telling folks in Washington that growth trumps fairness. And I’ve made that argument based on policy and politics.

The policy part is easy. All you have to do is compare, say, France to Hong Kong if you want evidence that pro-growth policy is how you help the less fortunate.

But since I worry that America’s social capital is eroding, I’m also concerned that people might be more sympathetic to redistribution. In other words, maybe a growth message no longer is effective when trying to get votes.

According the Global Strategy Group data, though, voters still understand that it’s better for politicians to focus on growing the pie.

In this same spirit, here’s an interview I did earlier in the week for Blaze TV. The early part of the discussion is about a new Harvard report on the economy. But since the report didn’t say anything, skip to the relevant part of the interview, which starts at about 3:15. I explain that economic growth is the only viable way of boosting the well being of lower-income Americans.

And if you want more information on why growth is better for the poor than redistribution, click here.

P.S. For a humorous explanation of why the dependency agenda is so destructive, here’s the politically correct version of the fable of the Little Red Hen.

And the socialism-in-the-classroom example, which may or may not be an urban legend, makes a similar point.

But I think this pizza analogy may be the best way of showing that redistribution doesn’t help the poor.

P.P.S. I still think Margaret Thatcher has the best explanation of why the left is wrong on inequality. And if you want to see a truly disturbing video of a politicians with a different perspective, click here.

P.P.P.S. We have yet another update (updating yesterday’s update, which updated previous stories) on horrific IRS abuse.

Take a look at this video, which features the big Democratic donor who was made head of the IRS by Obama, and get a load of his cavalier attitude about the IRS obeying the law.

If you watch the entire exchange, I think it’s fair to say that Mr. Koskinen wasn’t saying that the IRS shouldn’t obey the law. But his flippant response, combined with the Obama Administration’s repeated decisions to arbitrarily ignore and/or change existing law, certainly shows that the ruling class isn’t very serious about the rule of law.

And that’s not a good sign for America’s future.

When asked about the most worrisome statistic for a nation, I don’t say it’s the top marginal tax rate, even though I think class-warfare taxation is very poisonous for long-run economic performance.

Nor do I say it’s the burden of government spending relative to private economic output, even though the size of the public sector gives us a good idea of the degree to which labor and capital are being poorly allocated.

I don’t even say that a nation’s score in the Economic Freedom of the World index is the most important number, even though that’s the best and most comprehensive measure of the quality of a country’s economic policy.

My answer, for what it’s worth, is that a nation is doomed when a majority of its people decide that it is morally and economically okay to live off the labor of others and want to use the coercive power of government to make it happen.

For lack of a better term, we can call this a country’s Dependency Ratio, and it’s a measure of eroding social capital. To what degree, in other words, has the entitlement mentality replaced the work ethic and the spirit of self reliance?

But before continuing further, I want to provide two important caveats.

1) The Dependency Ratio is not the percentage of households that get money from the government. That’s an important number, to be sure, but it includes people who get money but don’t have an entitlement mentality. A good example is that Social Security recipients in America get checks from Uncle Sam, but only because they had no choice but to pay into the system and did not have the freedom to use that money instead for a personal retirement account. In many if not most cases, they don’t see themselves as part of a “takers” coalition.

2) From a practical perspective, the Dependency Ratio is a good concept, but I’m not aware of a methodologically sound way to calculate a nation’s entitlement mentality. And there’s definitely not good data for purposes of doing international comparisons (though this polling data suggests that the problem is much more severe in nations such as France than it is in the United States). So you have to rely on imperfect proxy measures, such as the share of households getting payments, the size and cost of the bureaucracy, and overall social welfare spending.

I’ve shared all these thoughts because they give the necessary background for today’s main topic, which is South Africa’s dismal economic future.

Take a look at this very depressing chart that appeared in my Twitter feed. It shows what has happened over the past five years in South Africa’s labor market.

This isn’t good news. The number of bureaucrats has risen dramatically while there’s been no growth in the number of people working in the economy’s productive sector.

If this trend continues, it’s only a matter of time before South Africa suffers economic collapse. You can’t have an ever-growing class of people living off a non-growing pool of taxpayers.

However, I realize that the chart only shows five years of data, so it could present a misleading view of trends in the country, particularly if there are policy reforms in other areas that might offset the damage of expanding bureaucracy.

So let’s look at other economic sources to confirm whether South Africa is moving in the wrong direction.

I mentioned above that the Economic Freedom of the World has the best data on the quality of a nation’s economic policy. Here’s South Africa’s performance.

The good news is that South Africa enjoyed a big jump in economic freedom between 1990 and 2000, which isn’t too surprising since the morally abominable Apartheid regime relied on heavy levels of government intervention. Ending that system was a key step in economic liberalization.

But the bad news is that there’s been no improvement since that time. Indeed, South Africa’s score has declined. The fall in the absolute score is minor, but bigger problem is that the nation’s relative score has suffered a big drop. If you look at the blue bars on the bottom, you can see that South Africa had the world’s 36th-freest economy in 2003, but it’s now down to having the world’s 88th-freest economy.

In other words, other nations have moved policy in the right direction while South Africa has been stagnant.

Since I’m a fiscal policy economist, I also looked at what’s been happening to the burden of government spending in South Africa.

As you can see, this chart (based on IMF data) shows that government outlays (left axis) have jumped significantly since the turn of the century.

And since government grew faster than the private sector (violating the Golden Rule), the overall burden of government spending increased (right axis) even when measured as a share of economic output.

I don’t know if the additional spending has been used to pay for additional bureaucrats, social welfare programs, infrastructure, education, or the military.

I suspect all of the above, which helps to explain why South Africa’s fiscal policy score from Economic Freedom of the World has dropped from 6.45 to 5.45 (on a 1-10 scale) since 2000.

More important, I also suspect that the net result is to have lured lots of additional people into government dependency.

That doesn’t bode well for South Africa’s future.

P.S. On a different topic, we have a couple of updates on the politicized and corrupt behavior at the IRS.

First, we have another case of misplaced email messages. Here’s an excerpt from an AP report.

On Friday, the IRS issued a report to Congress saying the agency also lost emails from five other employees related to the probe, including two agents who worked in a Cincinnati office processing applications for tax-exempt status. …The IRS blamed computer crashes for all the lost emails.

Gee, how convenient.

I wonder if the IRS will allow me to claim lost data next time I have a tax dispute?

Second, it’s understandable that the IRS is anxious to hide its internal communication because what does get released shows a partisan and malevolent bureaucracy.

The day that former Internal Revenue Service official Lois Lerner publicly apologized for using “inappropriate criteria” to delay tax exemptions for Tea Party groups, she told her colleagues that they were being “beaten up by the press for all the wrong reasons.” …The documents show Lerner’s efforts to persuade Treasury auditors that there was no institutional bias at the IRS, the agency’s attempts to head off a damaging investigation with a pre-emptive apology, and Lerner’s pep talk to her staff after the apology. …The idea for a public apology to head off the audit came at least a month before. Lerner was set to give a speech at Georgetown University and was “begging” for some newsworthy information, IRS chief of staff Nikole Flax said in an e-mail. “We may want to use it to burst a bubble,” said then-acting IRS commissioner Steven Miller in response. He later joked that Lerner could use the speech to “apologize for undermanaging.”

Amazing. The bureaucrats laughed about their efforts to terrorize people and distort the political process.

The only real solution is sweeping tax reform so the IRS loses almost all its power.

I periodically try to explain that there’s a big difference between being pro-market and pro-business.

Simply stated, policy makers shouldn’t try to penalize businesses with taxes, mandates, and regulations.

But neither should politicians seek to subsidize businesses. That’s why I’m against bailouts, subsidies, and other distortions that provide special favors for politically connected companies.

I have nothing against companies earning money, to be sure, but I want them to earn their profits in the marketplace rather than lining their pockets by using the coercive power of government to rig the rules of the game.

But I don’t just have disdain for companies that stick their snouts in the public trough. I also have little regard for the politicians that enable this sordid type of business by trading campaign cash for corporate welfare.

I realize that’s a strong assertion, but I can’t think of any legitimate reason to support handouts for big companies. And I get especially angry when giveaways are facilitated by politicians who claim to support free markets.

Let’s look at two examples, the Export-Import Bank and the Obamacare bailout for big insurance corporations.

I’ve previously argued that the Export-Import Bank is a squalid example of corruption and I’ve shared a video that explains why it’s economically foolish to subsidize a handful of big exporters.

To augment those arguments, here’s some of what Professor Jeffrey Dorfman of the University Georgia recently wrote in a column for Real Clear Markets. He correctly warns that certain GOP politicians are to blame if the Export-Import Bank stays alive.

The Export-Import Bank is everything that Republicans should stand against. It is crony capitalism at its worst. It is corporate welfare, taxing American families to boost corporate profits. It ever forces firms to potentially subsidize a competitor. There is simply no need for this government agency. Republicans in Congress should make a stand and show voters that Republicans believe in free markets and small government, even if some big businesses complain. The Ex-Im Bank should not be reauthorized. …Over the last decade or so, the Democrats have increasingly become the party of big business, stealing that crown away from Republicans because of the Democrats’ willingness to engage in crony capitalism and actively pick winners and losers in our economy. While Republicans are still thought of as the pro-business party, and other actions by the Democrats are clearly anti-business (Obamacare, environmental over-regulation), large multinational corporations like Boeing and GE have donated money to Democrats and generally profited from their political alliances with them. If Republicans want to make gains among (lower) middle-class voters, one of the things that could help is to convince voters that they are on the side of the people and not big corporations. The Ex-Im Bank reauthorization is a perfect opportunity to do just that. …Income redistribution is wrong especially when the money is going to big and profitable companies.

Ryan Ellis of Americans for Tax Reform agrees. Writing for Forbes, he looks at both the policy and politics of Export-Import Bank handouts.

The ExIm bank is an export subsidy program, giving money to certain companies…in the hopes that gives them a leg up in international trade.  It’s been criticized for decades by free traders and those who simply oppose corporate welfare spending out of Washington. …the ExIm bank will sunset on its own on September 30th.  All Congress has to do is let nature take its course, and this corporate welfare program simply goes away forever.

Sounds like we should have a guaranteed victory from free markets over intervention, right?

Don’t count your chickens before they hatch.  Ryan explains that Republicans may shoot themselves in the foot by trying to rescue this reprehensible example of cronyism.

Charging in at the last minute to save ExIm only makes the House GOP look beholden to K Street.  It also looks like they are flip-flopping from where they were back in the summer.  …ExIm reauthorization…is likely to take a GOP grassroots focused on President Obama’s failures and full of midterm election intensity, and turn them inward toward criticism of the House GOP leadership instead. If things go badly with this CR gambit, the House GOP will have given themselves a self inflicted wound just as they are trying to get out of town and not screw up what should be a good year for their candidates.

How nauseating.

I realize that the Export-Import Bank is a relatively minor issue and that I should mostly care about whether politicians do the right think on big topics such as entitlement reform. After all, that’s what really counts if we want to avoid fiscal catastrophe.

But I can’t stop myself from foaming at the mouth when self-proclaimed supporters of free markets undermine the argument for economic liberty with cronyist deals.

Obamacare is another example of big business being against free markets. We already know that the big pharmaceutical firms cut a special deal with the Obama White House.

The big insurance companies also had their snouts in the trough. Not only did they get legislation that mandated the purchase of their products, but they also got language that provides bailouts if they aren’t able to profit from Obamacare.

What’s really amazing, though, is that some Republicans are willing to go along with Obamacare bailouts for those major companies.

The good news is that Florida Senator Marco Rubio is in the right side. Here’s some of what he wrote about bailouts for health insurance companies for Fox News.

 …section 1342 of the ObamaCare law…established so-called “risk corridors”. According to this provision, taxpayers will make up the difference for health insurance companies whose plans lose money under ObamaCare. Last November, as it became clearer what this section of the law actually meant, I introduced legislation repealing it and protecting taxpayers from being forced to cover insurers’ ObamaCare losses. …In recent weeks, the public has learned that senior White House officials have been working closely with insurers behind the scenes to make sure that their earlier bailout deal, which helped assure ObamaCare’s passage in 2010, would stand and that a taxpayer-funded bailout was still, in fact, on the table. …On this ObamaCare bailout, as with so many issues, Washington politicians are misleading average Americans and planning to stick them with the bill. This is government favoritism and corporate cronyism at its worst. …It’s time to repeal and replace it, but at the very least, we should make it the law of the land that health insurers won’t be bailed out by taxpayers.

I’ll also add a moral argument.

As far as I’m concerned, I want the health insurance companies to suffer major losses. I want the business community to see that it’s a mistake to get in bed with big government.

Though I guess I’m actually making a practical argument. I may be motivated by morality, but the companies hopefully will do a cost-benefit analysis and decide that it’s too risky to strike deals with the political class.

By the way, Republicans often do the wrong thing because they’re afraid that voters favor the statist agenda of dependency.

But that’s not the case for Obamacare bailouts for health insurances companies. Here’s some polling data on the issue that showed up on my Twitter feed.

Let’s close by sharing some of what the editors at National Review wrote about both the Obamacare bailout and Export-Import Bank subsidies.

Congressional Republicans keep saying they oppose Obamacare. Yet they’re refusing to take the simplest and easiest action against it. …Some Republicans say that the insurance companies should not be penalized for the defects of the law. Why not? They have freely chosen to participate in the exchanges, and they should bear the risks of that decision — which include the risk that Congress might decide not to shovel tax dollars at them. The alternative, after all, is to punish taxpayers. …The debate over the Export-Import Bank is one test of Republican sincerity about ending corporate welfare. These taxpayer subsidies are another: If Republicans can’t take on corporate welfare when doing so advances one of their party’s most popular and basic commitments, when will they?

Amen. Both of these issues are tests for the GOP.

Actually, they should get added to a long list of issues that tell us whether Republicans have any sincerity (or brains) in the fight against statism.

o No tax increases, since more money for Washington will encourage a bigger burden of government and undermine prosperity.

o To stop bailouts for Europe’s decrepit welfare states, no more money for the International Monetary Fund.

o Reform the biased number-crunching methodology at the Congressional Budget Office and Joint Committee on Taxation.

o No more money from American taxpayers to subsidize the left-wing bureaucrats at the Paris-based Organization for Economic Cooperation and Development.

P.S. If you’re in the mood for some dark humor, here’s the federal government’s satirical bailout application form.

Can Greece Be Rescued?

I’m a pessimist about public policy for two simple reasons:

1) Seeking power and votes, elected officials generally can’t resist making short-sighted and politically motivated choices that expand the burden of government.

2) Voters are susceptible to bribery, particularly over time as social capital (the work ethic, spirit of self reliance, etc) erodes and the entitlement mentality takes hold.

Actually, let me add a third reason.

The first two reasons explain why countries get into trouble. Our last reason explains why it’s oftentimes so hard to then fix the mess created by statism.

3) Once a nation adopts big government, reform is difficult because too many voters are riding in the wagon of dependency and they reflexively oppose good policy.

Or they’re riding in the party boat, but you get the idea.

Now that I’ve explained why I’m a Cassandra, let me try to be a Pollyanna.

And I’m going to be Super Pollyanna, because my task is to explain how Greece can be saved.

I’ll start by pointing out that government spending has actually been cut in recent years. And we’re talking about genuine spending cuts, not the make-believe cuts you find in Washington, which occur when spending doesn’t grow as fast as previously planned.

This chart, based on IMF data, shows that the budget increased dramatically in Greece from 1980-2009. But once the fiscal crisis started and Greek politicians no longer had the ability to finance spending with borrowed money, they had no choice but to reduce the burden of government spending.

This seems like great news, but there’s one minor problem and one major problem.

The minor problem is that there hasn’t been nearly enough structural reform of the welfare state in Greece. For long-run fiscal recovery, it’s very important to save money by reducing handouts that create dependency, while also shrinking the country’s bloated bureaucracy. By comparison, it’s less important (or perhaps even harmful) to save money by letting physical infrastructure deteriorate.

The major problem is that controlling government spending is just one piece of the puzzle. There are five major factors that determine economic performance, with experts assigning equal importance to fiscal policy, trade policy, regulatory policy, monetary policy, and rule of law.

Moreover, not only is fiscal policy just 20 percent of the puzzle, it’s also important to understand that spending is just part of that 20 percent. You also have to consider the tax burden.

And the progress Greece has made on the spending side of the budget has been offset by a bunch of destructive tax increases.

But there is a glimmer of hope because Greek politicians apparently realize that this is a problem.

Here are some excerpts from the Wall Street Journal’s coverage.

Greek Prime Minister Antonis Samaras promised tax-relief measures to help jump-start the country’s economy and boost the government’s popularity as it faces a series of political challenges in the months ahead. “The overtaxation has to end,” Mr. Samaras said Saturday during a speech.

It’s easy to see why there’s a desire to boost economic performance.

Since entering recession in 2008, Greece’s economy has shrunk by more than a quarter… This year, however, the country is expected to emerge from recession and post growth of 0.6%. But the recovery has yet to trickle down to ordinary Greeks who continue to face a jobless rate of more than 27% and higher taxes imposed during the past few years.

However, don’t get too excited. The Premier isn’t talking about sweeping reforms.

Instead, it appears that the proposed changes will be very minor.

In his remarks, the Greek premier announced a number of tax changes, including a 30% reduction in the levy on home heating oil and amendments to a new unified property tax that has been so far marred by errors and miscalculations in implementation.

Geesh, talk about rearranging the deck chairs on the Titanic.

Indeed, at least one of the tax cuts may be designed to bring in more money for the government. The New York Times, for instance, reports that the energy tax didn’t generate any extra tax revenue.

That levy, which was introduced in 2012, raised the tax on heating oil 450 percent. But it has failed to bring in additional revenue and has led to environmental damage as Greeks turned to burning wood for heat.

I guess it’s progress that both the Greek government and the New York Times are acknowledging the Laffer Curve, but this is a perfect example of why it’s important to be on the growth-maximizing point of the curve rather than the revenue-maximizing point.

So why am I expressing a tiny sliver of optimism when the Greek government’s tax agenda is so timid?

Well, there’s at least some hope of bigger and more pro-growth reforms.

He also announced a reduction to a so-called solidarity tax on income, the size of which is to be determined when the state budget for 2015 is drafted in October. The changes would be part of a “road map” for lowering taxation with cuts to the property tax, income tax and corporate tax to come later, he said. “Overtaxation may have been necessary, but now it must stop,” he said.

And the Greek press is reporting further details indicating that the government wants to reduce marginal tax rates

Samaras said that it his ultimate aim to reduce the top income tax rate to 32 percent and for business to pay no more than 15 percent.

If these policies actually took place, then I suspect Greece’s economy would enjoy robust growth.

Particularly if policy makers also dealt with the major problem of excessive regulation (see here and here to get a flavor of the awful nature of red tape in Greece).

In other words, any nation can prosper if good policy is adopted.

Including Greece, though I must admit in closing that I suspect that there’s a less-than-15-percent chance that my optimistic scenario will materialize. And if you read this Mark Steyn column, you’ll understand why the pessimistic scenario is much more likely.

P.S. Click here and here for two very funny (or sad) cartoons about Obama and Greece. And here’s another cartoon about Greece that’s worth sharing.

P.P.S. Click here and here for some amusing Greek policy humor.

P.P.P.S. The IMF also has admitted that Greece is on the wrong side of the Laffer Curve.

Since I spend considerable time defending tax competition, fiscal sovereignty, and financial privacy, people sometimes think I can give competent advice on how best to protect one’s income from the IRS.

Hardly. Like most people in Washington, I’m all theory and no practice.

Besides, when people ask me about the ideal tax haven for an American citizen, I generally don’t have good news.

I explain that they are already living in a very successful tax haven, but then given them the bad news that only nonresident foreigners can take advantage of America’s tax haven policies. Though we should still be happy about being a haven since the favorable tax rules for foreigners have attracted lots of investment.

With the erosion of financial privacy, the IRS has considerable ability to track your money around the world, so moving your money to an overseas tax haven may not work. Even Switzerland, for example, has been bullied into weakening its human rights laws so that they no longer protect the privacy of nonresident investors.

Physically moving (your body and your money) to a foreign fiscal paradise such as Bermuda, Monaco, or the Cayman Islands doesn’t provide much value since the United States has the world’s most aggressive and punitive worldwide tax system. You’re basically treated by the IRS like you’re living stateside.

You can join thousands of other people and give up your American passport. But even that step has big downsides since the IRS imposes very nasty exit taxes, notwithstanding the fact that the United States is a signatory to international agreements that supposedly protect the right to emigrate without undue hassle.

But there is still one legal and effective way of dramatically reducing your federal tax burden.

Here are some details from a Bloomberg report on the relatively unknown tax haven of Puerto Rico.

Struggling to emerge from an almost decade-long economic slump, the Puerto Rican government signed a law in early 2012 that creates a tax haven for U.S. citizens. If they live on the island for at least 183 days a year, they pay minimal or no taxes, and unlike Singapore or Bermuda, Americans don’t have to turn in their passports. ……Under Puerto Rico’s new rules, an individual who moves to the island pays no local or federal capital-gains tax — capital gains are charged based on your tax home rather than where you earn them — and no local taxes on dividend or interest income for 20 years. …Moving to the island won’t kill all taxes: U.S. citizens still have to pay federal taxes on dividend or interest income from stateside companies.

And there are even some tax benefits for companies.

The government gives a tax break for businesses that move to Puerto Rico and provide services outside the country, perfect for a hedge fund with clients in New York and London. These firms pay only a 4 percent corporate tax, compared with 35 percent on the mainland. About 270 companies have applied for this incentive, according to officials.

Here are some real-world examples of rich people engaging in fiscal self defense.

About 200 traders, private-equity moguls and entrepreneurs have already moved or committed to moving, according to Puerto Rico’s Department of Economic Development and Commerce, and billionaire John Paulson is spearheading a drive to entice others to join them. …Schiff, who runs Westport, Connecticut-based brokerage Euro Pacific Capital Inc., relocated his $900 million asset management arm from Newport Beach, California, to San Juan in 2013. He plans to move to the island within the next several years. But the savings can be extraordinary, especially given the effects of compounding, says Alex Daley, chief technology investment strategist at Casey Research, a firm that publishes reports for investors. Late last year, Daley moved from Stowe, Vermont, to Palmas del Mar, about 45 minutes from San Juan. …Robb Rill, 43, managing director of private-equity firm Strategic Group PR, relocated with his wife to Puerto Rico from Florida in February 2013. He started the 20/22 Act Society, named for the tax laws designed to encourage people and businesses to set up shop here, to help educate fellow expatriates and serve as a networking group.

So what’s the catch? Well, it depends on your lifestyle preferences. Some people are willing to pay extra so they can live in a big metropolis like New York City. Others are willing to cough up a lot of their money to enjoy California’s climate.

But the folks in Puerto Rico say they have a lot to offer besides big reductions in federal taxation.

The real challenge, she says, is convincing people they can replicate their life. Will they have well-traveled, well-educated friends? Are there decent schools for their kids? Are there charities that wives can join? Is crime an issue? She takes her clients to dinner at outdoor cafes to show them it’s safe at night, and she organizes luncheons to introduce newcomers to native Puerto Ricans. …Puerto Rico isn’t just about low taxes. It has white-sand beaches and temperatures in the 80s year-round. There’s an art museum with a world-renowned pre-Raphaelite collection. It has luxury apartment buildings, over-the-top resorts such as Dorado Beach, and a handful of private international schools that send their graduates to Ivy League colleges. It has restaurants with award-winning chefs. It’s a four-hour flight to New York. And the island operates under U.S. law.

I don’t have money, so it’s not an issue for me. But if I did, my first questions would be about the prevalence of fast food and softball leagues.

But I admit that I’m a bit of a rube.

Anyhow, the New York Times also has figured out that rich people can escape class-warfare taxes by moving to Puerto Rico.

After a slow start, Puerto Rico’s status as a tax haven is beginning to catch on, and some are betting big bucks that the trickle of buyers moving there will soon become a stream. …“I take at least five calls a day from new people considering moving here,” said Gabriel Hernandez, a tax partner with the San Juan office of BDO Puerto Rico. When the law was first passed, Mr. Hernandez advised two people who relocated to Puerto Rico from the mainland United States; last year that number rose to about 15, and so far this year, he has helped more than 80 people make the move and is advising another 60 who are considering it. …As of July, 115 people — nearly all of them United States citizens — have applied and been granted the tax exemption, with another 135 forecast to make the move before the end of the year, according to Puerto Rico’s Department of Economic Development and Commerce. Last year, 151 people were granted the tax-exempt status.

The real reason to share the NYT story, though, is a particularly laughable excerpt.

The reporter wants us to believe that escaping high taxes is “distasteful.”

While there is much to recommend Puerto Rico as a tax haven — it has better beaches than Switzerland, no immigration hassles like Ireland and is a lot closer than Singapore — there are the undeniably distasteful politics of fleeing New York to save on taxes.

If escaping high taxes in New York is “distasteful,” then lots of people with lots of money already have decided to be distasteful.

P.S. If you’re a rich person, but you don’t want to move to Puerto Rico, there are some relatively simple and fully legal steps you can take to deprive the politicians of tax revenue.

P.P.S. In other words, politicians can impose high tax rates, but that doesn’t necessarily mean high tax revenue. Which is why I’m still hoping President Obama reads what I wrote for him on the Laffer Curve.

Follow

Get every new post delivered to your Inbox.

Join 2,432 other followers

%d bloggers like this: