Tuesday, April 19, 2011

The Purple Health Plan

Laurence J. Kotlikoff, Professor of Economics at Boston University, has devised a bipartisan health care reform plan--The Purple Health Plan. (Red and blue make purple, get it?) The plan would do away Medicare, Medicaid, and the tax deduction for employer provided health care. In its place, everyone would get a voucher for basic insurance coverage. The plan counts five Nobel Prize winning economists among its signers.

Frequent readers of this blog may recall that I made the exact same proposal over year ago with my own Proposal for Bipartisan Health Care Reform. I still recall how I came up with the idea. I was preparing to teach about health care to my Public Policy class at Marietta College and our nation was in the midst of a debate on health care reform. As Republicans and Democrats were both offering ideas on reform, and I was doing research on our current health care system, the following thoughts occurred to me:
  • Three of the biggest drivers of our health care costs are Medicare, Medicaid, and employer subsidized health care. 
  • We spend a lot of money on Medicare and Medicaid, which are grossly inefficient and contain a massive amount of fraud. And, a lot of revenue could be raised by doing away with the tax deduction for employer provided health care.
  • The US government does simple programs well, such as Social Security, which is basically sending people a check each month. The US government does complicated programs poorly, such as Medicaid, which is basically running an insurance company. 
  • Democrats mostly want universal coverage. Republicans mostly want to bring costs down through market based reforms. Can both sides get what they want?
The obvious solution flowed from these basic points. It doesn't surprise me, therefore, that a bunch of big-time economists would, essentially, come up with the same idea.

The Purple Health Plan does contain some variations to my original plan. Take a look at it and tell me what you think in the comment section below.

Related posts:

Do We Need a Heath Care Mandate?

A Proposal for Bipartisan Health Care Reform 

Liberal versus Conservative health care policies 

 

Monday, April 18, 2011

Politifact: Could we have some consistency, please?

I'm a big fan of Politifact and Factcheck.org. They provide an important public service. But sometimes I find some of their scoring decisions strange, especially with categories like "half-true", "mostly true", and "mostly false". Recently, for instance, Politifact rated Michele Bachmann "false" for stating that the top 1% of wage earners pay 40% of federal taxes, and Obama "half-true"  for stating that incomes rose for the top 1% of wage earners and dropped for everyone else. Both statements are false, but could be considered true if you make assumptions about what they really meant by their statements. In an email to Politifact, I wrote,
Regarding: http://politifact.com/truth-o-meter/statements/2011/apr/14/barack-obama/obama-says-incomes-increased-more-250000-top-1-per/

You give Obama a "half-true", for a statement that you acknowledge is false. Apparently, the "half-true" comes after making a bunch of assumptions that he didn't say.

Now look at this one: http://politifact.com/truth-o-meter/statements/2011/apr/18/michele-bachmann/michele-bachmann-says-top-1-percent-pay-40-percent/

Bachmann also made a false statement, and you label it as such. But, if you assume she meant federal income taxes, it would be true. So, why not "half-true"?

I suggest some consistency. Either they are both "half-true", or both "false". Otherwise, it appears you are willing to give Obama the benefit of the doubt, but not Bachmann.

Monday, April 11, 2011

Democrats Who Favor the Wealthy

In my previous post, I noted that some Republicans claim to defend free-market capitalism while
supporting policies that harm it. In this post, I'll discuss an analogous hypocrisy that can be found in the Democratic party. Democrats often claim to be defenders of the poor and working classes and argue that the wealthy must pay more of the share of the tax burden, while supporting policies that harm the poor and benefit the wealthy.

Tax Deductions

One important point to keep in mind when you hear politicians debate tax policy is that the amount someone pays in federal income tax is not solely determined by the tax rates, it is also determined by deductions and credits. While Democrats often claim that the tax rate for the top income bracket needs to increase, or not decrease, few Democrats will criticize tax deductions that disproportionately favor the wealthy.

Employer provided health care and the interest paid on a home mortgage are both tax deductible, for example. Since the wealthy are more likely to have expensive health care plans and borrow money for an expensive home, these tax benefits disproportionally go to the wealthy. Tax deductions for solar panels and hybrid vehicles also disproportionately go to the wealthy. Yet, most Democratic politicians continue to support them, even as they argue that the wealthy need to pay a higher share of the tax burden.

So, in the end, these Democrats are performing a sleight of hand with voters. They can claim that they support making the wealthy pay a higher share of government revenue, but then give the wealthy some of that revenue back in the form of deductions and credits. The result of these deductions and credits is that the middle class will pay a higher proportion of government revenue.

Cash for Clunkers

“Cash for Clunkers” is another good example of a program, supported by many Democrats, that disproportionately favored the most well off in society, and, in this case, was actually harmful for the least well off. Under this program, enacted in 2009, the federal government would give you a rebate if you traded in an older vehicle for a newer one. The goal was to boost the economy, reduce pollution, and aid fledgling domestic auto makers.

This benefit, obviously, could only go to those who could afford new vehicles, which means the poor would get nothing. To make matters worse, however, by removing many used cars from the marketplace, the supply of used cars went down, thus driving up the cost of used vehicles. So, the poor, who mostly buy used vehicles, would be faced with higher prices when they purchase a “new to them” used vehicle.

Payroll Taxes

Payroll taxes are some of the most regressive taxes* at the federal level. Little support can be found among Democrats, however, for reducing these taxes. The programs that are supported by payroll taxes—Social Security, Medicare, and Medicaid—were begun under Democratic administrations and continue to be strongly supported by Democrats.

Social Security and Medicare, in particular, are also strongly supported by the public, in part, because they are for everyone, not just the needy. They are funded by payroll taxes due to the notion that you pay into these systems while you work and the programs will be available to you when you retire. In actuality, most will get more in benefits than they pay in taxes, while the wealthy and those who die before they retire will pay more into these systems than they get in benefits. So, these programs do, in fact, transfer wealth from the most well off to the less well off.

Most of the public, however, do not see them as “welfare” programs, in part because they are tied to payroll taxes. Few Democrats support a decoupling of Social Security and Medicare from payroll taxes because they are worried that this illusion of fairness (you get out what you pay into it) would erode. And, without this illusion, support for these programs would disappear.

Eliminating payroll taxes would help poor workers and spur job growth. Payroll taxes are paid by employers as well as employees. This means businesses must pay more in taxes to hire new workers, or provide overtime to current employees. Eliminating this burden on businesses would reduce the cost of hiring new workers.

The Democratic Party's intractable position on payroll taxes can be seen in former House Republican Bob Inglis' effort to replace them with a carbon tax. Generally, Democrats would like to reduce the amount of atmospheric carbon, as well as reduce the poor's tax burden. One way to reduce atmospheric carbon would be to tax the industries that create it. Inglis' proposal would seem to be a win-win, therefore, for Democrats. They could tax carbon emissions while eliminating a regressive tax. His proposal, however, got little support from a Democratically led Congress.

*A regressive tax is one for which the less wealthy you are the higher a proportion of your income goes towards paying that tax.

Wednesday, April 6, 2011

Anti-Free Market Republicans

Republicans often present themselves as the defenders of free-market capitalism. In defending tax breaks for businesses, for instance, Republicans might argue that a state that places too much burden upon the free flow of capital is a hindrance to free-markets. This would be true if those tax breaks applied to all businesses, but those Republicans who apply this argument to select benefits are actually behaving in opposition to some basic tenets of free-market capitalism.

In a free-market economy, the businesses that excel should be the ones that meet consumer needs by providing the best products at the best prices, not the ones that have the best lobbyists. The New York Times brought some attention to this issue when it reported that General Electric received more in tax refunds from the federal government than it paid in taxes. It turns out that, most likely, this is not true. What is true, however, is that General Electric lobbies for and receives select benefits in the tax code. General Electric is not unique in this way.

Many companies find it more cost effective to lobby Congress for benefits that directly help them, rather than for benefits for all companies in their industry, or all businesses. In the legislative process, it is much easier for a congressperson to add a rider or earmark to a bill that benefits a single company, than to pass a bill that cuts taxes for all companies, for instance.

The energy sector, for example, is awash in tax breaks and subsidies for different types of energy producers. Oil, natural gas, coal, wind, solar, and nuclear energy producers find that they must compete to have the best lobbying campaign in order to compete in price with the other energy producers. Some industries do a better job at lobbying Congress than others. Coal industry lobbyists, for instance, have done quite well while natural gas lobbyists struggle to get noticed. So, by providing more benefits to coal producers, Congress distorts the energy sector markets in favor of coal over other types of energy production.

A solution, obviously, would be to get rid of all the corporate tax breaks and subsidies and lower the tax rates across the board for all corporations. Some groups, such as President Obama's National Commission on Fiscal Responsibility and Reform, the Bipartisan Policy Center's Debt Reduction Task Force, and the House Republican's 2012 Budget Proposal have all proposed doing exactly that. While many members of both parties have endorsed these plans, many others have not.

One important conservative critic is Grover Norquist, President of Americans for Tax Reform. Americans for Tax Reform has asked members of Congress to sign its “Taxpayer Protection Pledge” to not raise taxes. Currently, 237 House members and 41 Senators have signed the pledge. Norquist has stated that any attempt to close tax loopholes would be considered a violation of the “Pledge”. Senator Saxby Chambliss (R-GA), who has signed the pledge, has argued, on the other hand, that he would not consider it a violation because the overall corporate tax rate would be reduced along with the elimination of tax deductions. Norquist and his supporters, by opposing tax code simplification, are effectively saying that it is more important to keep government revenue low than to have a free-market system.

Interestingly, while the Tea-Party Republicans are often portrayed as the “far-right” of the Republican Party, on this issue, the tea-parties may find common cause with liberal Democrats. Last November, two separate letters, one from interest groups and another from US Senators, called for an end to ethanol subsidies. The former was signed by both the tea-party group FreedomWorks and the liberal group MoveOn.org. The latter was signed by tea-party supporter Tom Coburn and liberal Democrat Dianne Feinstein.

So, the next time you hear a Republican tell you they're supporting the free-market by giving select benefits to companies, remind them that they're actually distorting the marketplace.