Tag Archives: economics

Business Factoid

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Matthew Payne, writing in The Wall Street Journal this weekend on a related subject, had this little tidbit.  Quoting a Chief Executive Magazine poll of business-worthy states, he wrote,

CEOs are well disposed to Texas, and it’s not hard to understand why.  52 Fortune 500 companies now call Texas home.

That’s 10% of the Fortune 500 that live here.

If those 500 companies were spread evenly across the 50 states, there would be 10 of them here.  If the 500 were spread proportional to each state’s population relative the nation’s population, Texas would have 4 of them.

Hmm….

Debt, Taxpayers, and Morality

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President Barack Obama wants to forgive another batch of debt, this time owed by America’s youth.  This is another of those tidbits buried in his latest pseudo-budget proposal.

Obama wants to

increase the number of borrowers eligible for a program known casually as income-based repayment, which aims to help low-income workers stay current on federal student debt.

Borrowers in the program make monthly payments equivalent to 10% of their income after taxes and basic living expenses, regardless of how much they owe.  After 20 years of on-time payments—10 years for those who work in public or nonprofit jobs—the balance is forgiven.

Noticed that: “stay current.”  Not “pay off.”

That this would cost American taxpayers billions of dollars, in the middle of a very long failed recovery, doesn’t bother Obama at all.  After all, it’s only MonopolyFed money.

This would make all lending riskier.  This precedent would let every group of borrowers with a “good reason” (and they all will have good reasons) to be allowed to walk away from their debts.  There’d be no incentive left at all to borrow carefully and responsibly.  Dishonoring a promise would be destigmatized.

It also ignores the morality of the thing.  It removes all incentive to honor commitments solemnly made—indeed, it would condone “commitments” made for the most frivolous reasons, by eliminating the consequences of failing to satisfy them.

A Grant of Dominion

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…of one group of Americans over another, courtesy of President Barack Obama, congresswoman Nancy Pelosi (D, CA), Senate Majority Leader Harry Reid (D, NV), and their Obamacare.

Dr Ezekial Emanual, ex-health-care adviser to Obama and presently senior fellow at the Center for American Progress strongly recommended this grant in a recent op-ed in The Wall Street Journal.

In touting Obamacare’s health “insurance” exchanges, he recommended government add overt pressure on our young to buy health “insurance,” in addition to the existing Individual Mandate requirement, because their participation is a necessary subsidy for others’ purchase.

Emanual began his push for this strengthening of the grant of a claim on one person’s private property to another with this…error:

Government exchanges on a national scale have never been tried before.

This is clearly untrue.  Canada, which is moving away from its national health “care” travesty, and Great Britain, which still is maintaining its National Health Service disaster, have already done this creation of health “insurance” on a national scale.  We know the failure that is pending.

Emanual had this in support of his push for extending that grant of dominion:

Here is the specific problem: insurance companies worry that young people, especially young men, already think they are invincible, and they are bewildered about the health-care reform in general and exchanges in particular.  They may tune out, forego purchasing health insurance and opt to pay a penalty instead when their taxes come due.
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The consequence would be a disproportionate number of older and sicker people purchasing insurance, which will raise insurance premiums and, in turn, discourage more people from enrolling.  This reluctance to enroll would damage a key aspect of reform.

There are a number of things wrong with this.  In the first place, young people aren’t invincible and generally don’t think they are—this is just a cynically dragged red herring.  Young people, though, generally are healthy enough that both health “insurance,” especially the expensive, overwrought versions being pedaled by government, and health welfare, which is what the government’s product really is, are bad bets.

Insurance companies—when they’re allowed to sell true insurance policies—make their money by correctly assessing the likelihood of payout and adjusting the premiums they charge in advance of the expected payout accordingly.  The likelihood of payout for a young person (the odds of his getting sick) is quite low over any reasonable time frame.  The healthy young are wise to take that risk on themselves.

Secondly, young people aren’t as bewildered as Emanual makes them out to be.  They understand the risks they’re assuming, and they’re quite clear on the wisdom of the assumption.  They just don’t have the same assessment that Emanual—who apparently Knows Better—does.

Third, the penalty of the Individual Mandate itself is nothing more than a sinister enforcing mechanism of government’s grant of dominion over one man to another.

Fourth, the consequence of not following Emanual’s “recommendation” is simply the consequence of government’s demand for health welfare rather than allowing free market, competitively sold health insurance.  That consequence has nothing to do with the choices the young might freely make.

Emanual added further defense:

[W]e need to make clear as a society that buying insurance is part of individual responsibility.  If you don’t have insurance and you need to go to the emergency room or unexpectedly get diagnosed with cancer, you are free-riding on others.  …  The social norm of individual responsibility must be equated with purchasing health insurance.

Stipulating, arguendo (and only for that), that this is an accurate characterization, this justifies being forced to let others free-ride on me how, exactly?

Moreover, when I get sick and I’m uninsured, I don’t go to the ER and freeload—I pay for my infirm out of my own resources.  Just as my wife and I did when we were uninsured and paid for her biopsy and bilateral mastectomy out of our own resources.

Additionally—and this is a critical point that Progressives in general either can’t understand or simply ignore—helping those less well off is a matter of individual responsibility, not a government one.  Paying into government-provided welfare is legitimate, but only when government involvement is the last resort, not the default one.

Buying insurance or not, though—real insurance, not the present health welfare—has nothing at all to do with individual responsibility or with welfare.  That’s purely a personal economic and risk assessment choice.  Demanding that this man buy insurance so as to hold down that man’s cost for insurance is just, again, a grant of dominion to that other over the one: it’s government’s grant to another man of a claim superior to the one’s on his own property.

That’s tyranny, at best.

Emanual gave his game away here:

The president connects with young people, too, so he needs to use that bond and get out there to convince them to sign up for health insurance to help this central part of his legacy.

How cynical.  They should spend money on a thing they don’t need because Obama says that’s cool.  And to preserve a political legacy for Emanual’s hero.

Nor another man nor government has dominion over us.  Especially, government has no dominion over us; government, contrary to Emanual’s apparent understanding, is our employee.

A Thought on Wealth Redistribution

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The Heritage Foundation has released their study on a potential cost to existing US taxpayers of legalizing existing illegal aliens under the Gang of Eight’s immigration reform program.  Andrew Stiles, writing for National Review Online, has provided a useful summary of that 100-page document.

Rather than commenting on the implications vis-à-vis immigration reform, though, I want to comment on the implications for us taxpayers with respect to the larger question of wealth redistribution in our country.

Stiles noted that

[t]he study seeks to calculate the total amount of taxpayer-funded benefits and services illegal immigrants would, if given legal status, consume over their lifetimes, compared with the amount they would contribute in taxes.  The various benefits and services taken into account include direct benefits such as Social Security and Medicare, means-tested welfare programs such as food stamps and public housing, public education, and other services such as police and fire departments.

Stiles’ summary continued:

[O]nce formerly illegal immigrants become eligible for [means-tested welfare] programs, average fiscal deficits [of welfare payouts over tax collections] would rise to about $29,500 per household.  During retirement, when former illegal immigrants, now permanent residents or citizens, would be eligible for Social Security and Medicare benefits, the net cost to taxpayers would remain high, at around $22,700 per retiree per year.

In the aggregate,

[a]fter legalization, [the fiscal deficit]…would climb to $106 billion once households become eligible for welfare benefits, and would increase still further to around $160 billion during the retirement phase.

There are legitimate criticisms of this study as it applies to immigrants, mostly centered on the study being static rather than dynamic—for instance, now-legal immigrant contributions to our economy are not considered.

In the context of this post, though, the numbers are instructive, since there are no special welfare programs for immigrants, legal or otherwise: these are the programs in which American citizens of an economic status participate.

There are more than 50 million recipients of Medicaid benefits and more than 40 million food stamp recipients presently (yes, there’s overlap between these two groups).  There are more than 100 million recipients of some form of welfare.  With 11 million legalized immigrants getting $106 billion to $160 billion in annual welfare payments, it’s easy to wonder at the magnitude of the wealth redistribution aimed at our existing poor.

Think about the economic boon—to those poor and to the middle and upper classes—of that money staying in the private economy rather than being washed through government with its inherent inefficiencies and waste, even assuming only the best of intentions and effort by the bureaucrats administering the programs.

A sound economy, with maximal monies left in the hands of the earners, greatly reduces the moral and fiscal burdens on Americans, and it greatly reduces (though it does not eliminate) the need for, and cost of, welfare programs.

A Thought on Taxes

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As the idea of reforming our mendaciously Byzantine tax code starts to come up again—whether as a reform in its own right or as a bargaining chip in the coming debt ceiling debate (which debate properly focuses on cutting spending more than on taxes)—some thoughts occur to me, triggered by a couple of recent Wall Street Journal articles.

One thought concerns the purpose of tax reform.  The Progressives in government, led by President Barack Obama, Senators Chuck Schumer (D, NY) and Majority Leader Harry Reid (D, NV), and Congressman Sander Levin (D, MI, Ranking Member on the Ways and Means Committee) insist that the purpose must be to raise yet more revenue for government, while most Republicans and generally all Conservatives insist that the purpose must be both to make the system fairer and to leave more money in the hands of the folks who earned it—which does not include government.

Levin actually argues in all seriousness

I don’t see how you do it without a major tax cut for the very wealthy.  And to make [the revenue] up, I think that means a tax increase for the middle class. I don’t see how else you do it.

But Levin, and his fellow Progressives generally, don’t explain why they have such disdain for this group of Americans.  Their bias is well-established, but it’s less important than another Progressive failure: their decision not to justify the government’s—or their own—”need” for more revenue.  The Progressives’ need is well understood—it’s to feed both their addiction to the dependency of others on their own power to dole out goodies to those dependents and to consolidate their personal political power.  But based on what theory must government have more revenue?  These worthies cynically decline to explain that at all.

Progressives (and too many Republicans) complain that cuts in taxes (or spending, come to that) will hurt this or that or those programs, but this simply begs the question.  They have yet to demonstrate either that the programs actually are necessary, and subsequently, that government can do them better than the private sector: private enterprise, charity/church, local communities, NGOs, etc.

There is an alternative to “paying” for a tax reform that reduces revenue to the government (eliding the fact that the resulting burgeoning economy will, on net, produce an increase in the government’s revenue collections).  That is to cut spending to fit within the revenues collected.  But that’s inconceivable to too many in government.

Government certainly can, and should, fill the shortfalls and failures, but there must be failure or shortfall before government legitimately can act.

Congressman Kevin Brady (R, TX, Joint Economic Committee Chairman), in the other WSJ article wrote of a practical aspect inhibiting real tax reform, and that is the inaccuracy of the underlying data.  I won’t go into the statistical arcana that are at the center of this problem; suffice it to say that there is a difference between the meanings of the median and mean (what we normally think of with “average”) of a collection of data, in this case the tables of tax data broken out by various categories involving income levels and who pays taxes currently—what Brady refers to as Tax Distribution Tables.

These tables are used to assess the outcomes of various tax proposals (and their degree of progressivity, that is by how much the higher income are required to pay more than the middle and lower income).  Misuse of the data in these tables can lead to misleading assessments of proposal outcomes.  Brady wrote

The tables use averages—rather than medians—to characterize changes in tax liabilities by income groups (or quintiles).  But averages are wildly unrepresentative for this purpose.  For example, the study found that the average tax liability for the second quintile (with adjusted gross incomes between $11,100 and $24,000) represents just 1.1% of the taxpayers in that quintile.  The average reflects a mere 31.9% of taxpayers in the fourth income quintile ($42,600-$76,600).

The average adjusted gross income for all tax returns…was $59,800 while the median is only $32,200.  The average tax liability was $8,000 while the median is $1,500.  This dramatic difference suggests how much confidence one can place in these tables as a guide to policy makers.

And

The tables group taxpayers by income categories without regard to other relevant factors.  In reality, income alone has little in common with tax liabilities—that is, how much a taxpayer owes the government—because of differences in the size and composition of households, the type of income, and the amount of deductions and exclusions.

The tables miss two other important aspects of our tax code, also, stemming from the fact that they are static snapshots and so cannot illuminate the dynamics of an American taxpayer, or the collection of us.  For instance:

Tax-distribution tables cannot capture one of the most salient characteristics of the U.S. tax code—the decreasing share of taxes paid by the bottom 50% of taxpayers and the increasing share of taxes paid by the upper 1%.

And

Tax-distribution tables are momentary snapshots that ignore income mobility.  …  The nonpartisan Tax Foundation found in a study on income mobility in 2010 that nearly 60% of the households in the lowest quintile moved into a higher income group between 1999 and 2007, while almost 40% of households in the top quintile fell by at least one quintile. The…traditional tax tables [are] obsolete shortly after they are published.