Tag Archives: political economy

Tax Breaks, Taxes, and Congress

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Fox News niggles at the story.  Here’s a short list of tax breaks that are at risk of not being renewed (due to Democrats’ intransigence concerning cutting Federal spending, these tax “breaks” do increase the deficit), even though usually they are renewed early in the subsequent year:

  • tax credit for research and development: saving an estimated $6.2 billion in 2013
  • exemption that allows banks, insurance companies and other financial firms to shield foreign profits from being taxed by the US: saving an estimated $9.4 billion in 2013
  • break allowing profitable companies to write off large capital expenditures immediately, rather than over time: saving an estimated $34 billion in 2013
  • tax credit for producing renewable energy, including wind and solar, in plants built before the end of 2013: saving an estimated $116 million in 2013
  • provision that allows motorsport race tracks to more quickly write off improvement costs: saving an estimated $46 million in 2013.
  • tax break that allows TV and movie productions to more quickly write off expenses: saving an estimated $266 million in 2013.

And so on, for more than 50 such things.

Of course none of this would matter—and the associated lobbyists would be put out of work and have to find something useful to do, instead—in a régime of a low flat tax on all income of whatever source, with no deductions, exemptions, credits, what-have-you, that everyone pays.  And we’d have fewer market distortions from the social engineering folderol of the current tax policy.

Minimum Wage as Politics

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Democrats looking to make gains in the 2014 gubernatorial elections are using a possible minimum wage increase as a way to win support among voters….

Democrats across the political spectrum have lobbied for a higher minimum wage this year, after Obama got the ball rolling on the issue by calling for an increase in his February budget speech. Since then, union-organized demonstrations in front of profitable mega-chains such as Wal-Mart and McDonald’s have kept it in the public eye.

Senate Democrats have also pushed for a minimum wage increase going into 2014.  Their proposal would raise the minimum wage by 40%.

Of course there’s union involvement.  Aside from the Democrats being union meal tickets, increasing minimum wages protects union jobs—and so union leaders’ jobs—at the expense of the unemployed, those looking for a first job or for high school or college money, those looking for a second income, and the poor, who would gladly take the lower pay but who are priced out of the labor market by increased minimum wage.

We’ve already seen how that works.

Never mind the racist origin of minimum wage laws, instigated by FDR specifically to stem the tide of southern blacks moving north to take jobs at lower pay than white unions (blacks weren’t allowed in those unions, remember) wanted, and so taking jobs at the expense of those white union members.

Never mind that most of those unemployed and underemployed who will be priced out of the next round of hiring by these elevated minimum wages are the already vastly underemployed and underemployed black and Hispanic teenagers, black and Hispanic moms trying to work a family’s second job.  Regardless of current intent, the disparate impact of minimum wage laws is clear.  Where’s Eric Holder when we need him?

Nevertheless, Danny Kanner, Democratic Governors Association Communications Director had this to say:

The defining issue in every single one of these races is who is fighting for the middle class.

Yeah.  Never mind any of those poor, who’d like to get a job and work their way into the middle class.  Typical Progressive, playing politics, and with that play, ignoring the least among us.

The Evils of Fracking

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It seems that fracking, that heinous technology used for getting hard-to-reach natural gas and oil out of the very deep underground, far from polluting our water, saves it, especially where natural gas-based electricity generating plants are concerned.  According to a University of Texas study published in Environmental Research Letters,

Even though exploration for natural gas through hydraulic fracturing requires significant water consumption in Texas, the new consumption is easily offset by the overall water efficiencies of shifting electricity generation from coal to natural gas.  The researchers estimate that water saved by shifting a power plant from coal to natural gas is 25 to 50 times as great as the amount of water used in hydraulic fracturing to extract the natural gas.

Natural gas-fired power plants use about two-thirds less water than coal-fired plants to cool the generators.  The switch to natural gas-based electricity generation, made commercially feasible by fracking, thus reduces water use by the plants significantly.  Aside from reducing water consumption in and of itself, and reducing costs for producers and consumers of electricity, this yields another, longer-term outcome.  Senior Research Scientist at UT’s Bureau of Economic Geology, said,

The bottom line is that hydraulic fracturing, by boosting natural gas production and moving the state from water-intensive coal technologies, makes our electric power system more drought resilient.

Bad fracking.  Bad.

A Thought on Income Inequality

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Income inequality has become a popular Progressive trope with which to demonize Republicans, Conservatives, and the United States generally over our alleged insensitivity to the plight of our poor.  Notwithstanding the immorality of capping whatever it is we use for income in order to take from the better off and give those takings to the poorer off, there are practical failures in this meme, as well.

One source of information that clarifies this matter comes from Stanford University’s Hoover Institution in the form of a paper by Kip Hagopian and Lee Ohanian, titled The Mismeasure of Inequality.  Following are some highlights from that paper; RTWT.

…the Census Bureau, which uses what it calls “money income” in its measurement of income inequality.  Money income, which is the definition of income typically used in public references to inequality, consists of cash income only, does not subtract taxes, and excludes the value of noncash transfer payments (such as nutritional assistance, Medicare, Medicaid, and public housing), as well as many other components of income.  In addition to transfer payments, which are a substantial portion of income at the low end of the income scale, some of the other missing components of income are: employer-provided fringe benefits (primarily retirement benefits and health insurance, which can amount to as much as 30 percent of income), capital gains, imputed rent from owner-occupied housing, and increases in the value of home equity

And

Based on this more relevant definition [which included all those exclusions], income inequality declined 1.8 percent during the sixteen-year period between 1993 and 2009….

But even using the Gini coefficient, a popular “measure” of income inequality—which uses only money income as its measure—income inequality in the US only grew by 10% over the last nearly 30 years.

But it also turns out that income isn’t the only way to measure what’s intended with “money income” or “total income,” nor is it necessarily even the best measure.

…almost singular focus on income as a measure of economic well-being, when there is a clear consensus among economists that the best measure of living standards over the long term is not income, but consumption.  Focusing on consumption rather than income provides a very different picture of inequality.  … [A]ccording to the BLS [Bureau of Labor Statistics], during the fifteen-year period between 1986 and 2001, consumption inequality went down slightly; from a Gini of .283 to a Gini of .280.

Consumer Expenditure Surveys say much the same thing: consumption is relatively equal across incomes.  Even at that,

[C]urrent methodologies measure only market consumption rather than total consumption, which is the sum of both market (purchased) and nonmarket (home-produced) goods.  This is important because lower-income households consume a disproportionate amount of goods produced in the home (what economists call “home production”), including home-cooked meals, household-provided child care, and household home improvements and maintenance. Economists have estimated that home production is around one-third of GDP, yet this form of consumption is not counted in the total when measuring consumption inequality.

And none of this addresses the dynamic nature of income and consumption, what’s called economic mobility, or the ability of folks to move (or down) the economic ladder.  Here, we are wanting: upward economic mobility requires, among other things, job availability and, for homeowning job hunters, the ability to sell their homes pursuant to a job-related relocation.

Toward An Affordable Health Insurance Industry

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John Cochran, University of Chicago Booth School of Business Professor of Finance, among other positions, is on the right track, but he’s wide of the mark in some critical respects.

The unraveling of the Affordable Care Act presents a historic opportunity for change.  Its proponents call it “settled law,” but as Prohibition taught us, not even a constitutional amendment is settled law—if it is dysfunctional enough, and if Americans can see a clear alternative.

And

Only deregulation can unleash competition.  And only disruptive competition, where new businesses drive out old ones, will bring efficiency, lower costs, and innovation.

That’s plainly true, and he goes on to tout further—correctly IMNSHO—the advantages of a free market in the delivery of health insurance and the delivery of health care services.  However, he has some misconceptions in the extent to which those two industries should be allowed to go in a free market.

Health insurance should be…lifelong and guaranteed-renewable, meaning you have the right to continue with no unexpected increase in premiums if you get sick.

This isn’t insurance: it eliminates the concept of premiums being based on the risk being transferred.  Or, it is insurance, and the risk being transferred and the fee charged for accepting that transfer (the premium) will be elevated to account for the higher risk involved in that mandated longer-term risk acceptance as well as the changed risk factor represented by having gotten sick.  And sick again with the same thing.  And again.

Insurance should protect wealth against large, unforeseen, necessary expenses, rather than be a wildly inefficient payment plan for routine expenses.

This is blatantly normative and not at all related to the competition of free markets.  There will, indeed, be customers who want policies that cover “routine expenses;” it’s not Cochran’s—or government’s—place to proscribe these because they disagree that such policies have utility.

Rather than a mandate for employer-based groups, we should transition to fully individual-based health insurance.

Again, no.  This is another interference with a competitive free market.  It’s certainly true that the (tax-policy encouraged) “mandate” for employer-based groups is a distortion of the market.  However, rather than simply distorting the market in a different direction, let that market—the individuals who aggregate into that market—decide whether group plans are viable.

Aside from that, there is the matter of preexisting conditions.  The only risk that can be transferred here is the timing of the next flare up of the condition.  Forcing folks with these conditions onto the individual market will simply artificially elevate the premiums they’ll have to pay for the transfer of that risk.  Group plans would allow the risk acceptors, those insurance companies, to spread the timing across a risk pool larger than one, which would allow them to charge a lower premium—with a truly free, competitive market forcing them to compete for the business, and so exerting further downward pressure on the premiums charged.

Current group plans can convert to individual plans, at once or as people leave.  Since all members in a group convert, there is no adverse selection of sicker people.

This isn’t a free market—it’s a mandate to move away from a policy structure that many will want to retain, even if the coverages available within a particular group might change under free market imperative.  The free market also will handle the question of adverse selection just fine—that pricing matter.