Archives: June, 2009

Sen. Kennedy’s Budget-Breaking “Reform” Bill

It appears that the Obama administration has decided to disown the venerable Senator.  No wonder.  The Congressional Budget Office estimated the ten-year cost of Sen. Kennedy’s bill at $1 trillion, but admitted that its analysis was incomplete. 

Now the consulting group HSI Network, LLC comes foward with an estimate of $4 trillion:

The Senate Committee on Health, Education, Labor and Pensions (HELP) have proposed a health reform bill called the Affordable Health Choice Act (AHC) that seeks to reduce the number of uninsured and increase health system efficiency and quality. The draft legislation was introduced on June 9th, 2009. The proposal provided adequate information to suggest what the impact would be of AHC using the ARCOLA™ simulation model. AHC would include an individual mandate as well as a pay or plan provision. In addition, it would include a means-tested subsidy with premium supports available for those up to 500% of the federal poverty level. Public plan options in three tiers: Gold, Silver and Bronze are proposed in a structure similar to that of the Massachusetts Connector, except that it is called The Gateway. These public plan options would contain costs by reimbursing providers up to 10% above current reimbursement rates. There is no mention of removing the tax exclusion associated with employer sponsored health insurance. There is also no mention of changes to Medicare and Medicaid, other than fraud prevention, that could provide cost-savings for the coverage expansion proposed. Below, we summarize the impact of the proposed plan in terms of the reduction on uninsured, the 2010 cost, as well as the ten year cost of the plan in 2010 dollars.

HELP Affordable Health Choices Act

  • Uninsurance is reduced by 99% to cover approximately 47,700,000 people
  • Subsidy - Tax Recovery = Net cost:
    • $279,000,000,000 subsidy to the individual market
    • $180,000,000,000 subsidy to the ESI market with
    • Net cost: $460,500,000,000 (annual)
    • Net cost: $4,098,000,000,000 (10 year)
  • Private sector crowd out: ~79,300,000 lives

HSI figures that a lot more people will take advantage of federal health insurance subsidies, driving costs up far more than indicated by the CBO figure.  (H/t to Phil Klein at the American Spectator online.)

Of course, no one knows what the bill would really cost in operation.  But the history of social insurance and welfare programs is sky-rocketing expense well beyond original projections.  Go back and look at the initial cost estimates for Medicare and Social Security, and you will run from the room simultaneously laughing and crying.

Health care reform would be serious business at any moment of time, but especially when the country faces $10 trillion in new debt over the next decade on top of the existing $11 trillion national debt.  And with the $100 trillion Medicare/Social Security financial bomb lurking in the background, rushing to leap off the financial cliff with this sort of health care legislation would be utterly irresponsible.

Is the REAL ID Revival Bill, “PASS ID,” a National ID?

With the move in the Senate to revive our moribund national ID law, the REAL ID Act, under the name “PASS ID,” it’s important to look at whether we’re still dealing with a national ID law. My assessment is that we are.

First, PASS ID is modeled directly on REAL ID. The structure and major provisions of the two bills are the same. Just like REAL ID, PASS ID sets national standards for identity cards and drivers’ licenses, withholding federal recognition if they are not met.

There is no precise definition of a national identification card or system, of course, but its elements are relatively easy to identify.

First, it is national. That is, it is intended to be used throughout the country, and to be nationally uniform in its key elements. REAL ID and PASS ID have the exact same purpose - to create a nationally uniform identity system.

Second, its possession or use is either practically or legally required. A card or system that is one of many options for proving identity or other information is not a national ID if people can decline to use it and still easily access goods, services, or infrastructure. But if law or regulation make it very difficult to avoid carrying or using a card, this presses it into the national ID category.

Neither REAL ID nor PASS ID directly mandate carrying a card. Doing so would be too obviously a national ID system, and politically unpalatable. But both seek to take advantage of the state driver licensing system, and they do that for a reason: Carrying a driver’s license is a practical requirement in most parts of the country, where the automobile reigns supreme as the mode of travel.

But maybe states would decline to participate. Nothing in the PASS ID Act directly requires states to implement the system, and they are entirely free to issue non-compliant licenses and ID cards. But this was also true of REAL ID - because of the constitutional rule that the federal government cannot commandeer the organs of state government. (The case is New York v. United States.)

What both REAL ID and PASS ID do is make it difficult for state residents to function without their nationally standardized ID. They both require the nationally standardized ID to enter federal facilities (perhaps fewer of them under PASS ID), to access nuclear power plants, and to board aircraft.

But the PASS ID bill has specific language saying that a person can’t be denied boarding because they don’t have a national ID. Isn’t that an improvement? It sounds like it, but that language simply restates the rules that exist under REAL ID.

The TSA has never been able to deny people boarding because they don’t have an ID. (Many people have traveled without ID to prove the point.)

What the Department of Homeland Security does is make it really inconvenient to travel without showing ID. Not having your national ID can put you into a long secondary-search delay. And a year ago, the Transportation Security Administration created a new rule allowing them to turn travelers away if they “willingly” refuse to show ID and don’t “assist transportation security officers in ascertaining their identity.”

What this means is that people not showing ID have to answer questions about themselves for a TSA background check - a background check that has included political party affiliation. In other words, you either participate in the national ID system run by states, or you participate in the cardless national ID system that the TSA runs. (The TSA was storing information about who traveled without ID until it got caught.)

The rules are no different between REAL ID and the REAL ID revival bill, PASS ID. You don’t have to carry a national ID to get through the airport, but woe to the person who tries to exercise that freedom.

In addition, the plan under PASS ID is for the federal government to pay states a lot more money for implementation. Cost concerns were a real impediment to REAL ID, and the (false) promise of federal funds is designed to draw states into issuing nationally standard IDs for all their residents.

On balance, REAL ID and PASS ID are peas in a pod. They are both aimed at being practically required. The plan under both is for everyone who has a driver’s license to have a nationally standardized, REAL-ID-type license.

The final “element” of a national ID is that it is used for identification. A national ID card or system shows that a physical person identified previously to a government is the one presenting him- or herself on later occasions. (A Social Security Number is a national identifier, but it is not a national identifiction system because there is no biometric tie between the number and a person.)

REAL ID and PASS ID both subject every applicant for a license to “mandatory facial image capture.” They both put a “digital photograph of the person” on the card. They are most definitely about identification.

Are we still talking about a national ID? REAL ID and the REAL ID revival bill, “PASS ID,” are structured the same. They have no differences in terms of their aim - to create a national ID.

It’s certainly unusual that members of the Senate who formerly appeared to oppose a national ID would reverse course. I’ll spend more time on the politics, of course, and delve into many other issues in future posts.

Prime Minister of Finland Commits Gaffe, Admits that Anti-Tax Competition Schemes Are Designed to Enable Higher Tax Burdens

Most politicians and other advocates of tax harmonization are clever enough to pretend that they do not want higher tax rates. Instead, they assert that their proposals are merely ways of reducing evasion and making tax systems more efficient. So it is rather surprising that the Prime Minister of Finland has a column in the Financial Times, where he admits that various governments should conspire to simultaneously raise tax rates in order to finance big government:

The overall tax rate will have to rise as well over the longer term. In some areas that can be done without much consultation between the countries. For example, property taxes or inheritance taxes can largely be determined at the national level without adverse economic consequences. But such taxes will not raise significant amounts of revenue. Only changes in value added tax, various excise taxes or taxes on earned and capital income can make a real difference. However, raising such taxes can have detrimental effects on economic activity. This is especially so when a country acts on its own: capital and people can respond by migrating to jurisdictions with lower rates. Deeper co-operation is therefore necessary if tax revenues are to be increased in a way that truly helps fiscal consolidation. …It is important that different countries do not find themselves with very different tax solutions. We should avoid tax competition and the damage this would cause to Europe’s economic growth. …member countries could agree, for example, to change the levels of certain taxes in parallel. Parallel measures would help all of Europe: tax competition risk would be reduced and the public finances of individual countries would improve. Such co-ordinated tax changes could set also an important global example. In particular, it might encourage the US – with lower tax levels in most areas – to do what has to be done to address its spiralling budget deficit.

In the column, Prime Minister Vanhanen even suggests that the United States might be tempted to join the tax cartel. This has always been a goal of the Europeans since an OPEC for politicians without the United States will not work any better than the real OPEC without Saudi Arabia. One of my first videos – back in late 2007 – was on this topic, and it is embedded below for those who did not have a chance to view it.

Transparency in All Things

The Recovery Accountability and Transparency Board is seeking requests for production of a better Recovery.gov. And in a bold stroke the Sunlight Foundation is stepping up to bid.

A substantial amount of database and Web talent circulates around and in the Sunlight Foundation, and they can produce as good a Web site or better than any government contractor - and cheaper too.

I think Sunlight stands a pretty good chance in this, simply because the contract award will now be subject to public scrutiny. Value-for-dollar to the taxpayer will be easily discernible, and that will raise the political risks of awarding the contract based on cronyism or go-with-whatchya-knowism. Transparency in all things.

If Sunlight wins the contract, I have little doubt that they will produce a much better site and make real progress in transparency and oversight – things I talked about at our December 2008 conference, “Just Give Us the Data!

Kudos to Sunlight for taking this bold and fun step.

The Government Is Not the Economy

Rep. Zoe Lofgren (D-CA) is very upset that the Obama administration has rejected the California state government’s request for a bailout. She tells the Washington Post:

This matters for the U.S., not just for California. I can’t speak for the president, but when you’ve got the 8th biggest economy in the world sitting as one of your 50 states, it’s hard to see how the country recovers if that state does not.

First, presumably Lofgren knows that the federal government is projecting a deficit of $1.8 trillion for the current fiscal year – so where is this emergency aid for California to come from?

But perhaps even more importantly, Lofgren seems to confuse the state of California with the State of California. That is, she confuses the people and the businesses of California with the state government. There’s no clear and direct relationship between the two. The state government is currently running a large deficit and is warning of a “fiscal meltdown.” Of course, as it continued to issue claims of fiscal meltdown and painful cuts over the past many years, California has continued to spend. The state has nearly tripled spending since 1990 (doubled in per capita terms).  It went on a spending binge during the dotcom boom and never adjusted to the lower revenues after the bust.  During the Schwarzenegger years the state has increased spending twice as fast as inflation and population growth. What were they thinking?

But a bailout for the government won’t necessarily help the recovery of the state’s economy. In fact, by increasing taxes and/or borrowing, it would likely weaken the national economy. And by encouraging continued irresponsible spending by the state government, it would just be an enabler of destructive policies that suck money out of the productive sector of California’s economy. We all want the California economy to recover. But that’s not the same thing as giving more money to the California government.

Twitter and Iran - It’s Not About the U.S. Government

It’s fascinating to watch developments in Iran via Twitter and other social media. (Notably, when I turned on the TV last night to look for Iran news from a conventional source, there was nothing to be found - just commercials and talking heads yapping about politics.)

It was laudable that Twitter delayed a scheduled outage to late-night Tehran time in order to preserve the platform for Iranian users, but contrary to a growing belief, it wasn’t done at the behest of the State Department. It was done at the behest of Twitter users.

Twitter makes that fairly (though imperfectly) clear on its blog, saying, “the State Department does not have access to our decision making process.”

As Justin Logan notes, events in Iran are not about the United States or U.S. policy. They should not be, or appear to be, directed or aided from Washington, D.C. Any shifts in power in Iran should be produced in Iran for Iranians, with support from the people of the world - not from any outside government.

People are free to speculate that the State Department asked Twitter to deny its involvement precisely to create the necessary appearances, but without good evidence of it, assuming so just reflects a pre-commitment that governments - not people and the businesses that serve them - are the primary forces for good in the world.

Administration Reform Plan Misses the Mark

The Obama Administration is presenting a misguided, ill-informed remake of our financial regulatory system that will likely increase the frequency and severity of future financial crises. While our financial system, particularly our mortgage finance system, is broken, the Obama plan ignores the real flaws in our current structure, instead focusing on convenient targets.

Shockingly, the Obama plan makes no mention of those institutions at the very heart of the mortgage market meltdown – Fannie Mae and Freddie Mac. These two entities were the single largest source of liquidity for the subprime market during its height. In all likelihood, their ultimate cost to the taxpayer will exceed that of TARP, once TARP repayments have begun. Any reform plan that leaves out Fannie and Freddie does not merit being taken seriously.

Instead of addressing our destructive federal policies aimed at extending homeownership to households that cannot sustain it, the Obama plan calls for increased “consumer protections” in the mortgage industry. Sadly, the Administration misses the basic fact that the most important mortgage characteristic that is determinate of mortgage default is the borrower’s equity. However, such recognition would also require admitting that the government’s own programs, such as the Federal Housing Administration, have been at the forefront of pushing unsustainable mortgage lending.

While the Administration plan recognizes the failure of the credit rating agencies, it appears to misunderstand the source of that failure: the rating agencies’ government-created monopoly. Additional disclosure will not solve that problem. What is needed is an end to the exclusive government privileges that have been granted to the rating agencies. In addition, financial regulators should end the outsourcing of their own due diligence to the rating agencies.

The Administration’s inability to admit the failures of government regulation will only guarantee that the next failures will be even bigger than the current ones.