Tag: fiscal policy

Why Sebelius Campaigns So Hard for Her Boss — and Why He Won’t Fire Her

Secretary of Health and Human Services Kathleen Sebelius has been campaigning so enthusiastically for President Obama that she – whoops! – broke a federal law that restricts political activities by executive-branch officials. Federal employees are usually fired for such transgressions, but no one expects that to happen to Sebelius. Heck, she got right back in the saddle.

Every cabinet official (probably) wants to see the president reelected, and no president relishes dismissing a cabinet official. But in this case, there’s an additional incentive for Sebelius to campaign for her boss and for Obama not to fire her.

ObamaCare creates a new Independent Payment Advisory Board that – “fact checkers” notwithstandingis actually a super-legislature with the power to ration care to everyone, increase taxes, impose conditions on federal grants to states, and wield other legislative powers. According to legend, IPAB will consist of 15 unelected “experts” who are appointed by the president and confirmed by the Senate. Yeah, good one.

In fact, if the president makes no appointments, or the Senate rejects the president’s appointees, then all of IPAB’s considerable powers fall to one person: the Secretary of Health and Human Services. The HHS secretary would effectively become an economic dictator, with more power over the health care sector than any chamber of Congress.

If Obama wins in November, he would have zero incentive to appoint any IPAB members. The confirmation hearings would be a bloodbath, not unlike Don Berwick’s confirmation battle multiplied by 15. Sebelius, on the other hand, would not need to be re-confirmed. She could assume all of IPAB’s powers without the Senate examining her fitness to wield those powers. If Obama fired her, or the voters fire Obama, then the next HHS secretary would have to secure Senate confirmation. Again, bloodbath. That makes Kathleen Sebelius the only person in the universe who could assume those powers without that scrutiny.

No wonder she’s campaigning so hard. No wonder Obama won’t fire her.

New Video Shows that Obamanomics Is a Failure

I’ve narrated a video on why Keynesian economics is bad theory, I’ve also narrated a video specifically debunking Obama’s failed stimulus, and I’ve put together a post with data from the Minneapolis Fed showing how Reaganomics worked far better than Obamanomics.

But this video from the Center for Freedom and Prosperity Foundation does all that—and more—in only about six minutes.

By the way, for those who like gory details, a previous video in the CF&P Foundation’s Economics 101 series looked at how the so-called stimulus was a rat’s nest of waste and corruption.

Not that anybody should be surprised. Big government facilitates corruption in the same way that a dumpster attracts rats and cockroaches.

My concern is long-term trends. Politicians should be complying with Mitchell’s Golden Rule, which means reducing government spending as a share of GDP (to put it in terms that make economists feel warm and fuzzy, gov’t exp/GDP should be decreasing).

What irks me about Obama is that he wants to increase the burden of government spending, which means the numerator in the equation is going in the wrong direction. And he wants class-warfare tax policy and more red tape, which makes it even harder for the denominator to move in the right direction.

And if that ratio continues to deteriorate, as both the BIS and OECD are predicting, then it’s just a matter of time before the United States becomes Greece.

Post-Debate Analysis: Debunking Obama’s Flawed Assertions on Tax Deductions and Corporate Welfare

In a violation of the 8th Amendment’s prohibition against cruel and unusual punishment, my brutal overseers at the Cato Institute required me to watch last night’s debate (you can see what Cato scholars said by clicking here).

But I will admit that it was good to see Obama finally put on the defensive, something that almost never happens since the press protects him (with one key exception, as shown in this cartoon).

This doesn’t mean I like Romney, who would probably be another Bush if he got to the White House.

On the specifics, I obviously didn’t like Obama’s predictable push for class warfare tax policy, but I’ve addressed that issue often enough that I don’t have anything new to add.

I was irked, though, by Obama’s illiteracy on the matter of business deductions for corporate jets, oil companies, and firms that “ship jobs overseas.”

Let’s start by reiterating what I wrote last year about how to define corporate income: At the risk of stating the obvious, profit is total revenues minus total costs. Unfortunately, that’s not how the corporate tax system works.

Sometimes the government allows a company to have special tax breaks that reduce tax liabilities (such as the ethanol credit) and sometimes the government makes a company overstate its profits by not allowing it to fully deduct costs.

During the debate, Obama was endorsing policies that would prevent companies from doing the latter.

The irreplaceable Tim Carney explains in today’s Washington Examiner. Let’s start with what he wrote about oil companies.

…the “oil subsidies” Obama points to are broad-based tax deductions that oil companies also happen to get. I wrote last year about Democratic rhetoric on this issue: “tax provisions that treat oil companies like other companies become a ‘giveaway,’…”

I thought Romney’s response about corrupt Solyndra-type preferences was quite strong.

Here’s what Tim wrote about corporate jets.

…there’s no big giveaway to corporate jets. Instead, some jets are depreciated over five years and others are depreciated over seven years. I explained it last year. When it comes to actual corporate welfare for corporate jets, the Obama administration wants to ramp it up — his Export-Import Bank chief has explicitly stated he wants to subsidize more corporate-jet sales.

By the way, depreciation is a penalty against companies, not a preference, since it means they can’t fully deduct costs in the year they are incurred.

On another matter, kudos to Tim for mentioning corrupt Export-Import Bank subsidies. Too bad Romney, like Obama, isn’t on the right side of that issue.

And here’s what Tim wrote about “shipping jobs overseas.”

Obama rolled out the canard about tax breaks for “companies that ship jobs overseas.” Romney was right to fire back that this tax break doesn’t exist. Instead, all ordinary business expenses are deductible — that is, you are only taxed on profits, which are revenues minus expenses.

Tim’s actually too generous in his analysis of this issue, which deals with Obama’s proposal to end “deferral.” I explain in this post how the President’s policy would undermine the ability of American companies to earn market share when competing abroad - and how this would harm American exports and reduce American jobs.

To close on a broader point, I’ve written before about the principles of tax reform and explained that it’s important to have a low tax rate.

But I’ve also noted that it’s equally important to have a non-distortionary tax code so that taxpayers aren’t lured into making economically inefficient choices solely for tax reasons.

That’s why there shouldn’t be double taxation of income that is saved and invested, and it’s also why there shouldn’t be loopholes that favor some forms of economic activity.

Too bad the folks in government have such a hard time even measuring what’s a loophole and what isn’t.

France’s Fiscal Suicide

I try to be self aware, so I realize that I have the fiscal version of Tourette’s. Regardless of the question that is asked, I’m tempted to blurt out that the answer is to reduce the burden of government spending.

But sometimes that’s exactly the right prescription, particularly for an economy weighed down by a bloated public sector. And, as you can see from this chart, the French welfare state is enormous.

Only Denmark has a bigger burden of government spending, but at least the Danes are astute enough to compensate with hyper-free market policies in other areas.

So is France also trying to offset the damage of excessive spending with good policy in other areas? Au contraire, President Hollande is compounding the damage with huge class-warfare tax hikes.

Here’s what the Wall Street Journal says about Hollande’s fiscal proposal—including the key revelation that spending will go up rather than  down.

Remember all that euro-babble before the French election about fiscal “austerity” harming growth? Well, meet the new austerity, same as the old austerity, which means higher taxes on the private economy and token discipline for the state. Growth is an afterthought. That’s the lesson of French President François Hollande’s new “fighting” budget, which is supposed to reduce the deficit to 3% of GDP from 4.5% and represent the country’s toughest belt-tightening in three decades. …More telling is that two-thirds of the €30 billion in so-called savings is new tax revenue, and one-third comes from slowing spending growth. Total public expenditure—already the second most lavish in Europe—will increase by €6 billion to 56.3% of GDP.

The spending cuts are fictional, but the tax increases are very, very real.

The real austerity will be imposed on taxpayers, and not only on the rich. Income above €150,000 will now be taxed at 45%, up from the current 41%. Mr. Hollande’s 75% tax rate on income over €1 million comes into effect for two years, reaping expected (and predictably paltry) revenue of €200 million. That’s dwarfed by the €1 billion from reducing the threshold for the “solidarity” tax on wealth to €800,000 from €1.3 million. The French Socialists will also now tax investment income at the same high rates as regular income. The rates have been 19% for capital gains, 21% for dividends and 24% for interest income. If Mr. Hollande’s goal is to send capital out of France, that should help.

Anybody want to take bets, by the way, on whether the “temporary” two-year 75 percent tax rate still exists three years from now?

I say yes, in large part because the tax almost surely will lose revenue because of Laffer Curve effects. But rather than learn the right lesson and repeal the tax, Hollande will argue it needs to be maintained because revenues are “unexpectedly” sluggish.

It’s also remarkable that Hollande wants to dramatically increase tax rates on capital gains, dividends, and interest. These are all examples of double taxation.

And when you factor in the taxes at both the personal and business level, these charts show that France already has the highest tax on dividends in the developed world and the third-highest tax on capital. And Hollande wants to make a terrible system even worse. Amazing.

I’ve already predicted that France will be the next major economy to suffer a fiscal crisis. I was too clever to give a date, but Hollande’s policies are accelerating the day of reckoning.

P.S. The WSJ also takes some well-deserved potshots at the latest fiscal plan in Spain. Since I endorsed Hollande in hopes that he would engage in suicidal fiscal policy, this post is focused on the French fiscal plan. But Spain also is a disaster.

Another UN Push for Global Taxation

But I guess I’m not very persuasive. The bureaucrats have just released a new report entitled, “In Search of New Development Finance.”
As you can probably guess, what they’re really searching for is more money for global redistribution.
But here’s the most worrisome part of their proposal: they want the UN to be in charge of collecting the taxes, sort of a permanent international bureaucracy entitlement.
I’ve written before about the UN’s desire for tax authority (on more than one occasion), but this new report is noteworthy for the size and scope of taxes that have been proposed.
Here’s the wish list of potential global taxes, pulled from page vi of the preface:

Below is some of what the report has to say about a few of the various tax options. We’ll start with the carbon tax, which I recently explained was a bad idea if it were to be imposed on Americans by politicians in Washington. It’s a horrible idea if imposed globally by the kleptocrats at the UN.

…a tax of $25 per ton of CO2 emitted by developed countries is expected to raise $250 billion per year in global tax revenues. Such a tax would be in addition to taxes already imposed at the national level, as many Governments (of developing as well as developed countries) already tax carbon emissions, in some cases explicitly, and in other cases, indirectly through taxes on specific fuels.

Notice that the tax would apply only to “developed countries,” so this scheme is best characterized as discriminatory taxation. If Obama is genuinely worried about jobs being “outsourced” to developing nations like China (as he implies in his recent attack on Romney), then he should announce his strong opposition to this potential tax.

But don’t hold your breath waiting for that to happen.

Next, here’s what the UN says about a financial transactions tax:

A small tax of half a “basis point” (0.005 per cent) on all trading in the four major currencies (the dollar, euro, yen and pound sterling) might yield an estimated $40 billion per year. …even a low tax rate would limit high-frequency trading to some extent. It would thus result in the earning of a “double dividend” by helping reduce currency volatility and raising revenue for development. While a higher rate would limit trading to a greater extent, this might be at the expense of revenue.

This is an issue that already has attracted my attention, and I also mentioned that it was a topic in my meeting with the European Union’s tax commissioner.

But rather than reiterate some of my concerns about taxing financial consumers, I want to give a bit of a compliment to the UN: the bureaucrats, by writing that “a higher rate … might be at the expense of revenue,” deserve credit for openly acknowledging the Laffer Curve.

By the way, this is an issue where both the United States and Canada have basically been on the right side, though the Obama administration blows hot and cold on the topic.

Now let’s turn to the worst idea in the UN report. Its authors want to steal wealth from rich people. But even more remarkable, they want us to think this won’t have any negative economic impact.

…the least distorting, most fair and most efficient tax is a “lump sum” payment, such as a levy on the accumulated wealth of the world’s richest individuals (assuming the wealthy could not evade the tax). In particular, it is estimated that in early 2012, there were 1,226 individuals in the world worth $1 billion or more, 425 of whom lived in the United States, 90 in other countries of the Americas, 315 in the Asia-Pacific region, 310 in Europe and 86 in Africa and the Middle East. Together, they owned $4.6 trillion in assets, for an average of $3.75 billion in wealth per person. A 1 percent tax on the wealth of these individuals would raise $46 billion in 2012.

I’ll be the first to admit that you can’t change people’s incentives to produce in the past. So if you steal wealth accumulated as the result of a lifetime of work, that kind of “lump sum” tax isn’t very “distorting.”

But here’s some news for the UN: rich people aren’t stupid (or at least their financial advisers aren’t stupid). So you might be able to engage in a one-time act of plunder, but it is naiveté to think that this would be a successful long-term source of revenue.

For more information, I addressed wealth taxes in this post, and the argument I was making applies to a global wealth tax just as much as it applies to a national wealth tax.

Now let’s conclude with a very important warning. Some people doubtlessly will dismiss the UN report as a preposterous wish list. In part, they’re right. There is virtually no likelihood of these bad policies getting implemented any time in the near future.

But UN bureaucrats have been relentless in their push for global taxation, and I’m worried they eventually will find a way to impose the first global tax. And if you’ll forgive me for mixing metaphors, once the camel’s nose is under the tent, it’s just a matter of time before the floodgates open.

The greatest threat is the World Health Organization’s scheme for a global tobacco tax. I wrote about this issue back in May, and it seems my concerns were very warranted. Those global bureaucrats recently unveiled a proposal—to be discussed at a conference in South Korea in November—that would look at schemes to harmonize tobacco taxes and/or impose global taxes.

Here’s some of what the Washington Free Beacon wrote:

The World Health Organization (WHO) is considering a global excise tax of up to 70 percent on cigarettes at an upcoming November conference, raising concerns among free market tax policy analysts about fiscal sovereignty and bureaucratic mission creep. In draft guidelines published this September, the WHO Framework Convention on Tobacco Control indicated it may put a cigarette tax on the table at its November conference in Seoul, Korea. …it is considering two proposals on cigarette taxes to present to member countries. The first would be an excise tax of up to 70 percent. …The second proposal is a tiered earmark on packs of cigarettes: 5 cents for high-income countries, 3 cents for middle-income countries, and 1 cent for low-income countries. WHO has estimated that such a tax in 43 selected high-/middle-/low-income countries would generate $5.46 billion in tax revenue. …Whichever option the WHO ends up backing, “they’re both two big, bad ideas,” said Daniel Mitchell, a senior tax policy fellow at the Cato Institute. …Critics also argue such a tax increase will not generate more revenue, but push more sales to the black market and counterfeit cigarette producers. “It’s already a huge problem,” Mitchell said. “In many countries, a substantial share of cigarettes are black market or counterfeit. They put it in a Marlboro packet, but it’s not a Marlboro cigarette. Obviously it’s a big thing for organized crime.” …The other concern is mission creep. Tobacco, Mitchell says, is easy to vilify, making it an attractive beachhead from which to launch future vice tax initiatives.

It’s my final comment that has me most worried. The politicians and bureaucrats are going after tobacco because it’s low-hanging fruit. They may not even care that their schemes will boost organized crime and may not raise much revenue.

They’re more concerned about establishing a precedent that international bureaucracies can impose global taxes.

I wrote the other day about whether Americans should escape to Canada, Australia, Chile, or some other nation when the entitlement crisis causes a Greek-style fiscal collapse.

But if the statists get the power to impose global taxes, then what choice will we have?

‘I Haven’t Raised Taxes’

Why am I only hearing about President Obama’s gob-smacking “I haven’t raised taxes” claim today, and from Reason?

On CBS News’s “60 Minutes” Sunday night, President Obama said, “Taxes are lower on families than they’ve been probably in the last 50 years. So I haven’t raised taxes.”

As of Monday morning, neither the Washington Post’s Pinocchio-awarding Fact-Checker, nor the Annenberg Public Policy Center’s FactCheck.org, nor the Tampa Bay Times’ Pulitzer-Prize-winning Politifact.com had risen to this opportunity…

Unbelievable. I just checked those websites, and they still haven’t.

Fortunately, Ira Stoll has. He leaves out a number of taxes President Obama has enacted, though, including raising the Medicare payroll tax on high-income earners, applying the Medicare payroll tax to non-payroll income for high-income earners, limiting the tax exclusion for flexible spending accounts, increasing the penalties on certain health savings account withdrawals, the “Cadillac tax” on high-cost health plans…

The Fraud Lobby

Evidently, there’s fraud in Medicaid.

The following are excerpts from an article in today’s Wall Street Journal. See if you can spot the fraud lobby:

In 2011, New York charged [Medicaid] a per-diem rate of $5,118 for residents of the [state-run] institutions, a network of 11 centers that now house about 1,300 people with severe developmental disabilities. Over the course of a year, Medicaid spends $1.9 million for every resident, or $2.5 billion in total—with half coming from the federal government. But the cost of running the institutions is only a quarter of that amount.

[A congressional] report said New York took advantage of a complex formula and kept federal officials in the dark for years…

The committee’s report said Gov. Andrew Cuomo’s administration refused to cooperate with the investigation. Joshua Vlasto, a spokesman for Mr. Cuomo, said the report’s conclusions were “wrong and totally misleading” and that a threatened “precipitous reduction” in funding would jeopardize administration efforts to modernize and restructure its Medicaid program…

But at a Thursday hearing, Penny Thompson, a CMS deputy director, suggested…, “You can expect to see a rate that’s about one-fifth of its current level” … without specifying a time frame. Such a reduction would reduce the annual federal reimbursement by about $1 billion, punching a hole in New York’s $54 billion Medicaid program…

The skewed methodology traces back more than 20 years, when New York got permission from the federal government to use a different formula for state-run developmental centers, assuring officials that the rates would hew close to costs.

But almost immediately, reimbursements began to skyrocket. The new methodology allowed New York to bill Medicaid for ghost patients: When a patient was discharged from a state-run facility, New York retained nearly two-thirds of the reimbursement amount. The formula also double-billed taxpayers: Many of those patients who left the centers moved into Medicaid-financed group homes.

Between 1990 and 2011, the daily reimbursement rate grew to $5,118 from $348. Ms. Thompson said it wasn’t clear if CMS “completely understood” the cost projections when it approved the rates. CMS officials acknowledge they first became aware of the problem in 2007 but waited three years before launching a probe.

In June 2010, the Poughkeepsie Journal ran a lengthy investigative piece about the rates. CMS started its investigation in response to the newspaper’s report, the committee said.

Lest you think I’m blaming Medicaid fraud on one political party, have a gander at my recent article, “Entitlement Bandits”:

Even conservatives fight anti-fraud measures, albeit in the name of preventing frivolous litigation, when they oppose expanding whistle-blower lawsuits, where private citizens who help the government win a case get to keep some of the penalty.

Protecting Medicare and Medicaid fraud is a bipartisan pastime.