Tag: fiscal policy

The Obama Girls’ Health Care Choices

According to the White House, President Obama recently told a crowd of supporters:

Mr. Romney wants to get rid of funding for Planned Parenthood.  I think that is a bad idea.  I’ve got two daughters. I want them to control their own health care choices.

Umm, yeah. Two things about that.

One, if—as President Obama wills it—the president of the United States gets to determine Planned Parenthood’s funding levels, then his daughters do not control their health care choices.

Two, it hardly seems that Obama’s daughters—these children of The One Percent—have even the most plausible claim that low-income Americans should be forced to pay for their … eventual … services that Planned Parenthood provides.

‘Leavitt’ Is Republican for ‘Solyndra’

Mike Leavitt is a Republican, a former Utah governor, a former Secretary of Health and Human Services under President George W. Bush, and now owns a firm called Leavitt Partners, which makes money by helping states implement ObamaCare’s health insurance “exchanges” and take advantage of ObamaCare’s Medicaid expansion. Let’s stipulate from the outset that Leavitt and his staff are doing what they think is best for the nation. Still, as this article in yesterday’s New York Times explores, it’s odd that Mitt Romney chose as one of his top advisers a guy who’s profiting from ObamaCare:

If Republicans in Congress agree on anything, it is their desire to eradicate President Obama’s health care law. But one of the top advisers to Mitt Romney, the party’s likely presidential nominee, has spent the last two years advising states and private insurers on how to comply with the law…

Mr. Romney has named Mr. Leavitt — a longtime friend, former governor of Utah and former federal health secretary — to plan the transition for what both hope will be a Romney administration.

Mr. Leavitt’s full-time job is running his consulting company, Leavitt Partners, which is based in Salt Lake City and has advised officials in Mississippi, New Mexico and Pennsylvania, among other states…

Michael F. Cannon, director of health policy studies at the Cato Institute, said: “It is strange to see Mr. Leavitt, a former Republican governor and former secretary of health and human services, helping and encouraging states to carry out this law for which Republicans have so much antipathy. It deepens suspicion as to whether Romney is sufficiently committed to repealing the Obama health care law.”

Twila Brase, president of the Citizens’ Council for Health Freedom, a free market group that is mobilizing opposition to an exchange in Minnesota, said: “Mike Leavitt is an enabler of Obamacare. He has taken advantage of Obamacare to expand his own business, instead of helping governors resist a federal takeover of health care.”

Secretary of Health and Human Services Kathleen Sebelius has thrown nearly a billion dollars at states in a desperate attempt to bribe them into establishing Exchanges. We do not yet know how much of that cash has found its way to Leavitt Partners:

Natalie Gochnour, a spokeswoman for Leavitt Partners, said its work with states was only part of its business, but she refused to say how much the company had been paid for such work.

Perhaps some day we will, and “Leavitt” will become synonymous with “Solyndra.”

Also, by my count the Times article devoted eight column-inches to such pro-Exchange nonsense as the idea that an ObamaCare Exchange could “run on free market principles” or Leavitt’s claim that “continued inaction by states risks an Obama-style federal exchange being foisted upon a state.” Yet the Times cited no one who challenges those claims. I have no problem with the Times posing difficult questions to Romney. Why should ObamaCare get a pass?

What Obama and the New York Times Don’t Understand about Worldwide Taxation

Mitt Romney is being criticized for supporting “territorial taxation,” which is the common-sense notion that each nation gets to control the taxation of economic activity inside its borders.

While promoting his own class-warfare agenda, President Obama recently condemned Romney’s approach. His views, unsurprisingly, were echoed in a New York Times editorial.

President Obama raised … his proposals for tax credits for manufacturers in the United States to encourage the creation of new jobs. He said this was greatly preferable to Mitt Romney’s support for a so-called territorial tax system, in which the overseas profits of American corporations would escape United States taxation altogether. It’s not surprising that large multinational corporations strongly support a territorial tax system, which, they say, would make them more competitive with foreign rivals. What they don’t say, and what Mr. Obama stressed, is that eliminating federal taxes on foreign profits would create a powerful incentive for companies to shift even more jobs and investment overseas—the opposite of what the economy needs.

Since even left-leaning economists generally agree that tax credits for manufacturers are ineffective gimmicks proposed for political purposes, let’s set that topic aside and focus on the issue of territorial taxation.

Or, to be more specific, let’s compare the proposed system of territorial taxation to the current U.S. system of “worldwide taxation.”

Worldwide taxation means that a company is taxed not only on its domestic earnings, but also on its foreign earnings. Yet the “foreign-source income” of U.S. companies is “domestic-source income” in the nations where those earnings are generated, so that income already is subject to tax by those other governments.

In other words, worldwide taxation results in a version of double taxation.

The U.S. system seeks to mitigate this bad effect by allowing American-based companies a “credit” for some of the taxes they pay to foreign governments, but that system is very incomplete.

And even if it worked perfectly, America’s high corporate tax rate still puts U.S. companies in a very disadvantageous position. If an American firm, Dutch firm, and Irish firm are competing for business in Ireland, the latter two only pay the 12.5 percent Irish corporate tax on any profits they earn. The U.S. company also pays that tax, but then also pays an additional 22.5 percent to the IRS (the 35 percent U.S. tax rate minus a credit for the 12.5 percent Irish tax).

In an attempt to deal with this self-imposed disadvantage, the U.S. tax system also has something called “deferral,” which allows American companies to delay the extra tax (though the Obama administration has proposed to eliminate that provision).

Romney proposes to put American companies on a level playing field by going in the other direction. Instead of immediate worldwide taxation, as Obama wants, Romney wants to implement territorial taxation.

But what about the accusation from the New York Times that territorial taxation “would create a powerful incentive for companies to shift even more jobs and investment overseas”?

Well, they’re somewhat right … and yet they’re totally wrong. Here’s what I’ve said about that issue:

If a company can save money by building widgets in Ireland and selling them to the US market, then we shouldn’t be surprised that some of them will consider that option.  So does this mean the President’s proposal might save some American jobs? Definitely not. If deferral is curtailed, that may prevent an American company from taking advantage of a profitable opportunity to build a factory in some place like Ireland. But U.S. tax law does not constrain foreign companies operating in foreign countries. So there would be nothing to prevent a Dutch company from taking advantage of that profitable Irish opportunity. And since a foreign-based company can ship goods into the U.S. market under the same rules as a U.S. company’s foreign subsidiary, worldwide taxation does not insulate America from overseas competition. It simply means that foreign companies get the business and earn the profits.

To put it bluntly, America’s tax code is driving jobs and investment to other nations. America’s high corporate tax rate is a huge self-inflected wound for American competitiveness.

Getting rid of deferral doesn’t solve any problems, as I explain in this video. Indeed, Obama’s policy would make a bad system even worse.

But, it’s also important to admit that shifting to territorial taxation isn’t a complete solution. Yes, it will help American-based companies compete for market share abroad by creating a level playing field. But if policymakers want to make the United States a more attractive location for jobs and investment, then a big cut in the corporate tax rate should be the next step.

Threat to ObamaCare Is No ‘Drafting Error’

It turns out that ObamaCare makes an essential part of its regulatory scheme—an $800 billion bailout of private health insurance companies—conditional upon state governments creating the health insurance “exchanges” envisioned in the law.

This was no “drafting error.” During congressional consideration of the bill, its lead author, Sen. Max Baucus (D-MT), acknowledged that he intentionally and purposefully made that bailout conditional on states implementing their own Exchanges.

Now that it appears that as many as 30 states will not create Exchanges, the law is in peril. When states refuse to establish an Exchange, they are blocking not only that bailout, but also the $2,000 per worker tax ObamaCare imposes on employers. If enough states refuse to establish an Exchange, they can effectively force Congress to repeal much or all of the law.

That might explain why the IRS is literally rewriting the statute. On May 24, the IRS finalized a regulation that says the law’s $800 billion insurance-industry bailout will not be conditional on states creating Exchanges. With the stroke of pen, the IRS (1) stripped states of the power Congress gave them to shield employers from that $2,000 per-worker tax, (2) imposed that illegal tax on employers whom Congress exempted, and (3) issued up to $800 billion of tax credits and direct subsidies to private health insurance companies—without any congressional authorization whatsoever.

Some supporters of the law claim that Congress never intended to give states the power to block ObamaCare’s insurance-industry bailout. No doubt there are many in Congress who held that position. But they lost. If they’re unhappy now, they should take it up with Max Baucus.

What they should not do is set a precedent where the IRS can, on its own discretion, tax one group and subsidize another to the tune of $800 billion.

For more, see Jonathan Adler’s and my forthcoming Health Matrix article, “Taxation Without Representation: The Illegal IRS Rule to Expand Tax Credits Under the PPACA,” which has been featured in The Wall Street Journal, The New York Times, The Washington Post, Politico, and NPR.

‘Health Law Critics Prepare to Battle Over Insurance Exchange Subsidies’

The New York Times:

WASHINGTON — Critics of the new health care law, having lost one battle in the Supreme Court, are mounting a challenge to President Obama’s interpretation of another important provision, under which the federal government will subsidize health insurance for millions of low- and middle-income people.

Starting in 2014, the law…offers subsidies to help people pay for insurance bought through markets known as insurance exchanges.

At issue is whether the subsidies will be available in exchanges set up and run by the federal government in states that fail or refuse to establish their own exchange…

“The language of the statute is explicit,” Mr. Blumstein said. “Subsidies accrue to people who obtain coverage through state-run exchanges. The I.R.S. tries to get around that by providing subsidies for all insurance exchanges. That interpretation will almost certainly be challenged by someone.”

The most likely challenger, Mr. Blumstein said, is an employer penalized because one or more of its employees receive subsidies through a federal exchange. Employers may be subject to financial penalties if they offer no coverage or inadequate coverage and at least one of their full-time employees receives subsidies.

Michael F. Cannon, director of health policy studies at the libertarian Cato Institute, said the link between subsidies and penalties was a crucial part of the law.

“Those tax credits trigger the penalties against employers,” Mr. Cannon said. If workers cannot receive subsidies in states with a federal exchange, their employers cannot be penalized, he said.

Tax credits are not subsidies, of course. But ObamaCare’s $800 billion of refundable premium-assistance tax credits and cost-sharing subsidies are three parts subsidy (i.e., government spending) and only one part tax reduction.

The Simple and Predictable Story of Fiscal Bankruptcy in Cyprus

With all the fiscal troubles in Greece, Spain, Ireland, Portugal, and Italy, there’s not much attention being paid to Cyprus.

But the Mediterranean island nation is a good case study illustrating the economic dangers of big government.

For all intents and purposes, Cyprus is now bankrupt, and the only question that remains to be answered is whether it will get handouts from the IMF-ECB-EC troika, handouts from Russia, or both. Here’s some of what has been reported by AP.

Cyprus’ president on Thursday defended his government’s decision to seek financial aid from the island nation’s eurozone partners while at the same time asking for a loan from Russia, insisting that the two are perfectly compatible. …Cyprus, with a population of 862,000 people, last week became the fifth country that uses the euro currency to seek a European bailout… The country is currently in talks with the so-called ‘troika’ — the body made up of officials from the European Commission, the European Central Bank and the International Monetary Fund — on how much bailout money it will need and the conditions that will come attached. Locked out of international markets because of its junk credit rating status, Cyprus is paying its bills thanks to a €2.5 billion ($3.14 billion) Russian loan that it clinched last year. But that money is expected to run out by the end of the year.

So what caused this mess? Is Cyprus merely the helpless and innocent victim of economic turmoil in nearby Greece?

That’s certainly the spin from Cypriot politicians, but the budget data shows that Cyprus is in trouble because of excessive spending. This chart, based on data from the International Monetary Fund, shows that the burden of government spending has jumped by an average of 8.3 percent annually since the mid-1990s.

My Golden Rule of fiscal policy is that government spending should grow slower than economic output. Nations that follow that rule generally enjoy good results, while nations that violate that rule inevitably get in trouble.

Interestingly, if Cypriot politicians had engaged in a very modest amount of spending restraint and limited annual budgetary increases to 3 percent, there would be a giant budget surplus today and the burden of government spending would be down to 21.4 percent of GDP, very close to the levels in the hyper-prosperous jurisdictions of Hong Kong and Singapore.

Actually, that’s not true. If the burden of government spending had grown as 3 percent instead of 8.3 percent, economic growth would have been much stronger, so GDP would have been much larger and the public sector would be an ever smaller share of economic output.

Speaking of GDP, the burden of government spending in Cyprus, measured as a share of GDP, has climbed dramatically since 1995.

A simple way to look at this data is that Cyprus used to have a Swiss-sized government and now it has a Greek-sized government. Government spending is just one of many policies that impact economic performance, but is anyone surprised that this huge increase in the size of the public sector has had a big negative impact on Cyprus?

Interestingly, if government spending had remained at 33.9 percent of GDP in Cyprus, the nation would have a big budget surplus today. Would that have required huge and savage budget cuts? Perhaps in the fantasy world of Paul Krugman, but politicians could have achieved that modest goal if they had simply limited annual spending increases to 6 percent.

But that was too “draconian” for Cypriot politicians, so they increased spending by an average of more than 8 percent each year.

What’s the moral of the story? Simply stated, the fiscal policy variable that matters most is the growth of government. Cyprus got in trouble because the burden of government grew faster than the productive sector of the economy.

That’s the disease, and deficits and debt are the symptoms of that underlying problem.

Europe’s political elite doubtlessly will push for higher taxes, but that approach - at best - simply masks the symptoms in the short run and usually exacerbates the disease in the long run.

HHS Offers to Pay Six Years of Operating Costs for Some States’ ObamaCare Exchanges

That’s my read of this.

ObamaCare gives HHS the authority to make unlimited grants to help states create Exchanges. But that authority expires on December 31, 2014. HHS just issued an announcement that they will issue grants right up to midnight on December 31—and that some of those grants will be so big that they will last for five years:

Q4: What is the last day that a State can spend its award?

A4: Grantees are encouraged to drawdown funding within their budget period (up to one year for Level One and up to three years for Level Two grants); however, at the recommendation of CCIIO’s State Officer and at the discretion of the Grant Management Officer, grantees may receive a no-cost extension that will allow them to spend funding up to the expiration date of the project period. At HHS’s discretion, a project period can be extended for a maximum of five years past the date of the award. Note, however, that all spending of §1311(a) funds awarded under a cooperative agreement must be consistent with the scope of the statute, FOA, and terms and conditions of the awarded cooperative agreement. [Emphasis added.]

The last sentence is there just to make sure no one suspects them of violating the law, wink-wink.

Since HHS can make unlimited grants in the first year that Exchanges are supposed to operate (2014), this means HHS is trying to pay for the operating expenses of some states’ Exchanges for six years (2014-2019).