Tag: government spending

My Testimony on the Illegal IRS Rule Increasing Taxes & Spending under ObamaCare

Here is the video of my recent opening statement before a House Oversight Committee hearing on the IRS rule that Jonathan Adler and I write about in our forthcoming Health Matrix article, “Taxation without Representation: the Illegal IRS Rule to Expand Tax Credits under the PPACA.”

Please forgive the audio.

In addition, Pete Suderman writes that Adler and I “have jointly authored a long and quite convincing rebuttal to defenders of the IRS rule over at the journal Health Affairs. If they are right, it could be a fatal blow to the law.”

House Oversight Hearing on the IRS’s Illegal Rule Increasing Taxes & Spending under ObamaCare

Overall, this Tennessean article summarizes well yesterday’s House Oversight Committee hearing on the IRS rule that Jonathan Adler and I write about here and here. Unfortunately, the article does perpetuate the misleading idea that the nation’s new health care law is “missing” language to authorize tax credits in federally created Exchanges. (The statute isn’t missing anything. It language reads exactly as its authors wanted it to read.)

Excerpts:

Rep. Scott DesJarlais’ argument that the health-care reform law lacks wording needed to implement a crucial part of it took a major step forward Thursday.

The Jasper Republican got a hearing before the House Committee on Oversight and Government Reform on his claim that the Internal Revenue Service lacks authority to tax employers who fail to offer health policies and leave workers to buy coverage through federally established exchanges.

His arguments, while not uncontested during the hearing, apparently won over the committee chairman, Rep. Darrell Issa, R-Calif. Issa signed on Thursday as a co-sponsor of DesJarlais’ bill related to the issue. Other House Republican leaders also have shown interest, DesJarlais said in an interview afterward. He said he expects a vote on the House floor sometime this fall.

And a Senate version has been introduced by Sen. Ron Johnson, R-Wis…

DesJarlais contends that Congress worded the law in a way that authorizes the taxes and tax credits only for insurance bought through state-based exchanges, not federal ones…

The distinction is important because many states are balking at setting up their own exchanges. DesJarlais’ argument would mean federal exchanges couldn’t be implemented in those states, either…

“They have rewritten a law Congress haphazardly drafted,” DesJarlais said.

His bill, which has 35 cosponsors, would keep the IRS from moving forward with its regulatory language.

“I have employers watching this very closely,” DesJarlais added. Essentially, he said, the issue is “about whether ObamaCare can continue to exist.”

Here’s Why the Cayman Islands Is Considering Fiscal Suicide

What Do Greece, the United States, and the Cayman Islands Have in Common?

At first, this seems like a trick question. After all, the Cayman Islands are a fiscal paradise, with no personal income tax, no corporate income tax, no capital gains tax, and no death tax.

By contrast, Greece is a bankrupt, high-tax welfare state, and the United States sooner or later will suffer the same fate because of misguided entitlement programs.

But even though there are some important differences, all three of these jurisdictions share a common characteristic in that they face fiscal troubles because government spending has been growing faster than economic output.

I’ve written before that the definition of good fiscal policy is for the private sector to grow faster than the government. I’ve humbly decided to refer to this simple principle as Mitchell’s Golden Rule, and have pointed out that bad things happen when governments violate this common-sense guideline.

In the case of the Cayman Islands, the “bad thing” is that the government is proposing to levy an income tax, which would be akin to committing fiscal suicide.

The Cayman Islands are one of the world’s richest jurisdictions (more prosperous than the United States according to the latest World Bank data), in part because there are no tax penalties on income and production.

So why are the local politicians considering a plan to kill the goose that lays the golden eggs? For the simple reason that they have been promiscuous in spending other people’s money. This chart shows that the burden of government spending in the Cayman Islands has climbed twice as fast as economic output since 2000.

Much of this spending has been to employ and over-compensate a bloated civil service (in this respect, Cayman is sort of a Caribbean version of California).

In other words, the economic problem is that there has been too much spending, and the political problem is that politicians have been trying to buy votes by padding government payrolls (a problem that also exists in America).

The right solution to this problem is to reduce the burden of government spending back to the levels in the early part of last decade. The political class in Cayman, however, hopes it can prop up its costly bureaucracy with a new tax—which euphemistically is being called a “community enhancement fee.”

The politicians claim the tax will only be 10 percent and will only be imposed on the expat community. But it’s worth noting that the U.S. income tax began in 1913 with a top rate of only seven percent and it affected less than one percent of the population. But that supposedly benign tax has since become a monstrous internal revenue code that plagues the nation today.

Except the results will be even worse in Cayman because the thousands of foreigners who are being targeted easily can shift their operations to other zero-income tax jurisdictions such as Bermuda, Monaco, or the Bahamas. Or they can decide that to set up shop in places such as Hong Kong and Singapore, which have very modest income tax burdens (and the ability to out-compete Cayman in other areas).

As a long-time admirer of the Cayman Islands, I desperately hope the government will reconsider this dangerous step. The world already has lots of examples of nations that are following bad policy. We need a few places that are at least being semi-sensible.

By they way, I started this post with a rhetorical question about the similarities of Greece, the United States, and the Cayman Islands. Let’s elaborate on the answer.

Here’s a post that shows how Greece’s fiscal nightmare developed. But let’s show a separate chart for the burden of federal spending in the United States.

What’s remarkable is that the federal government and the Cayman Islands government have followed very similar paths to fiscal trouble. Indeed, Caymanian politicians have achieved the dubious distinction of increasing the burden of government spending at a faster rate than even Bush and Obama. No mean feat.

This data for the U.S. chart doesn’t include the burden of state and local government spending, so the Cayman Islands still has an advantage over the United States, but I’ll close with a prediction.

If the Cayman Islands adopts an income tax—regardless of whether they call it a community enhancement fee (to misquote Shakespeare, a rotting fish on the beach by any other name would still smell like garbage), it will be just a matter of time before the burden of government spending becomes even more onerous and Cayman loses its allure and drops from being one of the world’s 10-richest jurisdictions.

Which will be very sad since I’ll now have to find a different place to go when America suffers its Greek-style fiscal collapse.

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.

For $460 Billion a Year, Medicaid Darn Well Better Save Lives

A study in this week’s New England Journal of Medicine finds that when three states expanded their Medicaid programs, mortality rates fell 6 percent relative to four neighboring states. The study found evidence that the mortality gains were concentrated in poorer counties – i.e., where people were most likely to become eligible for Medicaid.

As always, the study comes with caveats. The results “may not be generalizable to other states,” may have been driven by unobservable confounding factors, et cetera. Speaking only for myself, I hope these results are accurate. I hope Medicaid does save lives. That program spends nearly half a trillion dollars per year. It damn well better save lives.

Even so, that does not mean politicians should expand Medicaid. If saving lives is the goal, then politicians should instead find the lowest-cost way of doing so, because that enables the greatest number of lives to be saved with the available resources. It is generally accepted among health economists that other strategies (e.g., discrete health programs targeted at hypertension or diabetes) could save more lives per dollar spent than expanding health insurance. This study says nothing about how much it costs to save lives through Medicaid, much less whether alternative uses of those resources could save even more lives. It could be that other uses of the money would save – I don’t know – twice as many lives.

Absent evidence that Medicaid saves the most lives per dollar spent, expanding Medicaid does not show how much politicians care about saving lives. It shows how little they care about saving lives, because they are willing to forgo additional reductions in mortality for the sake of…whatever else expanding Medicaid gives them.

‘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?

Europe’s Crisis Is Because of Too Much Government, Not the Euro Currency

The mess in Europe has been rather frustrating, largely because almost everybody is on the wrong side.

Some folks say they want “austerity,” but that’s largely a code word for higher taxes. They’re fighting against the people who say they want “growth,” but that’s generally a code word for more Keynesian spending.

So you can understand how this debate between higher taxes and higher spending is like nails on a chalkboard for someone who wants smaller government.

And then, to get me even more irritated, lots of people support bailouts because they supposedly are needed to save the euro currency.

When I ask these people why a default in, say, Greece threatens the euro, they look at me as if it’s the year 1491 and I’ve declared the earth isn’t flat.

So I’m delighted that the Wall Street Journal has published some wise observations by a leading French economist (an intellectual heir to Bastiat!), who shares my disdain for the current discussion. Here are some excerpts from Prof. Salin’s column, starting with his common-sense hypothesis.

…there is no “euro crisis.” The single currency doesn’t have to be “saved” or else explode. The present crisis is not a European monetary problem at all, but rather a debt problem in some countries—Greece, Spain and some others—that happen to be members of the euro zone. Specifically, these are public-debt problems, stemming from bad budget management by their governments. But there is no logical link between these countries’ fiscal situations and the functioning of the euro system.

Salin then looks at how the artificial link was created between the euro currency and the fiscal crisis, and he makes a very good analogy (and I think it’s good because I’ve made the same point) to a potential state-level bankruptcy in America.

The public-debt problem becomes a euro problem only insofar as governments arbitrarily decide that there must be some “European solidarity” inside the euro zone. But how does mutual participation in the same currency logically imply that spendthrift governments should get help from the others? When a state in the U.S. has a debt problem, one never hears that there is a “dollar crisis.” There is simply a problem of budget management in that state.

He then says a euro crisis is being created, but only because the European Central Bank has surrendered its independence and is conducting backdoor bailouts.

Because European politicians have decided to create an artificial link between national budget problems and the functioning of the euro system, they have now effectively created a “euro crisis.” To help out badly managed governments, the European Central Bank is now buying public bonds issued by these governments or supplying liquidity to support their failing banks. In so doing, the ECB is violating its own principles and introducing harmful distortions.

Last but not least, Salin warns that politicians are using the crisis as an excuse for more bad policy - sort of the European version of Mitchell’s Law, with one bad policy (excessive spending) being the precursor of an additional bad policy (centralization).

Politicians now argue that “saving the euro” will require not only propping up Europe’s irresponsible governments, but also centralizing decision-making. This is now the dominant opinion of politicians in Europe, France in particular. There are a few reasons why politicians in Paris might take that view. They might see themselves being in a similar situation as Greece in the near future, so all the schemes to “save the euro” could also be helpful to them shortly. They might also be looking to shift public attention away from France’s internal problems and toward the rest of Europe instead. It’s easier to complain about what one’s neighbors are doing than to tackle problems at home. France needs drastic tax cuts and far-reaching deregulation and labor-market liberalization. Much simpler to get the media worked up about the next “euro crisis” meeting with Angela Merkel.

This is a bit of a dry topic, but it has enormous implications since Europe already is a mess and the fiscal crisis sooner or later will spread to the supposedly prudent nations such as Germany and the Netherlands. And, thanks to entitlement programs, the United States isn’t that far behind.

So may as well enjoy some humor before the world falls apart, including this cartoon about bailouts to Europe from America, the parody video about Germany and downgrades, this cartoon about Greece deciding to stay in the euro, this “how the Greeks see Europe” map, and this cartoon about Obama’s approach to the European model.

P.S. Here’s a video narrated by a former Cato intern about the five lessons America should learn from the European fiscal crisis.