Tag: government subsidies

How ObamaCare Would Keep the Poor Poor

Suppose you’re a family of four at or near the federal poverty level.  Under current law, if you earn an additional dollar, you get to keep around 60-70 cents.

Under the House and Senate health care bills, however, you would get to keep maybe 38 cents.  Or 26 cents.  Or maybe just 18 cents.

The following graph (from my recent study, “Obama’s Prescription for Low-Wage Workers: High Implicit Taxes, Higher Premiums”) shows that under the House and Senate bills, the combination of (1) a mandate tax and (2) subsidies that disappear as income rises would impose implicit tax rates on poor families that reach as high as 82 percent over broad ranges of income.

This graph actually smooths out some rather bumpy implicit tax rates that spike as high as 174 percent.

In the 1980s and 1990s, the public saw that too-generous government subsidies can actually trap people in a cycle of poverty and dependence.  President Obama and his congressional allies seem not to have learned that lesson.

Stifling Innovation with Subsidies

A couple of weeks ago I wrote about a story in Wired regarding the Department of Energy’s Advanced Technology Vehicles Manufacturing Loan Program. The gist was that government subsidies to particular manufacturers are putting non-recipients at a competitive disadvantage in obtaining private capital. The author, a former Tesla Motors official, noted that “this massive government intervention in private capital markets may have the unintended consequence of stifling innovation by reducing the flow of private capital into ventures that are not anointed by the DOE.”

An article in yesterday’s Wall Street Journal builds on this theme by detailing the political shenanigans surrounding the DOE’s awarding of a loan to Finnish high-end automaker, Fisker Automotive:

When tiny Fisker Automotive Inc. hit a financing glitch last year, threatening its plan to build a fancy gasoline-electric hybrid car in Finland, it turned to the U.S. Department of Energy…Within months, Vice President Joe Biden, the former senator from Delaware, was helping lure the embryonic car company to a shuttered General Motors Co. factory four miles from his house in Wilmington, right across the tracks from Biden Park. Soon, Fisker Automotive, a two-year-old business that has yet to sell a car, won loans from the federal government totaling $528 million.

A DOE spokesman claimed that, in the Journal’s words, the subsidy decision process is insulated from politics. Oh sure, and I drive an emissions-free car that runs on fairy dust.

As the following snippet illustrates, multiple Delaware politicians teamed up to tilt the system to their state’s advantage:

On June 1, GM said it was closing 14 plants, including the one in Delaware…State officials and politicians were determined to keep it alive. In the middle of August, they learned the plant had drawn interest from Fisker. CEO Henrik Fisker came to see it and dropped by the office of a Delaware senator, Tom Carper, a Democrat. The visit unleashed a flurry of activity. Gov. Jack Markell, also a Democrat, quickly called an old friend at Kleiner Perkins to check on Fisker. Kleiner Perkins itself has political roots. A leading partner, John Doerr, sits on President Barack Obama’s economic advisory board, and another partner is former Vice President Al Gore.

Of course, the story can’t end without some grandstanding from the master of hyperbole himself, Joe Biden:

In a rousing speech, Mr. Biden recalled how every election year, including his first in 1972, ‘I would stand here at this gate and shake hands at every shift.’ He told of many ‘long talks’ he said he had had with Mr. Fisker. He called the project ‘a metaphor for the rebirth of the country.’

The article is long, but worth the read for those concerned that American capitalism might be taking a corporatist turn for the worse.

State ‘Opt-Out’ Proposal: a Ruse within a Ruse

President Obama and his congressional allies want to create yet another government-run health insurance program (call it Fannie Med) to cover yet another segment of the American public (the non-elderly non-poor).

The whole idea that Fannie Med would be an “option” is a ruse.

Like the three “public options” we’ve already got – Medicare, Medicaid, and the State Children’s Health Insurance Program – Fannie Med would drag down the quality of care for publicly and privately insured patients alike.  Yet despite offering an inferior product, Fannie Med would still drive private insurers out of business because it would exploit implicit and explicit government subsidies.  Pretty soon, Fannie Med will be the only game in town – just ask its architect, Jacob Hacker.

Now the question before us is, “Should we allow states to opt out of Fannie Med?”  It seems a good idea: if Fannie Med turns out to be a nightmare, states could avoid it.

But the state opt-out proposal is a ruse within a ruse.

Taxpayers in every state will have to subsidize Fannie Med, either implicitly or explicitly.  What state official will say, “I don’t care if my constituents are subsidizing Fannie Med, I’m not going to let my constituents get their money back”?  State officials are obsessed with maximizing their share of federal dollars.  Voters will crucify officials who opt out.  Fannie Med supporters know that.  They’re counting on it.

A state opt-out provision does not make Fannie Med any more moderate.  It is not a concession.  It is merely the latest entreaty from the Spider to the Fly.

(Cross-posted at National Journal’s Health Care Experts blog.)

Why the Democrats’ Health Care Overhaul May Die

The problem that Democrats have faced from Day One is finally coming to a head.

The Left and the health care industry both want universal health insurance coverage.  The industry, because universal coverage means massive new government subsidies. The Left, because that’s their religion.

But universal coverage is so expensive that Congress can’t get there without taxing Democrats.

  • Sen. Jay Rockefeller (D-WV) is the biggest opponent of Sen. Max Baucus’ (D-MT) tax on expensive health plans because that tax would hit West Virginia coal miners.
  • Unions vigorously oppose that tax because it would hit their members.
  • Moderate Democrats in the House oppose Rep. Charlie Rangel’s (D-NY) supposed “millionaires surtax” because they know it would hit small businesses in their districts.

And on and on…

But if congressional leaders pare back those taxes, they lose the support of the health care industry, which wants its subsidies.

  • That’s why the health insurance lobby funded this PriceWaterhouseCoopers study saying that premiums would rise under the Baucus bill: the $500 billion bailout they would receive isn’t enough.  They also want – they demand –  steep taxes on Americans who don’t buy their products.
  • The drug companies, the hospitals, and the physician groups are likewise demanding big subsidies, and will run ads to kill the whole effort if those subsidies aren’t big enough.

As always, health economist Uwe Reinhardt put it colorfully:

It’s no different from Iraq with all the different tribes…‘How does it affect the money flow to my interest group?’  They are all sitting in the woods with their machine guns, waiting to shoot.

Once the shooting starts, industry opposition will sway even Democratic members, because there are physicians and hospitals and employers and insurance-industry employees in every state and congressional district.

Can President Obama and the congressional leadership satisfy both groups?  My guess is, probably not, and this misguided effort at “reform” will therefore die.  Again.

“Keep Your Subsidies off My Ovaries”

In my recent Cato paper, “All the President’s Mandates: Compulsory Health Insurance Is a Government Takeover,” I explain that if Congress compels Americans to purchase health insurance, it would “inevitably and unnecessarily open a new front in the abortion debate, one where either side—and possibly both sides—could lose.”

Slate’s William Saletan explains how the pro-choice side could lose:

This week, the Senate finance committee is considering amendments that would bar coverage of abortions under federally subsidized health insurance. Pro-choice groups are up in arms. After all, says NARAL Pro-Choice America, “In the current insurance marketplace, private plans can choose whether to cover abortion care—and most do.” If Congress enacts subsidies that exclude abortion, “women could lose coverage for abortion care, even if their private health-insurance plan already covers it!“…

The argument these groups make is perfectly logical: If you standardize health insurance through federal subsidies and coverage requirements, people might lose benefits they used to enjoy in the private sector. But that’s more than an argument against excluding abortion. It’s an argument against health care reform altogether.

Saletan also explains why pro-life and pro-choice positions on Obama’s health plan are irreconcilable:

To get what they consider neutrality, pro-choicers have to make pro-lifers pay indirectly for abortions. And to keep what they consider clean hands, pro-lifers have to make abortion coverage federally unsupportable and therefore, in a subsidy-dependent system, commercially nonviable.

Rather than an argument against all health care reform, I’d say this is an argument against reforms that expand government subsidies or otherwise give government the power to choose what kind of insurance you purchase.  Fortunately, there are better ways to reform health care.

Why Fear Leviathan U.?

The Harriet Tubman Agenda – ordinarily a pretty rational blog – takes issue with my recent post expressing unease about a proposal to have Uncle Sam create and furnish free college courses. Accurately noting that American institutions of higher education, including private and for-profit schools, are addicted to government subsidies, the blogger asks what the problem is “if a free curriculum (defined by designated text books and tests), coupled with a competitive market in examination services, reduces the burden on taxpayers”?

Here’s the problem: From the perspectives of both freedom and effectiveness, why would we ever want the federal government creating free college curricula and, potentially, a giant federal university that, thanks to the internet, would not even be bound by the need to have a physical campus? Do we really want both state-run and private institutions, which despite huge subsidies still have to charge tuition and compete with one another, to have to go up against a free, Leviathan University? And why would it matter if the examinations accompanying Leviathan U’s curriculum were created by private companies? If you have to master The Little Red Book – to use an extreme example – does it matter if the testing contract is competitively bid?

The Harriet Tubman Agenda is absolutely right that, engorged with government subsidies, American higher education is grossly wasteful. But replacing it with utterly unconstitutional federal courses that could someday yield a mammoth, federal university? For reasons even more basic than saving taxpayer money, that would be a terrible move.