Tag: subsidies

ObamaCare: Still a Bad Deal for Young Adults

The Associated Press reports that young adults will face higher premiums under ObamaCare:

Beginning in 2014, most Americans will be required to buy insurance or pay a tax penalty. That’s when premiums for young adults seeking coverage on the individual market would likely climb by 17 percent on average, or roughly $42 a month, according to an analysis of the plan conducted for The Associated Press. The analysis did not factor in tax credits to help offset the increase.

The higher costs will pinch many people in their 20s and early 30s who are struggling to start or advance their careers with the highest unemployment rate in 26 years.

The article cited additional studies estimating premiums increases young adults as high as 50 percent. That was essentially the message of my recent Cato briefing paper, “ObamaCare: A Bad Deal for Young Adults.”

Supporters claim the new law provides subsidies that would help people afford the higher premiums. As I write in my paper, however:

The money for those subsidies has to come from somewhere, though. Presumably, some of it would come from young adults themselves in the form of higher taxes or the tax penalties imposed on those who do not purchase insurance…So the presence of subsidies does not necessarily mean that young adults would come out winners. Ironically, all the complexity may actually help the legislation pass Congress precisely because it obscures whom the legislation would tax.

Supporters also claim that although the higher premiums might be actuarially unfair for people who are young and healthy today, those people will eventually be old and unhealthy. Over the course of a lifetime, they reason, such policies would be closer to actuarially fair.

The problem is that we’ve heard this line before. Inter-generational redistribution is fundamentally unfair to the young because it creates a situation where the old, who vote, have incentives to ratchet up benefits – and to ratchet up taxes on the young, who don’t vote. Social Security collects from the young and gives to the old, and is clearly a net tax on the young. As Jonathan Gruber reports, the young have very little confidence – deservedly so – in Social Security’s implicit promises. Experience shows that whatever new taxes ObamaCare imposes on the young will grow over time.

Regardless, most young uninsured people already obtain insurance as they get older. As I report in my paper, 30.4 percent of those age 20-29 were uninsured in 2008 (including 33.8 percent of 23-year-olds), but only 13.4 percent of those aged 50-64 years were uninsured. So a significant number of uninsured young adults naturally transition into insured older adults. The main effect of the new law will be to take young adults who think health insurance is a bad deal at today’s prices and force them to health insurance at even higher prices.

Obama to Increase FHA Risk

The Federal Housing Administration is heading toward a taxpayer bailout, yet the president’s latest mortgage modification plan would further increase the agency’s exposure to risky mortgages. Mark Calabria calls it a “Backdoor Bank Bailout.”

The administration’s plan would encourage borrowers who owe more than their house is worth to refinance into FHA-insured mortgages. Therefore, the risk of a future foreclosure on these mortgages would fall to the government and taxpayers instead of private lenders.

A recent study from economists at New York University found that the FHA is underestimating its risk exposure. One of the problems is that the FHA isn’t properly accounting for the risk to underwater FHA mortgages that have been refinanced into new FHA mortgages. So it’s hard to see how the president’s plan to refinance private underwater mortgages into FHA mortgages won’t further exacerbate the situation.

To get these mortgages in better shape so the FHA can insure them, $14 billion in TARP money is going to be used to pay private lenders to reduce the amount borrowers owe on their mortgages. Some of this money will also be used to cover eventual losses on these loans. As a taxpayer whose mortgage is underwater, and who would rather go bankrupt than accept a government handout, I find it infuriating that my tax dollars are being used to bail out others in a similar situation.

But with government housing programs, it’s standard practice for officials to cannonball into the pool and worry about who gets splashed by the water later. On Sunday, CNN.com reported on “FHA’s Florida Fiasco,” where the collapse of the heavily FHA-insured condo market has contributed to the possibility of a FHA bailout. The FHA has now tightened its condo standards, but once again it’s a day late and possibly more than few bucks short.

The new FHA initiative is the latest in a series of efforts to “stabilize” the housing market with more subsidies. Policymakers seem oblivious that it was government interventions that helped instigate the housing meltdown to begin with. The housing market would stabilize itself if the supply of and demand for housing was allowed to be brought back into equilibrium. There would be pain in the short-term, but in the long-term we would have a smoother functioning housing market. Unfortunately, for politicians the long-term means the next election.

Health Care Is Cheap (Subsidies Are Not)

A column I wrote in 2002 seems more relevant than ever.  Some excerpts:

Health care is cheap: Eat less fat and more veggies, take a daily walk, quit smoking, and drink a little wine with some nuts. Fail to take care of yourself, and the long-term results can be costly – like the results of never changing the oil in your car and never replacing the tires. New diagnostic and surgical technologies involve expensive equipment and skills. Even so, insurance for gigantic medical expenses is also cheap. My policy pays nothing unless annual medical bills top $2,000. Most people call that “catastrophic” insurance. I call it real insurance.

Insurance for accidental damage to cars and homes is real insurance – something to protect against emergencies, not routine expenses. We do not expect an insurance company to pay for tires and gasoline, or to pay for home painting and termite inspections. When families make their own choices and pay for them, they choose insurance only for catastrophic expenses – the car becoming a total wreck, the house burnt to the ground or the breadwinner dropping dead. If we never collect a dime from such genuine insurance, we consider ourselves lucky.

With health insurance, by contrast, we all want somebody else to pay. Each of us expects to pay less for health insurance than the insurance companies pay to hospitals, doctors and pharmacies. Sadly, that does not add up.

More than a fourth of the U.S. population already has federally subsidized health care through Medicare, Medicaid and military health benefits. If that percentage ever reached 100 percent, as some politicians promise, we might finally begin to wonder how it is possible for everybody to subsidize everybody else.

If you subsidize something, people want more of it. That increase in demand translates into a market in which prices can more easily be raised.

To Kill ACORN, Kill the Programs

Last year, when the issue of defunding ACORN was a hot-button issue, I told countless radio talk show audiences that the focus should be on eliminating the underlying fuel that created the organization—the flow of federal subsidies.

Chris Edwards pointed this out in September. If Congress simply stops subsidizing ACORN, its activists will reincorporate under new names and again become eligible for funds. Alas, that’s precisely what ACORN is currently doing.

From FoxNews.com:

One of the latest groups to adopt a new name is ACORN Housing, long one of the best-funded affiliates. Now, the group is calling itself the Affordable Housing Centers of America.

Others changing their names include what were among the largest affiliates: California ACORN is now Alliance of Californians for Community Empowerment, and New York ACORN has become New York Communities for Change. More are expected to follow suit.

A comment from Frederick Hill, a spokesman for Republicans on the U.S. House oversight and government reform committee, doesn’t indicate that the GOP has quite received the message:

To credibly claim a clean break, argued Hill, the new groups should at least have hired directors from outside ACORN.

It appears that for many Republicans, attacking ACORN represented political opportunism, not a statement about the proper role of the federal government.

Further rendering the GOP’s ACORN agenda moot was last week’s ruling by a U.S. District judge that singling out ACORN for defunding is unconstitutional. It truly boggles the mind what passes for constitutional and unconstitutional in this country.

Tuesday was the birthday of James Madison, the “Father of the Constitution.” Reflecting upon Madison’s wise words, it’s hard to understand how the federal “community development” programs that have funded ACORN could pass constitutional muster:

“The government of the United States is a definite government, confined to specified objects. It is not like state governments, whose powers are more general. Charity is no part of the legislative duty of the government.”

“[T]he powers of the federal government are enumerated; it can only operate in certain cases; it has legislative powers on defined and limited objects, beyond which it cannot extend its jurisdiction.”

“With respect to the two words “general welfare,” I have always regarded them as qualified by the detail of powers connected with them. To take them in a literal and unlimited sense would be a metamorphosis of the Constitution into a character which there is a host of proofs was not contemplated by its creators.”

“If Congress can do whatever in their discretion can be done by money, and will promote the general welfare, the government is no longer a limited one possessing enumerated powers, but an indefinite one subject to particular exceptions.”

See this essay for reasons why these HUD community development programs should be abolished.

Higher Education Subsidies

A battle over higher education loans is coming to a head as Democrats consider including the ill-titled Student Aid and Fiscal Responsibility Act in reconciliation legislation. In one corner, we have private education loan lenders who enjoy the generous subsidies and loan guarantees provided by Uncle Sam. In the other, we have policymakers who want to cut out the middleman by having the Department of Education provide direct loans.

Critics of SAFRA correctly point out that the alleged savings of nationalizing student loan subsidies are a sham. The Congressional Budget Office has scored the nationalizing portion of the bill as saving $67 billion over ten years. However, in a letter to Sen. Judd Gregg (R-NH), the CBO acknowledged that when the cost of default risk is factored in, the alleged savings drop by $33 billion. Yet, taxpayers won’t realize any savings because the legislation adds $80 billion in additional spending for Pell grants and other programs.

For taxpayers, the unpalatable choice is nationalization or crony capitalism—subsidizing private businesses. The real answer is for the federal government to get out of the higher education subsidy business altogether, as a Cato essay argues.

The following are some key points from the essay:

  • The effect of subsidy programs, in part, is to impose taxes on blue collar workers—who have not attended college—to pay for the tuition of future white-collar professionals. Why should the government subsidize future high earners at the expense of average working people?
  • Federal student aid programs transfer wealth from taxpayers to academic institutions. That’s because the rise in student subsidies over the decades appears to have fueled inflation in education costs. Tuition and other college costs have soared as subsidies have risen. College cost inflation induced by federal aid probably hurts low-income families—the people that federal aid was supposed to target—more than others.
  • Federal aid has probably helped increase student enrollment, but many of those additional students may not have been ready, or suited, for college. This is evidenced by the rising shares of college students who require remedial work, and the fact that institutions have lowered their standards to adapt to the rise in second-rate students.
  • Increasing top-down control and subsidization of higher education from Washington is creating a threat to the strength of the American system. As we have seen in K-12 education, the growth in federal subsidies is usually accompanied by calls for more oversight, micromanagement, and rising levels of red tape imposed by Washington.
  • Federal student loan and grant programs have been subject to waste and fraud for decades. The Pell grant program (which SAFRA would enlarge) costs taxpayers hundreds of millions of dollars per year in fraud. Another ongoing problem is the high default rate on student loan programs.

A $1.1 Billion Re-Election Campaign. For the Senate.

When Rep. Collin Peterson (D- Minn. and Chairman of the House Agriculture Committee) pronounces that a farm program is too generous, you know you’ve crossed a line.

But that’s what happened recently after Sen. Blanche Lincoln (D-Ark), Senate Agriculture Committee Chairwoman and – oh, hey, how about that? – facing a tough re-election battle in November proposed an extra $1.1 billion in emergency farm aid be added to a jobs/tax/unemployment/kitchen sink bill going through the Senate this week. These extra handouts would flow despite the fact that the 2008 farm bill contained ”reforms” (the so-called ”permanent disaster” program) ostensibly to put an end to politically-motivated ad hoc emergency aid of just the type that Senator Lincoln is pushing now.

For those who can stomach it, this excellent article by Dan Morgan, one of the nation’s best agriculture journalists, contains plenty of background information.

Our Little Scholars

As I mentioned a few days ago, today is the “Day of Action” in California – and, it turns out, elsewhere – when college students and just general protectors of public schooling are supposed to take to the streets and demand that taxpayers fork over not one less red cent to students and schools.

Ironically, the mindless, property-destroying, absurd goings-on that have surrounded past such demonstrations in Cali – and are already in evidence today – brilliantly illustrate one major reason we need to cut higher education subsidies, not increase them. Clearly, too many college students have both far too much time on their hands, and far too little self control, to justify spending hard-earned taxpayer dough on their “education.”

But at least the ostensible motivation behind recreational rioting in California has been slightly related to a principle – namely, the principle that taxpayers owe students stuff. That’s actually a better excuse for taking to the streets than what set off last night’s student riots in College Park, Maryland: a victory in a basketball game. (To be fair, University of Maryland students also riot after losses – they’re no fair weather fans!)

And to think – one of the reasons we’re supposed to support massive subsidies for students is that it serves the common good. Go figure.