Tag: subsidies

Mayors Want More Federal Money

Hundreds of city leaders are in Washington for the winter meeting of the U.S. Conference of Mayors. Considering that winter weather in our nation’s capital is about as warm as Barney Frank’s personality, there’s only one reason for the mayors to meet there: grovel for more federal hand-outs.

From the New York Times:

Saying that last year’s $787 billion economic stimulus plan has failed to ease urban unemployment, the nation’s mayors are asking the federal government for a second wave of stimulus money.

If you don’t succeed the first time, apparently you should fail, fail again. Charleston’s mayor, Joseph P. Riley Jr., says that “most economists” believe more federal stimulus spending is the “only thing” that can reduce unemployment. Most Keynesian economists—such as Mark Zandi and Paul Krugman—perhaps, but the broader profession is actually divided on the issue.

The mayors are upset that they “are being deprived of the federal aid owed to them.” To be fair, they are referring to the fact that formulas used to allocate federal surface transportation funds in the stimulus bill went disproportionately to non-metro areas. But this only serves to illustrate why it’s inefficient for citizens to be taxed by the federal government only to have the money returned to state and local governments through some politicized mechanism. State and local governments should fund their own transportation needs. But mayors are all too happy to receive the “free” money from Washington than funding their spending through the more transparent method of taxing their own constituents.

It takes a tremendous amount of gall for some officials and analysts to argue that the federal government is depriving state and local governments of resources. Donald Kettl, the dean of the School of Public Policy at the University of Maryland, made such a claim in the December issue of Governing. The chart shows that federal subsidies to state and local government have been going through the roof:

Instead of wasting time and money trying to get federal taxpayers to make their political careers easier, the nation’s mayors should focus on solving their own problems, which as a Cato essay on HUD community development programs notes, are often a result of poor policies:

The reality is that no amount of federal money can overcome the local hurdles to growth in cities such as Detroit—including political corruption and destructive tax and regulatory policies. Indeed, just like international development aid, federal aid to the cities likely increases corruption and stalls much-needed local reforms.

With the federal government running huge deficits, it cannot afford to fund ineffective and often wasteful local development projects. Community development is a local concern, and only local leaders and businesses using their own funds can make sound cost-benefit decisions on projects. By providing local leaders with handouts from Washington, we simply encourage them to make irresponsible decisions. At the same time, experience has shown that federal politicians use local projects as political tools that are disconnected from sound economics.

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.

Dear Poor People: Please Remain Poor. Sincerely, ObamaCare

In a new study titled, “Obama’s Prescription for Low-Wage Workers: High Implicit Taxes, Higher Premiums,” I show that the House and Senate health care bills would impose implicit tax rates on low-wage workers that exceed 100 percent.  Here’s the executive summary:

House and Senate Democrats have produced health care legislation whose mandates, subsidies, tax penalties, and health insurance regulations would penalize work and reward Americans who refuse to purchase health insurance. As a result, the legislation could trap many Americans in low-wage jobs and cause even higher health-insurance premiums, government spending, and taxes than are envisioned in the legislation.

Those mandates and subsidies would impose effective marginal tax rates on low-wage workers that would average between 53 and 74 percent— and even reach as high as 82 percent—over broad ranges of earned income. By comparison, the wealthiest Americans would face tax rates no higher than 47.9 percent.

Over smaller ranges of earned income, the legislation would impose effective marginal tax rates that exceed 100 percent. Families of four would see effective marginal tax rates as high as 174 percent under the Senate bill and 159 percent under the House bill. Under the Senate bill, adults starting at $14,560 who earn an additional $560 would see their total income fall by $200 due to higher taxes and reduced subsidies. Under the House bill, families of four starting at $43,670 who earn an additional $1,100 would see their total income fall by $870.

In addition, middle-income workers could save as much as $8,000 per year by dropping coverage and purchasing health insurance only when sick. Indeed, the legislation effectively removes any penalty on such behavior by forcing insurers to sell health insurance to the uninsured at standard premiums when they fall ill. The legislation would thus encourage “adverse selection”—an unstable situation that would drive insurance premiums, government spending, and taxes even higher.

See also my Kaiser Health News oped, “Individual Mandate Would Impose High Implicit Taxes on Low-Wage Workers.”

And be sure to pre-register for our January 28 policy forum, “ObamaCare’s High Implicit Tax Rates for Low-Wage Workers,” where the Urban Institute’s Gene Steuerle and I will discuss these obnoxious implicit tax rates.

(Cross-posted at Politico’s Health Care Arena.)

Census Paves the Way for Subsidies

Our bloated government does a lot of things it shouldn’t, but the decennial census is one of the handful of federal activities the Constitution approves of. The census was intended simply to determine the number of seats each state would have in the House of Representatives. Today, census data is plugged into government formulas to determine how more than $400 billion in subsidies from the federal welfare state are allocated to state and local governments.

The impetus to grab federal dollars caused controversy back in December when the National Association of Latino Elected Officials distributed a census promo that read, “This is how Jesus was born…Joseph and Mary participated in the Census.” The group’s website says that, “For each uncounted Latino, more than $11,000 [in federal funding] will be lost over the next decade.” Jesus did get stuck being born in a manger because Joseph and Mary couldn’t find proper shelter, but the Bible doesn’t say that the census led to Bethlehem receiving more affordable housing subsidies from Rome.

I just received a newsletter from the town where I reside. It says that my town was named the best place in the state to raise kids by BusinessWeek, 11th best place in America to move by Forbes, and one of the top 100 best places to live in America according to Relocate America. Sounds like my town’s doing pretty good on its own, but on page six I’m hit with a plea to make sure I participate in the census so the town can grab federal dollars:

When you fill out the census form in April, you’re making a statement about what resources [the town] needs going forward…Accurate data reflecting changes in our community are crucial in deciding how more than $400 billion per year is allocated for projects like hospitals, public works projects, infrastructure improvement, senior centers, schools and emergency services. That’s more than $4 trillion over a ten year period for things like new roads and schools, and services like job training centers.

Not a single item listed by the newsletter is anything the federal government is empowered to fund. There’s no practical or moral reason why my thriving town should receive money from taxpayers in other locals across the country. Nor should taxpayers in my town be forced to send a portion of their paycheck to Washington so politicians can play Santa Claus to their parochial interests. As such, the pork politics surrounding the census is another reminder that a return to fiscal federalism is desperately needed.

Obama’s Copenhagen Speech

Politico asks, “Was he convincing?”

My response:

In Copenhagen this morning, President Obama convinced only those who want to believe — of which, regrettably, there is no shortage.  Notice how he began, utterly without doubt:  “You would not be here unless you, like me, were convinced that this danger is real.  This is not fiction, this is science.”  The implicit certitude is no part of real science, of course.  But then the president, like the environmental zealots cheering him in Copenhagen, is not really interested in real science.  Theirs, ultimately, is a political agenda.  How else to explain the corruption of science that the East Anglia Climate Research email scandal has brought to light, and the efforts, presently, to dismiss the scandal as having no bearing on the evidence of climate change?  If that were so, then why these efforts, or the earlier suppression of contrary or mitigating evidence that is the heart of the scandal?

We find such an effort in this morning’s Washington Post, by one of those at the center of the scandal, Penn State’s Professor Michael E. Mann.  Set aside his opening gambit — “I cannot condone some things that colleagues of mine wrote or requested” — this author of the famous, now infamous, “hockey stick” article seems not to recognize himself in Climategate.  That he then goes after Sarah Palin as his critic suggests only that on a witness stand, confronted by his real critics, he’d be reduced to tears by even a mediocre lawyer.  One such real critic is my colleague, climatologist Patrick J. Michaels, who documents the scandal and its implications for science in exquisite detail in this morning’s Wall Street Journal.

But to return to the president and his speech, having uncritically subscribed to the science of global warming, Mr. Obama then lays out an ambitious policy agenda for the nation.  We will meet our responsibility, he says, by phasing out fossil fuel subsidies (which pale in comparison to the renewable energy subsidies that alone make them economically feasible), we will put our people to work increasing efficiency in our homes and buildings, and we will pursue “comprehensive legislation to transform to a clean energy economy.”

Mark that word “legislation,” because at the end of his speech the president said:  ”America has made our choice.  We have charted our course, we have made our commitments, and we will do what we say.”  But we haven’t made “our choice” — cap and trade, to take just one example, has gone nowhere in the Senate — even if Obama has made “our commitments.”  And that brings us to a fundamental question:  Can the president, with no input from a recalcitrant Congress, commit the nation to the radical economic conversion he promises?

Environmental zealots say he can.  Look at the report released last week by the Climate Law Institute’s Center for Biological Diversity, “Yes He Can: President Obama’s Power to Make an International Climate Commitment Without Waiting for Congress,” which argues that in Copenhagen Obama has all the power he needs under current law, quite apart from the will of Congress or the American people, to make a legally binding international commitment.  Unfortunately, under current law, the report is right.  I discuss that report and the larger constitutional implications of the modern “executive state” in this morning’s National Review Online.

There is enough ambiguity in the president’s remarks this morning to suggest that he may not be prepared to exercise the full measure of his powers.  But there is also enough in play to suggest that it is not only the corruption of science but the corruption of our Constitution that is at stake.

Health Reform: Blame Mitt

If – and it is still a big “if – Democrats pass a health bill, that bill will owe as much to former Massachusetts governor Mitt Romney as to Nancy Pelosi and Harry Reid. In fact, with the so-called “public option” out of the Senate health bill, the final product increasingly looks like the failed Massachusetts experiment.  Consider that the final bill will likely include:

  • An individual mandate
  • A weak employer-mandate
  • An Exchange (Connector)
  • Middle-class subsidies
  • Insurance regulation (already in place in Massachusetts before Romney’s reforms)

As to why this will be a disaster for American taxpayers, workers, and patients, I’ve written about it here, and my colleague Michael Cannon has covered it here and here.

Gee, thanks, Mitt.

Conrad: Just Don’t Cut My Programs!

Prompted by my blog on Senator Kent Conrad’s Task Force to reduce the federal deficit, my assistant Amy Mandler dug up some interesting information on the good senator.

Conrad has nurtured his image as a “deficit hawk” for decades, but when it comes to subsidies for millionaire farmers he demands that the federal gravy keep flowing.

Earlier this year, for example, President Obama proposed cutting one type of farm subsidy (“direct payments”) for farmers earning over $500,000 a year. I suspect that about 95 percent of Americans would support that tiny nod toward fiscal sanity and deficit reduction. But not Senator Conrad, who helped shoot the proposal down. See here and here.