Tag: subsidies

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.

Stifling Innovation by Subsidizing It

In 2007, the Advanced Technology Vehicles Manufacturing Loan Program was created in the Department of Energy to support the development of advanced (i.e., “green”) technology vehicles. Last year Congress appropriated $7.5 billion to support a maximum of $25 billion in loans. So far, the subsidies have been dished out to Ford ($5.9 billion), Nissan ($1.6 billion), Tesla Motors ($465 million), and Fisker Automotive ($528 million).

Darryl Siry, a former official at Tesla, has written a piece for Wired that illuminates a fundamental problem with the government trying to pick winners and losers in the marketplace:

To the recipients the support is a vital and welcome boost. But 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.

Private investors, such as venture capitalists, make investments based on perceived risk and expected financial returns. Companies with government backing are more attractive to investors because government support “amounts to free leverage for the venture capitalist’s bet” given that “the upside is multiplied and the downside remains the same since the most the equity investor can lose is the original investment.”

According to Siry:

The proposition is so irresistible that any reasonable person would prefer to back a company that has received a DOE loan or grant than a company that has not. It is this distortion of the market for private capital that will have a stifling effect on innovation, as private capital chases fewer deals and companies that do not have government backing have a harder time attracting private capital. This doesn’t mean deals won’t get done outside of the energy department’s umbrella, but it means fewer deals will be done and at worse terms.

Siry concludes that a solution to avoiding these market distortions would be to “cast the net more broadly” by giving subsidies to more companies. That’s where I part ways with his analysis. The real solution is to get the Department of Energy out of the subsidy business – and energy markets – altogether.

Public Housing for the Dead

The HUD Inspector General’s Office released an audit earlier this week on the department’s progress in making sure local public housing agencies aren’t subsidizing the deceased. According to the report, local “agencies made an estimated $15.2 million in payments on behalf of deceased tenants that they should have identified and corrected.”

The audit found the following “significant weaknesses:”

  • HUD and local agencies did not have effective policies related to deceased tenants.
  • Local agencies did not provide accurate and reliable information to HUD.
  • HUD and local agencies did not safeguard assets to ensure correct assistance payments.

This report is a small illustration of the fundamental problems with the federal government subsidizing local governments. The local public housing agencies are supposed to be monitoring how money is spent and reporting to HUD. HUD is supposed to be monitoring the local public housing agencies. But no one does a very good monitoring job, despite the piles of regulations and paperwork that every level of government has to deal with for such subsidies. The muddled web of responsibilities also makes it easy for fraud artists to take advantage.

Last week, HUD’s IG reported that the department is sending $220 million in stimulus funds to local agencies already known to misspend taxpayer dollars.

From USA Today:

The government is sending millions of dollars in stimulus aid to communities and housing agencies that federal watchdogs have concluded are unable to spend it appropriately, increasing the risk that the money will be wasted.

Since July, auditors working for the Department of Housing and Urban Development’s inspector general have scrutinized at least 22 cities, counties and housing authorities in 15 states and Puerto Rico to measure whether they can handle stimulus funds effectively. Only six, they found, could do so.

The rest — in line to receive more than $220 million in stimulus aid — had shortcomings ranging from poor management to inadequate staffing that threatened their ability to spend the money quickly and appropriately, a series of audit reports show.

According to a HUD spokesperson, the department is “spending millions of dollars to help local officials spend stimulus money effectively.” Maybe that’s true, but all monitoring help is a pure loss to taxpayers and the private sector economy.

Even when the federal oversight does find problems, the money often keeps flowing anyway. As the article notes:

USA TODAY reported in April that HUD planned to send $300 million in stimulus money to public housing authorities that had been repeatedly faulted by outside auditors for mishandling other forms of federal aid. Congress gave the Obama administration permission to withhold stimulus money from some of those agencies, but HUD opted earlier this year not to do so.

For more on fraud and abuse in federal programs, including housing subsidies, see this essay.