Tag: tax increase

My Question for the President

President Obama will hold a press conference tonight to answer questions about his health care reform proposal. This is what I would ask him:

Mr. President, during your campaign, you said, “I can make a firm pledge…Under my plan, no family making less than $250,000 a year will see any form of tax increase.”  You also said that “no one will pay higher tax rates than they paid in the 1990s.”

Your National Economic Council chairman, Larry Summers, has written that employer mandates “are like public programs financed by benefit taxes.”  Under the House health reform bill, an uninsured worker earning $50,000 per year, with no offer of coverage from her employer, would face a 15.3-percent federal payroll tax, a 25-percent federal marginal income tax rate, an 8-percent reduction in her wages (to pay the employer penalty), plus a 2.5 percent uninsured tax.  In total, her effective marginal federal tax rate would reach 50.8 percent.

Do you stand by those pledges, and would you therefore veto any employer mandate or individual mandate as a tax on the middle class?

(Add it to the questions I posed here and here.)

Week in Review: Stimulus, Sarah Palin and a Political Conflict in Honduras

Obama Considering Another Round of Stimulus

With unemployment continuing to climb and the economy struggling along, some lawmakers and pundits are raising the possibility of a second stimulus package at some point in the future. The Cato Institute was strongly opposed to the $787 billion package passed earlier this year, and would oppose additional stimulus packages on the same grounds.

“Once government expands beyond the level of providing core public goods such as the rule of law, there tends to be an inverse relationship between the size of government and economic growth,” argues Cato scholar Daniel J. Mitchell. “Doing more of a bad thing is not a recipe for growth.”

Mitchell narrated a video in January that punctures the myth that bigger government “stimulates” the economy. In short, the stimulus, and all big-spending programs are good for government, but will have negative effects on the economy.

Writing in Forbes, Cato scholar Alan Reynolds weighs in on the failures of stimulus packages at home and abroad:

In reality, the so-called stimulus package was actually just a deferred tax increase of $787 billion plus interest.

Whether we are talking about India, Japan or the U.S., all such unaffordable spending packages have repeatedly been shown to be effective only in severely depressing the value of stocks and bonds (private wealth). To call that result a “stimulus” is semantic double talk, and would be merely silly were it not so dangerous.

In case you’re keeping score, Cato scholars have opposed government spending to boost the economy without regard to the party in power.

For more of Cato’s research on government spending, visit Cato.org/FiscalReality.

Sarah Palin Resigns as Governor of Alaska

Alaska Governor Sarah Palin resigned from office last week with 18 months left in her term, setting off weeklong speculation by pundits.

Cato Vice President Gene Healy comments:

Palin’s future remains uncertain, but it’s hard to see how her cryptic and poorly drafted resignation speech positions her for a presidential run. Nonetheless, her departure presents a good opportunity to reflect on the Right’s affinity for presidential contenders who - how to put this? - don’t exactly overwhelm you with their intellectual depth.

It’s one thing to reject liberal elitism. It’s another thing to become so consumed with annoying liberals that you cleave to anyone they mock, and make presidential virtues out of shallow policy knowledge and lack of intellectual curiosity.

Writing at Politico, Cato scholars David Boaz and Roger Pilon weigh in on what her resignation means for the former Vice-Presidential candidate’s political future:

Boaz:

Will we one day say that her presidency was ‘born on the Fourth of July’? I doubt it. This appears to be just the latest evidence that Sarah Palin is not ready for prime time. The day McCain chose her, I compared her unfavorably to Mark Sanford. Despite everything, I’d still stand by that analysis. At the time I noted that devout conservative Ramesh Ponnuru said ‘Palin has been governor for about two minutes.’ Now it’s three minutes.

Running for president after a single term as governor is a gamble. Running after quitting in the middle of your first term is something else again. If this is indeed a political move to clear the decks for a national campaign, then she needs adult supervision soon. But I can’t really believe that’s what’s going on here. I suspect we’re going to hear soon about a yet-unknown scandal that was about to make continuing in office untenable.

Pilon:

It seems that since her return to the state following the campaign, activist opponents and bloggers have bombarded the governor’s office with endless document requests. And she’s faced 16 ethics inquiries, with no end in sight. All but one have since been resolved, but the politics of personal destruction has cost the state millions, as Palin noted. Add to that the unrelenting, often vicious and gratuitous attacks on her and even on her family, and it’s no wonder that she would say ‘Enough.’ It has nothing to do with ‘quitting’ or with being ‘unable to take the heat.’ It has everything to do with stepping back and saying you’re not willing to put your family and your state through any more. She seems confident that history will judge her more thoughtless critics for what they are. I hope she’s right.

Honduras’ President Is Removed from Office

In reaction to Honduran President Manuel Zelaya’s attempt to stay in power despite term limits set by the nation’s Constitution, armed forces removed him, sending the Latin American nation into political turmoil.

Juan Carlos Hidalgo, an expert on Latin American affairs, comments:

The removal from office of Zelaya on Sunday by the armed forces is the result of his continuous attempts to promote a referendum that would allow for his reelection, a move that had been declared illegal by the Supreme Court and the Electoral Tribunal and condemned by the Honduran Congress and the attorney general. Unfortunately, the Honduran constitution does not provide an effective civilian mechanism for removing a president from office after repeated violations of the law, such as impeachment in the U.S. Constitution. Nonetheless, the armed forces acted under the order of the country’s Supreme Court, and the presidency has been promptly bestowed on the civilian figure — the president of Congress — specified by the constitution.

To be sure, Hidalgo writes, the military action in Honduras was not a coup:

What happened in Honduras on June 28 was not a military coup. It was the constitutional removal of a president who abused his powers and tried to subvert the country’s democratic institutions in order to stay in office.

The extent to which this episode has been misreported is truly remarkable.

Obama Adopts the Mikulski Principle

Economists have advanced many theories of taxation. But as usual, the one that seems to explain the policies of the Obama administration best is what I call the Mikulski Principle, the theory most clearly enunciated in 1990 by Sen. Barbara Mikulski (D, Md.):

Let’s go and get it from those who’ve got it.

Just take a look at the myriad taxes proposed or publicly floated by President Obama and his aides and allies:

As the links will indicate, not all of these taxes have been formally proposed, and some have already run into sufficient criticism to have become unlikely. But together they illustrate the mindset of an administration and a Congress determined to extract as much money as they can from Americans rather than cut back on expenditures, which have doubled in about eight-and-a-half years.

Indeed, the administration’s programs remind us that today is July 2, the 233rd anniversary of the day on which the Continental Congress voted for American independence, issuing a document that declared, among other things,

He has erected a multitude of New Offices, and sent hither swarms of Officers to harrass our people, and eat out their substance.

Higher Taxes for Health Care, Fewer Jobs

President Obama broke his pledge not to raise taxes on lower- and middle-income families with his large tobacco tax increase back in February. It appears that the increase is not just hurting tobacco consumers, but also hurting workers in the cigar industry. From Tampa Bay Online:

Tampa will lose part of its cigar heritage in August when Hav-A-Tampa shuts its factory near Seffner and lays off about 495 employees, closing a factory that has been operating since 1902.

Several things conspired to hurt Altadis’ sales, McKenzie said, including the recession and the growth of indoor smoking bans. The bans have especially hurt sales in cold-weather states, where it’s impractical to smoke a cigar outdoors in the winter, he said.

However, the company attributed much of its trouble to the State Children’s Health Insurance Program, or SCHIP, a federal program that provides health insurance to low-income children. It is funded, in part, by a new federal tax on cigars and cigarettes. McKenzie couldn’t say how much sales of Hav-A-Tampa cigars had fallen off, but the numbers have dropped significantly, he said.

Previously, federal excise taxes on cigars were limited to no more than a nickel, said Norman Sharp, president of the Cigar Association of America trade group. The tax increase, which took effect April 1, raises the maximum tax on cigars to about 40 cents, Sharp said.

This health-tobacco legislation raised taxes $65 billion over 10 years. Imagine the damage that would be caused by the giant health bill currently moving through Congress, which will cost $1 trillion or more over 10 years.

Hat Tip: Tad DeHaven

New Video Explains Why Soak-the-Rich Tax Increases Are Misguided

The Obama Administration is proposing higher taxes on just about everyone and everything, but one common theme is that most of the tax increases are being portrayed as ways of fleecing the so-called rich. This new video, narrated by yours truly, provides five reasons why the economy will suffer if entrepreneurs and investors are hit with punitive taxes.

As always, any feedback on message and style would be appreciated.

Week in Review: Health Care Battles, Pay Caps and North Korean Prisoners

Will Obama Raise Middle-Class Taxes to Fund Health Care?

President Obama is promoting an expansion in federal health care spending, and Democratic leaders are scrambling to find ways to pay for it. The plan is expected to cost about $1.5 trillion over the next decade, but the administration has promised that health care legislation won’t add to already huge federal budget deficits. In a new paper, Cato scholars Michael D. Tanner and Chris Edwards argue that expanding government health care will likely involve huge tax increases on the middle class.

Tanner warns of “Obamacare” to come, saying that Obama’s new health care plan will give “government control over one-sixth of the U.S. economy, and over some of the most important, personal, and private decisions in Americans’ lives.” Don’t miss Tanner’s in-depth analysis of the new health care plan that is making its way through Congress, which “would dramatically transform the American health care system in a way that would harm taxpayers, health care providers, and — most importantly — the quality and range of care given to patients.”

A part of the plan would include “public option” (read: government-run) health care, which would allow the government to compete against private health care providers. Tanner says it would be the first step toward wiping out the private insurance market as we know it:

Regardless of how it is structured or administered, such a plan would have an inherent advantage in the marketplace because it would ultimately be subsidized by taxpayers. It could, for instance, keep its premiums artificially low or offer extra benefits, then turn to the U.S. Treasury to cover any shortfalls. Consumers would naturally be attracted to the lower-cost, higher-benefit government program.

…It is unlikely that any significant private insurance market could continue to exist under such circumstances. America would be firmly on the road to a single-payer health care system with all the dangers that presents. That would be a disaster for American taxpayers, physicians, and—most importantly—patients.

Treasury Seeks to Control Executive Pay Across the Private Sector

Fox Business reports, “The Treasury Department on Wednesday took new steps to rein in executive compensation, saying the Obama Administration would introduce legislation that could create stricter limits on pay; it also appointed an official to head up efforts on the issue.”

In a 2008 Policy Analysis Ira T. Kay and Steven Van Putten explain the misconceptions many people have about executive pay, and why the market is a better arbiter than any bureaucrat in Washington:

Such populist sentiments are often based on misunderstandings about the role of corporate executives in the economy and the vigorous competition that exists for these highly skilled leaders. In the past, federal regulatory efforts based on such misunderstandings have generated unintended consequences, which have damaged the economy and hurt the ability of the market for executives to self-regulate over time.

The labor market for executives and the associated pay levels are already subject to high levels of regulation. Indeed, U.S. corporations are subject to more stringent executive pay disclosure requirements than corporations anywhere else in the world. Before additional regulatory and legislative efforts are unleashed, policymakers should examine the rationale for current pay structures and the strong links between executive pay and corporate performance.

In a Washington Times op-ed, Alan Reynolds says efforts to cap executive pay are wholly misguided:

Congressional hearings to barbecue Wall Street executives are as fun as a circus, but with more clowns. Presidential politics is now taking such political distractions to a lower level.

…Most top executives who were actually in charge during the craze of overinvestment in mortgage-backed securities have been fired. Executives who are fired are not in a position to be “giving themselves” anything.

In reality, top executives are mainly paid by accumulating a big stockpile of company stock and stock options. Estimates of annual CEO pay that Congress and the press have been focusing on look as high as they do only because of the high value of restricted stock or stock options at the time.

Writing in 2007 (before the first round of major bailouts), Cato scholars Jerry Taylor and Jagadeesh Gokhale took it a step further: “Pay Bosses More!”:

Excessive executive compensation harms no one but perhaps the stockholders who put up with it. And stockholders put up with it because there’s good reason to believe that sizable CEO compensation packages help – not harm – corporate performance, which redounds to their benefit, and that of the firms’ workers.

Companies pay workers what they must to deliver their products and services to the market, and supply and demand establishes executive compensation packages the same way it establishes consumer prices. Any overcompensation comes out of the firm’s bottom line – at a loss to the shareholders, not the workers.

North Korea Sentences Two U.S. Journalists to 12 Years Hard Labor

Two American journalists were convicted of entering North Korea illegally while on assignment, and exhibiting “hostility toward the Korean people.” This week, a North Korean court sentenced them to 12 years in a labor prison.

Cato scholar Doug Bandow comments:

Washington should publicly downplay the controversy and present the issue to the Kim regime as a humanitarian matter. The Obama administration should indicate its willingness to open a broader dialogue with North Korea, but indicate that positive results will be possible only if Pyongyang responds with cooperation instead of confrontation. Releasing the two journalists obviously would provide evidence of the former.

Regrettably, Laura Ling and Euna Lee are political pawns. As such, Washington’s best strategy to achieve their release is to simultaneously reduce their perceived value to Pyongyang and ease tensions between the U.S. and North Korea. Patience may be the Obama administration’s highest virtue and Ling’s and Lee’s greatest hope.

In a Cato Daily Podcast, Bandow discusses what can be done for the American prisoners, and how the U.S. government should react.

The Coburn-Burr-Ryan-Nunes Mandate-Price-Control Bill

Today, Senators Tom Coburn (R-OK) and Richard Burr (R-NC), along with Reps. Paul Ryan (R-WI) and Devin Nunes (R-CA) announced that they will introduce a health care reform bill. If my reading of the bill summary is correct, their bill would:

  • Mandate that states create a new regulatory bureaucracy called a “State Health Insurance Exchange,”
  • Mandate that all plans offered through those exchanges meet federal regulatory standards,
  • Mandate “guaranteed issue” in those exchanges,
  • Mandate “uniform and reliable measures by which to report quality and price information,”
  • Impose price controls on those plans by prohibiting risk-rating,
  • Launch a government takeover of the “insurance” part of health insurance, by means of a “risk-adjustment” program intended to cope with the problems created by price controls, and
  • Fall just short of an individual mandate by setting up (mandating?) automatic enrollment in exchange plans at “places of employment, emergency rooms, the DMV, etc.” – essentially, trying to achieve universal coverage by nagging Americans to death.

Needless to say, I am troubled.

The bill summary is self-contradictory. On the one hand, it lists “No Tax Increases” as a core concept. Do its authors not know that imposing price controls on health insurance premiums imposes a tax on healthier-than-average consumers? And where do they think the money for “risk-adjustment” payments will come from? Heaven?

The bill sponsors seem to want to cement in place the monopoly regulation that currently exists at the state level – when they’re not encouraging Congress to take over that function. Have they abandoned their colleague Rep. John Shadegg’s (R-AZ) proposal to allow for competitive regulation of health insurance?

And if Massachusetts created an “exchange” on its own, why do other states need federal legislation?

The bill includes some ideas for which I have more sympathy, like its tax-credit proposal and expanding health savings accounts.

But the above provisions would sow the seeds of a government takeover of health care – so much so that The Washington Post’s Ezra Klein is salivating:

The word of the day is “convergence.” That – and that alone – is the definitive message of the conservative health reform alternative developed by Sens. Tom Coburn (Okla.) and Richard Burr (N.C.), as well as Rep. Paul Ryan (Wisc.). For now, some of the key provisions are about as clear as mud. The plan’s changes to the tax code, in particular, are impossible to discern. So I’ll do another post when I can get some clarity on those issues. The politics, however, are perfectly straightforward.

A superficial read of the Patients’ Choice Act – which I’ve uploaded here – would make you think you’re digging into a liberal bill. A fair chunk of the rhetoric is lifted straight from Sen. Ted Kennedy’s office. “It is time to publicly admit that the health care system in America is broken,” begins the document. “Health care is not a commodity in the traditional sense,” it continues. “States should provide direct oversight of health insurers to make sure they are playing by fair rules,” it demands. The way we pay private insurers in Medicare “wastes taxpayer dollars and lines the pockets of insurance executives,” it says. Elsewhere, it praises solutions that have worked in several European countries.”

And though it’s still too early to say how the policy fits together, it’s clear that many traditionally Democratic concepts have been embraced. To put it simply, the plan wants to encourage a version of the Massachusetts reforms – which it calls a “well-known, bi-partisan achievement of universal health care” – in every state. There are some differences, of course. The plan doesn’t have an individual mandate. It doesn’t have an obvious tax on employers. But it strongly endorses State Health Insurance Exchanges. And that, for Republicans, is a radical change in policy.

This idea – present in every Democratic proposal but absent in Arizona Sen.John McCain’s plan – would empower states to create heavily regulated marketplaces of insurers. The plans offered would have to “meet the same statutory standard used for the health benefits given to Members of Congress.” Cherrypicking would be discouraged through risk adjustment, which the PCA calls “a model that works in several European countries.” The government would automatically enroll individuals in plans whenever they interacted with a government agency and states would be able to join into regional cooperatives to increase the size of their risk pool.

In essence, Coburn, Burr, and Ryan are abandoning the individual market entirely. Like Democrats, they’re arguing that individuals cannot successfully navigate the insurance market, and they need the protection of government regulation and the bargaining power that comes from a large risk pool. This is literally the opposite approach from McCain, who attempted to unwind the employer-based insurance and encourage families to purchase health coverage on the individual market. The core elements of this plan, in other words, make it the same type of plan Democrats are offering. A plan that enlarges consumer buying pools rather than shrinks them. It’s pretty much exactly what I’d expect a Blue Dog Democrat to propose. And it’s further evidence that the argument over health reform is narrowing, rather than widening. And it’s narrowing in a direction that favors the Democrats.

UPDATE: After discussions with Sen. Coburn’s staff, I happily issued a few corrections. Still, concerns remain.