Tag: taxation

The $822,000-per-Year Bureaucrat and the Death of California

Over the years, I’ve shared some outrageous examples of overpaid bureaucrats.

Hopefully we’re all disgusted when insiders rig the system to rip off taxpayers. And I suspect you’re not surprised to see that the worst example on that list comes from California, which is in a race with Illinois to see which state can become the Greece of America.

Well, the Golden State has a new über-bureaucrat. Here are some of the jaw-dropping details from a Bloomberg report.

The numbers are even larger in California, where a state psychiatrist was paid $822,000, a highway patrol officer collected $484,000 in pay and pension benefits and 17 employees got checks of more than $200,000 for unused vacation and leave. The best-paid staff in other states earned far less for the same work, according to the data.

Wow, $822,000 for a state psychiatrist. Not bad for government work. So what is Governor Jerry Brown doing to fix the mess? As you might expect, he’s part of the problem.

…the state’s highest-paid employees make far more than comparable workers elsewhere in almost all job and wage categories, from public safety to health care, base pay to overtime. …California has set a pattern of lax management, inefficient operations and out-of-control costs. …In California, Governor Jerry Brown hasn’t curbed overtime expenses that lead the 12 largest states or limited payments for accumulated vacation time that allowed one employee to collect $609,000 at retirement in 2011. …Last year, Brown waived a cap on accrued leave for prison guards while granting them additional paid days off. California’s liability for the unused leave of its state workers has more than doubled in eight years, to $3.9 billion in 2011, from $1.4 billion in 2003, according to the state’s annual financial reports. …The per-worker costs of delivering services in California vastly exceed those even in New York, New Jersey, Illinois and Ohio.

Cartoon California Promised LandActually, it’s not just that he’s part of the problem. He’s making things worse, having seduced voters into approving a ballot measure to dramatically increase the tax burden on the upper-income taxpayers.

I suppose the silver lining to that dark cloud is that many bureaucrats now rank as part of the top 1 percent, so they’ll have to recycle some of their loot back to the political vultures in Sacramento.

But the biggest impact of the tax hike—as shown in the Ramirez cartoon—will be to accelerate the shift of entrepreneurs, investors, and small business owners to states that don’t steal as much. Indeed, a study from the Manhattan Institute looks at the exodus to lower-tax states.

The data also reveal the motives that drive individuals and businesses to leave California. One of these, of course, is work. …Taxation also appears to be a factor, especially as it contributes to the business climate and, in turn, jobs. Most of the destination states favored by Californians have lower taxes. States that have gained the most at California’s expense are rated as having better business climates. The data suggest that many cost drivers—taxes, regulations, the high price of housing and commercial real estate, costly electricity, union power, and high labor costs—are prompting businesses to locate outside California, thus helping to drive the exodus.

Yet another example of why tax competition is such an important force for economic liberalization. It punishes governments that are too greedy and gives taxpayers a chance to protect their property from the looter class.

ObamaCare’s Magical Premium Tax

The Department of Health and Human Services has announced it will unilaterally impose a (legally questionable) 3.5-percent premium tax on health plans purchased through the ObamaCare Exchanges it operates.

According to The New York Times, an HHS spokeswoman “predicted that insurers would not raise prices” in response to the tax.

If that’s the case, why not make it 35 percent?

Does HHS Have the Authority to Tax Health Premiums in Federal Exchanges?

Remember how an adviser to the federal Department of Health and Human Services said the department would have to “get creative” on funding federal health insurance exchanges, because states were refusing to create their own and ObamaCare provides no source of funding for federal exchanges? Well, HHS released its very creative response in a Friday news dump today, and the answer is “user fees” of 3.5 percent on all health insurance plans sold through federal exchanges.

But is that a little too creative? Does HHS have the authority to tax health premiums in its exchanges? Here’s what the department’s proposed regulation says:

Federally-facilitated Exchange user fees: Section 1311(d)(5)(A) of the Affordable Care Act contemplates an Exchange charging assessments or user fees to participating issuers to generate funding to support its operations. As the operator of a Federally-facilitated Exchange, HHS has the authority, under this section of the statute, to collect and spend such user fees. In addition, 31 U.S.C. 9701 provides for an agency to establish a charge for a service provided by the agency. Office of Management and Budget Circular A-25 Revised (“Circular A-25R”) establishes Federal policy regarding user fees and specifies that a user charge will be assessed against each identifiable recipient for special benefits derived from Federal activities beyond those received by the general public. In this proposed rule, we establish a user fee for issuers participating in a Federally-facilitated Exchange.

I don’t know anything about 31 U.S.C. 9701 or Circular A-25R. But here’s the Section 1311(d)(5)(A) language upon which they rely:

NO FEDERAL FUNDS FOR CONTINUED OPERATIONS.—In establishing an Exchange under this section, the State shall ensure that such Exchange is self-sustaining beginning on January 1, 2015, including allowing the Exchange to charge assessments or user fees to participating health insurance issuers, or to otherwise generate funding, to support its operations.

A few thoughts:

  1. It is interesting that when the federal government wants to justify generating funds for their Exchanges’ operational expenses, they cite for authority a paragraph titled, “NO FEDERAL FUNDS FOR CONTINUED OPERATIONS.”
  2. The proposed regulation correctly notes that Section 1311(d)(5)(A) only “contemplates” state Exchanges charging assessments. It certainly doesn’t authorize states to make such assessments; states already have the authority to impose such levies. (They are states, after all.) Nor does it even direct states to levy user fees. It says, in essence, “You gotta fund this yourself. Here are a couple of methods. Knock yourselves out.” Since Section 1311(d)(5)(A) doesn’t give states the authority to levy such taxes, it’s hard to see how that paragraph translates into “HHS has the authority, under this section of the statute, to collect and spend such user fees” (emphasis added).
  3. Section 1311(d)(5)(A) speaks specifically of states. It makes no mention of the federal government. Lest anyone think its mention of “an Exchange” could refer to state or federal exchanges, I refer you four paragraphs up to Section 1311(d)(1), which imposes another “REQUIREMENT … An Exchange shall be a governmental agency or nonprofit entity that is established by a State.” Or is the federal government again claiming that it can establish an Exchange that is established by a state?

Again, I don’t know anything about 31 U.S.C. 9701 or Circular A-25R. But the fact that HHS also cited them makes me think they lack confidence in their claim that Section 1311(d)(5)(A) authorizes them to do this. And the fact that they listed them after their Section 1311(d)(5)(A) claim makes me wonder if they even weaker.

I’ll be looking into this. But I would be interested to hear from anyone with expertise in 31 U.S.C. 9701 or Circular A-25R.

‘By Far the Broadest and Potentially Most Damaging of the Legal Challenges’ to ObamaCare

That’s how Kaiser Health News describes the legal challenge that Jonathan Adler and I outline in this paper and that Oklahoma attorney general Scott Pruitt has filed in federal court:

Supporters of the law scoff at the arguments…

But, confident of their case, some health law opponents, including Jonathan Adler of Case Western Reserve Law School, Michael Cannon of the libertarian Cato Institute and National Affairs editor Yuval Levin, are urging Republican-led governments to refuse to set up the online insurance purchasing exchanges, which would, as the argument goes, make their residents ineligible for the tax credits and subsidies. They say that this step also would gut the so-called employer mandate, which the law says will take effect in states where residents are eligible for such assistance…

As even some health law supporters concede, the claim that Congress denied to the federal exchanges the power to distribute tax credits and subsidies seems correct as a literal reading of the most relevant provisions. Those are sections 1311, 1321, and 1401, which provide that people are eligible for tax credits and subsidies only if “enrolled … through an Exchange established by the state” [emphasis added].

It’s technically not correct to say that Oklahoma’s complaint is a challenge to ObamaCare, however. That complaint does not challenge a single jot or tittle of the statute. Oklahoma is asking a federal court to force the IRS to follow the statute, and to prevent the Obama administration from imposing taxes on Oklahoma residents whom Congress expressly exempted. Oklahoma’s complaint is indeed “the broadest and potentially most damaging of the legal challenges” related to ObamaCare. But think about it: if the only way to save ObamaCare from such a fate is to give the president extra-constitutional powers to tax and spend money without congressional authorization, just how unstable is this law? And is it really worth saving?

Also, the article is a few months behind on the debate over congressional intent, and our ongoing debate with Timothy Jost (who has reversed himself on quite a few issues).

But overall, a good article.

Michigan Joins Growing List of States Not Gullible Enough to Implement an ObamaCare Exchange

A key committee in the Michigan legislature has voted down a proposal to create one of ObamaCare’s health insurance “exchanges.” The Speaker of the Michigan House pronounced a state-run Exchange dead:

It was my hope the committee would find that a state-run exchange afforded us more control over the unacceptable over-reach by the federal government regarding the health care of Michigan citizens. After due diligence, however, it is clear that there were too many unanswered questions for the committee to feel comfortable with a state-run exchange and we will not have one in Michigan…

The committee apparently was not able to get the answers to key questions or receive assurances about major concerns regarding costs for Michigan taxpayers, the ability to adopt a model the federal government wouldn’t ultimately control or the ability to protect religious freedom for Michigan citizens. Because the committee could not be assured that a state exchange was the best way to protect Michigan’s citizens, it is understandable why they did not approve the bill.

Under the terms of ObamaCare, Michigan’s refusal to create an Exchange exempts all Michigan employers from the law’s employer mandate, which imposes penalties of up to $2,000 per worker per year.

It exempts, by my count, 429,000 Michigan residents from the law’s individual mandate – a tax of $2,085 on families of four earning as little as $24,000.

And it gives the state, those employers, and those individual residents standing to file lawsuits to stop the IRS from ignoring the clear language of the law and imposing those taxes on them anyway.

ObamaCare Implementation News

Here’s some ObamaCare implementation news from around the interwebs:

  • Minnesota Facing Bigger Bill For State’s Health Insurance Exchange”: Kaiser Health News reports Minnesota has increased its spending projections for operating the state’s ObamaCare Exchange by somewhere between 35-80 percent for 2015. Spending on the Exchange will rise by another 19 percent in the following year.
  • The Wall Street Journal  defends the 25-30 states that aren’t gullible enough to create an Exchange and therefore take the blame for ObamaCare’s higher-than-projected costs.
  • Arizona Gov. Jan Brewer (R) has announced she will not implement an Exchange. That creates another potential state-plaintiff, millions of potential employer-plaintiffs, and (by my count) 430,000 potential individual plaintiffs who could join Oklahoma attorney general Scott Pruitt in challenging the IRS’s illegal ObamaCare taxes. It also means that Arizona can start luring jobs away from tax-happy California. There are four Hostess bakeries in California that might be looking to relocate.
  • I’m enjoying a friendly debate with The New Republic’s Jonathan Cohn and University of Michigan law professor Samuel Bagenstos over whether the those taxes really do violate federal law and congressional intent (spoiler alert: they do). I owe Bagenstos a response.
  • PolitiFact Georgia rated false my claim that operating an ObamaCare Exchange would violate Georgia law. I explain here why it is indeed illegal for Georgia (and 13 other states) to implement an Exchange.
  • ThinkProgress.org reports, “Romney’s Transition Chief Is Encouraging States To Implement Obamacare.” A better headline would have been, “Government Contractor Encourages More Government Contracts.”
  • The Washington Examiner editorializes, “In California…state regulators have warned…insurance premiums will rise by as much as 25 percent once the exchange comes online…That’s the best-case scenario.” And, “In 2014, seven Democratic Senate seats will be up for grabs in states Mitt Romney carried (Alaska, Arkansas, Louisiana, Montana, North Carolina, South Dakota and West Virginia). Unless Obama’s HHS bureaucrats pull off an unprecedented miracle of central planning, Obamacare could well sink Democrats again in 2014, the same way it did in 2010.”