Topic: Health Care & Welfare

We’ll Never Improve the Tax System by Clinging to Partisan Folklore

top marginal tax rates over time

A stubborn myth of the pro-tax left (exemplified by Bernie Sanders) is that the Reagan tax cuts merely benefitted the rich (aka Top 1%), so it would be both harmless and fair to roll back the top tax rates to 70% or 91%.

Nothing could be further from the truth. Between the cyclical peaks of 1979 and 2007, average individual income tax rates fell most dramatically for the bottom 80%  of taxpayers, with the bottom 40 percent receiving more in refundable tax credits than paid in taxes.  By 2008 (with the 2003 tax cuts in place), the OECD found the U.S. had the most progressive tax system among OECD countries while taxes in Sweden and France were among the least progressive.

What is commonly forgotten is that before two across-the-board tax rate reductions of 30% in 1964 and 23% in 1983, families with very modest incomes faced astonishingly high marginal tax rates on every increase in income from extra work or saving (there were no tax-favored saving plans for retirement or college).

From 1954 to 1963 there were 24 tax brackets and 19 of those brackets were higher than 35%.  The lowest rate was 20% -double what it is now.  The highest was 91%.

High and steeply progressive marginal tax rates were terrible for the economy but terrific for tax avoidance. Revenues from the individual income tax were only 7.5% from 1954 to 1963 when the highest tax rate was 91%, which compares poorly with revenues of 7.9% of GDP from 1988 to 1990 when the highest tax rate was 28%. 

Congress Is Getting a Special Exemption from ObamaCare—and No, It’s Not Legal

The Heritage Foundation’s John Malcolm and I have a new oped where we draw from newly uncovered to documents to show that the officials who bestowed upon Congress its own special exemption from ObamaCare likely violated numerous federal laws. Malcolm is a former assistant U.S. attorney, a former deputy assistant attorney general in the Department of Justice’s Criminal Division, and the current chairman of the Criminal Law Practice Group of the Federalist Society.

First, a little background. The Affordable Care Act threw members and staff out of the Federal Employees Health Benefits Program, and basically says they can only get health benefits through one of the law’s new Exchanges. Under pressure from Congress and the president himself, the federal Office of Personnel Management (which administers benefits for federal workers, including Congress) decided the House and Senate would participate in the District of Columbia’s “Small Business Health Options Program,” or “SHOP” Exchange, rather than the Exchanges that exist for individuals. The reason is that federal law would not allow members and staff to keep receiving a taxpayer contribution of up to $12,000 toward their premiums if they enrolled in individual-market Exchanges. Yet putting Congress in a small-business Exchange isn’t exactly legal, either. Both federal and D.C. law expressly prohibited any employer with more than 50 employees from participating D.C.’s SHOP Exchange. The House and Senate each employ thousands upon thousands of people.

Negative Effects of Minimum Wages

California and New York have approved bills to increase their state minimum wages over time to $15 an hour. Presidential candidates Hillary Clinton and Bernie Sanders favor raising the federal minimum wage. But such mandated increases do more harm than good, and they hurt the exact groups of people that policymakers say that they want to help.

Labor economist Joseph Sabia of San Diego State University summarized the academic evidence on minimum wages in this 2014 bulletin for Cato.

Sabia’s own statistical research with economist Richard Burkhauser “found no evidence that minimum wage increases were effective at reducing overall poverty rates or poverty rates among workers.” And a study by economists David Neumark and William Wascher “found that while some poor workers who kept their jobs after minimum wage increases were lifted out of poverty, others lost their jobs and fell into poverty.”

How To Minimize Conflicts Of Interest In Medical Research

Steven E. Nissen, M.D., chief cardiologist at the Cleveland Clinic, discusses his findings of a study of the drug Torcetrapib, during the American College of Cardiology Conference in New Orleans, Louisiana, Monday, March 26, 2007. The drug Pfizer Inc. stopped developing in December because of a link to excessive deaths failed to reduce artery-clogging plaque in studies presented today. Torcetrapib was supposed to work by raising levels of good cholesterol, or HDL, which scientists believe helps sweep bad cholesterol from arteries. Research presented at a scientific meeting used sophisticated imaging technology that peered inside patients' arteries to determine the drug has no effect on the build up of fatty plaque and raises blood pressure. Photographer: Scott Saltzman/Bloomberg News.

With so much medical research funded by pharmaceutical companies and others with a financial interest in the outcome, it can be hard to avoid conflicts of interest. Years ago, Harvard Medical School revamped its policy on professors reporting potential conflicts of interest after critics, including many students, claimed the old rules were too lax and hid the financial ties many professors had to the manufacturers of the drugs they researched and discussed in class. In an article about a new study published in JAMA on how statins do in fact lead to muscle pain in some patients, the Washington Post gives recognition to Dr. Steven E. Nissen’s approach to minimizing such conflicts.

One can see the potential for conflict in how JAMA describes the role of one of the drugs’ manufacturers:

This study was funded by Amgen Inc.[, which] was involved in the design and conduct of the study, selected the investigators, monitored the trial, and collected and managed the trial data. The sponsor participated in the decision to publish the study and committed to publication of the results prior to unblinding the trial. The sponsor maintained the trial database and transferred a complete copy to the Cleveland Clinic Center for Clinical Research and the sponsor to facilitate independent analyses. The sponsor had the right to comment on the manuscript, but final decisions on content rested with the academic authors.

California’s Unprecedented Minimum Wage Hike Brings Major Risks

Californian lawmakers and labor unions have reportedly reached a deal to increase the minimum wage to $15 an hour by 2022, and index it to inflation after that. If this deal becomes a reality, California would be the first statewide experiment with the $15 minimum wage. The ratio of the minimum wage to the median wage in California would be one of the highest in the world among high-income countries. California’s minimum wage deal brings with it unprecedented risks, and any resulting adverse results will be primarily borne by younger workers, people with limited job skills, and people living outside of major cities.

Ratio of Minimum Wage to Median Wage, California (2022) and High-Income Countries (2014)

 

Source: OECD.

Note: European OECD countries, with the addition of Australia, Canada and United States. California projection assumes two percent real wage growth.

Unlike the recent deal in Oregon, which included a tiered minimum wage with lower levels in smaller cities and rural areas, California’s increase would apply uniformly throughout the state. While major cities like San Francisco or San Jose that generally have higher wages might be able to absorb some of the adverse effects of this increase, non-metro areas will be the most impacted by this deal. The New York Times estimates that in 2022 the $15 minimum will be 40 percent of the median wage in San Jose, but 74 percent in Fresno, significantly higher than France and approaching the 77 percent seen in Puerto Rico. Arindrajit Dube, a prominent minimum wage researcher who has found relatively small disemployment effects from past increases, acknowledged that “In rural areas like Fresno, a majority of workers will be affected.” There is also more slack in the labor market in places away from the major urban metros: ten of the thirteen metropolitan statistical areas (MSAs) with the highest unemployment rates in the country are in California, and people in these places will find it even harder to deal with these minimum wage increases.

Another potential pitfall of the new deal is it would effectively lock California into a rigid trajectory for the next six years, which will limit the state economy’s ability to adapt to changing circumstances. With a phase-in stretching to 2022, it’s likely that a recession will hit at some point during this period. This could cause wage growth to stall out, which would push up the ratio of the proposed minimum to median wage ration even higher. Even Governor Brown recognized the implicit trade-offs in minimum wage increases of this magnitude, warning in his most recent budget proposal that in this scenario “such an increase would require deeper cuts to the budget and exacerbate the recession by raising businesses’ costs, resulting in more job loss.” The Sacramento Bee reports that the tentative deal includes a provision giving the governor the ability to temporarily halt future increases during a recession, but given how quickly Governor Brown has reversed course in the face of pressure from unions and activists, it is hard to see how a future governor would halt increases in the future.

The increases do not end in 2022.  After that, the minimum wage would be indexed to inflation. One of the arguments employed for increases now is that the real value minimum wage has eroded over time, because it has not been linked to inflation. This leads to a “sawtooth pattern” in the real value of the minimum wage. Businesses might be less likely to respond to minimum wage increases that they perceive as temporary in nature. Shifting investment and hiring decisions is disruptive and costly for employers, so if the impact of the minimum wage increase will be attenuated by inflation and broader wage growth, the adjustments will be more muted. Responses to a minimum wage increase of this magnitude that will then be indexed to inflation will be significantly larger than most previous cases that have been analyzed.

Sawtooth Pattern: Real Value of Federal Minimum Wage

 

Source: Federal Reserve Bank of St. Louis, Federal Reserve Economic Data.

Studies focusing on discrete job levels over a short time frame might be failing to accurately measure where these adjustments are taking place.  Jonathan Meer and Jeremy West suggest that the impact of a minimum wage increase is primarily driven by reduced job creation, rather than companies firing people. Over a longer time period, they estimate that a 10 percent increase in the minimum wage leads to a 0.8 percent reduction in total employment, with these effects concentrated among lower-skilled workers. California’s much greater minimum wage increase would lead to slower job growth in the future, which would disproportionately harm people at the lower end of the skills spectrum.

With this deal, California ventures into largely uncharted waters for the United States experience with the minimum wage, and the ratio of minimum wage to median wage would be one of the highest in the world. While other cities have passed a $15 minimum, and Oregon recently enacted a significant increase, California would impose uniform minimum wage hikes throughout the entire state, which could especially harm people outside major cities. After reaching $15, the minimum wage will be indexed to inflation, which could lead to disemployment effects larger than many recent studies have found. Young workers and people with limited job skills will bear the brunt of any negative consequences from California’s minimum wage experiment, while rural areas and smaller towns will see the most disruption. 

The Hidden Costs of ObamaCare’s Millennial Mandate

Guests mingle during the second annual Future of America gala at the House of Sweden in Washington, D.C., U.S., on Friday, Oct. 3, 2014. "Our guests are not people that are traditionally struggling with unemployment," said David Pattinson, founder of David Pattinson's American Future, a Washington-based nonprofit, which aims to get the millennial generation more fully employed. Photographer: T.J. Kirkpatrick/Bloomberg

There is a current running through the ObamaCare debate that goes something like this:

Every other advanced country provides health insurance to all its citizens for a fraction of what Americans spend on health care. ObamaCare emulates what those countries do. Anyone who complains about ObamaCare increasing premiums or imposing other costs is therefore a right-wing nut who doesn’t understand that universal coverage results in lower spending, not higher spending.

This line of reasoning, so to speak, leads supporters to believe ObamaCare is a free lunch. Their ignorance is not accidental. MIT health economist and ObamaCare architect Jonathan Gruber helpfully explained some years ago that he and his co-architects deliberately designed the law to hide its costs and make the benefits seem like a free lunch.

ObamaCare’s “Millennial mandate”—the requirement that employers who offer health coverage for employees’ dependents continue to offer such coverage until the dependents turn 26 years old—is one of those supposed free lunches. This mandate’s benefits unquestionably come at a cost. Expanding health insurance coverage among adults age 19-26 leads them to consume more medical care. When those people file insurance claims, health-insurance premiums rise. Yet ObamaCare does an amazing job of hiding those costs from voters.

Does ObamaCare impose a special tax that the IRS collects to pay for that extra coverage? No. That would be far too transparent. The cost just gets added to your premiums.

Does ObamaCare require employers to include a line-item on your premium payments, to show you how much this additional coverage is costing you? Absolutely not. That, too, would make the costs dangerously noticeable. The additional cost just gets thrown onto the pile, hidden among the costs of all the other mandated coverage you don’t want, and the coverage you actually do want.

Maybe workers see their premiums rising, and are merely ignorant of the fact that the Millennial mandate is part of the reason? Nope. ObamaCare hides the cost further still. Explaining how requires a little bit of labor economics.

The ACA’s Sixth Anniversary Is A Wake, Not A Birthday Party

Six years ago today, President Barack Obama gave the Affordable Care Act his signature. There is no sense in marking the ACA’s anniversary, however, because the ACA is no longer the law.

Realizing the law he signed was unconstitutional and unworkable. President Obama and the Supreme Court have since made a series of dramatic revisions that effectively replaced the ACA with something we now call “ObamaCare.”

ObamaCare–not the ACA–is the law under which Americans now live.

  • Under ObamaCare, the Supreme Court used Congress’ taxing power–a power Congress declined to use under the ACA–to force Americans to purchase government-approved health-insurance plans.
  • Under ObamaCare, the Supreme Court severed the connection between the (ineffective) Medicaid expansion Congress enacted and the rest of the Medicaid program–a bifurcation Congress never contemplated, much less intended.
  • Under ObamaCare, the president imposed and the Supreme Court green-lighted taxes on nearly 100 million Americans whom Congress clearly exempted.
  • ObamaCare gives members of Congress a special exemption from the ACA. (It’s good to be the king.)
  • Under ObamaCare, the president can tax and subsidize whom he pleases. Even if Congress didn’t provide the funding. Even if Congress says he can’t.

The ACA, in effect, is dead. ObamaCare is the law governing Americans’ health care–even if we don’t know what that law is from one day to the next. The ACA had legitimacy. No legislature ever approved ObamaCare. It has no legitimacy.

Unfortunately, ObamaCare doesn’t work much better than the ACA. ObamaCare is still causing Americans to lose their health plans. As one voter pointedly reminded Hillary Clinton, ObamaCare is still driving premiums higher. It is still causing their coverage to erode.

If you want to celebrate something on March 23, celebrate the anniversary of the last time Democrats put the legislative process and political legitimacy ahead of their ideological goal of universal coverage