Topic: Health Care & Welfare

Study Finds Older Americans Have Significant Capacity to Work More, Underscoring the Need for Social Security Reform

The latest working paper in the ongoing Social Security Programs and Retirement Around the World project asks whether older people are healthy enough to work more years, and finds that there is a significant amount additional work capacity due to health and mortality gains. While piecemeal reforms like increasing the retirement age or changing how benefits are indexed are not as comprehensive as allowing young workers to invest a portion in personal accounts, they could be part of some comprehensive package to address the program’s shortfall. In a recent AP/NORC poll, 85 percent of respondents said protecting the future of Social Security is extremely or very important, but under current law, the Congressional Budget Office projects the trust fund will be exhausted by 2029 and benefits the following year would need to be cut by 29 percent. Delaying the needed reforms only increases the magnitude of changes that will be needed.  Increases in life expectancy and the additional capacity for work at older ages should be considered when designing those reforms.

In the report, the authors use a few different methods and find that in each scenario, due to gains in health and life expectancy, older people are able to work significantly more than they currently do. In the Milligan-Wise (MW) method, the authors estimate additional work capacity by comparing employment rates for men in 2010 with men at the age with the same mortality rates from previous years. For all age groups, older men have significantly more work capacity, as much as 42 percent for men between ages 65 and 69, for example.

A Long-Overdue Conversation about How to Replace ObamaCare

With the prospect of a Republican president who could conceivably repeal and replace ObamaCare, it is time for ObamaCare opponents to take a hard look at their “replace” plans. As I have argued elsewhere, expanding health savings accounts – a proposal I call Large HSAs – beats other alternatives like health-insurance tax credits. In short, if opponents succeed in repealing ObamaCare, Large HSAs would take another step in the direction of a market system. Health-insurance tax credits would constitute a step backward, because they would simply resurrect some of ObamaCare’s worst features–including an individual mandate and much of ObamaCare’s government spending and redistribution.

I set off a kerfuffle last week when I wrote that Sen. Marco Rubio’s (R-FL) ObamaCare replacement plan contains an individual mandate in the form of tax credits for health insurance. Rubio supporters and others were none too pleased. 

Higher Marginal Tax Rates Reduce Income Mobility, Especially at the Bottom

Calls for higher tax rates often suffer from a myopic focus on the one percent, but these proposals largely fail to acknowledge that tax rates, and the incentives they create, influence work decisions for everyone.  Nowhere is narrow focus more evident than the tax proposals from the two rivals for the Democratic nomination. Bernie Sanders has proposed more than $19 trillion in new taxes over the next decade, and Hillary Clinton’s own plans only look modest by comparison. My colleague Alan Reynolds briefly alluded to a recent paper from Mario Alloza of University College London that examines the relationship between tax rates and income mobility. He finds that higher marginal tax rates reduced mobility over the period analyzed, particularly for people with low incomes or less education. These findings imply that proposals to significantly increase taxes could make it harder for people at the bottom of the income distribution to work their way up.

Alloza looks at panel data between 1967 and 1996 to examine whether tax rates affect the probability of staying in the same decile in the following two years. He examines different scenarios including pre-tax, post-tax and post-tax and transfer. Most of the paper focuses on federal taxes, but he also examines a case where state and payroll taxes are included as well. Increases in the marginal tax rate are associated with a reduction in short-run relative income mobility. Households are roughly 6 percent more likely to stay in the same income quintile when the marginal tax rate is increased by one percentage point. This mechanism holds for all of the different tax and transfer scenarios. Even accounting for the impact of transfers and benefits, higher rates curbed the upward mobility of people at the lower end of the income distribution. This suggests that the impact of tax rates on income mobility is not confined to redistribution effects, but the changes in labor market incentives.

These effects are even more pronounced for people with low-income or less than a college degree. Tax changes focused on compressing the income distribution by taking more from those at the top could also make it harder for these people at the bottom to climb the economic ladder. When Alloza restricts his sample to non-college households, he finds that a one percentage point increase in the marginal tax rate increases the probability of moving down to lower deciles by roughly one percent, increases the likelihood of remaining in the same decile by roughly the same amount, and reduces the probability of moving up to a higher income decile by almost one and a half percent. For households in the lowest income decile, an increase in the marginal tax rate reduces their probability of moving up to a higher decile by almost one and half percent in the post-tax and transfer scenario.  Higher marginal tax rates reduce the mobility for these groups in particular.

These results provide more evidence that taxes matter for all people when they make decisions about work. Higher tax rates limit income mobility by changing work incentives, particularly for people near the bottom of the income distribution. Public policy should not further reduce the scope of opportunity for these people, and increasing tax rates would likely do just that.  

John Kasich’s ObamaCare Duplicity

Ohio governor and GOP presidential hopeful John Kasich says he opposes ObamaCare. Yet somehow, he has managed to embrace the law in every possible way. He wanted to implement an Exchange, even if it was clearly unconstitutional under Ohio law. He denounced the Medicaid expansion’s “large and unsustainable costs,” which “will just rack up higher deficits…leaving future generations to pick up the tab.” Then he went ahead and implemented it anyway. Worse, he did so unilaterally, after the Ohio legislature passed legislation prohibiting him from doing so (which he vetoed). When Republican legislators and pro-life groups filed suit to stop him, Kasich defended his power-grab all the way to the Ohio Supreme Court. 

Kasich’s defense of his record on ObamaCare has been…less than honest. Just one example: in a town hall meeting in South Carolina last night, Kasich railed against how ObamaCare increases the cost of health care at the same time he boasted he has constrained Medicaid spending in Ohio. In fact, Kasich’s unilateral Medicaid expansion not only increased the cost of Medicaid to taxpayers nationwide, but according to Jonathan Ingram of the Foundation for Government Accountability, it “has run $2.7 billion over budget so far [and] is set to run $8 billion over budget by 2017.” 

For more examples of Kasich’s ObamaCare duplicity, see my new four-part (yet highly readable!) series at


States Optimistic About Economic Futures Are More Economically Free

New data from Gallup suggests that residents in US states with freer markets are more optimistic about their state’s economic prospects. In their 50-State Poll, Gallup asked Americans what they thought about the current economic conditions in their own state as well as their economic expectations for the future. North Dakota (92%), Utah (84%), and Texas (82%) top the list as states with the highest share of residents who rate their current economic conditions as excellent or good.  In stark contrast, only 18% of Rhode Island residents, 23% of Illinois residents, and 28% of West Virginians rate their state’s economic conditions as excellent or good. Similarly Americans most optimistic about their state’s economic futures include Utah (83%) and Texas (77%) while states at the bottom include Illinois (34%) and West Virginia (36%).

What explains these stark differences in economic evaluations and expectations across US states? Could differences across states in economic freedom, such as government regulations on business, tax rates, government spending, and property rights protection, be part of the story?

Figure 1: Relationship Between State Economic Freedom Scores
and Residents’ Evaluations of Current Economic Conditions


 Source: Economic Freedom Index 2011, Freedom in the 50 States; Gallup 50-State Poll 2015

On Supreme Court Nominations, ‘Recovering Lawyer’ Hillary Clinton Making Stuff up for Partisan Advantage

Under the header, “Obama is president until January 20, 2017. It’s his job to nominate a justice, the Senate has a responsibility to vote,” Hillary Clinton’s Facebook page issues the following statement:

Nearly everything Clinton says here is either misleading or just untrue.

A Libertarian Argument for Bernie Sanders?

Will Wilkinson notes that there is a libertarian argument for Bernie Sanders. I’m not sure I buy the precise point Wilkinson is making. Sanders says he wants to make the United States more like Finland, Sweden, and Denmark. And those countries do indeed rank higher than the United States in the Cato Institute’s Human Freedom Index, compiled by my colleagues Ian Vásquez and Tanja Porčnik. But Sanders wants to emulate those countries in the ways they are less free than the United States (i.e., expanding government transfers), not in the ways they are more free (taxes and regulation). I think this powerful Sanders ad featuring Eric Garner’s daughter Erica is a much better libertarian argument for Sanders.