Topic: Tax and Budget Policy

Underpaid CEO?

By
David Boaz

The Wall Street Journal headline blares “Disney CEO Iger’s Bonus, Salary Total $17 Million” (in the print edition). To most of us, that’s an unbelievable amount of money, and no doubt many readers felt their blood pressure–and their populist anger–rising.

What the story didn’t quite say, though, was how much money Bob Iger made for Disney shareholders since he took over in October 2005. It did note that the company’s stock price has risen 43 percent in that time. So in the 15 months that Iger’s been in charge, shareholders have made some $23 billion. They probably figure $17 million is a fair reward to the CEO who played a major role in that gain.

Topics: 
General, Tax and Budget Policy

Schwarzenegger’s Shakedown

By
Michael F. Cannon

Much has been written about TerminatorCare, Gov. Arnold Schwarzenegger’s (R) plan to guarantee health coverage to all Californians by employing every lousy idea the Left has ever conjured. 

But much of what has been written about TerminatorCare is wrong. Media accounts and even some policy wonks have reported that Schwarzenegger, through the magic of Medicaid, would have taxpayers in other states pay for only half the cost of his plan. Would that that were so.

Instead, Schwarzenegger actually proposes to use an old Medicaid trick that would put non-Californians on the hook for much more than half the cost. First, he would boost state payments to providers, which triggers federal matching funds. But then he would tax the providers so much that he would recover the state’s initial outlay plus most of the federal matching funds, which he would then use to finance the rest of the plan.  At the end of the day, California would spend zero extra dollars on provider payments, yet the ruse would net an additional $1.3 billion from taxpayers in other states.  

After one cuts through the budget gimmicks, one finds that Californians would contribute only $1.3 billion to the plan, while taxpayers in other states would contribute $4.5 billion — or over three times as much.

I haven’t seen so many people who couldn’t shoot straight since Commando. 

Ooh, wait, I have another one! The Schwarzenegger health plan brings to mind the tagline from Commando:

Somewhere… somehow… someone’s going to pay!

(Hey, with a dry cool wit like that, I could be an action hero.)

Topics: 
Cato Publications, General, Health Care, Tax and Budget Policy

Those Who Sell Out Will Eventually Be Punished

By
Michael F. Cannon

In a sick way, I’m enjoying the debate over price controls for prescription drugs under Medicare Part D. Of course, I don’t want Congress to dry up the stream of drugs that will keep me alive and vigorous when I’m a geezer. It’s just … what were the Republicans and the drug companies thinking when they created Part D? What did they think would happen? Did they really believe that, if they’d create this program, Congress would never impose price controls?

As I argued on TV today, Part D has Congress buying — through the middleman of the private drug plans — a product with high research and development costs and low marginal costs. And Congress buys those drugs for a politically powerful group of citizens (the geezers). That kind of setup cannot last. The temptation for Congress to pay nothing more than the marginal costs will be inexorable, because doing so pleases constituencies that are paying attention (seniors and current taxpayers) and harms only those constituencies that are either unpopular (drug manufacturers) or else aren’t paying attention (future seniors, including those not yet born).

The writing is on the wall. It may not happen this year, but unless we scrap Part D, sooner or later we will get price controls on seniors’ prescription drugs.

So let’s scrap Part D.

What? You’re a Republican who voted for Part D, against conscience and better judgment?? And now you’re afraid to scrap Part D for fear of (gasp!) flip-flopping or offending the geezers?? Then start talking about fundamental Medicare reform, buddy. And start now.

Topics: 
Cato Publications, General, Health Care, Regulatory Studies, Tax and Budget Policy

Subsidies Fail to Save French Farms

By
Daniel Griswold

French farmers harvest billions of euros every year in government support through the Common Agricultural Policy (CAP). Yet those lavish subsidies and trade barriers have failed to achieve one of their primary objectives: saving the French family farm.

According to a study just released by the French Statistical Institute (INSEE), and reported in today’s Financial Times, an average of 100 French farms have gone out of business EVERY DAY for the past 50 years. The number of farm workers in France has dropped by two-thirds in the past 25 years. France’s farm exports have been declining by 3.4 percent per year since 1999, and farm household income has actually fallen during the past decade, while the incomes of non-farm households in France have been going up.

The decline of the French farm has occurred despite, or perhaps because of, the generous support of the CAP. France’s farmers receive the equivalent of $11.6 billion a year in handouts, more than one fifth of total European Union spending on agriculture. Those subsidies have arguably kept French farms from becoming more competitive and thus contributed to their long-term decline.

When the EU’s farm commissioner, Mariann Fischer Boel, warned that French farmers should seek second incomes outside the farm sector to survive, the French farm minister denounced her comments as “an insult to the social model to which European citizens are profoundly and legitimately attached.”

Is an agricultural “social model” that costs billions of euros a year and only adds to the decline of the French farm worth holding on to?

Topics: 
Government and Politics, International Economics and Development, Tax and Budget Policy, Trade and Immigration

Why Support for the Minimum Wage Persists in Congress: A Thought Experiment

By
Stephen Slivinski

It might seem obvious why support for the minimum wage persists in Congress. Politicians always want to be seen as helping the little guy. So they would naturally support an increase of the minimum wage to $7.25, as is currently being proposed.

Let’s assume that everyone who supports an increase in the minimum wage also knows – and perhaps even agrees with – the fundamental economic insight that such an increase would lead to either lower-skilled workers being laid off or prices for goods going up or both. It’s conceivable that someone could still support a minimum wage increase after being convinced of that. It’s a price worth paying, they might say. Or they could argue, as some supporters of the current proposal do, that an increase to $7.25 – phased in over three years, no less! – won’t do that much damage. After all, it’s not a $15 increase.

Now let’s try a little thought experiment. Assume support for a minimum wage increase is conditional and dependent upon the proposal offered. A call for a $20 minimum wage, for instance, would arguably be greeted with much less enthusiasm. Evidence of this is the fact that even supporters of the minimum wage aren’t willing to go so far as to propose such a thing.

What follows, then, is a workable assumption about the politics of this issue: How adversely affected by the policy a congressman’s district would be is the main determinant, all other things being equal, of that congressman’s enthusiasm for a minimum wage increase. A congressman representing a rural district with many small businesses that the proposed minimum wage would burden most heavily would be a less enthusiastic supporter than one from a big city with many large businesses, the employees of which make far more than the minimum wage.

But the cost of living differs dramatically in different parts of the country, too: $7.25 doesn’t buy the same amount of stuff in Manhattan as in Kansas City. And there’s the rub. It’s easy for a congressman from Manhattan to support a $7.25 minimum wage since it might have only imperceptible economic effects in his district. In Kansas City, however, the effects would be relatively greater.

Now consider what might happen if Congress were required to adjust the federal minimum wage by the cost of living in each congressional district. In areas where the cost-of-living is close to the national average, the minimum wage would be around $7.25. In Manhattan – where it costs twice as much to live when compared to other areas, like Kansas City – the minimum wage would be at least $14.

This would set off all sorts of protests from congressmen in districts in which the upward adjustment is greatest. Now the businesses in their districts would feel a pinch they wouldn’t feel under a non-adjusted minimum wage. Those formerly enthusiastic congressmen might even start to question why it’s the federal government’s business to meddle in the often complex process – going on all around the country within hundreds of companies and cities, each of which are faced with vastly different economic situations – by which an employer and employee come to their own agreement on compensation for employment. And isn’t that the sort of debate we should be having?

Topics: 
General, Government and Politics, Tax and Budget Policy

The California Health Plan

By
Arnold Kling

A few things I find interesting the proposed California health plan.

1. Although it mandates health insurance, it envisions high-deductible health insurance policies as satisfying the mandate. Apparently, the thinking is in terms of a deductible of $5000 for an individual, as opposed to Massachusetts, where they think that “high-deductible” is about $1000.

2. It does not create an equivalent of the Massachusetts “connector.” The more one looks at it (see this description, for example), the “connector” is micro-managing individual and small-group health insurance in Massachusetts, leaving the private sector essentially no room to maneuver. The “connector” really ought to be re-named for what it is, a central planner.

3. Funding the plan with a tax on health care providers is interesting. In my new Cato Unbound essay, I write about today’s overly generous health insurance coverage:

For health care providers, insulation is a bonanza. Because consumers are not spending their own money, they accept doctors’ recommendations for services without questioning them and without concern for cost. Faced with an insured patient, a health care provider is like a restaurant catering to convention-goers with unlimited expense accounts. The customer will gladly take the most high-end recommendation and not worry about the price.

The Governator’s plan is to pay for a subsidy to health care consumers by putting a tax on health care producers. Thus, the push for health insurance becomes something other than a pure windfall for providers.

4. The plan explicitly envisions health insurance for illegal immigrants. If you think of that as a humanitarian issue, you may like it. But if you think about it in terms of the incentive it provides to illegally immigrate, it sounds problematic. Also, I am curious as to how the state is supposed to administer a program for illegal immigrants with one hand and enforce immigration laws with the other.

Of course, not all details have emerged, and the legislature has yet to put its imprint on any plan. So it may be premature to comment at any length.

Topics: 
General, Health Care, Tax and Budget Policy

Rock on, Canada

By
Sallie James

I realize I have already blogged about agriculture today, and normally I would spare you a second blog entry, but there has been an important development in agricultural trade circles. Canada has requested consultations (the first step in a full-blown trade dispute) with the United States over U.S. farm programs.

Specifically, the Canadians want to discuss the subsidies given to U.S. corn farmers, and the damage they did to other world corn producers because of price suppression effects. Enquiring minds in Canada also want to know more about the amount of trade-distorting support that the United States paid to its farmers overall in “certain years” (the press release doesn’t specify which).

It’s hard to say at this point what effect, if any, this development will have on the U.S. farm bill debate, or the WTO negotiations in the Doha round. But it would be a stupid brave Congress indeed that paid no heed to the WTO effects (in litigation or negotiation) of American farm subsidies when drafting a new farm policy. History has shown that the costs of farm welfare to consumers and taxpayers tend to get short-ish shrift when juxtaposed with the farm lobby, but firms facing possible retaliatory sanctions or failed market access ambitions as a result of an adverse ruling against the United States might carry more weight.

Topics: 
International Economics and Development, Tax and Budget Policy, Trade and Immigration

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