Obama’s Pandering to Seniors

“Many seniors are struggling to keep pace with costs,” Senator Obama told a largely senior audience in Florida on September 18. Social Security benefits are adjusted for rising prices but not for rising taxes, including increased fees for Medicare. Using a line from his tax plan, Obama said, “This strain has been greater since 1993, when taxes on social security benefits were raised. Millions of seniors saw their net benefits go down.”

Thanks to Bill Clinton’s 1993 tax law, single seniors with incomes above $40,048 in 2007 had to pay income tax on 85% of a portion of their benefits, and those with income above $46,850 had to pay tax on 85% of their entire benefits. That 1993 tax increase hits couples with incomes above $54,278.

In retirement communities in key states like Florida and Arizona, Obama has cleverly tapped into senior resentment about the Clinton era, when “millions of seniors saw their net benefits go down.” But then he pulls a bait and switch trick.

Clinton’s 1993 tax hike reduced after-tax benefits for seniors earning more than $50,000—because they continued working after age 65 and/or because they saved for retirement.

Obama proposes to fix that by eliminating income tax for seniors earning less than $50,000. He says, “When I’m President, we’ll work to see that no retiree making less than $50,000 each year has to pay income tax. This will eliminate income taxes for about 7 million Americans, at a savings rate of roughly $1,400 each year. And 22 million seniors won’t even have to file a return and hire an expensive tax preparer.”

If Sally is 60 years old earns $49,000 by working, she would pay a higher income (and payroll) tax than Sam who is 66 and makes $49,000 from retirement income. Is there any rational explanation for that other than a shameless attempt to buy senior votes?

To help pay for such arbitrary tax favoritism, Obama wants to increase the tax rates on capital gains and dividends—two taxes that hit frugal seniors much harder than young people.

As I wrote in my Hillsdale College paper, “The argument for Obama’s tax plans is expressed in terms of fairness, rather than the impact on incentives and economic performance, yet the implied concept of fairness remains ambiguous. A single senior with a retirement income of $50,000 has the same per capita income as a two-earner family with $250,000 and three children. Yet the retired senior would be exempt from income tax, under this plan, while the large working family would be required to pay federal and state taxes of up to 46% on their next dollar of income while losing valuable deductions (e.g., for state income taxes and mortgage interest) and also losing five personal exemptions (which were supposed to be partial compensation for the added expense of supporting a larger family). The fairness of such a reallocation of tax burdens is, to put it mildly, not self-evident.”

Obama’s Tax Deceptions

Senator Obama famously claims, “I’ll give a tax break to 95% of workers and their families.”  The Obama team never explained that figure, because they made it up.  They always cite the friendly Tax Policy Center (TPC), when it suits their purposes, but not this time. That is because the Tax Policy Center concludes that under Obama’s plan, “about 81 percent of households would owe less tax while only [only?] about 10 percent would owe more.”  Compared with current tax policy, says the TPC “those in the top fifth of the income distribution would face and average tax increase of 3.4 percent of income, or $7,727.” The TPC adds that “married couples filing jointly would fare worst” because “married couples have much higher average incomes ($125,155 in 2009).”

Writing in The Wall Street Journal on Nov. 3, however, Obama said, “If you work, pay taxes, and make less than $200,000, you’ll get a tax cut.” That too is flatly false. Single workers who make more than $80,000 (or joint returns above $155,000) would not get a tax cut under Obama’s plan.

The centerpiece of the Obama redistribution scheme is a refundable “Making Work Pay Credit” (MWPC) of 6.2% up to a maximum of $8,100 of earnings, or about $500 per earner. This credit alone would cost $710 billion over ten years, according to the TPC, about half the cost of his entire $1.32 trillion package of assorted tax credits and exemptions.

The Making Work Pay credit results in a $500 check for those who pay no income tax, but it phases-out quickly once income exceeds $75,000. A two-earner family could get as much as $1000 from two tax credits, but that disappears as income exceeds $150,000. That is what Joe Biden meant when he said—correctly—that the plan is designed to help those earning less than $150,000.

University of Maine accounting professor Jeff Gramlich created a website which (like the Obama campaign) relies on Tax Policy Center estimates. It shows that a single worker earning $80,000 would get a $132 tax cut in 2010, but a single worker earning $85,000 would get nothing. A joint return with $155,000 of salary income would get a $270 tax cut, but a joint return with $160,000 would get nothing.

None of the other Obama tax cuts would be available to anyone earning anything close to $200,000. His child care credit phases out as incomes rise from $30,000 to $58,000; his exemption for seniors phases out as income rises from $50,000 to $60,000; his 50% savers credit ends at $75,000; his $4000 college tax credits (which pays $40 an hour for community service work) phases out as family income rises from $100,000 to $120,000. Robert Carroll of the Tax Foundation notes that, “The combination of the phase-out of the EITC, the “Making Work Pay” credit, and the child and dependent care credit pushes the effective marginal tax rate to as high as 51.7 percent. That is, the taxpayer who benefits from all these provisions at a lower income discovers that he gets to keep less than one half of every additional dollar of earnings in the roughly $30,000-to-$43,000 range.”

I recently demonstrated  that Obama’s repeated claim about McCain’s alleged $200 billion corporate tax cut is a total fraud. Amazingly, it turns out that Obama is also unable to tell the truth about his own tax plan.

Should Women Pay More for Health Insurance?

Women pay higher health insurance premiums than men.  The New York Times reports that some activists and politicians believe this is due to unfair discrimination against women.  Presumably, the remedy is to force insurers to charge women and men identical premiums, which would reduce premiums for women by increasing premiums for men.

First of all, is this unfair discrimination?  As I wrote to the Times:

If health insurers charge women higher premiums, and those premiums cannot be justified by the fact that women file more claims than men, then that would indeed carry the odor of sexism.  But to prove that those higher premiums are indeed sexist, one must first explain why competition hasn’t eliminated sexist surcharges.

If insurer A quotes my sister an actuarially fair premium plus a sexist surcharge, then insurer B can profit by quoting her a premium with no sexist surcharge.  To prove sexism, activists and politicians must explain why insurers are not maximizing profits – which is the opposite of what activists and politicians usually claim. 

Unfortunately, your article did not broach this glaring omission.  Thus we don’t know if those who want men and women to pay the same health-insurance premiums are truly battling sexism or just desperately seeking subsidies.

Second, if charging different premiums based on sex is wrong, why only look at health insurance?  Men pay higher premiums for life and auto insurance.  While we’re at it, young drivers pay higher auto insurance premiums than older drivers.  Are those premiums evidence of sexism and ageism?   Should we tax female drivers to subsidize males?  Should we tax older drivers to subsidize young speed demons?  Women’s higher health-care costs may be driven by biology, but so are males’ higher life and auto insurance premiums (e.g., men are biologically programmed to be more aggressive).  So where’s the outcry on behalf of young men?

Third, risk-based insurance premiums are an essential tool for containing health-care costs.  High health-insurance premiums create profit opportunities for insurers and providers who can deliver insurance and medical care to women at a lower cost.  As my colleagues Peter Van Doren, Tom Miller, and John Samples write (altered to fit this context):

Free markets work best if they include all costs and benefits to market participants. No one likes the added costs and anxieties created by [women’s higher medical consumption], but we can’t pretend they don’t exist or that the government can magically make them disappear. Our markets for risk are not failing, they are simply telling us news we don’t like hearing…

If fewer insurance policies are written and fewer [women obtain health insurance], then that is the best we can do under the circumstances – until we find a way to change those circumstances…

Change the risk.  Don’t hide its cost.

In health care, changing the risk means encouraging the most frequent consumers of medical care (e.g., women) to be more economical.  It also means deregulating medical professionals and health insurance, so that the market can meet women’s needs at a lower cost. 

Throwing subsidies at the problem will only make it worse.

A Breezy Slide From Vote Integrity to National ID

Writing at Slate, Richard Hasen makes the case for nationalizing voter registration.

Yglesias approves (as does Drum at Mother Jones) and he ultimately concludes - though “nobody’s supposed to say this” - that “implementing a National ID Card system would help solve a lot of problems at what looks to me to be an extremely low cost in civil liberties.”

Tell that to the dead in Rwanda. It never occurred to the Belgian government that the identity card system they put in place there would be used to administer genocide 60 years later, but it was.

Bruce Schneier calls it “bad civic hygiene” to build a technology infrastructure that can be used to facilitate a police state. That’s what a national ID system is.

It’s easy to arrive at facile conclusions about national IDs if you don’t think it all the way through. Joseph Eaton published a book in 1986 called Card Carrying Americans that did just that (and didn’t, as to the thinking through). My write-up of it in 2005 called it “full of ‘would’s and ‘could’s - an exercise in imagination with few tethers to real-world practicalities.”

Same with Hasen’s article:

The federal government could assign each person a unique voter-identification number, which would remain the same regardless of where the voter moves. The unique ID would prevent people from voting in two jurisdictions, such as snowbirds who might be tempted to vote in Florida and New York.

Except that it doesn’t work that way. Simply giving people a unique identifier gets you the Social Security number. To prevent people voting in multiple jurisdictions, you don’t give, you take - take a biometric identifier, database it, and use it at every polling place (leaving the door still wide open to absentee ballot fraud).

Voting issues can’t be solved consistent with our national values quite so glibly. If it were easy, it would already have been done. Thoughtful people should resist, not indulge, the temptation to stab at voting concerns with a national ID.

It doesn’t take much imagination to see a national voter registration system converted to lots of purposes that aren’t as congenial as regularizing voter registration. Citing the fate of Rwandans was overly dramatic, of course. It’s only the most recent example among apartheid South Africa, Stalinist Russia, and Nazi-occupied Europe, none of which can happen here … .

What we could expect in the near term would be more and more thorough data collection, tighter and tighter government monitoring of commerce, work, housing, health care, education, and communications - for illegal immigration control, at first. But new uses would accrue with each shift in public urgency.

The most concerning of what Hasen has to say is this:

There’s something in this for both Democrats and Republicans. Democrats talk about wanting to expand the franchise, and there’s no better way to do it than the way most mature democracies do it: by having the government register voters. For Republicans serious about ballot integrity, this should be a winner as well. No more ACORN registration drives, and no more concerns about Democratic secretaries of state not aggressively matching voters enough to motor vehicle databases.

It’s deeply concerning, the prospect of the major political parties uniting against the people to “mature” our democracy and give us a national ID.

Done Properly, Eliminating the Tax Preference for Job-Based Health Insurance Is a Huge Tax Cut

In a new oped at National Review Online, I ding the McCain campaign for not proposing a better tax credit – while making it sound like they had.  (My last NRO oped got me lots of hate mail.  Will this one??) 

It appears that McCain’s actual proposal, um, may lose some relevance by this Wednesday.  Thus, I’ll share an excerpt from my oped that has more enduring relevance.  The following explains how just about any revenue-neutral tax reform that levels the playing field between employer-sponsored health insurance and individual-market coverage would be a huge tax cut for everyone:

If employers no longer hold the keys to the tax break, workers would have the freedom to buy their own coverage and demand cash from their employers rather than health benefits. For workers with family coverage, that would shift an average of $9,000 of compensation from a form workers don’t control (health benefits) to a form they do control (wages). The labor market would force employers to fork that money over.

That shift would effectively cut taxes even for workers who see a nominal tax increase. Suppose a working mother’s health benefits cost $15,000 and her tax rate is 40 percent. Taxing her benefits costs her $6,000. After receiving McCain’s $5,000 credit, she would be among the very few who would pay more in taxes ($1,000).

If her employer gives her that $15,000 in wages instead of health benefits, however, then after taxes she would control $14,000 that she previously did not. Even if her employer continues providing health benefits, competing employers would offer her the $15,000 in cash, which likewise increases her control over her earnings, her health care, and her life.

Over 10 years, workers would control some $6.6 trillion dollars of their earnings that employers would otherwise control, which swamps the $3.6 trillion tax increase Obama claims is hidden in the McCain proposal.

Of course, that ain’t gonna happen under McCain’s proposal.  To learn why, read the whole thing.

Uncertainty in Medicine: the Last Refuge of a Scoundrel

The way we pay hospitals, doctors, and other health-care providers can have a big impact on how aggressively they try to reduce medical errors. That is one of the themes of my “Universal Coverage Kills” oped, where I argue that Medicare locks most of the market into a payment system that actually rewards medical errors. (You read that right, rewards.) Last month, Medicare launched a new policy that attempts to reduce medical errors by forcing providers to bear the costs of what it calls “never events.”

The blogger WhiteCoat was among the many who responded (sometimes angrily) to that oped, and has since responded to my response to those responses. (And here I go, responding…)

WhiteCoat still believes I support Medicare’s “never events” policy and that I want to lump everyone into a “national HMO.” I’m not sure why, given that I advocate “a market free to experiment with different payment systems” and write, “We need experiments with different payment policies to see which produce the best outcomes for patients, and the rigidity that government brings to that process is downright harmful.”

WhiteCoat does, however, raise two interesting issues.

1. Should payers attempt to punish medical errors when it’s hard to tell whether anyone committed an error?

All agree that providers should bear the costs of obvious medical errors. But what if it’s unclear whether an adverse event was the result of error?

Clostridium difficile-associated disease (CDAD) is a growing problem in hospitals. Sometimes, hospital workers pass the bacterium to patients. Other times, patients bring it in with them. (An estimated 3 percent of the adult population already has C. diff living in their intestines.) Who should bear the cost of CDAD in hospital patients?

WhiteCoat argues that forcing providers to bear the cost inevitably punishes them for cases of CDAD that weren’t the providers’ fault. Since that would be unfair to providers, WhiteCoat (unless I’m misreading him) supports fee-for-service payment in the absence of obvious errors.

In the name of fairness to providers, however, that payment system would be decidedly unfair to payers. Patients, insurance purchasers, and taxpayers, would have to pay for CDAD cases where a provider was at fault.

Then again … if providers bear the cost, they will avoid high-risk patients who are likely to suffer such adverse events.

Then again … if payers bear the cost, providers will have no financial incentive to reduce medical errors.

Here’s the point: there is no obviously superior way of paying doctors, just as there is no obviously superior way of paying managers, CEOs, taxis, lawyers, roofers, etc. Every payment system involves tradeoffs. That’s why we need competition between different payment systems: “to see which produce the best outcomes for patients.” My guess is that, with all government does to encourage fee-for-service and discourage prepayment, we’ve probably erred on the side of the former and that the latter would be more prevalent in an open marketplace.

For providers to say, “We must have fee-for-service wherever there is uncertainty about the cause of an adverse event,” is self-serving crap. Cries of “uncertainty in medicine!” are often the last refuge of a scoundrel.

2. Who is most likely to discover new ways of avoiding medical errors?

I’ll give you a hint: it ain’t me.

Sure, I could tell you that providers should pay closer attention to their patients, wash their hands more often, deploy electronic medical records, e-prescribe, use bar-coding for medications, use standardized checklists more often, blah, blah, blah.

But let’s assume that health-care providers are currently using everything tool technology offers to prevent medical errors. (Stop laughing. C’mon, this is serious.) How can we generate innovations that allow us to prevent adverse outcomes that were once thought unpreventable?

I’ll give you a hint: M-O-N-E-Y.

Sure, most providers already do whatever they can to avoid medical errors. They’re good people. But under fee-for-service payment, reducing errors means they take a financial hit, individually and institutionally. (Some thanks.) We’re just not going to get as much error reduction under pure, blind fee-for-service as we would if providers could profit by reducing errors.

The beauty of prepayment (combined with an integrated delivery system) is that not only does the provider profit from eliminating adverse events that are known to be preventable, but the provider also profits by finding ways of preventing adverse events that were once thought unpreventable.

Prepayment thus has the potential to generate new knowledge about how to save lives. Pretty cool stuff, I know. That’s economics for you.

I’ll close by suggesting that everyone who still thinks I support Medicare’s “never events” policy or a “national HMO” should go back to the top. And. Re-read. Carefully.