Even though he's allowing the budget to grow twice as fast as inflation, some people seem to think the new U.K. Prime Minster is a fiscal conservative. I'm skeptical. Not only is spending rising much too fast (there are promises of more restraint in the future, but I'll believe it when it happens), but Cameron and the Tory/Liberal coalition government are increasing the value-added tax and increasing the capital gains tax. Perhaps worst of all, they are leaving in place the new 50 percent tax rate that former Labor Prime Minister Gordon Brown imposed in hopes that class-warfare policy would help him get elected. But as this Daily Telegraph story suggests, it is quite likely that the higher tax rate will lose revenue as productive people escape to Switzerland and other jurisdictions not influenced by the politics of hate and envy.
One-in-four hedge fund employees has already left London to move to Switzerland, which is said to have a more stable tax regime, according to consultancy Kinetic partners. Calculations by the company claim the UK could have already forgone about £500m in tax revenues, based on the 1,000 or so hedge fund managers it says have already left the country. ...High-profile departures this year include Alan Howard, founder of Brevan Howard, and Mike Platt, founder of BlueCrest Capital.
While I'm obviously not a big fan of British fiscal policy, America is worse in one important way. At least British taxpayers have the liberty to leave without being raped by the U.K. tax authority. Once they leave the United Kingdom and make their home in Switzerland, they are no longer British taxpayers. Americans who want to move, by contrast, are unable to escape the punitive internal revenue code. Indeed, the United States is one of the few nations in the world to have exit taxes, an odious approach generally associated with loathsome regimes such as the Soviet Union and Nazi Germany.
Here's a story I got from the Advice Goddess twitter feed. It seems airlines are upset that federal air marshals almost always grab first class seats. This isn't good for airlines, since it uses up seats that they need for paying customers. It's not good for security since the main threat in on-board explosives carried by terrorists who want to sit over the wings. And it's not good for Dan Mitchell since it means he's less likely to get upgraded when the good seats are occupied by bureaucrats. Since I'm waiting for a flight to Australia, you can guess which upsets me the most. Here's a blurb from the Wall Street Journal story.
To protect the nation's air travelers, federal air marshals deployed after the 2001 terrorist attacks try to travel incognito, often in pairs, and choose flights identified with the potential to fall under threat. And they almost always fly first class—something some airlines would like to change. With cockpit doors fortified and a history of attackers choosing coach seats, some airline executives and security experts question whether the first-class practice is really necessary—or even a good idea. It could weaken security by isolating marshals or making them easier for terrorists to identify, airline executives say. With more threats in the coach cabin now, first-class clustering may not make as much security sense. Security experts say bombers are a bigger threat today than knife-wielding attackers trying to get through secure cockpit doors, and Transportation Security Administration checkpoints are heavily focused on explosives, whether hidden in shoes, liquids or under clothes. Some believe bombers try to target areas over the wing—a structurally critical location and also the site of fuel storage—to cause the most damage to the aircraft. ...By law, airlines must provide seats to marshals at no cost in any cabin requested. With first-class and business-class seats in particular, the revenue loss to airlines can be substantial because they can't sell last-minute tickets or upgrades, and travelers sometimes get bumped to the back or lose out on upgrade opportunities. When travelers do get bumped, airlines are barred from divulging why the first-class seat was unexpectedly taken away.
I received this joke today. It's definitely worth passing on. I don't want to spoil the punch line, so I'll just say it would be more amusing if there actually was a choice two yeas ago.
Guy goes into a bar, there's a robot bartender.
The robot says, "What will you have?"
The guy says, "Martini."
The robot brings back the best martini ever and says to the man, "What's your IQ.
The guy says, "168."
The robot then proceeds to talk about physics, space exploration and medical technology.
The guy leaves, but he is curious... So he goes back into the bar.
The robot bartender says, "What will you have?"
The guy says, "Martini."
Again, the robot makes a great martini gives it to the man and says, "What's your IQ?"
The guy says, "100."
The robot then starts to talk about Nascar, Budweiser and John Deere tractors.
The guy leaves, but finds it very interesting, so he thinks he will try it one more time.
He goes back into the bar.
The robot says, "What will you have?"
The guy says, "Martini," and the robot brings him another great martini.
The robot then says, "What's your IQ?"
The guy says, "Uh, about 50."
The robot leans in real close and says, "So, are you still happy you voted for Obama?"
As indicated by my post on how to handle prisoners with AIDS, I periodically run into issues where I'm not sure about the right answer. Here's another case. Politicians in New York have a proposal to prohibit people from using food stamps to buy sugary drinks. Part of me is irritated by paternalistic, nanny-state busybodies who want to tell other people how to live. On the other hand, maybe this proposal will make people less willing to mooch off taxpayers by accepting food stamps (though I suspect they'll just bring two carts to the checkout line, one with things that can be purchased with food stamps, and the other filled with sodas, booze, and other items that would require cash). The ideal answer, of course, is to get rid of the federal food stamp program and let states and communities experiment with the best way of handling these issues. Here's an excerpt from the AP report.
New Yorkers on food stamps would not be allowed to spend them on sugar-sweetened drinks under an obesity-fighting proposal being floated by Mayor Michael Bloomberg and Gov. David Paterson. ...If approved, it would be the first time an item would be banned from the federal program based solely on nutritional value. The idea has been suggested previously, including in 2008 in Maine, where it drew criticism from advocates for the poor who argued it unfairly singled out low-income people and risked scaring off potential needy recipients. And in 2004 the USDA rejected Minnesota's plan to ban junk food, including soda and candy, from food stamp purchases, saying it would violate the Food Stamp Act's definition of what is food and could create "confusion and embarrassment" at the register. The food stamp system...does not currently restrict any other foods based on nutrition. Recipients can essentially buy any food for the household, although there are some limits on hot or prepared foods. Food stamps also cannot be used to buy alcohol, cigarettes or items such as pet food, vitamins or household goods. ...There still are many unhealthful products New Yorkers could purchase with food stamps, including potato chips, ice cream and candy.
Keynesian economic theory is the social-science version of a perpetual motion machine. It assumes that you can increase your prosperity by taking money out of your left pocket and putting it in your right pocket. Not surprisingly, nations that adopt this approach do not succeed. Deficit spending did not work for Hoover and Roosevelt is the 1930s. It did not work for Japan in the 1990s. And it hasn't worked for Bush or Obama.
The Keynesians invariably respond by arguing that these failures simply show that politicians didn't spend enough money. I don't know whether to be amused or horrified, but some Keynesians even say that a war would be the best way of boosting economic growth. Here's a blurb from a story in National Journal.
America's economic outlook is so grim, and political solutions are so utterly absent, that only another large-scale war might be enough to lift the nation out of chronic high unemployment and slow growth, two prominent economists, a conservative and a liberal, said today. Nobelist Paul Krugman, a New York Times columnist, and Harvard's Martin Feldstein, the former chairman of President Reagan's Council of Economic Advisers, achieved an unnerving degree of consensus about the future during an economic forum in Washington. ...Krugman and Feldstein, though often on opposite sides of the political fence on fiscal and tax policy, both appeared to share the view that political paralysis in Washington has rendered the necessary fiscal and monetary stimulus out of the question. Only a high-impact "exogenous" shock like a major war -- something similar to what Krugman called the "coordinated fiscal expansion known as World War II" -- would be enough to break the cycle. ...Both reiterated their previously argued views that the Obama administration's stimulus was far too small to fill the output gap.
We've already identified kids and low-income workers as groups that are being hurt by the new scheme for government-run healthcare. Now we can add retirees to the list. Gee, I wonder what happened to that promise about being able to keep your existing health plan? Here's an excerpt from a story in the Wall Street Journal.
3M Co. confirmed it would eventually stop offering its health-insurance plan to retirees, citing the federal health overhaul as a factor. The changes won't start to phase in until 2013. But they show how companies are beginning to respond to the new law... 3M illustrates that others may not opt to retain such plans over the next few years... The company didn't specify how many workers would be impacted. It currently has 23,000 U.S. retirees. ...Sen. Charles Grassley, an Iowa Republican, said that "for all the employees who were promised they'd be able to keep their current benefits after the health-care law passed, I'm worried that the recent changes we've heard about...are just the beginning."
I've avoided this topic in recent weeks because it's too depressing, but this story is too outrageous to ignore. The County of Los Angeles has 199 bureaucrats who "earned" more than $250,000 last year. According to Census Bureau data for 2008, the median household income in the county was 55,000, Here's a blurb from the L.A.Times about incomes of the bureaucratic gilded class.
Nearly 200 Los Angeles County employees earned more than a quarter of a million dollars in 2009, according to a list of the county's top earners released late Monday in response to a Public Records Act request from The Times. The highest earners list was dominated by physicians and other medical personnel, but also included county firefighters and a handful of top sheriff's employees. Some of the best-known names on the list belong to elected officials — although none of the five county supervisors, who make $178,789 a year, qualified. ...The Times requested the base salary, overtime and "other earnings" for county employees whose total annual pay exceeded $250,000. "Other earnings" can include bonuses for special skills or responsibilities or unused benefits cashed out as taxable income, among other things. ...Overtime played a big role, with only 65 people making the list on base salary alone. Thirty workers made more than $80,000 in overtime. Twenty-two of them work for the county Fire Department, four work for public hospitals, two were psychiatrists for the Mental Health Department, and two were physician specialists for the Sheriff's Department.
Former Senator Phil Gramm had a column last week in the Wall Street Journal that deserves two blog posts. This first post highlights Gramm's analysis showing that the U.S. has been very Keynesian compared to Europe, with numerous efforts to jump start the economy with deficit spending. But Senator Gramm hits the nail on the head, comparing America's tepid recovery with the better performance across the Atlantic.
During the average recovery since World War II, gross domestic product (GDP) surpassed the pre-recession high five quarters after the recession began. It has never taken longer than seven quarters. Yet today, after 11 quarters, GDP is still below what it was in the fourth quarter of 2007. The economy is growing at only about a third of the rate of previous postwar recoveries from major recessions. Obama administration officials such as Treasury Secretary Tim Geithner have argued that without their policies the economy would be worse, and we might have fallen "off a cliff." While this assertion cannot be tested, we can compare the recent experience of other countries to our own. ...There are 4.6% fewer people employed in the U.S. today than at the start of the recession. Euro zone countries have lost 1.7% of their jobs. ...This simple comparison suggests...that American economic policy has been less effective in increasing employment than the policies of other developed nations. ...While the most recent quarterly growth figures are just a snapshot in time, it is hardly encouraging that economic growth in the U.S. (1.7%) is lower than in the euro zone (4%), U.K. (4.8%), G-7 (2.8%) and OECD (2%).
The main message is that restraining the growth of government is the right way to get rid of red ink, so there is no conflict between advocates of limited government and supporters of fiscal balance.
More specifically, the video shows that it is possible to quickly balance the budget while also making all the 2001 and 2003 tax cuts permanent and protecting taxpayers from the alternative minimum tax. All these good things can happen if politicians simply limit annual spending growth to 2 percent each year. And they'll happen even faster if spending grows at an even slower rate.
Eli Lehrer has an article on the FrumForum entitled "Five Revenue Raisers the GOP Should Back." He argues it would be good to get rid of preferences such as the state and local tax deduction and the mortgage interest deduction, and he also asserts that there should be "user fees" for things such as transportation.
As an avid supporter of a flat tax and market pricing, I have no objection to these policies. Indeed, I would love to get rid of the state and local tax deduction so that taxpayers in Texas and Florida no longer have to subsidize the fiscal profligacy of politicians in California and New York.
But there is a giant difference between getting rid of certain tax preferences as part of revenue-neutral (or even better, tax-cutting) tax reform and getting rid of tax preferences in order to give politicians more revenue to spend.
The former is a noble goal. Who can argue, after all, with the idea of getting rid of the corrupt and punitive internal revenue code and replacing it with a simple and fair flat tax? Lots of loopholes are eliminated, so there are plenty of tax-raising provisions in tax reform. But every one of those provisions is offset by provisions that lower tax rates and get rid of double taxation of saving and investment.
The latter, by contrast, is an exercise in trying to lose with minimal damage - sort of the "French Army Theory" of taxation, surrender gracefully and hope that your new masters give you a few crumbs after their celebratory feast.
What is especially strange about this approach is that the Republicans who advocate higher taxes claim that they are political realists. Yet if we look at real-world evidence, the moment Republicans show their "realism" by putting taxes on the table, the entire debate shifts.
Instead of the debate being tax-hikes vs. no-tax-hikes, it becomes a debate over who-should-pay-more-tax. Republicans win the first debate. They get slaughtered in the second debate.
Remember when the first President Bush agreed to enter into tax-hike negotiations in 1990? He set out two conditions - that there should be a reduction in the capital gains tax and that there should be no increase in income tax rates. So what happened? As everyone with an IQ above room temperature predicted, the capital gains tax stayed the same and income tax rates increased.
Among President Obama's core health-care promises was that Americans can keep their current coverage if they like it. Among the reasons that a new ObamaCare squall blows in every other day is that this claim simply is not true, as people are discovering. The latest fracas was incited by Janet Adamy's scoop in the Journal this week that McDonald's Corp. may be forced to cancel its current coverage for 29,500 employees as a result of ObamaCare. McDonald's told Health and Human Services regulators that new mandates will make its plans "economically prohibitive" and cause "a huge disruption" unless it gets a waiver. ...The entire philosophical and policy architecture of ObamaCare is explicitly designed to standardize health benefits and how those benefits should be paid for. Those choices and tradeoffs will be made for everyone by Ms. Sebelius's regulators. ...Around 2.5 million consumers are covered by "mini-med" policies, most of them concentrated in low-wage industries like fast food, hospitality and retail that have large numbers of part-time or temporary workers. In the case of the restaurants, 75% of the workforce turns over every year and nearly half are under age 25. Mini-med plans are a temporary stopgap for businesses that have low margins and face high labor and health costs. But Democrats hate mini-med and other skinny-benefit plans, calling them "underinsurance." ObamaCare is meant to run them out of the market by mandating benefits, eliminating coverage caps and certain technical rules about how premiums must be spent. ...In other words, the choice is between relatively affordable coverage that isn't as generous as Democrats think it should be and dumping coverage entirely. McDonald's may eventually offer the high-cost plans that Ms. Sebelius favors, or get its waiver, but many of its less profitable or smaller competitors won't. While subsidized ObamaCare options will be available in 2014, those costs will merely be transferred to taxpayers.
I'm in Singapore for two days to help fight the Organization for Economic Cooperation and Development, a statist international bureaucracy based in Paris. The OECD has something called a global tax forum, the purpose of which is to harass so-called tax haven in hopes of coercing them into acting as tax collectors for Europe's decrepit welfare states. Here's the executive summary from the memo I wrote, which warns low-tax jurisdictions that the OECD may push even harder to undermine fiscal sovereignty because of fears that a GOP takeover of Congress will make it more difficult to push for tax harmonization policies in the future.
The Paris-based Organization for Economic Cooperation and Development has an ongoing project to prop up Europe’s inefficient welfare states by attacking tax competition in hopes of enabling governments to impose heavier tax burdens. This project received a boost when the Obama Administration joined forces with countries such as France and Germany, but the tide is now turning against high-tax nations – particularly as more people understand that such an approach inevitably leads to Greek-style fiscal collapse. Looming political changes in the United States will further complicate the OECD's ability to impose bad policy. Because of these developments, low-tax jurisdictions should be especially wary of schemes to rush through new anti-tax competition initiatives at the Singapore Global Forum.
The good news is that nothing dramatic took place on the first day of the two-day conference. the OECD continued to bully low-tax jurisdictions to sign information-sharing agreements and the low-tax jurisdictions kept asking for double-taxation agreements so they could get some benefit in exchange for weakening their human rights/financial privacy laws. The OECD and high-tax nations have been ignoring these requests for a two-way street, thus continuing their bad-faith behavior.
For more information on this issue, here's a link to my video on tax competition, and here are a handful of TV appearances where I discuss the issue. This is a challenging issue to debate, so I'd welcome feedback on which arguments you think are most effective.
I've already commented on the Democrats deciding to wait until after the election before figuring out what to do about the 2001 and 2003 tax cuts. This was a remarkable development since failure to extend these pieces of legislation means a big tax increase next January. But this doesn't mean the Democrats are sitting on their hands. The President has a proposal to significantly increase the tax burden on American companies that compete in world markets, and Democrats on Capitol Hill think this is a winning political issue. They think higher taxes will encourage companies to keep more jobs in America, and they hope voters agree. But as the Wall Street Journal opines, this is a recipe for undermining the competitiveness f American companies. This means fewer jobs, and probably less tax revenue.
...the President's plan reveals how out of touch Democrats are with the real world of tax competition. The U.S. already has one of the most punitive corporate tax regimes in the world and this tax increase would make that competitive disadvantage much worse, accelerating the very outsourcing of jobs that Mr. Obama says he wants to reverse. At issue is how the government taxes American firms that make money overseas. Under current tax law, American companies pay the corporate tax rate in the host country where the subsidiary is located and then pay the difference between the U.S. rate (35%) and the foreign rate when they bring profits back to the U.S. This is called deferral—i.e., the U.S. tax is deferred until the money comes back to these shores. Most countries do not tax the overseas profits of their domestic companies. Mr. Obama's plan would apply the U.S. corporate tax on overseas profits as soon as they are earned. This is intended to discourage firms from moving operations out of the U.S. ...Mr. Obama believes that by increasing the U.S. tax on overseas profits, some companies may be less likely to invest abroad in the first place. In some cases that will be true. But the more frequent result will be that U.S. companies lose business to foreign rivals, U.S. firms are bought by tax-advantaged foreign companies, and some U.S. multinational firms move their headquarters overseas. They can move to Ireland (where the corporate tax rate is 12.5%) or Germany or Taiwan, or dozens of countries with less hostile tax climates. We know this will happen because we've seen it before. The 1986 tax reform abolished deferral of foreign shipping income earned by U.S. controlled firms. No other country taxed foreign shipping income. Did this lead to more business for U.S. shippers? Precisely the opposite. According to a 2007 study in Tax Notes by former Joint Committee on Taxation director Ken Kies, "Over the 1985-2004 period, the U.S.-flag fleet declined from 737 to 412 vessels, causing U.S.-flag shipping capacity, measured in deadweight tonnage, to drop by more than 50%." ...Now the White House wants to repeat this experience with all U.S. companies. Two industries that would be most harmed would be financial services and technology, and their emphasis on human capital makes them especially able to pack up and move their operations abroad. CEO Steve Ballmer has warned that if the President's plan is enacted, Microsoft would move facilities and jobs out of the U.S.
I've commented on this issue before, but I think the best explanation is in this video, which makes the key observation that American tax law may be able to discourage U.S. firms from building factories in other nations, but that simply means that companies from other countries will be able to take advantage of those opportunities.
A lot of Democrats, at least in private, admit that going after "deferral" is bad policy. But this makes the current proposal especially disgusting. People in the White House and on Capitol Hill know it will hurt jobs and reduce competitiveness, but they don't care. Or at least they put political ambition before doing what's right for the American people.
If they really cared, the would fix what's wrong with the current system. A very effective way to encourage more jobs and investment in America is to lower the corporate tax rate, which is the point I made in the Center for Freedom and Prosperity's first video.
I always view polling data with a bit of skepticism, but I'm nonetheless embarrassed by new data from a 22-nation poll showing that German and French respondents are even more opposed to so-called stimulus spending than American respondents. If Americans are to the left of Europeans on size-of-government issues, that does not bode well for our future. On the other had, at least we're not as naive and/or stupid as Egyptians, Mexicans, Russians, Indonesians, and Nigerians. Here's a blurb from the summary.
In 14 of 22 countries most people--on average 56 per cent--favour an increase in government spending to stimulate the economy. This includes large majorities of Egyptians (91%), Mexicans (80%), Russians and Indonesians (both 78%), and Nigerians (73%). But majorities are opposed in a number of industrialised countries that had large stimulus programmes--Germany (66%), France (63%) and the US (58%).
The good news from the poll is that a majority of people around the world recognize that governments waste money at alarming rates. Americans think that 55 percent of their taxes are squandered. The Spanish, for inexplicable reasons, are most likely to think money is not wasted (perhaps because most of them have their snouts in the pubic trough?).
People believe that their government misspends more than half the money they pay in tax, according to the findings of a new BBC World Service global poll across 22 countries--but many are still looking to government to play a more active economic role. The poll of more than 22,000 people, conducted by GlobeScan/PIPA, found that people estimated on average that 52 per cent of the money they pay in tax is not used in ways that serve the interests and values of the people of their country. ...The countries with the lowest average estimate of misspent tax money were Spain (average 34% misspent), Indonesia (40%), Azerbaijan and Egypt (both 42%). The highest were in Columbia (74% misspent) and Pakistan (69%). In the world's two largest economies, Americans estimate on average that 55 per cent of their taxes are misspent, while in China the figure is 46 per cent. ...As well as being less likely to support action to address the deficit, those who have the highest estimates of tax misspending are less likely to support government stimulus spending--among those who think that more than three-quarters of their tax money is misspent, only 47 per cent believe the government should spend to stimulate the economy.
I don't know if this is true, but it's been circulating for so long that there's probably some fire under all the smoke. Does anybody know if this is for real, or an urban legend?
There's a wise old saying about "don't bite the hand that feeds you." But perhaps we need a new saying along the lines of "don't subsidize the foot that kicks you." Here's a good example: American taxpayers finance the biggest share of the budget for the Organization for Economic Cooperation and Development, which is an international bureaucracy based in Paris. The OECD is not as costly as the United Nations, but it still soaks up about $100 million of American tax dollars each year. And what do we get in exchange for all this money? Sadly, the answer is lots of bad policy. The bureaucrats (who, by the way, get tax-free salaries) just released their "Economic Survey of the United States, 2010" and it contains a wide range of statist analysis and big-government recommendations.
The Survey endorses Obama's failed Keynesian spending bill and the Fed's easy-money policy, stating, "The substantial fiscal and monetary stimulus successfully turned the economy around." If 9.6 percent unemployment and economic stagnation is the OECD's idea of success, I'd hate to see what they consider a failure. Then again, the OECD is based in Paris, so even America's anemic economy may seem vibrant from that perspective.
The Survey also targets some very prominent tax loopholes, asserting that, "The mortgage interest deduction should be reduced or eliminated" and "the government should reduce further this [health care exclusion] tax expenditure." If the entire tax code was being ripped up and replaced with a simple and fair flat tax, these would be good policies. Unfortunately (but predictably), the OECD supports these policies as a means of increasing the overall tax burden and giving politicians more money to spend.
Speaking of tax increases, the OECD is in love with higher taxes. The Paris-based bureaucrats endorse Obama's soak-the-rich tax agenda, including higher income tax rates, higher capital gains tax rates, more double taxation of dividends, and a reinstated death tax. Perhaps because they don't pay tax and are clueless about how the real world operates, the bureaucrats state that "...the Administration’s fiscal plan is ambitious...and should therefore be implemented in full."
But even that's not enough. The OECD then puts together a menu of additional taxes and even gives political advice on how to get away with foisting these harsh burdens on innocent American taxpayers. According to the Survey, "A variety of options is available to raise tax revenue, some of which are discussed below. Combined, they have the potential to raise considerably more revenue... The advantage of relying on a package of measures is that the increase in taxation faced by individual groups is more limited than otherwise, reducing incentives to mobilise to oppose the tax increase.
The biggest kick in the teeth, though, is the OECD's support for a value-added tax. The bureaucrats wrote that, "Raising consumption taxes, notably by introducing a federal value-added tax (VAT), could therefore be another approach... A national VAT would be easier to enforce than other taxes, as each firm in the production chain pays only a fraction of the tax and must report the sales of other firms."
But just in case you think the OECD is myopically focused on tax increases, you'll be happy to know it is a full-service generator of bad ideas. The Paris-based bureaucracy also is a rabid supporter of the global-warming/climate-change/whatever-they're-calling-it-now agenda. There's an entire chapter in the survey on the issue, but the key passages is, "The current Administration is endeavouring to establish a comprehensive climate-change policy, the main planks of which are pricing GHG emissions and supporting the development of innovative technologies to reduce GHG emissions. As discussed above and emphasized in the OECD (2009), this is the right approach... Congress should pass comprehensive climate-change legislation."
You won't be surprised to learn that the OECD's reflexive support for higher taxes appears even in this section. The bureaucrats urge that "such regulation should be complemented by increases in gasoline and other fossil-fuel taxes."
If you're still not convinced the OECD is a giant waste of money for American taxpayers, I suggest you watch this video released by the Center for Freedom and Prosperity about two months ago. It's a damning indictment of the OECD's statist agenda (and this was before the bureaucrats released the horrid new "Economic Survey of the United States").
In the real world, rational people know that companies will stop selling products if they are forced to lose money. In the political world, though, common sense doesn't matter. Or at least it ranks far below other considerations, such as power, polling, fundraising, and spite. If you think I'm being too harsh, just look at what's happened since Obamacare. As the Wall Street Journal notes, the "child-only" insurance market has been decimated by a new law that allows parents to wait until children get sick before buying insurance. Needless to say, that is an open invitation to lose money, and no business (other than crony capitalism entities such as Fannie Mae and Freddie Mac) exists to throw away shareholder funds. Obama, Pelosi, and Reid probably think this is a good development, however, since they can demagogue against "greedy" insurance companies and claim that government should fully take over the health care system.
This week, almost every big insurance company in America—including Aetna, Cigna, UnitedHealth Group, WellPoint, Humana, Coventry, some Blue Cross Blue Shield affiliates and others—stopped writing "child-only" policies in the individual market. This is a niche product that parents typically buy when their employer health plan doesn't cover dependents. The exact plans vary company to company and state to state, and the insurers will still offer family policies and make good on the child-only policies that they've already sold. But most won't be writing new ones. In other words, for-profit businesses are refusing to sell products that consumers want to buy. Exact data aren't available, but the child-only market covers roughly a million kids a year. The reason is a regulation that President Obama mentions every time he talks about health care, as he did recently in Falls Church, Virginia: "Children who have pre-existing conditions are going to be covered." Insurers are now required to cover everyone under 19 when their parents apply for coverage, regardless of health status. The problem with this kind of "guaranteed issue" is that it encourages people, in this case parents, to wait until their kids are sick before seeking coverage. This drives up premiums for the healthy, encouraging consumers in turn to drop coverage, and eventually it leads to what's known as a "death spiral," the industry term for an insurer with rapidly increasing costs as a result of population changes in its coverage pool. The child-only market is a particular death-spiral risk because it is so small and unstable, which explains why so many insurers left in a stroke. The collapse of the child-only market is a preview of what will happen when guaranteed issue and the rest of ObamaCare comes on line in 2014 for adults, except then insurers will have nowhere to flee. Exiting the market will mean going out of business.
I wish the title of this blog post referred to the President of the United States, but instead our praise is directed across the Atlantic, to the President of the Czech Republic, who wisely has warned against giving "global governance" powers to the international bureaucrats at the United Nations. President Vaclav Klaus is a great man, who has battled against immense odds to preserve national sovereignty, resisting statist initiatives such as the new EU Constitution (aka, the Lisbon Treaty) and global warming schemes. Klaus understands that international bureaucracies are staffed by leftist ideologues who reflexively distrust markets. Equally important, he recognizes that governments will use "global governance" as a scheme to create tax and regulatory cartels that inevitably expand the burden of government and reduce competition among nations. Here's a Reuters report on the strong speech Klaus gave to the kleptocrats at the United Nations.
Czech President Vaclav Klaus on Saturday criticized U.N. calls for increased "global governance" of the world's economy, saying the world body should leave that role to national governments. The solution to dealing with the global economic crisis, Klaus told the U.N. General Assembly, did not lie in "creating new governmental and supranational agencies, or in aiming at global governance of the world economy." "On the contrary, this is the time for international organizations, including the United Nations, to reduce their expenditures, make their administrations thinner, and leave the solutions to the governments of member states," he said. ...Klaus, a free-market economist who oversaw a wave of privatization in the 1990s after communism collapsed in his homeland, also said the world was "moving in the wrong direction" in combating the economic crisis. "The anti-crisis measures that have been proposed and already partly implemented follow from the assumption that the crisis was a failure of markets and that the right way out is more regulation of markets," he said. Klaus said that was a "mistaken assumption" and it was impossible to prevent future crises through regulatory interventions and similar actions by governments. That will only "destroy the markets and together with them the chances for economic growth and prosperity in both developed and developing countries," he said.
A couple of years ago, I had the honor of introducing Klaus at a conference in France. Very rarely do I meet a politician that exudes philosophical integrity. Klaus was one of those unusual cases. And if you want to know why it is important to preserve jurisdictional competition, here is a video on the specific issue of tax competition. This is rather timely since I leave tomorrow for Singapore, where I will be doing everything I can to undermine the pampered bureaucrats at the OECD and their sinister plans to create a global tax cartel to prop up Europe's inefficient welfare states.
Warren Buffett once said that it wasn't right for his secretary to have a higher tax rate than he faced, leading me to point out that he didn't understand tax policy. The 15 percent tax rates on dividends and capital gains to which he presumably was referring represents double taxation, and when added to the tax that already was paid on the income he invested (and the tax that one imagines will be imposed on that same income when he dies), it is quite obvious that his effective marginal tax rates is much higher than anything his secretary pays. Though he is right that his secretary's tax rate is much too high.
Well, it turns out that Warren Buffett also doesn't understand much about other areas of fiscal policy. Like a lot of ultra-rich liberals who have lost touch with the lives of regular people, he thinks taxpayer anger is misguided. Not only does he scold people for being upset, but he regurgitates the most simplistic Keynesian talking points to justify Obama's spending spree. Here's an excerpt from his hometown paper.
Taxpayer anger against President Barack Obama and Congress is counterproductive because policy makers took measures including deficit spending to stimulate the economy, billionaire investor Warren Buffett told CNBC. ...“I hope we get over it pretty soon, because it’s not productive,’’ Buffett said. “We will come back regardless of how people feel about Washington, but it is not helpful to have people as unhappy as they are about what’s going on in Washington.” ...“The truth is we’re running a federal deficit that’s 9 percent of gross domestic product,” Buffett said. “That’s stimulative as all get out. It’s more stimulative than any policy we’ve followed since World War II.”
About the only positive thing one can say about Buffett's fiscal policy track record is that he is nowhere close to being the most inaccurate person in the United States, a title that Mark Zandi surely will own for the indefinite future.
