Unknown Unknowns
By Thomas Sowell
When Donald Rumsfeld was Secretary of Defense, he coined some phrases about knowledge that apply far beyond military matters.
Secretary Rumsfeld pointed out that there are some things that we know that we know. He called those "known knowns." We may, for example, know how many aircraft carriers some other country has. We may also know that they have troops and tanks, without knowing how many. In Rumsfeld's phrase, that would be an "unknown known" -- a gap in our knowledge that we at least know exists.
Finally, there are things we don't even know exist, much less anything about them. These are "unknown unknowns" -- and they are the most dangerous. We had no clue, for example, when dawn broke on September 11, 2001, that somebody was going to fly two commercial airliners into the World Trade Center that day.
There are similar kinds of gaps in our knowledge in the economy. Unfortunately, our own government creates uncertainties that can paralyze the economy, especially when these uncertainties take the form of "unknown unknowns."
The short-run quick fixes that seem so attractive to so many politicians, and to many in the media, create many unknowns that make investors reluctant to invest and employers reluctant to employ. Politicians may only look as far ahead as the next election, but investors have to look ahead for as many years as it will take for their investments to start bringing in some money.
The net result is that both our financial institutions and our businesses have had record amounts of cash sitting idle while millions of people can't find jobs. Ordinarily these institutions make money by investing money and hiring workers. Why not now?
Because numerous and unpredictable government interventions create many unknowns, including "unknown unknowns."
The quick fix that got both Democrats and Republicans off the hook with a temporary bipartisan tax compromise, several months ago, leaves investors uncertain as to what the tax rate will be when any money they invest today starts bringing in a return in another two or three or ten years. It is known that there will be taxes but nobody knows what the tax rate will be then.
Some investors can send their investment money to foreign countries, where the tax rate is already known, is often lower than the tax rate in the United States and -- perhaps even more important -- is not some temporary, quick-fix compromise that is going to expire before their investments start earning a return.
Although more foreign investments were coming into the United States, a few years ago, than there were American investments going to foreign countries, today it is just the reverse. American investors are sending more of their money out of the country than foreign investors are sending here.
Since 2009, according to the Wall Street Journal, "the U.S. has lost more than $200 billion in investment capital." They add: "That is the equivalent of about two million jobs that don't exist on these shores and are now located in places like China, Germany and India."
President Obama's rhetoric deplores such "outsourcing," but his administration's policies make outsourcing an ever more attractive alternative to investing in the United States and creating American jobs.
Blithely piling onto American businesses both known costs like more taxes and unknowable costs -- such as the massive ObamaCare mandates that are still evolving -- provides more incentives for investors to send their money elsewhere to escape the hassles.
Hardly a month goes by without this administration coming up with a new anti-business policy -- whether directed against Boeing, banks or other private enterprises. Neither investors nor employers can know when the next one is coming or what it will be. These are unknown unknowns.
Such anti-business policies would just be business' problem, except that it is businesses that create jobs.
The biggest losers from creating an adverse business climate may not be businesses themselves -- especially not big businesses, which can readily invest more of their money overseas. The biggest losers are likely to be working people in America, who cannot just relocate to Europe or Asia to take the jobs created there by American multinational corporations.
Tuesday, July 12, 2011
Monday, July 11, 2011
Mr. President, do the math: $250,000 per year isn't rich - Washington Times
President Obama made $5.5 million in 2009. His $400,000 salary as president was mere walking-around money. He paid more in taxes - $1.8 million - than 90 percent of Americans earn in 10 years. More than some in a lifetime.
Now it makes sense that he wants to pay more in taxes. So let's add another $1.2 million to his taxes. Thus, $3 million off to the federal government, leaving him just - $2 million. With that, he could definitely lease a private jet -- although even that much money would make buying his own out of the question. (Plus, there's no need. He's already got one. It's called Air Force One.)
But Mr. President, you really have no idea about how the rest of America suffers from taxes. And your definition of what is "rich" is so skewed as to be nonsensical. Let's work the numbers.
Mr. Obama pledged throughout his campaign that he would not raise taxes on middle-class America by one dime, that he'd only target those absurdly rich people making $250,000 or more. And he's making good on his pledge - he refuses to negotiate with Republican lawmakers over the debt ceiling unless tax hikes are part of the plan. (Oh, and it's another plan, like health care, that we'll have to pass to find out what's in it - even top congressional reporters still have no idea.)
Right now, a couple making $250,000 pays a whopping 33 percent of that to the feds. That's right, $83,333. Just to make clear, that means that couple works two months for themselves, then a full month for the government every quarter - four months of income per year straight to the feds.
But still, after paying their taxes, they still have $166,667, nothing to scoff at. Oh wait, forgot state and local taxes. Roughly 6 percent for the state - that's $15,000. About 3 percent for county tax - $7,500. So they're down to $144,167.
That's $12,014 per month - lotta cash. But let's break that down even further. (Pay special attention to this part, Mr. P.) Let's give them a nice house - $2,500 a month for the mortgage. $9,514 left. (Don't worry, they only have the one house - can't afford a second place.) Let's give them two teenagers, so $500 for food per week. (If you have teenagers, you'll know that's no exaggeration.)
Down to $7,514. Now the nitty-gritty. Roughly $250 a month for heating fuel. Another $150 for electricity. About $125 for cable TV and Internet. Another $125 for car insurance. And a whopping $250 per month to the mobile phone company (again, teenagers!) With gas prices, let's say $100 a week in fuel for two cars.
That leaves them roughly $6,200 per month after all the bills are paid. But wait, there's more. They're self-employed, so they pay their own health care - $1,000 a month. Down to $5,200. And one of those teenagers is in college. (Don't worry; they couldn't afford an Ivy League school, just a state school.) Still, with that whopping income, they get no help from the feds or the state, so they pay $2,000 a month to the university.
That means at month's end, they've got just $3,200 left. With that, they could afford a couple weeks at the beach in the summer, maybe a trip to Florida in the winter. But they certainly can't secure their own future with investments. In fact, they'd hardly be able to afford a string of calamities - a bad roof, a busted furnace, a dead car.
Still, the president thinks these folks are rich. And he wants even more of their money. If he raised the tax rate on the highest incomes to that of President Clinton, the feds would take nearly 40 percent from these folks. That'd take another $1,389 per month from them, leaving $1,811. When that second teenager hits college, they'd have to - yes, you got it - borrow $189 per month to make ends meet. And yeah, forget buying clothes, going to movies, dinners out, etc.
Of course, they could trim back their lifestyle - halve their cable bill, take the kids' phones, maybe set that thermostat to 68 in the winter. But should they really have to? They've worked their whole lives, are in their 50s, and have finally made it - they make a quarter of a million dollars a year. Yes, says President Obama - they MUST pay more to the federal government.
So, scratch that beach house, that trip to Florida. And you can forget about these people setting up their own retirement. They'll now have to depend on the federal government giving them back some of the money they paid in taxes - $2 million over 20 years, $3 million in 30.
Mr. President, just fyi, a couple making $250,000 is not, contrary to your opinion, "rich." But shouldn't you already know that?
• Joseph Curl covered the White House and politics for a decade for The Washington Times. He can be reached at jcurl@washingtontimes.com
Now it makes sense that he wants to pay more in taxes. So let's add another $1.2 million to his taxes. Thus, $3 million off to the federal government, leaving him just - $2 million. With that, he could definitely lease a private jet -- although even that much money would make buying his own out of the question. (Plus, there's no need. He's already got one. It's called Air Force One.)
But Mr. President, you really have no idea about how the rest of America suffers from taxes. And your definition of what is "rich" is so skewed as to be nonsensical. Let's work the numbers.
Mr. Obama pledged throughout his campaign that he would not raise taxes on middle-class America by one dime, that he'd only target those absurdly rich people making $250,000 or more. And he's making good on his pledge - he refuses to negotiate with Republican lawmakers over the debt ceiling unless tax hikes are part of the plan. (Oh, and it's another plan, like health care, that we'll have to pass to find out what's in it - even top congressional reporters still have no idea.)
Right now, a couple making $250,000 pays a whopping 33 percent of that to the feds. That's right, $83,333. Just to make clear, that means that couple works two months for themselves, then a full month for the government every quarter - four months of income per year straight to the feds.
But still, after paying their taxes, they still have $166,667, nothing to scoff at. Oh wait, forgot state and local taxes. Roughly 6 percent for the state - that's $15,000. About 3 percent for county tax - $7,500. So they're down to $144,167.
That's $12,014 per month - lotta cash. But let's break that down even further. (Pay special attention to this part, Mr. P.) Let's give them a nice house - $2,500 a month for the mortgage. $9,514 left. (Don't worry, they only have the one house - can't afford a second place.) Let's give them two teenagers, so $500 for food per week. (If you have teenagers, you'll know that's no exaggeration.)
Down to $7,514. Now the nitty-gritty. Roughly $250 a month for heating fuel. Another $150 for electricity. About $125 for cable TV and Internet. Another $125 for car insurance. And a whopping $250 per month to the mobile phone company (again, teenagers!) With gas prices, let's say $100 a week in fuel for two cars.
That leaves them roughly $6,200 per month after all the bills are paid. But wait, there's more. They're self-employed, so they pay their own health care - $1,000 a month. Down to $5,200. And one of those teenagers is in college. (Don't worry; they couldn't afford an Ivy League school, just a state school.) Still, with that whopping income, they get no help from the feds or the state, so they pay $2,000 a month to the university.
That means at month's end, they've got just $3,200 left. With that, they could afford a couple weeks at the beach in the summer, maybe a trip to Florida in the winter. But they certainly can't secure their own future with investments. In fact, they'd hardly be able to afford a string of calamities - a bad roof, a busted furnace, a dead car.
Still, the president thinks these folks are rich. And he wants even more of their money. If he raised the tax rate on the highest incomes to that of President Clinton, the feds would take nearly 40 percent from these folks. That'd take another $1,389 per month from them, leaving $1,811. When that second teenager hits college, they'd have to - yes, you got it - borrow $189 per month to make ends meet. And yeah, forget buying clothes, going to movies, dinners out, etc.
Of course, they could trim back their lifestyle - halve their cable bill, take the kids' phones, maybe set that thermostat to 68 in the winter. But should they really have to? They've worked their whole lives, are in their 50s, and have finally made it - they make a quarter of a million dollars a year. Yes, says President Obama - they MUST pay more to the federal government.
So, scratch that beach house, that trip to Florida. And you can forget about these people setting up their own retirement. They'll now have to depend on the federal government giving them back some of the money they paid in taxes - $2 million over 20 years, $3 million in 30.
Mr. President, just fyi, a couple making $250,000 is not, contrary to your opinion, "rich." But shouldn't you already know that?
• Joseph Curl covered the White House and politics for a decade for The Washington Times. He can be reached at jcurl@washingtontimes.com
Friday, July 8, 2011
The Elmendorf Rule - Completely unserious President
Here we go again. An approaching crisis. A looming deadline. Nervous markets. And then, from the miasma of gridlock, rises our president, calling upon those unruly congressional children to quit squabbling, stop kicking the can down the road and get serious about debt.
This from the man who:
• Ignored the debt problem for two years by kicking the can to a commission.
• Promptly ignored the commission’s December 2010 report.
• Delivered a State of the Union address in January that didn’t even mention the word “debt” until 35 minutes in.
• Delivered in February a budget so embarrassing — it actually increased the deficit — that the Democratic-controlled Senate rejected it 97 to 0.
• Took a budget mulligan with his April 13 debt-plan speech. Asked in Congress how this new “budget framework” would affect the actual federal budget, Congressional Budget Office Director Doug Elmendorf replied with a devastating “We don’t estimate speeches.” You can’t assign numbers to air.
President Obama assailed the lesser mortals who inhabit Congress for not having seriously dealt with a problem he had not dealt with at all, then scolded Congress for being even less responsible than his own children. They apparently get their homework done on time.
My compliments. But the Republican House did do its homework. It’s called a budget. It passed the House on April 15. The Democratic Senate has produced no budget. Not just this year, but for two years running. As for the schoolmaster in chief, he produced two 2012 budget facsimiles: The first (February) was a farce and the second (April) was empty, dismissed by the CBO as nothing but words untethered to real numbers.
Obama has run disastrous annual deficits of around $1.5 trillion while insisting for months on a “clean” debt-ceiling increase, i.e., with no budget cuts at all. Yet suddenly he now rises to champion major long-term debt reduction, scorning any suggestions of a short-term debt-limit deal as can-kicking.
The flip-flop is transparently political. A short-term deal means another debt-ceiling fight before Election Day, a debate that would put Obama on the defensive and distract from the Mediscare campaign to which the Democrats are clinging to save them in 2012.
A clever strategy it is: Do nothing (see above); invite the Republicans to propose real debt reduction first; and when they do — voting for the Ryan budget and its now infamous and courageous Medicare reform — demagogue them to death.
And then up the ante by demanding Republican agreement to tax increases. So: First you get the GOP to seize the left’s third rail by daring to lay a finger on entitlements. Then you demand the GOP seize the right’s third rail by violating its no-tax pledge. A full-spectrum electrocution. Brilliant.
And what have been Obama’s own debt-reduction ideas? In last week’s news conference, he railed against the tax break for corporate jet owners — six times.
I did the math. If you collect that tax for the next 5,000 years — that is not a typo — it would equal the new debt Obama racked up last year alone. To put it another way, if we had levied this tax at the time of John the Baptist and collected it every year since — first in shekels, then in dollars — we would have 500 years to go before we could offset half of the debt added by Obama last year alone.
Obama’s other favorite debt-reduction refrain is canceling an oil-company tax break. Well, if you collect that oil tax and the corporate jet tax for the next 50 years — you will not yet have offset Obama’s deficit spending for February 2011.
After his Thursday meeting with bipartisan congressional leadership, Obama adopted yet another persona: Cynic in chief became compromiser in chief. Highly placed leaks are portraying him as heroically prepared to offer Social Security and Medicare cuts.
We shall see. It’s no mystery what is needed. First, entitlement reform that changes the inflation measure, introduces means testing, then syncs the (lower) Medicare eligibility age with Social Security’s and indexes them both to longevity. And second, real tax reform, both corporate and individual, that eliminates myriad loopholes in return for lower tax rates for everyone.
That’s real debt reduction. Yet even now, we don’t know where the president stands on any of this. Until we do, I’ll follow the Elmendorf Rule: We don’t estimate leaks. Let’s see if Obama can suspend his 2012 electioneering long enough to keep the economy from going over the debt cliff.
letters@charleskrauthammer.com
This from the man who:
• Ignored the debt problem for two years by kicking the can to a commission.
• Promptly ignored the commission’s December 2010 report.
• Delivered a State of the Union address in January that didn’t even mention the word “debt” until 35 minutes in.
• Delivered in February a budget so embarrassing — it actually increased the deficit — that the Democratic-controlled Senate rejected it 97 to 0.
• Took a budget mulligan with his April 13 debt-plan speech. Asked in Congress how this new “budget framework” would affect the actual federal budget, Congressional Budget Office Director Doug Elmendorf replied with a devastating “We don’t estimate speeches.” You can’t assign numbers to air.
President Obama assailed the lesser mortals who inhabit Congress for not having seriously dealt with a problem he had not dealt with at all, then scolded Congress for being even less responsible than his own children. They apparently get their homework done on time.
My compliments. But the Republican House did do its homework. It’s called a budget. It passed the House on April 15. The Democratic Senate has produced no budget. Not just this year, but for two years running. As for the schoolmaster in chief, he produced two 2012 budget facsimiles: The first (February) was a farce and the second (April) was empty, dismissed by the CBO as nothing but words untethered to real numbers.
Obama has run disastrous annual deficits of around $1.5 trillion while insisting for months on a “clean” debt-ceiling increase, i.e., with no budget cuts at all. Yet suddenly he now rises to champion major long-term debt reduction, scorning any suggestions of a short-term debt-limit deal as can-kicking.
The flip-flop is transparently political. A short-term deal means another debt-ceiling fight before Election Day, a debate that would put Obama on the defensive and distract from the Mediscare campaign to which the Democrats are clinging to save them in 2012.
A clever strategy it is: Do nothing (see above); invite the Republicans to propose real debt reduction first; and when they do — voting for the Ryan budget and its now infamous and courageous Medicare reform — demagogue them to death.
And then up the ante by demanding Republican agreement to tax increases. So: First you get the GOP to seize the left’s third rail by daring to lay a finger on entitlements. Then you demand the GOP seize the right’s third rail by violating its no-tax pledge. A full-spectrum electrocution. Brilliant.
And what have been Obama’s own debt-reduction ideas? In last week’s news conference, he railed against the tax break for corporate jet owners — six times.
I did the math. If you collect that tax for the next 5,000 years — that is not a typo — it would equal the new debt Obama racked up last year alone. To put it another way, if we had levied this tax at the time of John the Baptist and collected it every year since — first in shekels, then in dollars — we would have 500 years to go before we could offset half of the debt added by Obama last year alone.
Obama’s other favorite debt-reduction refrain is canceling an oil-company tax break. Well, if you collect that oil tax and the corporate jet tax for the next 50 years — you will not yet have offset Obama’s deficit spending for February 2011.
After his Thursday meeting with bipartisan congressional leadership, Obama adopted yet another persona: Cynic in chief became compromiser in chief. Highly placed leaks are portraying him as heroically prepared to offer Social Security and Medicare cuts.
We shall see. It’s no mystery what is needed. First, entitlement reform that changes the inflation measure, introduces means testing, then syncs the (lower) Medicare eligibility age with Social Security’s and indexes them both to longevity. And second, real tax reform, both corporate and individual, that eliminates myriad loopholes in return for lower tax rates for everyone.
That’s real debt reduction. Yet even now, we don’t know where the president stands on any of this. Until we do, I’ll follow the Elmendorf Rule: We don’t estimate leaks. Let’s see if Obama can suspend his 2012 electioneering long enough to keep the economy from going over the debt cliff.
letters@charleskrauthammer.com
Thursday, July 7, 2011
Obamacare Tragedy Primed To Further Explode the Deficit
By Peter Ferrara on 7.6.11 @ 6:08AM
President Obama bludgeoned Obamacare through Congress on the claim, backed by CBO, that it would not add to the deficit, even though it adopts or wildly expands three entitlement programs. As I discuss in my new book, America’s Ticking Bankruptcy Bomb, close analysis of the CBO score and additional new data indicates that, quite to the contrary, Obamacare will likely add $4 to $6 trillion to the deficit over its first 20 years, and possibly more.
Of course, the deficit is not the biggest problem. Even bigger is that regardless of the deficit, Obamacare involves trillions of increased government spending and taxes. Worst of all is that it involves a loss of control over, and the quality of, our own health care. All of this is ultimately a tragedy because as my book also explains, the uninsured could all easily be covered without any individual or employer mandate for just a small fraction of the cost of Obamacare, as discussed below.
Deficits and Debt
CBO made three enormous conceptual errors in scoring the program as not adding to the deficit, explained in detail in my book. The first relates to the new middle class welfare entitlement adopted by Obamacare, providing government handouts for the purchase of health insurance for families earning up to four times the poverty level, or $88,000 for a family of four, indexed to grow to over $100,000 shortly.
These health insurance handouts go only to those who buy insurance on their own individually through the state based health insurance exchanges established under the legislation. Those who receive employer provided coverage are not eligible. CBO assumed that only 19 million workers will qualify for the handouts, out of a work force estimated at 162 million in 2014 mostly still receiving employer provided coverage. It consequently estimated the cost at only $450 billion over the first 10 years, or actually first 6 years of implementation of Obamacare.
But with the mandated insurance likely to cost $15,000 or more by 2016, employers will have powerful incentives to dump their employee coverage and pay the $2,000 per worker fine that applies to such termination of coverage. Employers are all the more likely to do this, and just pay their workers higher wages in place of the health coverage, precisely because the workers would then be able to get the huge welfare handouts for purchasing their insurance through the exchanges, resulting actually in a net income increase. As former CBO Director Douglas Holtz-Eakin reported in a paper for the American Action Forum,
“For example, a family earning about $59,000 a year in 2014 would receive a premium subsidy of about $7,200. A family making $71,000 would receive about $5,200; and even a family earning about $95,000 would receive a subsidy of almost $3,000. By 2018,…a family earning about $64,000 would receive a subsidy of over $10,000, a family earning $77,000 would receive a subsidy of $7,800 and families earning $102,000 would receive a subsidy of almost $5,000.”
In fact, in the exchanges, qualifying workers can even get subsidies covering their out-of-pocket expenses.
These are the reasons why a new study released by McKinsey & Company earlier this month concluded that Obamacare will result in “a radical restructuring of employer-sponsored heath benefits.” It found that “30 percent of employers will definitely or probably stop offering” employer health coverage after Obamacare is implemented, and “among employers with a high awareness of reform, this proportion increases to more than 50 percent.”
In the Wall Street Journal on June 8, Grace-Marie Turner, President of the Galen Institute, estimated based on the numbers in the McKinsey report that as many as 78 million Americans would lose their employer provided coverage. If those workers ended up receiving the new Obamacare exchange handouts, the estimated costs for those subsidies in the first 6 years alone would soar by 4 times, adding nearly $2 trillion to the costs and deficits of Obamacare during that time.
What happened to President Obama’s oft-repeated pledge that if you like your health insurance you can keep it? Another transparent manipulation of the public was Obama telling us on national television there is no way Obamacare’s individual mandate can be considered a tax, and then sending his government lawyers into court to argue that the individual mandate is constitutional because it is simply a tax. I predict that the Fourth Circuit Court of Appeals will issue a ruling soon upholding the individual mandate on the grounds that it is a tax.
The second conceptual fallacy in the CBO score was revealed in full by the 2010 Financial Report of the United States Government, released last December by the Treasury Department. It documents the total present value of the future cuts to Medicare under President Obama’s policies already enacted under current law as $15 trillion, primarily in payments to doctors and hospitals for health care provided to seniors.
Such draconian cuts in Medicare payments would create havoc and chaos in health care for seniors. Doctors, hospitals, surgeons and specialists providing critical care to the elderly such as surgery for hip and knee replacements, sophisticated diagnostics through MRIs and CT scans, and even treatment for cancer and heart disease would shut down and disappear in much of the country, and others would stop serving Medicare patients. If the government is not going to pay, then seniors are not going to get the health services, treatment and care they expect.
In fact, within a decade after Obamacare is implemented, Medicare’s payments to doctors and hospitals will be less than under Medicaid, where the poor face grave difficulties in finding timely treatment, and are documented to suffer worse health outcomes as a result.
Medicare’s Chief Actuary reports that even before these cuts already two-thirds of hospitals were losing money on Medicare patients. Health providers will either have to withdraw from serving Medicare patients, or eventually go into bankruptcy. The unworkable, draconian effect of these Medicare cuts is why the U.S. Government Accountability Office issued a disclaimer of opinion on the Statement of Social Insurance component of the federal government’s 2010 Financial Statement, saying, “Unless providers could reduce their cost per service correspondingly, through productivity improvements, or other steps, they would eventually become unwilling or unable to treat Medicare beneficiaries.”
Yet, reversing these unworkable Medicare cuts would add $15 trillion to the future deficits caused by Obamacare.
Finally, the Obamacare tax increases won’t raise nearly the revenues that CBO projected. The capital gains tax rate would increase by close to 60 percent in 2013, with the expiration of the Bush tax cuts and Obamacare applying the Medicare payroll tax to capital gains as well. But over the last 40 years, every time the capital gains tax rate has been increased, revenues have declined.
Similarly, the tax rate on dividends would nearly triple in 2013, due again to the expiration of the Bush tax cuts and the application of the Medicare payroll tax to dividends as well. The last time dividend taxes were that high, corporate dividend payments were greatly reduced. Corporations just kept the money internally for corporate investment. Corporate earnings are already subject to the 35 percent corporate income tax rate, which is on top of any tax on dividends. So revenues from the tax on dividends will decline sharply as well, exactly the opposite of what happened when President Bush cut the tax rate on dividends in 2003. CBO, of course, has a horrid record of wildly failing to estimate the revenue effects of tax changes relating to capital gains and corporate dividends in particular.
The Tragedy of Obamacare
My book explains the Obamacare tragedy by showing how everyone can be assured essential health care for just a small fraction of the cost of Obamacare. Moreover, this is accomplished with no individual mandate and no employer mandate. Obamacare, by contrast, for all of its trillions in future taxes and spending, and its individual and employer mandates, still does not cover everyone.
Such reform would begin with Medicaid, which already spends over $400 billion a year providing substandard health care coverage for 50 million poor Americans. Congress should transform Medicaid to provide assistance to purchase private health insurance for all those who otherwise could not afford coverage, ideally with health insurance vouchers. This one step would enormously benefit the poor already on Medicaid. The program today pays doctors and hospitals only 60% of costs for their health care services for the poor. As a result, close to half of all doctors and hospitals won’t take Medicaid patients. This is already a form of rationing, as Medicaid patients find obtaining health care increasingly difficult, and studies show they suffer worse health outcomes as a result. Health insurance vouchers would free the poor from this Medicaid ghetto, enabling them to obtain the same health care as the middle class, because they would be able to buy the same health insurance in the market.
Ideally this would be done by reforming Medicaid financing to provide the federal assistance to the states for the program through fixed, finite block grants, which do not vary by matching increased state Medicaid spending as under the current system. With finite block grants, states that innovate to reduce costs can keep the savings. States that operate programs with continued runaway costs would pay those additional costs themselves. Such reforms worked spectacularly to stop the runaway costs of the old AFDC program when Congress adopted welfare reform in 1996. The voters of each state can then decide how much assistance for the purchase of health insurance to provide each family at different income levels to assure that the poor would be able to obtain essential health care. This would rightly vary with the different income and cost levels of each state.
This would not cost much because only about 12 million Americans arguably cannot afford health insurance without some public assistance. Out of the 47 million uninsured we keep hearing about, 9.7 million are already eligible for current government programs like Medicaid or SCHIP but haven’t signed up. Another 6 million are eligible for employer sponsored insurance but have not signed up for that either. Another 9 million are in families earning more than $75,000 per year. Another 10.2 million are immigrants, legal or illegal, and not U.S. citizens. Just give the assistance necessary, counting what they can reasonably pay based on their income, to the 12 million Americans that need it to buy private health insurance.
But a second step is necessary as well to ensure a complete safety net. Federal funding should also be provided to help each state set up a High Risk pool. Those uninsured who become too sick to purchase health insurance in the market, perhaps because they have contracted cancer or heart disease, for example, would be assured of guaranteed coverage through the risk pool. They would be charged a premium for this coverage based on their ability to pay, ensuring that they will not be asked to pay more than they could afford. Federal and state funding would cover remaining costs. Such risk pools already exist in over 30 states, and for the most part they work well at relatively little cost to the taxpayers because few people actually become truly uninsurable.
The law already provides that insurers cannot cut off already existing policyholders, or impose discriminatory rate increases, because they become sick while covered. That would be like allowing fire insurers to cut off coverage for houses once they catch on fire. If this law needs to be modernized, it should be.
With these reforms, those who have insurance can keep it, those who can’t afford it are given the necessary help to buy it, and those who nevertheless remain uninsured and then become too sick to buy it have a back up safety net in the risk pools. Again this completely solves the problem of the uninsured without any individual or employer mandate, which are unnecessary gateways to enormous trouble. Once the government adopts such mandates, it is inexorably led down the path to socialized medicine.
President Obama bludgeoned Obamacare through Congress on the claim, backed by CBO, that it would not add to the deficit, even though it adopts or wildly expands three entitlement programs. As I discuss in my new book, America’s Ticking Bankruptcy Bomb, close analysis of the CBO score and additional new data indicates that, quite to the contrary, Obamacare will likely add $4 to $6 trillion to the deficit over its first 20 years, and possibly more.
Of course, the deficit is not the biggest problem. Even bigger is that regardless of the deficit, Obamacare involves trillions of increased government spending and taxes. Worst of all is that it involves a loss of control over, and the quality of, our own health care. All of this is ultimately a tragedy because as my book also explains, the uninsured could all easily be covered without any individual or employer mandate for just a small fraction of the cost of Obamacare, as discussed below.
Deficits and Debt
CBO made three enormous conceptual errors in scoring the program as not adding to the deficit, explained in detail in my book. The first relates to the new middle class welfare entitlement adopted by Obamacare, providing government handouts for the purchase of health insurance for families earning up to four times the poverty level, or $88,000 for a family of four, indexed to grow to over $100,000 shortly.
These health insurance handouts go only to those who buy insurance on their own individually through the state based health insurance exchanges established under the legislation. Those who receive employer provided coverage are not eligible. CBO assumed that only 19 million workers will qualify for the handouts, out of a work force estimated at 162 million in 2014 mostly still receiving employer provided coverage. It consequently estimated the cost at only $450 billion over the first 10 years, or actually first 6 years of implementation of Obamacare.
But with the mandated insurance likely to cost $15,000 or more by 2016, employers will have powerful incentives to dump their employee coverage and pay the $2,000 per worker fine that applies to such termination of coverage. Employers are all the more likely to do this, and just pay their workers higher wages in place of the health coverage, precisely because the workers would then be able to get the huge welfare handouts for purchasing their insurance through the exchanges, resulting actually in a net income increase. As former CBO Director Douglas Holtz-Eakin reported in a paper for the American Action Forum,
“For example, a family earning about $59,000 a year in 2014 would receive a premium subsidy of about $7,200. A family making $71,000 would receive about $5,200; and even a family earning about $95,000 would receive a subsidy of almost $3,000. By 2018,…a family earning about $64,000 would receive a subsidy of over $10,000, a family earning $77,000 would receive a subsidy of $7,800 and families earning $102,000 would receive a subsidy of almost $5,000.”
In fact, in the exchanges, qualifying workers can even get subsidies covering their out-of-pocket expenses.
These are the reasons why a new study released by McKinsey & Company earlier this month concluded that Obamacare will result in “a radical restructuring of employer-sponsored heath benefits.” It found that “30 percent of employers will definitely or probably stop offering” employer health coverage after Obamacare is implemented, and “among employers with a high awareness of reform, this proportion increases to more than 50 percent.”
In the Wall Street Journal on June 8, Grace-Marie Turner, President of the Galen Institute, estimated based on the numbers in the McKinsey report that as many as 78 million Americans would lose their employer provided coverage. If those workers ended up receiving the new Obamacare exchange handouts, the estimated costs for those subsidies in the first 6 years alone would soar by 4 times, adding nearly $2 trillion to the costs and deficits of Obamacare during that time.
What happened to President Obama’s oft-repeated pledge that if you like your health insurance you can keep it? Another transparent manipulation of the public was Obama telling us on national television there is no way Obamacare’s individual mandate can be considered a tax, and then sending his government lawyers into court to argue that the individual mandate is constitutional because it is simply a tax. I predict that the Fourth Circuit Court of Appeals will issue a ruling soon upholding the individual mandate on the grounds that it is a tax.
The second conceptual fallacy in the CBO score was revealed in full by the 2010 Financial Report of the United States Government, released last December by the Treasury Department. It documents the total present value of the future cuts to Medicare under President Obama’s policies already enacted under current law as $15 trillion, primarily in payments to doctors and hospitals for health care provided to seniors.
Such draconian cuts in Medicare payments would create havoc and chaos in health care for seniors. Doctors, hospitals, surgeons and specialists providing critical care to the elderly such as surgery for hip and knee replacements, sophisticated diagnostics through MRIs and CT scans, and even treatment for cancer and heart disease would shut down and disappear in much of the country, and others would stop serving Medicare patients. If the government is not going to pay, then seniors are not going to get the health services, treatment and care they expect.
In fact, within a decade after Obamacare is implemented, Medicare’s payments to doctors and hospitals will be less than under Medicaid, where the poor face grave difficulties in finding timely treatment, and are documented to suffer worse health outcomes as a result.
Medicare’s Chief Actuary reports that even before these cuts already two-thirds of hospitals were losing money on Medicare patients. Health providers will either have to withdraw from serving Medicare patients, or eventually go into bankruptcy. The unworkable, draconian effect of these Medicare cuts is why the U.S. Government Accountability Office issued a disclaimer of opinion on the Statement of Social Insurance component of the federal government’s 2010 Financial Statement, saying, “Unless providers could reduce their cost per service correspondingly, through productivity improvements, or other steps, they would eventually become unwilling or unable to treat Medicare beneficiaries.”
Yet, reversing these unworkable Medicare cuts would add $15 trillion to the future deficits caused by Obamacare.
Finally, the Obamacare tax increases won’t raise nearly the revenues that CBO projected. The capital gains tax rate would increase by close to 60 percent in 2013, with the expiration of the Bush tax cuts and Obamacare applying the Medicare payroll tax to capital gains as well. But over the last 40 years, every time the capital gains tax rate has been increased, revenues have declined.
Similarly, the tax rate on dividends would nearly triple in 2013, due again to the expiration of the Bush tax cuts and the application of the Medicare payroll tax to dividends as well. The last time dividend taxes were that high, corporate dividend payments were greatly reduced. Corporations just kept the money internally for corporate investment. Corporate earnings are already subject to the 35 percent corporate income tax rate, which is on top of any tax on dividends. So revenues from the tax on dividends will decline sharply as well, exactly the opposite of what happened when President Bush cut the tax rate on dividends in 2003. CBO, of course, has a horrid record of wildly failing to estimate the revenue effects of tax changes relating to capital gains and corporate dividends in particular.
The Tragedy of Obamacare
My book explains the Obamacare tragedy by showing how everyone can be assured essential health care for just a small fraction of the cost of Obamacare. Moreover, this is accomplished with no individual mandate and no employer mandate. Obamacare, by contrast, for all of its trillions in future taxes and spending, and its individual and employer mandates, still does not cover everyone.
Such reform would begin with Medicaid, which already spends over $400 billion a year providing substandard health care coverage for 50 million poor Americans. Congress should transform Medicaid to provide assistance to purchase private health insurance for all those who otherwise could not afford coverage, ideally with health insurance vouchers. This one step would enormously benefit the poor already on Medicaid. The program today pays doctors and hospitals only 60% of costs for their health care services for the poor. As a result, close to half of all doctors and hospitals won’t take Medicaid patients. This is already a form of rationing, as Medicaid patients find obtaining health care increasingly difficult, and studies show they suffer worse health outcomes as a result. Health insurance vouchers would free the poor from this Medicaid ghetto, enabling them to obtain the same health care as the middle class, because they would be able to buy the same health insurance in the market.
Ideally this would be done by reforming Medicaid financing to provide the federal assistance to the states for the program through fixed, finite block grants, which do not vary by matching increased state Medicaid spending as under the current system. With finite block grants, states that innovate to reduce costs can keep the savings. States that operate programs with continued runaway costs would pay those additional costs themselves. Such reforms worked spectacularly to stop the runaway costs of the old AFDC program when Congress adopted welfare reform in 1996. The voters of each state can then decide how much assistance for the purchase of health insurance to provide each family at different income levels to assure that the poor would be able to obtain essential health care. This would rightly vary with the different income and cost levels of each state.
This would not cost much because only about 12 million Americans arguably cannot afford health insurance without some public assistance. Out of the 47 million uninsured we keep hearing about, 9.7 million are already eligible for current government programs like Medicaid or SCHIP but haven’t signed up. Another 6 million are eligible for employer sponsored insurance but have not signed up for that either. Another 9 million are in families earning more than $75,000 per year. Another 10.2 million are immigrants, legal or illegal, and not U.S. citizens. Just give the assistance necessary, counting what they can reasonably pay based on their income, to the 12 million Americans that need it to buy private health insurance.
But a second step is necessary as well to ensure a complete safety net. Federal funding should also be provided to help each state set up a High Risk pool. Those uninsured who become too sick to purchase health insurance in the market, perhaps because they have contracted cancer or heart disease, for example, would be assured of guaranteed coverage through the risk pool. They would be charged a premium for this coverage based on their ability to pay, ensuring that they will not be asked to pay more than they could afford. Federal and state funding would cover remaining costs. Such risk pools already exist in over 30 states, and for the most part they work well at relatively little cost to the taxpayers because few people actually become truly uninsurable.
The law already provides that insurers cannot cut off already existing policyholders, or impose discriminatory rate increases, because they become sick while covered. That would be like allowing fire insurers to cut off coverage for houses once they catch on fire. If this law needs to be modernized, it should be.
With these reforms, those who have insurance can keep it, those who can’t afford it are given the necessary help to buy it, and those who nevertheless remain uninsured and then become too sick to buy it have a back up safety net in the risk pools. Again this completely solves the problem of the uninsured without any individual or employer mandate, which are unnecessary gateways to enormous trouble. Once the government adopts such mandates, it is inexorably led down the path to socialized medicine.
Federal Judge Forces Interior to Decide on Drilling Leases
Typically when someone buys something, that person receives some good or service in return. That’s not always the case when it comes to the federal government.
The Department of Interior failed to issue leases after several oil and gas companies purchased them from the Bureau of Land Management. Consequently, the six companies that won and bought the leases and Western Energy Alliance, which represents more than 400 independent natural gas and oil producers, sued the government. They earned a partial victory last week when a federal judge in Wyoming ordered Interior to decide on 47 leases in Utah and Wyoming but not necessarily issue them.
Between 2005 and 2010, these oil and gas companies purchased a number of leases on federal lands to explore and drill for oil and gas. Before the companies can move forward, however, Interior must issue the leases. The Mineral Leasing Act requires that “leases shall be issued” by the Secretary of the Interior 60 days after a company wins the bid, but Secretary Ken Salazar hasn’t done so. According to The Wall Street Journal, “The Wyoming office of Interior’s Bureau of Land Management, where many of the leases were purchased, said leases were held up by objections from environmental groups.”
The government offered no refund for the money paid for the leases. One company, Baseline, “paid more than $1.3 million for Wyoming leases and nearly $545,000 for Utah leases. At the time of the lawsuit’s filing, Baseline had only received some of its leases in Wyoming and none of the Utah leases. The Utah leases were won during auctions held as long as six years ago.”
The tag-team of radical environmental groups and onerous regulatory red tape continues to halt America’s energy production and stifle job creation and economic activity. Environmental activists delay new energy projects by filing endless administrative appeals and lawsuits. Shell cited regulatory delays and legal challenges preventing it from moving forward with exploration programs in the Beaufort and Chukchi Seas.
This is the second time the federal courts have sided with America’s energy producers. Federal District Court Judge Martin Feldman held the Interior Department in contempt of court for ignoring his ruling to cease the job-killing drilling moratorium imposed by President Obama last year.
The Obama Administration touted that U.S. crude oil production in 2010 was the highest it has been since 2003. While this is true (as a result of increased horizontal drilling in North Dakota), the Energy Information Administration projects that oil production will decline in the coming years as a result of Obama’s anti-drilling policies. Oil and gas production drives the economy in significant portions of the western United States. It’s nonsensical to unnecessarily hold up energy production at a time when it’s badly needed.
The Department of Interior failed to issue leases after several oil and gas companies purchased them from the Bureau of Land Management. Consequently, the six companies that won and bought the leases and Western Energy Alliance, which represents more than 400 independent natural gas and oil producers, sued the government. They earned a partial victory last week when a federal judge in Wyoming ordered Interior to decide on 47 leases in Utah and Wyoming but not necessarily issue them.
Between 2005 and 2010, these oil and gas companies purchased a number of leases on federal lands to explore and drill for oil and gas. Before the companies can move forward, however, Interior must issue the leases. The Mineral Leasing Act requires that “leases shall be issued” by the Secretary of the Interior 60 days after a company wins the bid, but Secretary Ken Salazar hasn’t done so. According to The Wall Street Journal, “The Wyoming office of Interior’s Bureau of Land Management, where many of the leases were purchased, said leases were held up by objections from environmental groups.”
The government offered no refund for the money paid for the leases. One company, Baseline, “paid more than $1.3 million for Wyoming leases and nearly $545,000 for Utah leases. At the time of the lawsuit’s filing, Baseline had only received some of its leases in Wyoming and none of the Utah leases. The Utah leases were won during auctions held as long as six years ago.”
The tag-team of radical environmental groups and onerous regulatory red tape continues to halt America’s energy production and stifle job creation and economic activity. Environmental activists delay new energy projects by filing endless administrative appeals and lawsuits. Shell cited regulatory delays and legal challenges preventing it from moving forward with exploration programs in the Beaufort and Chukchi Seas.
This is the second time the federal courts have sided with America’s energy producers. Federal District Court Judge Martin Feldman held the Interior Department in contempt of court for ignoring his ruling to cease the job-killing drilling moratorium imposed by President Obama last year.
The Obama Administration touted that U.S. crude oil production in 2010 was the highest it has been since 2003. While this is true (as a result of increased horizontal drilling in North Dakota), the Energy Information Administration projects that oil production will decline in the coming years as a result of Obama’s anti-drilling policies. Oil and gas production drives the economy in significant portions of the western United States. It’s nonsensical to unnecessarily hold up energy production at a time when it’s badly needed.
Saturday, July 2, 2011
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