Friday, January 29, 2016
Tuesday, January 12, 2016
The only important exception comes with the tax treatment of health insurance obtained on the job, which workers can exclude from the income that is subject to payroll and income taxation. The exclusion generates an annual average of $4,000 in tax savings for each of the 75 million workers that take advantage of this employment perk.
They are not against work, of course, but are against uneven taxation. By making job-related health insurance a unique tax shelter, the exclusion leads to excessive health spending – “Cadillac” health plans – and distorts the composition of economic activity toward businesses that have advantages in providing the shelter.
Rubio, for example, proposes tax credits for purchases of individual health insurance and putting “the tax preference for employer-sponsored insurance on a glide path to ensure that it will equal the level of the credits.” The credits are intentionally limited so that they do not favor expensive plans any more than economical ones.
Introducing a credit for purchases in the individual market, as the Republican candidates propose, is an especially new opportunity for people who do not work and thereby further pushes the federal thumb on the scale favoring not working over working.
Take a 62-year-old worker who is considering retirement. A number of federal policies encourage him to retire sooner rather than later by replacing – at the expense of all taxpayers – part of the wage income lost upon retirement. A retiree pays less income tax, pays no payroll tax, and gets a monthly check from Social Security, whereas the 62-year-old who continues work would not get these privileges. Republican plans would change this by giving him a new tax credit if he retires early.
The special treatment of the health insurance obtained at work is the only major pro-work incentive that the federal government currently has for this 62-year-old. The Republicans are achieving their even-tax objective by reducing the incentive to work.
By my estimates, the economic damage done by further reducing incentives to work is not worth the enhancements to health care delivery that would come with taxing things more evenly. I am not aware of any study even attempting to show otherwise, because the studies of health insurance delivery largely ignore the labor-market burdens created by policies that promise to make health care better.
Just this week, Congress delayed until 2020 Obamacare’s “Cadillac” excise tax on health plans that are provided by employers, which is Democrats’ answer to the uneven taxation problem. But the Cadillac tax does a lot less to discourage work than the Republican approaches do (I cannot say the same about the rest of Obamacare), because the Cadillac tax still lets workers keep much of their perk.
To their credit, Republican candidates have other plans to encourage work, especially by bringing down personal income tax rates. But, in order to get the economics right, they should not be double-counting the benefits of reducing rates. By eliminating or partly offsetting the health insurance exclusion, tax rate reductions are needed just to get the labor market back to where it would have been if the exclusion had continued.
To put it another way, more growth would come from cutting rates and keeping the exclusion in place than would come from cutting both the rates and the value of the exclusion together, which is what many Republicans are proposing.
Bipartisan neglect of the work disincentives that come with health reform is a major reason why we continue to have a Pinto economy. We’re left hoping that tax plans might create jobs faster than health plans kill them.
Monday, December 21, 2015
Read about America's current plan here.
Tuesday, December 15, 2015
"Most people who lose their jobs don't even qualify for unemployment insurance."
"Unemployment benefits are only available to those who lost a job through no fault of their own. ... Many of the unemployed are recent college or high school graduates who are now looking for work. Others may have quit their jobs, or they left work years ago to take care of children and are now job-hunting again. People in those categories make up 52 percent of the unemployed."
Saturday, December 12, 2015
In reading the [CBO's analysis of ACA marginal tax rates and the labor market], questions that occurred to me, admittedly a non-economist, included why there is no accounting for the increased employment of health care workers which surely must accompany the coverage expansions?
- when we redistribute income for the purposes of paying for some people's health care, that likely creates additional jobs in the process of supplying health care to the ACA beneficiaries.
- But we cannot forget about the other end of the redistribution. Somebody is paying for this, either by paying taxes or loaning money to the government, and that's funds that the payers cannot spend on other things. So there's a reduction in the employment of people who would be supplying the payers (whatever it was that they would have spent money on: anything from food to forming new businesses).
- The bottom line for labor demand hinges on a comparison of the labor-intensity of healthcare supply and the intensity of supplying those other things.
Wednesday, December 9, 2015
Tuesday, December 8, 2015
Wednesday, November 25, 2015
The President was ... lacking that dominating intellectual equipment which would have been necessary to cope with the subtle and dangerous spellbinders.... (p. 25)
...the President had thought out nothing; when it came to practice his ideas were nebulous and incomplete. He had no plan, no scheme, no constructive ideas whatever for clothing with the flesh of life the commandments which he had thundered from the White House. (p. 27)
...he was in many respects, perhaps inevitably, ill-informed as to European conditions. And not only was he ill-informed--that was true of Mr. Lloyd George also--but his mind was slow and unadaptable. (p. 27)
(page numbers are from the Royal Economic Society's 1971 edition).
Monday, October 12, 2015
The recent book by today's Nobel Prize winner -- congratulations to him!! -- says good intentions are a barrier to equality and to progress among the world’s poor.
For most of human history, family incomes were barely enough to survive and life was short. But in “The Great Escape: Health, Wealth and the Origins of Inequality,” Professor Angus Deaton of Princeton writes that while economic progress allowed much of the world to escape poverty, “escapes leave people behind, and luck favors some and not others; it makes opportunities, but not everyone is equally equipped or determined to seize them.”
Professor Deaton also deals with the events after the great escape: that is, how the progress of some families and nations affects the prospects for progress of those initially left behind.
Imitation is one force and works in the direction of progress for all. The poor can look to the progress of others to embark on their own escape. Professor Deaton shows how the imitation of new methods has occurred, for example, with medical technologies that have allowed the residents of a number of poor nations to live longer than Americans did just a hundred years ago, and sometimes longer than Americans live today.
But new methods can harm those with vested interests in the old ones, and the vested interests can use their political power to block competition and progress. Professor Deaton explains how “the emperors of China, worried about threats to their power from merchants, banned oceangoing voyages in 1430,” adding, “Similarly, Francis I, emperor of Austria, banned railways because of their potential to bring about revolution and threaten his power.”
Progress begets inequality, and the resulting inequality can either encourage more progress or impede it, or both. Professor Deaton suggests that inequality in the modern United States has had both of these effects.
He points to a third influence of progress and inequality on outcomes for those left behind: good intentions. As part of the world becomes rich and no longer worries about day-to-day survival, it can look outward. Many residents of developed countries have a “need to help” those less fortunate.
But the attempts to help often – perhaps even usually – go awry.
As medical progress began to diffuse around the world, people stopped dying so young, and that made for an increase in population, especially in less-developed countries. Developed countries thought they would help poor nations by encouraging population control, based on the dubious proposition that more people means more poverty.
“What the world’s poor – the people who were actually having all these babies – thought about all this was not given much consideration,” Professor Deaton says, citing China’s continuing one-child policy as an example. He adds: “The misdiagnosis of the population explosion by the vast majority of social scientists and policy makers, and the grave harm that the resultant mistaken policy did to many millions, were among the most serious intellectual and ethical failures of a century in which there were many.”
Other types of foreign aid to developing nations have also been a disaster, he says, with “pictures of starving children being used to raise funds that were used in part to prolong war, or to N.G.O.-funded camps being used as bases to train militias bent on genocide.”
Professor Deaton’s book is primarily international in focus, and he insists that help for the American poor is different and more effective than aiding the world’s poor. Nevertheless, American readers may be left wondering how much aid to American poor, is, as Professor Deaton says, “more about satisfying our own need to help, and less about improving the lot of the poor.”