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Archive for the ‘Obama’ Category

This blog already has noted that Obamacare crippled the market for “kids only” health insurance policies. Unsurprisingly, that is just the beginning of the bad news. The latest development is that health policies designed to provide insurance to low-income workers may no longer be economically feasible. The Wall Street Journal comments.

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.

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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 of 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.

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Since we’re talking about a totalitarian nation, I suppose I should make clear that Raul Castro is getting rid of 500,000 government jobs, not executing a half-million bureaucrats. This is a remarkable development, particularly since the entire workforce is only 5 million people. What’s ironic, though, is that Cuba is trying to reverse its mistakes while politicians in the United States keep adding more bureaucrats. In other words, Obama  wants more people in the wagon and fewer people pulling the wagon. That’s not a good trend line. Here’s a CNN story about the Cuban reforms.

Cuba announced on Monday it would lay off “at least” half a million state workers over the next six months and simultaneously allow more jobs to be created in the private sector as the socialist economy struggles to get back on its feet.

The plan announced in state media confirms that President Raul Castro is following through on his pledge to shed some one million state jobs, a full fifth of the official workforce — but in a shorter timeframe than initially anticipated.

“Our state cannot and should not continue maintaining companies, productive entities and services with inflated payrolls and losses that damage our economy and result counterproductive, create bad habits and distort workers’ conduct,” the CTC, Cuba’s official labor union, said in newspapers.

…The state currently controls more than 90 percent of the economy, running everything from ice cream parlors and gas stations to factories and scientific laboratories. Traditionally independent professions, such as carpenters, plumbers and shoe repairmen, are also employed by the state.

…The announcement avoided the word “private,” but said alternative forms of employment to be allowed included renting or borrowing state-owned facilities, cooperatives and self employment and that “hundreds of thousands of workers” would find jobs outside of the state sector over the next few years.

Castro has launched a few, small free-market reforms since taking over from his brother Fidel Castro in 2006.

In April, for example, barbershops were handed over to employees, who pay rent and tax but charge what they want. Licenses have also been granted to private taxis. For a couple of years, fallow land in the countryside has been turned over to private farmers. The more they produce, the more they earn.

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Dana Milbank of the Washington Post wrote this weekend that critics of Keynesianism are somewhat akin to those who believe the earth is flat. He specifically cites the presumably malignant influence of the Cato Institute.

Keynes was right, and in this case it’s probably for the better: Keynes didn’t live to see the Republicans of 2010 portray him as some sort of Marxist revolutionary.

…These men get their economic firepower from conservative think tanks such as the Cato Institute…

What’s with the hate for Maynard?

Perhaps these Republicans don’t realize that some of their tax-cut proposals are as “Keynesian” as Obama’s program. There’s a fierce dispute about how best to respond to the economic crisis — Tax cuts? Deficit spending? Monetary intervention? — but the argument is largely premised on the Keynesian view that government should somehow boost demand in a recession.

…With so much of Keynesian theory universally embraced, Republican denunciation of him has a flat-earth feel to it. …There is an alternative to such “Keynesian experiments,” however. The government could do nothing, and let the human misery continue. By rejecting the “Keynesian playbook,” this is what Republicans are really proposing.

Milbank makes some good points, particularly when noting the hypocrisy of Republicans. Bush’s 2001 tax cuts were largely Keynesian in their design, which is also one of the reasons why the economy was sluggish until the supply-side tax cuts were implemented in 2003. Bush also pushed through another Keynesian package in 2008, and many GOPers on Capitol Hill often erroneously use Keynesian logic even when talking about good policies such as lower marginal tax rates.

But the thrust of Milbank’s column is wrong. He is wrong in claiming that Keynesian economics works, and he is wrong is claming that it is the only option. Regarding the first point, there is no successful example of Keynesian economics. It didn’t work for Hoover and Roosevelt in the 1930s. It didn’t work for Japan in the 1990s. It didn’t work for Bush in 2001 or 2008, and it didn’t work for Obama. The reason, as explained in this video, is that Keynesian economics seeks to transform saving into consumption. But a recession or depression exists when national income is falling. Shifting how some of that income is used does not solve the problem.

This is why free market policies are the best response to an economic downturn. Lower marginal tax rates. Reductions in the burden of government spending. Eliminating needless regulations and red tape. Getting rid of trade barriers. These are the policies that work when the economy is weak. But they’re also desirable policies when the economy is strong. In other words, there is no magic formula for dealing with a downturn. But there are policies that improve the economy’s performance, regardless of short-term economic conditions. Equally important, supporters of economic liberalization also point out that misguided government policies (especially bad monetary policy by the Federal Reserve) almost always are responsible for causing downturns. And wouldn’t it be better to adopt reforms that prevent downturns rather than engage in futile stimulus schemes once downturns begin?

None of this means that Keynes was a bad economist. Indeed, it’s very important to draw a distinction between Keynes, who was wrong on a couple of things, and today’s Keynesians, who are wrong about almost everything. Keynes, for instance, was an early proponent of the Laffer Curve, writing that, “Nor should the argument seem strange that taxation may be so high as to defeat its object, and that, given sufficient time to gather the fruits, a reduction of taxation will run a better chance than an increase of balancing the budget.”

Keynes also seemed to understand the importance of limiting the size of government. He wrote that, “25 percent taxation is about the limit of what is easily borne.” It’s not clear whether he was referring to marginal tax rates or the tax burden as a share of economic output, but in either case it obviously implies an upper limit to the size of government (especially since he did not believe in permanent deficits).

If modern Keynesians had the same insights, government policy today would not be nearly as destructive.

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Even though I’ve been in Washington for 25 years, I still get nauseated by the predatory behavior of the looters and moochers. The latest example of disgusting behavior is from the Secretary of Health and Human Services, who is engaging in Hugo Chavez-style threats to block insurance companies from raising rates in response to the new costs imposed by Obamacare. Michael Barone’s column and a Wall Street Journal editorial capture the odious nature of this banana republic stunt. Here’s part of what Barone wrote:

“There will be zero tolerance for this type of misinformation and unjustified rate increases.”

…Secretary Sebelius objects to claims by health insurers that they are raising premiums because of increased costs imposed by the Obamacare law passed by Congress last March.

…Sebelius has “zero tolerance” for that kind of thing. She promises to issue regulations to require “state or federal review of all potentially unreasonable rate increases” (which would presumably mean all rate increases).

And there’s a threat. “We will also keep track of insurers with a record of unjustified rate increases: Those plans may be excluded from health insurance Exchanges in 2014.”

That’s a significant date, the first year in which state insurance exchanges are slated to get a monopoly on the issuance of individual health insurance policies. Sebelius is threatening to put health insurers out of business in a substantial portion of the market if they state that Obamacare is boosting their costs.

“Congress shall make no law,” reads the First Amendment, “abridging the freedom of speech, or of the press.”

Sebelius’ approach is different: “zero tolerance” for dissent.

The threat to use government regulation to destroy or harm someone’s business because they disagree with government officials is thuggery. Like the Obama administration’s transfer of money from Chrysler bondholders to its political allies in the United Auto Workers, it is a form of gangster government.

…Sebelius and the Obama administration…want to stamp out negative speech about Obamacare. “Zero tolerance” means they are ready to use the powers of government to threaten economic harm on those who dissent.

Here’s a blurb from the WSJ:

The White House was always going to blame insurance companies for any cost increases, even when its own policies cause them.

Witness Kathleen Sebelius’s Thursday letter to America’s Health Insurance Plans, the industry trade group—a thuggish message even by her standards. The Health and Human Services secretary wrote that some insurers have been attributing part of their 2011 premium increases to ObamaCare and warned that “there will be zero tolerance for this type of misinformation and unjustified rate increases.”

Zero tolerance for expressing an opinion, or offering an explanation to policyholders? They’re more subtle than this in Caracas.

…This is nasty stuff and an obvious attempt to shift political blame for rising insurance costs before the election. It’s also an early sign of life under ObamaCare, when all health-care decisions are political and the bureaucrats decide who can charge how much for a service or product.

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Like other forms of so-called stimulus spending, the money devoted to supposed ”green” energy programs has been a net drain on the economy. This is hardly a surprise, particular since the much-trumpeted Spanish experiment turned out to be a flop, destroying two jobs elsewhere in the economy for every green job created. But what is surprising is that the political crowd in Washington seems to be getting the message. The Washington Times reports that even the left if backing away from flushing more money down this hole.

Noticeably absent from President Obama’s latest economic-stimulus package are any further attempts to create jobs through “green” energy projects, reflecting a year in which the administration’s original, loudly trumpeted efforts proved largely unfruitful.

The long delays typical with environmentally friendly projects – combined with reports of green stimulus funds being used to create jobs in China and other countries, rather than in the U.S. – appear to have killed the administration’s appetite for pushing green projects as an economic cure.

…Peter Morici, a business professor at the University of Maryland, said much of the green stimulus funding was “squandered.”

“Large grants to build green buildings don’t generate many new jobs, except for a few architects,” he said. “Subsidies for windmills and solar panels created lots of jobs in China,” but few at home.

…Despite the massive infusion of government funding in recent years, renewable technologies have captured only a tiny share of the energy market and remain heavily dependent on government funding to be viable. Because of the need to constantly renew government funding, private investors remain skittish about committing to new projects.

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Here’s a clever video produced by the Winston Group, comparing the tax policies of two Democratic Presidents. Having previously highlighted Kennedy’s tax-cutting approach, it is painful for me to observe the class warfare approach of the Obama Administration.

What’s especially fascinating is that JFK intuitively understood the Laffer Curve, particularly the insight that deficits usually are the result of slow growth, not the cause of slow growth.

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Kevin Hassett and Alan VIard of the American Enterprise Institute have a column in the Wall Street Journal showing how Obama’s proposed tax hikes will impose significant harm on small business owners and other entrepreneurs. Higher tax rates are damaging for the obvious reason that business cash flow gets diverted to the IRS, but also because they alter the price (or tradeoff) between work and leisure and between consumption and investment. This means less productive activity, which is just another way of saying reduced national income.

Vice President Joe Biden harshly rejected House Minority Leader John Boehner’s assertion that the hikes would harm small businesses, saying that “he has created this myth that a tax cut for millionaires is actually a tax cut for small business. There aren’t 3% of small businesses in America that would qualify for that tax cut.” House Speaker Nancy Pelosi flipped the number around, saying that the planned tax increases would exempt “98% of American families and about 97% of small businesses.”

…The 3% figure, which is computed from IRS data, is based on simply counting the number of returns with any pass-through business income. So, if somebody makes a little money selling products on eBay and reports that income on Schedule C of their tax return, they are counted as a small business. The fact that there are millions of people in the lower tax brackets with small amounts of business income may be interesting for some purposes, but it is irrelevant for the assessment of the economic impact of the tax hikes.

The numbers are clear. According to IRS data, fully 48% of the net income of sole proprietorships, partnerships, and S corporations reported on tax returns went to households with incomes above $200,000 in 2007. That’s the number to look at, not the 3%.

…A pair of papers by economists Robert Carroll, Douglas Holtz-Eakin, Harvey Rosen and Mark Rider that were published in 1998 and 2000 by the National Bureau of Economic Research analyzed tax return data and uncovered high responsiveness of sole proprietors’ business activity to tax rates. Their estimates imply that increasing the top rate to 40.8% from 35% (an official rate of 39.6% plus another 1.2 percentage points from the restoration of a stealth provision that phases out deductions), as in Mr. Obama’s plan, would reduce gross receipts by more than 7% for sole proprietors subject to the higher rate.

These results imply a similar effect on proprietors’ investment expenditures. A paper published by R. Glenn Hubbard of Columbia University and William M. Gentry of Williams College in the American Economic Review in 2000 also found that increasing progressivity of the tax code discourages entrepreneurs from starting new businesses.

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One of the main factors determining incumbent election success is economic performance. When disposable income is rising and people feel good about the future, it is difficult for an incumbent to lose. So why, then, is Obama pursuing policies that are undermining growth? Sure, it is in the interests of the left in the long run to create more dependency on government. That’s one of the reasons why there is nothing resembling a free market party in most European nations. But America isn’t at that stage yet (thankfully). And as John Stossel writes, Obama’s bad government policy is causing joblessness and uncertainty. This is going to hurt Democrats this November and may linger until 2012, when Obama would suffer the consequences (in the unlikely event that Republicans put forth a semi-decent candidate).

Why isn’t the economy recovering? After previous recessions, unemployment didn’t get stuck at close to 10 percent. If left alone, the economy can and does heal itself, as the mistakes of the previous inflationary boom are corrected.

The problem today is that the economy is not being left alone. Instead, it is haunted by uncertainty on a hundred fronts. When rules are unintelligible and unpredictable, when new workers are potential threats because of Labor Department regulations, businesses have little confidence to hire. President Obama’s vaunted legislative record not only left entrepreneurs with the burden of bigger government, it also makes it impossible for them to accurately estimate the new burden.

In at least three big areas — health insurance, financial regulation and taxes — no one can know what will happen.

…Nothing more effectively freezes business in place than what economist and historian Robert Higgs calls “regime uncertainty.”

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A reader has asked me to weigh in on the mini-controversy that was triggered when a Wall Street financier said fighting Obama’s tax hikes was like a war and that the battle was “like when Hitler invaded Poland in 1939.” While it seems clear that Stephen Schwarzman was not saying Obama was a Nazi or that his policies were akin to those pursued by the National Socialist Workers Party, he obviously should have used a better analogy. Even if the intent is totally innocent and/or intellectually legitimate, it distracts from the core message when you make references to Nazis or fascism (indeed, I’ve made this point in previous posts about whether Obama is a socialist). Here’s an excerpt for those who want to know more about the story.

The billionaire Blackstone private equity boss Stephen Schwarzman, who is among Wall Street’s most visceral proponents of the free market, has been obliged to apologise after comparing Barack Obama’s tax policies to the Nazi advance across Europe at the beginning of the second world war. The tycoon, whose empire stretches from Hilton hotels to the Weather Channel, United Biscuits and the London Eye, has worked himself up into a lather about a proposed tax hike on so-called “carried interest” profits – the gains made when private equity firms buy and sell businesses – from 15% to as much as 35%. “It’s a war,” he told a board members of a non-profit organisation, whose members leaked Schwarzman’s remarks to Newsweek on condition of anonymity. “It’s like when Hitler invaded Poland in 1939.” …Schwarzman expressed regret for his comments, telling the New York Post: “I apologise for what was an inappropriate analogy.” But he added: “The fundamental issue of the administration’s need to work productively with business for the benefits of the overall economy is still of very serious concern not only to me, but also to large parts of the business community.”

P.S. Obama’s tax hikes are very misguided. But the best analogy is that this is like…um…when the Germans bombed Pearl Harbor.

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