Browsing the blog archives for January, 2017.

Who really pays corporate taxes?


When discussing Trump’s reference to a possible 20% tariff on goods from Mexico this morning, CNN anchor Chris Cuomo astutely pointed out that consumers would end up paying for it through higher prices. He’s basically correct. Of course, the higher prices would drive some consumers away, but let’s assume most would be willing to pay the difference.

This line of reasoning is hypocrisy at its finest. CNN (and most left wing) commentators have railed against cutting the corporate tax rate, arguing that corporate taxes come out of the pockets of the rich owners, not consumers. But you can’t have it both ways. A tariff is merely a corporate tax on exports. Firms don’t distinguish between tariffs and income taxes when setting prices. Either taxes are passed along to consumers in the form of higher prices or they are not.

I would like to think that this is real progress for CNN, but I’m convinced the network’s grasp of economic reality is only temporary. It’s all about opposing Trump. The next time they discuss the President’s corporate tax cut ideas, they’ll conveniently return to their original (flawed) position and argue that lower taxes would simply line the pockets of the rich shareholders.


Undoing Obamacare- part 3


In my last post, I questioned whether the Republicans have the courage to do what needs to be done with healthcare. Let’s talk specifics.

In an ideal world, everyone would purchase private health insurance to cover large, unforeseen medical expenses, and budget accordingly to pay for routine visits to the doctor. Those who genuinely cannot afford a basic policy would pay what they can, with government help in the equation. Insurance companies would be prohibited from dropping customers just because they get sick, so pre-existing issues would be a non-issue.

But we live in a different world. Healthcare is seen by many as a right without regard to cost. Unlike other forms of insurance that are purchased to protect against disasters, health “insurance” is considered insufficient if it doesn’t cover routine medical visits and prescriptions. This is a huge misnomer because insurance (by definition) is only intended to address the unexpected.

Our warped view of healthcare has created serious problems. EMTALA already guarantees “catastrophic care” for those who cannot pay for it, so why should low income Americans purchase their own? Over-regulation makes is almost impossible for consumers to handle routine medical issues efficiently. With co-pays embedded into every visit to the doctor, consumers have no incentive to shop around for the best deal. And billions are spent managing endless paperwork.

Obamacare has further distorted our collective notion of healthcare by over-subsidizing costs, requiring Americans to purchase insurance, while also requiring them to choose from a limited array of plans. Moreover, those who ignore the mandate and pay the “fine” instead need not worry; they can obtain coverage after they get sick from providers who cannot turn them away. Obamacare defenders demand that reform plans reinforce this monstrosity. Most Republicans aren’t addressing this head on.

Of course, we need to be realistic. There’s no way we will create an ideal system from where we are now. However, choosing the right kind of reform can be a huge step in that direction. Assuming we can’t rid ourselves of the income tax, here’s are a few basic steps that can be taken within the current system.

1. Repeal Obamacare but allow to continue without additional subsidies. It will die on its own as providers and consumers drop out.

2. Permit providers to offer catastrophic, “bare bones” plans, and permit consumers to purchase policies across state lines. Without co-pays governing every medical situation, costs and premiums for such plans will be much lower. This allows everyone to get a policy that does what insurance is supposed to do—take care of emergencies.

3. Replace the tax deduction for healthcare premiums with a direct write-off in an amount that would cover a catastrophic plan for most Americans. This creates an incentive for everyone to get a basic policy. There would be no mandate to purchase a policy, but not doing so means that you would forego the write-off.4. Create a high-risk pool to subsidize the cost of insurance for Americans whose current state of health prohibits them from purchasing a basic policy.

There are other good ideas as well, but by taking these steps, everyone will have access to a private, catastrophic health insurance plan. Those who do not purchase more extensive plans will be required to budget for routine health issues, with local health departments providing basic services to the poor.

Opponents would counter my argument by contending that the poor won’t have the same options as everyone else and simply won’t make routine trips to the doctor without low co-pays built into the policy. But insisting that policies cover regular doctor visits raises costs. If a large percentage of Americans had (catastrophic) insurance without co-pay features, then providers would respond by offering more basic, low-cost options. Changing the entire incentive structure for providers and patients is necessary to make this happen.

Government subsidies will be required if the truly needy are to obtain insurance, but this can be managed if we are willing to institute real reforms. I’m just not sure most Republicans are willing to do so.


Undoing Obamacare- part 2


Several weeks ago, I blogged on the need to face facts when repealing Obamacare. With this issue front and center this week, I’m returning to the topic to make a few more comments.

During the past several weeks, I’ve heard countless party strategists, Congressional representatives, and Senators explaining how the Republicans will repeal Obamacare. They are routinely asked how they will deal with Americans who have insurance now but did not before the law passed. Most change the subject and wax eloquently about the obvious misgivings of the ACA, and all of them claim to be committed to a new plan that retains coverage for everyone who is currently insured. In essence, they are recommitting the Republicans to maintaining the entitlements already granted by the ACA. Nobody seems to be acknowledging what was obvious six years ago: Obamacare is a massive redistribution scheme we cannot afford. It’s built on false expectations and a complete misunderstanding of economics.

Meanwhile, the Democrats have responded accordingly. “Obamacare repeal will be chaos,” they tell us. To those on the left, chaos is a synonym for markets, as it would require individuals to obtain their own insurance from “evil” providers free to price their services without guidance from Washington. It would be like much of what we do every day—buying groceries, changing cell phone plans, or eating at a restaurant. It would be “chaotic” in the sense that Americans would get back some of the control they use over exert their healthcare prior to the ACA.

Let’s turn back the clock for a minute. When Obamacare was on the docket in 2010, opponents argued vigorously that if passed, such an entitlement could NEVER be undone politically. For the last year, most of the same people are celebrating the impending repeal and replace. Were they right six years ago, or is it really possible to undo such a monstrosity?

For the most part, I think they were right six years ago, as demonstrated by the continued unwillingness to undo the entitlement. If coverage for all Americans is the goal, and if healthcare is such a great priority, then all Americans need to understand the financial reality. The current notion of healthcare—the idea that anyone should be able to pursue almost any treatment at almost any facility regardless of cost—is unworkable. Either individual consumers must be willing to make tough choices about what they need and are willing to pay for, or Washington will do it instead.

I do not favor a single payer plan, but most countries with universal healthcare tax everyone—not just “the rich”—to pay for it. Those who have more pay more, but average citizens have real skin in the game. When healthcare budgets run tight, politicians openly discuss rationing. The idea that government subsidies can magically “make healthcare affordable” is just ballooning the debt.

Is there hope? Yes, but only if we are willing to make bold changes. The idea of a three-year phase-in won’t get it done. Republicans have an opportunity to completely alter the role of government in healthcare, but doing so would require making some tough choices. I don’t see much evidence that they are willing to do so.