Go, Obama, Go

No tax increases for the middle class? You betcha. What BS.

ObamaCare 3.0: Higher Implicit Taxes, Quicker Death Spiral
Posted: 23 Feb 2010 05:49 AM PST

By Michael F. Cannon

In a recent paper, I showed that the health care legislation passed by the House and Senate would impose punitive implicit tax rates on low- and middle-income workers. Those bills would also result in higher health insurance premiums over time because they would create large financial incentives for healthy people to drop coverage and only purchase it when they become sick.

The health care proposal that President Obama released yesterday essentially splits the difference on most areas of disagreement between the two bills. But a preliminary analysis shows that ObamaCare 3.0 would make these perverse incentives even worse. Families of four earning $22,000 under the Senate bill (100 percent of the federal poverty level) or $30,000 under the House bill or the Obama plan (133 percent FPL) would face the following effective marginal tax rates as they climb the economic ladder:

 Senate bill – Average: 62 percent. High: 73 percent.
 House bill - Average: 74 percent. High: 82 percent.
 Obama plan – Average: 72 percent. High: 90 percent.

In other words, over broad ranges of income, families of four would see their take-home pay rise by an average of 28 cents of each additional dollar earned. In some cases, it would rise as little as 10 cents for each additional dollar earned. Using smaller changes in income reveals the Obama plan would create EMTRs as large as 200 percent or higher. That is, earning more money would leave many families worse off financially.

In addition, by requiring insurers to cover all applicants without regard to illness, each of these health plans would remove any penalty on waiting until you are sick to purchase coverage. Therefore — even after accounting for all relevant taxes, subsidies, and penalties — these plans would create large financial incentives for healthy people to drop out of the market, which would cause premiums to rise for those who remain. That would in turn encourage more healthy people to drop out, which would cause premiums to rise further, and so on. Those perverse incentives are much worse under the Obama plan than under the House or Senate bills. Here are the maximum financial incentives to drop coverage that each plan would create for families of four:

 Senate bill: $8,000
 House bill: $7,800
 Obama plan: $9,900

By increasing the financial incentives to drop coverage, the Obama plan would cause private insurance markets to unravel even faster than the House and Senate bills would.

BHO's Arrogance Knows No Bounds

Obama and his Democratic majority in Congress are on a death march. Read about it here.

A mere three days before President Obama's supposedly bipartisan health-care summit, the White House yesterday released a new blueprint that Democrats say they will ram through Congress with or without Republican support. So after election defeats in Virginia, New Jersey and even Massachusetts, and amid overwhelming public opposition, Democrats have decided to give the voters what they don't want anyway.

Ah, the glory of "progressive" governance and democratic consent.

"The President's Proposal," as the 11-page White House document is headlined, is in one sense a notable achievement: It manages to take the worst of both the House and Senate bills and combine them into something more destructive. It includes more taxes, more subsidies and even less cost control than the Senate bill. And it purports to fix the special-interest favors in the Senate bill not by eliminating them—but by expanding them to everyone.

Go, Obama, go. Each new entreaty you and your company come up with just assures the ultimate result. Can't wait for November 2010, and then November 2012.

Does Government Stimulus Spending Work?

Economist Robert J. Barro explains here his continuing study of whether federal stimulus spending is a good idea. For readers who have a low tolerance for the kind of analysis economists do, I will give you his answer; No.

For readers who enjoy this sort of thing, give Barro's article a read. Then ask yourself why BHO and company are pursuing the fiscal stimulus policies they have. Ask yourself why Christina Romer, Chair of the President's Council of Economic Advisors, says what she has to say about the whole issue.

For readers who just don't care about this sort of thing --- sorry.

Chicago Style Government

This is what you get out of an administration that comes to us straight from Chicago-style politics. The Toyota bashing engineered by Obama and company is despicable. How many Americans do you think Toyota may ultimately be forced to lay off?

It Just Never Stops

News Alert

from The Wall Street Journal

President Obama will announce plans to provide an additional $1.5 billion to a state-assistance program for homeowners worst-hit by the downturn in U.S. housing values.

The program, which Obama will announce in Las Vegas, is for states where the average home value for all homeowners in the state has dropped more than 20% from its value at the height of the housing bubble. About a half-dozen states qualify, including Nevada, Florida, California and Michigan

Aren't you happy that your tax dollars will be going to help people who made poor choices. You and I will be penalized for the good choices we made. Those who made poor choices will be rewarded. If that sounds upside down to you, then don't vote for Democrats. They evidently don't understand basic economics.

Income Tax Revolt!

This evening, I've been working on my 2009 federal tax return. I'm just about ready to jump out of a window from the second story of my house.

If you don't complete your federal income tax return yourself, do it this year, especially if you have any kind of a small business. If you just hand your records over to a CPA, don't do that this year. Instead, see if you can do it yourself. I'll bet you can't, especially if you don't use any other assistance, such as Turbo Tax or some other tax preparation service.

If you are unwilling to try this, then you may just be part of the problem. If you do try it, you have my sympathy, and you will see immediately (okay, it may take an hour or two) why you should call your member of congress and demand that he or she support the Fair Tax.

I dare you. I double dog dare you. Can you take the dare? Tell me how it works out for you.

Did you know that nearly 50% of the households in the United States DO NOT PAY federal income taxes? That's part of the reason why those of us who do pay federal income taxes have to pay so much.

I know how much I paid in federal income taxes in 2008. Do you know how much your household paid? If you don't, then you deserve all the wretched government you are paying for ( or not paying for, if yours is one of the households that doesn't actually pay federal income taxes).

Voluntary Exchange Rules

What a thought. Is it possible --- just possible --- that individuals making their own choices, mistakes and all, just get it done way better than a bunch of arrogant liberals? You betcha.

Can't wait for November 2010 and November 2012.

When Are Federal Deficits Dangerous?

Here, Michael Boskin writes about his view of the looming danger of a growing federal deficit and debt. Professor Boskin's analysis and information is fabulous, but doesn't go far enough, really.

I invite readers to consider an even sterner standard for when federal debt is dangerous. I argue that federal deficit spending is dangerous whenever it is financed by money creation instead of through the savings of the household sector. In other words, deficit spending today is just fine, so long as households increase their savings today to pay for the debt plus interest in the future.

Deficit spending certainly makes sense for financing investment spending. That's what businesses do. It makes sense because the investment repays the debt, plus interest, plus additional real growth in the economy. For example, ABC corporation borrows $100 million to build a new factory. The new factory produces goods that sell for $150 million over the next 10 years. $100 million repays the loan; $10 million pays interest on the debt; $40 million is pure economic growth.

Deficit finance often makes sense for spending on durable goods that deliver services into the extended future, even though the spending isn't an investment. A good example at the consumer level is buying a house. After all, the house provides "housing services" to the home owner over several years. It makes sense to pay for those services over several years.

Deficit spending to finance current consumption spending can even make sense, provided consumers are merely moving consumption to the present with every expectation of forgoing consumption in the future when the loan is repaid plus interest. A good example is taking a vacation this year, with the expectation that there will be no vacation next year.

Does the federal deficit spending called for by Obama match up with any of these three cases? No, not at all. Instead, federal deficit spending is financing current consumption with absolutely no expectation of forgone consumption in the future.

Does anyone seriously doubt that the huge federal budget deficits proposed by Obama for the next few years will be financed by money creation, not saving by households? I have no such doubt; I'm utterly confident that the Fed will finance the U.S. Treasury's deficit spending, if increased tax collections fail to do so.

Will the economy grow sufficiently fast to allow greater tax collections without raising tax rates? That has happened in the past. Will it happen over the next decade? Anyone that claims they know the answer is kidding themselves (including the CBO and all other economic forecasters).

Is Obama proposing policies that favor real economic growth? He is not. Obama is all about "spreading the wealth"; he is not about growing wealth. Can he kill the goose that's laying the golden eggs? He can if the American people let him. Let's see what happens in November of 2010.

Reconciliation to Pass Obamacare?

Read about it here. The arrogance of Pelosi is second only to that of BHO.

Maybe the Dems are trapped in a self-imposed echo chamber inside the DC beltway. They must not have noticed the Tea Party movement all across this great land.

The majority in the House has forgotten that they are "representatives," not princes in the land of a king. November 2010 will remind them, and January 20, 2013 will follow soon enough --- the end of an error.

Home Ownership Isn't for Everyone

Eugene White reminds us here that home ownership isn't the right option for everyone.

Of course not. Neither is owning a Mercedes or a fast bass boat. By the way, owning a home is no more an investment than owning a Mercedes or a fast boat, regardless of what you may have heard before. The long term rate of return for home ownership in the United States has been substantially lower than the return to owning an S&P 500 index fund.

A house is a consumer durable consumption good; it is not an investment. For decades, Congress has subsidized the housing industry and given consumers strong incentives to overspend on housing. Why? Not because consumers wrote their member of congress and asked for it. But there was lobbying for it. Where do you suppose the lobbying came from? If the banking industry comes to mind, good for you. Of course, home builders were not opposed, either.

Now we are suffering the harsh reality of Congress having helped direct way too many dollars of capital to flow to the housing market. That very same capital had alternative uses, don't forget. We are a long way from out of the woods on this. Just because the subprime mortgage debacle is out of the news doesn't mean the problems it caused have gone away; they are just out of sight, thanks to the Fed.

You and I have been compelled by our Congress and our Presidents (both Bush and Obama are guilty) to bail out the banks. Goldman Sachs has done particularly well as a result, which isn't surprising, considering Hank Paulson's former digs. Lehman Brothers didn't fare so well. Someone in the Bush administration evidently didn't think as highly of the owners of Lehman Brothers as they did of Goldman Sachs. They also didn't like Martha Stewart much, but that's anther story.

A $100,000 mortgage at just 5% annual percentage rate will end up costing the borrower $93,000 in interest. More than half of that interest will be paid during the first 15 years of a 30-year mortgage ($65,500). If the interest rate is just 1% higher at 6%, the interest bill would be $116,000! If you think renting is "throwing money down a rat hole," what would you call paying $93,000 (or $116,000) in interest to a bank?

But won't your $100,000 house be worth a lot more after 30 years? Yes; it will be worth $100,000 plus inflation minus depreciation for how ever much of your 30-year old house has now been used up. If inflation is just 3% per year, your 30-year old house will likely be worth $242,700 after 30 years. And by the way, with 30-years of inflation at 3% per year, that $242,700 asset, if sold, would buy just what $100,000 bought 30 years back.

And don't forget all the money a homeowner ends up putting into the house for routine maintenance and repair over a 30-year period. No, home ownership really isn't for everyone, regardless of what Barney Frank thinks.

By the way, banks don't' use some other household's hard earned savings to make mortgage loans. They use newly created money, made possible by our ridiculous banking laws and the Fed. That's right. Banks earn their money the old fashioned way; they create it out of thin air.