AIFG Blogs

During his State of the Union Address late last month, President Obama crowed about the big increase in oil and gas production that has occurred in the last couple of years under his watch.  While it’s true that oil and, especially, natural gas production have increased over the past few years, much of this energy boom (especially the growth in natural gas production) began before Obama became President and almost all of it occurred in spite of repeated roadblocks to new production erected by the Obama administration.  Obama has thwarted pipelines, prevented expansion of offshore drilling while shuttering some platforms in the process of construction and has placed a great deal of public lands previously open to leasing and development off limits.

Two things have driven the increase in production: high prices and new fracking techniques. In truth, the former drove the latter.  High prices in natural gas, first, in the early years of this decade drove the development of combining horizontal drilling with fracking techniques that opened up whole new gas fields.  Now the same combination of technology is being used to produce oil.  Natural gas production through fracking has become so successful that despite dramatic increases in use, prices have fallen – fallen to such a great extent that companies are beginning to shut down some productive wells because it cost more to operate them than they can make sell the gas for.

In a series of stories, I, among others, have detailed the different approaches states have taken to the fracking revolution.  Some states see it as a promising industry for new jobs and revenue.  Others have bought into the false and misleading claims made by environmentalists and touted by the media – the media loves a good disaster story, never mind the facts.

A new report – just one more to addition to the mounting pile of evidence – demonstrates, once again, what previous reports have found:  Fracking is safe – it causes neither air or water pollution.  This was a peer reviewed study, not funded by the industry.  Regardless, even before the paper received widespread release, environmentalists who couldn’t even have had the time to read the report, much less analyze its methodology, complained in interviews that the report wasn’t sound and didn’t answer key questions.  Their complaints were groundless – but then, on this issue, they usually are.

What’s at stake? An article in oilprice.com with some excellent data echo’s what a variety of analysts have been saying – the shale boom, both for oil and gas, will change the world.  The only question is – at least in the Western World, and the U.S. in particular, is how much will the world’s peoples benefit from this abundant source of energy; in other words will Western leaders bow to environmental elitists and shut the middle class and the poor off from the benefits or reliable, abundant energy or will they open the taps and lower the regulations.

Health Affairs is a peer-reviewed journal, which is why it was surprising to see it publish a recent article on the Massachusetts health reform, by Long et al [gated, but with abstract]. Based on telephone surveys, the authors declare that RomneyCare “continued to fare well in 2010.” This is an important finding, as the authors consider RomneyCare “the template for the federal Affordable Care Act of 2010.”

Unfortunately, in several cases the authors fail to inform readers that their results are contradicted by other, possibly more reliable, sources of information. They also neglect to put some of their results in proper context. Some examples:

• Failing to mention that although the nonelderly adults in the telephone survey samples reported a drop in emergency department (ED) use from 2006 to 2010, data from other reputable sources suggest that total ED visits have risen.
• Failing to mention that the “strong and sustained gains in the share of nonelderly adults in Massachusetts who reported their health as very good or excellent” are similar to the gains reported by all American adults.
• Misrepresenting the historical record with the claim that the “Massachusetts 2006 health reform initiative did not tackle the high cost of health care in the state.” Readily available sources clearly show that reform proponents expected it to reduce health care costs.
• Asserting that “access to health care in the community is better than it was in 2006,” without reporting on evidence that contradicts this conclusion.
• Inappropriately limiting the definition of “affordability” to out-of-pocket expenses, while ignoring higher premiums, fees, and taxes.
• Concluding that the survey evidence “is suggestive of important improvements in the effectiveness of the delivery of health care in the state” and implying that this is due to RomneyCare despite noting, three times on one page, that “our data did not allow us to isolate the impact of reform from that of changes in other factors during the study period.”
• Emergency Department Visits. The telephone survey data suggests that a smaller fraction of nonelderly adults made emergency department visits both in general and for preventable conditions in 2010 than in 2006.  However, the Massachusetts Division of Health Care Policy and Finance reported that outpatient emergency department visits increased 9 percent from 2004 to 2008, and that while visits for emergency conditions were stable, preventable/avoidable visits increased by 13 percent. Within the preventable/avoidable visit category, primary care treatable visits increased by 13 percent.

  Chen et al. (NEJM 2011) concluded that “Massachusetts’ health care reform law has thus far neither increased nor decreased ED utilization relative to that in other states [Vermont and New Hampshire].” They used data on people under 65.

  Perhaps emergency department visits by nonelderly adults did fall and the entire increase in total visits was a result of an increasing frequency of visits by children and elderly adults. The problem is that a reader of this article has no idea that the authors’ results are in conflict with those of other researchers, or why the telephone surveys in this paper should be considered a more reliable guide to reality than the data used by Chen and the Massachusetts state government.

  By the way, Joshua Archambault of Massachusetts’ Pioneer Institute notes that people are unlikely to tell a telephone interviewer that they went to the emergency room unnecessarily.

  Gains in Self-Reported Health. The article relies on gains in self-reported health to support its contention that RomneyCare improved health. The authors write that “[we] found strong and sustained gains in the share of nonelderly adults in Massachusetts who reported their health as very good or excellent, with an increase from 59.7 percent in 2006 to 64.9 percent in 2010 (data not shown).”

  What the authors did not do is inform the reader that these “strong and sustained gains” may simply be part of a national trend. In the 2006 National Health Interview Survey, about 61 percent of all US adults reported being in very good or excellent health. By 2010, almost 66 percent of adults reported being in good or excellent health. The National Health Interview Survey included elderly adults as well as nonelderly adults. Elderly adults are usually in poorer health than nonelderly adults, and one would therefore expect that the nonelderly adults surveyed in the article would report better health on average than participants in the National Health Interview Survey unless, of course, Massachusetts health care has systematically been below average.

  It is also possible that RomneyCare exerted a placebo effect on self-reported health status. As Michael Cannon reported, when people in Oregon were given Medicaid coverage, “two-thirds of the improvement in self-reported health occurred almost immediately after enrollment, before any increases in medical consumption.”

  Misrepresenting the Historical Record. The authors of this paper, along with a number of recent RomneyCare apologists, claim that the Massachusetts reform wasn’t really about reducing costs.

  Yet, in an April 11, 2006, op-ed in The Wall Street Journal, then Governor Mitt Romney wrote that “Every uninsured citizen in Massachusetts will soon have affordable health insurance and the costs of health care will be reduced. And we will need no new taxes, no employer mandate and no government takeover to make this happen.” According to a January 18, 2006 article in the Boston Globe, a Families USA study said that health reform would “reduce pressure on health insurance premiums by at least $501 million a year.” Goals mentioned in the RomenyCare statute language include lowering or containing the growth in health care costs, reducing hospital administrative costs, and reducing the cost of insurance premiums.

  Assuming that “Access” Has Improved. The article explains that RomneyCare was “expected to affect access to and use of care along two paths: by expanding access to health insurance and by creating a new standard that health plans must meet to count as coverage under the individual mandate.” In company with an unfortunate number of analysts, the authors implicitly assume that coverage and medical care are the same thing. Increases in “coverage” do not measure access to medical care because health plans can deny access to care by paying so little that no one will see their patients, restricting access to physician and hospitals, making people wait for care, and simply refusing to cover a given procedure.

  Massachusetts increased coverage by a) mandating that people have health insurance while b) basically giving it away to roughly the bottom half of the income distribution. It also mandated enrollment in state run programs.

  In all, the Massachusetts Division of Health Care Policy and Financing estimates that RomneyCare resulted in 388,196 newly insured people from 2006 to 2010, only 55,167 (14 percent) of whom paid the entire cost of their own policies.  Yelowitz and Cannon (2010) remind readers that it is possible that the number of people with coverage is overstated. They note that responses to survey questions about coverage have fallen, possibly because respondents who say they are uninsured would be admitting that they are breaking the law.

  In giving away coverage, Massachusetts encouraged the newly insured to treat health care as an almost free good. This increased demand at a time when the supply of medical care remained fairly constant. In fact, the state’s pressure on reimbursement negatively affected hospital margins, pressure that, over time, may reduce the supply of medical care. As the RAND Health Insurance Experiment showed, people with essentially free care increase utilization, but that utilization increase is not necessarily associated with better health.

  As evidence that access has improved, the authors cite increases in visits to health care providers other than primary care physicians, hospitals, or emergency departments. They also cite the increased likelihood of “having a usual place to go for care” as evidence that access has improved. But the kind of access discussed in the article does not matter if there is a mismatch between the services that people want and the services that are offered. The authors note that there was a drop in the share of adults reporting a general doctor visit and suggest that this “may imply a shift in use toward other providers for some needs.”

  In 2009, a Kaiser Family Foundation report on Massachusetts Community Health Centers by Ku et al. noted that the RomneyCare reform may have increased the demand for care at the centers and worsened the existing provider shortage. It mentions that the Community Health Centers responded by maintaining “months-long” waiting lists. In 2011, the Massachusetts Medical Society reported that “access to primary care physicians is becoming more restricted” and that there are longer waits for appointments in the four specialties it surveyed.

  The authors report that their regression-adjusted estimate of the percent of nonelderly adults reporting a stay in the hospital fell slightly from 2006 to 2010. It is unclear how important this is. Among other things, the decline could have been due to statistical variation, the recession, managed care rationing, or individual choice. Nationally, the total number of hospital stays for nonelderly adults appears to have been stable for this period at roughly 39.4 million, the rate of hospitalizations per 10,000 people remained essentially the same from 1997 to 2009, and there is evidence that hospital admissions, especially for elective procedures, have fallen as a result of the recession.

  Using an Inappropriate Definition of Affordability. Though the article maintains that health care has become more “affordable,” it provides data only for out-of-pocket spending.

  For all the hoopla over Massachusetts’ success in increasing coverage, there has been surprisingly little study of RomneyCare’s total costs. Using insurance to pay for routine medical care is an expensive way to purchase health care because insurer overhead must be added to the cost of care.  People who buy health insurance understand that lower out-of-pocket costs are associated with higher premiums. The authors claim that RomneyCare improved access by requiring third party payment for a “comprehensive set of services” and by limiting out-of-pocket payments. But free people buying their own health insurance generally choose to reduce their total costs by trading higher out-of-pocket costs for lower premium, higher deductible policies. In addition, they often chose more limited coverage than that required by RomneyCare’s “comprehensive set of services.”

  In the real world, where real people work hard to pay real money in taxes to support government programs, a serious assessment of the success or failure of an initiative requires demonstrating that its benefits exceed its total costs.

  In 2011, Tuerck et al. of the Beacon Hill Institute at Suffolk University estimated the total cost of RomneyCare at about $22,000 for each newly insured person. Overall, the Division of Health Care Finance and Policy reports that spending per privately insured Massachusetts resident grew by 6 percent from 2007 to 2008 and by 10 percent from 2008 to 2009. These rates of growth were substantially higher than the increase in per capita national personal health expenditures (4.9 percent and 4.6 percent, respectively).

  The Beacon Hill report suggests that private payers have borne slightly more than half of RomneyCare’s costs and that the state has managed to shift most of the rest of it to the federal government. This level of spending is obviously unsustainable. Alan G. Raymond, in a 2011 report produced for the Blue Cross Blue Shield Foundation of Massachusetts, warns that “moderating future growth in health care spending is far more difficult than achieving nearly universal coverage, but without cost control, coverage expansions are unsustainable.

  The Massachusetts Division of Health Care Policy and Finance apparently agrees. It hired RAND Corporation to develop a “comprehensive menu” of cost containment options. The 2009 RAND report suggested 21 possibilities. Virtually all of them involve new price controls, new ways to reduce access to care, or newly fashionable nostrums dreamed up by wonks eager to tell health patients and physicians how to go about their business.

  On the Survey Evidence. For the record, the telephone surveys that generated the data for the article all had response rates under 50 percent. Though the authors undoubtedly considered how the people who did respond differed from those who did not, no mention of this appears in the article. Rather than detail much in the way of methodology, the article directs readers to several related reports.

  The paper does report that the authors pool all five years of data and “test for differences in the outcomes relative to 2006″ and, for each of the prior years for 2007 to 2010. They also “obtain regression-adjusted estimates for each year using the parameter estimates from the regression models to predict the outcomes that the individuals in the 2010 sample would have had if they had been observed in each of the preceding study years.”

  One of the reports says that 7 to 11 percent of the sample refused to respond to questions on family income. Those data were therefore “imputed” using unspecified “hot decking procedures.” Hot deck imputation usually means using “similar” responding units to arrive at a reasonable income figure. Because the wrong income categories were assigned to the federal poverty level in the 2010 survey, adults in that survey were assigned to the “correct” income category based on the income category people with similar age, sex, race, education, family type and family size occupied in the 2009 Massachusetts sample for the American Community Survey.

I fight to preserve tax competition, fiscal sovereignty, and financial privacy for the simple reason that politicians are less likely to impose destructive tax policy if they know that labor and capital can escape to jurisdictions with more responsible fiscal climates.

My opponents in this battle are high-tax governments, statist international bureaucracies such as the Organisation for Economic Co-operation and Development (OECD), and left-wing pressure groups, all of which want to impose some sort of global tax cartel—sort of an “OPEC for politicians.”

In my years of fighting this battle, I’ve has some strange experiences, most notably in 2008 when the OECD threatened to have me thrown in a Mexican jail for the supposed crime of standing in a public area of a hotel and advising representatives of low-tax jurisdictions on how best to resist fiscal imperialism.

To read more, click here.

The President’s new Framework for Business Tax Reform is two documents in one. The first diagnoses the many flaws in America’s business tax system, and the second offers a framework for fixing them.

Much of the resulting commentary has focused on the policy recommendations. But I’d like to give a shout out to the diagnosis. The White House and Treasury have done an outstanding job of documenting the problems in our business tax system.

As the Framework notes, our corporate tax system pairs a high statutory tax rate with numerous tax subsidies, loopholes, and tax planning opportunities. Our 39.2 percent corporate tax rate (including state and local taxes) is the second-highest in the developed world, and will take over the lead in April when Japan cuts its rate. But our tax breaks are more generous than the norm.

That leaves us with the worst possible system – one that maximizes the degree to which corporate managers have to worry about taxes when making business decisions but limits the revenue that the government actually collects. It’s a great system for tax lawyers, accountants, and creative financial engineers, and a lousy system for business leaders and ordinary Americans.

To read more, click here.

Adam Peshak at the Reason Foundation looks at how regulations based on good intentions and fuzzy math both end up burdening the economy and not helping solve the problems in the first place. 

The Environmental Protection Agency (EPA) put a regulation on the books that will cost $10 billion a year and will do almost nothing to accomplish its aim of improving public health. It is merely another example of the EPA's politicization of science in a continued effort to bypass Congress to regulate greenhouse gas and eliminate coal.

The "Mercury and Air Toxics Standards" (MATS) is the first of its kind to require installing expensive equipment on over 700 power plants. It has been estimated that this, and other related regulations, will shut down nearly ten percent of coal generating electricity in the country. This could be considered worth the cost if the regulation produced a significant impact on public health.

To read more, click here.

Yesterday's release of the White House "Business Tax Reform" marks a watershed in the corporate tax debate. Now nearly everyone acknowledges that U.S. corporate tax rates hurt American companies. The headline that President Obama wants voters to see is his new top statutory rate of 28%. If only the story ended there . . .

Alas, his reform is stuffed with so many offsetting business tax increases that the overall impact of this and other proposals would make the U.S. tax system less globally competitive and raise effective tax rates above what they are today.

But let's start by praising what Mr. Obama gets right. He's spot on in acknowledging that the U.S. "statutory tax rate [35%] will soon be the highest among advanced countries" and that the "relatively narrow tax base and a high statutory tax rate" create a tax system that "is uncompetitive and inefficient." What do you know, tax rates matter.

Cutting the rate to 28% would leave the U.S. above an international average closer to 25%-27%, but it is still welcome. The White House is also right that the current tax code favors debt over equity financing.

The problem is that the tax increases in this and other Obama proposals would add new layers of inequity and inefficiency to the tax code. One principle of tax reform is to create neutrality within and across industries—a level playing field. As the White House proposal puts it, the current code "distorts choices such as where to produce, what to invest in, how to finance a business, and what business form to use."

But then the plan ignores that advice and picks winners and losers. It offers a sweetheart 25% rate for certain manufacturers and even lower for "advanced manufacturing," which would invite a lobbying free-for-all in Congress. Meanwhile, the plan punishes those the White House doesn't like, such as companies in oil and gas or with operations abroad.

But how is a company that makes computer hardware any more deserving of lower rates than one that makes computer software? Why does the company that makes the paper for this newspaper deserve a lower tax rate than the company that publishes the newspaper?

The oil and gas industry has led manufacturers in job creation for four years and already pays at or near the highest effective federal tax rate of any industry. Yet the President's tax plan raises its taxes but retains (as best we can tell) the credits and other giveaways to his supporters in green energy.

The plan also takes a mercantile view of trade by raising taxes on U.S. corporations doing business abroad but cutting taxes on foreign companies that operate in the U.S. Since about 80% of global business is overseas, it's not clear how this taxing scheme would make American firms more competitive.

Mr. Obama's goal is to stop outsourcing and return operations to the U.S. But the main effect would be for U.S. multinational firms to become German, Chinese or Swiss, and thus exempt from the uncompetitive U.S. taxing regime. The best way to prevent outsourcing is to get U.S. tax rates on capital and corporate profits as low as possible.

Other distortions abound. This week Mr. Obama proposes a 28% rate for corporations, but last week he endorsed a 41% tax rate on nearly 30 million businesses that are not corporations and thus pay profits taxes as personal income. (See above.)

Even the boasts of tax simplicity are overstated. One of the biggest revenue raisers in the plan is a new "global minimum tax" applied to corporations, which means Ford and Apple would get to fill out another set of tax forms. Such a tax is likely to lead to the same complexities, extra compliance costs and headaches as the hated Alternative Minimum Tax has for individuals.

What the White House reformers don't like to admit is that corporate profits are taxed twice—first, via the corporate tax, then again at the shareholder level through the dividend or capital gains levies. Mr. Obama wants to cut the top corporate tax rate by 20% but raise the capital gains tax by almost 60% and nearly triple the dividend rate.

AMERICANS love to laugh at ridiculous regulations. A Florida law requires vending-machine labels to urge the public to file a report if the label is not there. The Federal Railroad Administration insists that all trains must be painted with an “F” at the front, so you can tell which end is which. Bureaucratic busybodies in Bethesda, Maryland, have shut down children’s lemonade stands because the enterprising young moppets did not have trading licences. The list goes hilariously on.

But red tape in America is no laughing matter. The problem is not the rules that are self-evidently absurd. It is the ones that sound reasonable on their own but impose a huge burden collectively. America is meant to be the home of laissez-faire. Unlike Europeans, whose lives have long been circumscribed by meddling governments and diktats from Brussels, Americans are supposed to be free to choose, for better or for worse. Yet for some time America has been straying from this ideal.

To read more, click here.

America’s youth vote, which turned out in record numbers in 2008 and gave a historically high percentage of their support to President Obama, has soured on him because they are having a hard time finding work and, as a result, are putting off major decisions like getting married and starting a family.

Obama, who won 66 percent of the 24 million voters age 18-29 in 2008, has seen that support slashed. And in a new poll from Generation Opportunity, a nonprofit that seeks to engage younger voters, only 31 percent approve of Obama’s handling of youth unemployment, a number that threatens to rob him of the voter group that pushed him to victory.

“Ironically for President Obama,” said the group’s president, Paul Conway, “the hardcore reality is that young voters are now very dissatisfied with the direction of the country and are becoming more vocal in their demands for real jobs rather than promises of more unpaid internships and unproven programs.”

To read more, click here.

Dallas, TX - Members of the American Institute for Growth issued the following statements reacting to the President's budget for Fiscal Year 2013:

JCA Chairman and Austin Capital CEO David Park: "Working families and small businesses know that budgets are critical for setting priorities. But this budget does not prioritize the very thing that made America's economy the most prosperous in the world: free enterprise. Instead of unshackling entrepreneurs, this budget doubles down on a failed status quo of bigger government, higher taxes and no fiscal discipline. Businesses across this country are looking for less regulation, more competitive tax rates and the kind of policy certainty that will encourage them to invest and hire. Unfortunately, after this budget, they'll have to keep looking."

Martin Marietta Materials CEO Steve Zelnak: "It’s about time the Obama Administration recognizes the correlation between business and workers. The very reason people drop out of the workforce is the very reason so many businesses have stopped hiring: uncertainty. "

Not long ago I took note in this space of how some people conceive of government regulation as a way to create jobs among lawyers, fillers-out of paperwork forms, installers of state-mandated equipment, and so forth. In case you thought I was exaggerating, here’s a new Business Week article arguing in all earnestness that “Regulations Create Jobs, Too.” Given the wounded state of the U.S. economy since the 2008 crash, it laments, “government rules have become politically toxic.” But never fear: “The Obama Administration, girding for election-year attacks on its record, is trying to highlight the upside of government rules.”

To be sure, the article itself is not as bad as its headline, and does make some fair points. It’s true that many politicians sling around the epithet “job-destroying” as if the chief objection to regulatory monstrosities like ObamaCare and Dodd-Frank were their effect in wiping out many existing jobs. In practice over the longer run many such laws shuffle around employment...

To read more, click here.

This Gallup survey bears out what many of our CEO members -- small and large business CEOs -- are saying about why they aren't hiring.

PRINCETON, NJ -- U.S. small-business owners who aren't hiring -- 85% of those surveyed -- are most likely to say the reasons they are not doing so include not needing additional employees; worries about weak business conditions, including revenues; cash flow; and the overall U.S. economy. Additionally, nearly half of small-business owners point to potential healthcare costs (48%) and government regulations (46%) as reasons. One in four are not hiring because they worry they may not be in business in 12 months.

To read more, click here.

According to Politico Pro [$]:

More than $860 million of President Barack Obama’s proposed $1 billion increase in the CMS budget will go to building the federal exchange, acting [Centers for Medicare and Medicaid Services] Administrator Marilyn Tavenner said during a budget briefing at HHS on Monday.

This funding is necessary in part because the amount originally appropriated for the federal costs of implementing the Affordable Care Act — $1 billion — is expected to be gone by the end of this year, HHS officials said.

To read more, click here.

In his recent State of the Union address, President Obama said that he wanted an American economy that is “built to last.” Today’s release of his fiscal 2013 budget proposal shows that the president still thinks he can build economic prosperity with more spending, taxes, and debt. Those are the building materials for an economic time-bomb that will explode on future generations.

To read more, click here.

Federal Reserve Chairman Ben Bernanke testified this week before the Senate Budget Committee to provide an update on the economy and his policies. He presented the Fed's outlook on unemployment, inflation, the situation in Europe, and more rhetoric on what Fed policy can do to improve the American economy.

If you're like a majority of Americans out there, you may be wondering why more than $2 trillion of printed Fed money and trillions more of government debt spending over the past three years has done little, if anything, to help you.

You see that the S&P 500 more than doubled since the financial crisis bottomed, and that S&P companies posted their highest quarterly profits ever recorded last fall. Yet with all this seemingly good news, you've largely not benefitted. Why is that?

To read more, click here.

Death tolls in Europe continue to climb. As of today, hundreds have perished at the hands of "extreme cold and heavy snow." Hundreds more have been hospitalized.

It's a tragedy.

And it makes me wonder: do the global warming protestors ever think about the damage that cold does?

Bjørn Lomborg, director of the Copenhagen Consensus Center and author of Cool It, points out that cold waves kill many more people than heat.

To read more, click here.

Health and Human Services Secretary Kathleen Sebelius is one of a handful of cabinet officials who have said they will speak at fundraising events for a major super PAC supporting the president’s reelection.

Sen. Mike Enzi (R-WY), ranking member on the Health, Education, Labor and Pension Committee, said the move creates a “self-evident” conflict of interest for the secretary.

Because Sebelius has broad authority to implement sweeping new health care regulations, Enzi said in a letter to the president, “it would be particularly inappropriate to also have her participate in these fundraising events.”

“The potential for health care stakeholders to perceive a compulsion to financially participate in these activities, to possibly avert subsequent adverse regulatory decisions, is self evident,” Enzi added.

To read more, click here.

The president recently spoke to a group of UPS workers in Nevada, where he expressed his wants and desires for the economy.  Referring to his SOTU speech, he told the crowd, “…where we’re making stuff and selling stuff and moving it around and UPS drivers are dropping things off everywhere.”

Last time I checked our economy operated on that model, typically called a free market.  If the president and members of Congress envision an economy of “stuff,” perhaps they need to get out of the way and let stuff happen.  Here is an analysis and some suggestions for the president’s vision:

“Where we’re making stuff…”

Sure, many Americans would love to make stuff or make more of the stuff they already make.  However, there are many impediments to making stuff:

• Government regulations on all levels dictate what and how stuff should be made: Cars, light bulbs, appliances, gasoline, children’s toys, food products, building materials, electricity, toilets and a myriad of other products.
• On top of that, cities and states have their own rules on how stuff should be made, when stuff can be made, and how big, small, safe, noisy or aesthetically pleasing stuff should be.Moreover, government wants to crack down on where stuff is made, by punishing stuff-makers who move some of their stuff-making factories overseas, even if it means more affordable products for American consumers.

A new report by Milliman Inc. says that high-deductible health plans, including those with health savings accounts (HSAs), will likely be more adversely impacted by the medical loss ratio requirements under the Patient Protection and Affordable Care Act (PPACA) than other types of comprehensive medical plans.

“HSAs were widely anticipated to be the low-cost bronze plans for consumers under the Patient...

To read more, click here.

The new federal budget includes a range of accounting maneuvers to cast the administration’s 10-year projections in the best possible light. Senate Republicans point out some of President Obama’s funky accounting here. But note that the George W. Bush administration also used tricks to make deficit forecasts look more optimistic.

That’s why it’s useful to look at a president’s spending numbers for the current year and next year, rather than the make-believe numbers for later years in the budget. The chart shows total federal outlays since 2000 and Obama’s estimated spending for 2012 and proposed spending for 2013. Data are for fiscal years. Also, I’ve excluded TARP spending because reestimates of TARP costs distort the data.

To read more, click here.

Leave it to David Henderson to cut the Gordian knot on this issue:

[T]here is a way that the federal government now cuts access to contraceptives in a way that substantially raises the cost. Were the government to get rid of the regulation that does this, women’s access to contraceptives would rise and the cost would fall.

What is the regulation? It’s the one that requires contraceptive pills to be prescription drugs. If, instead, drug companies were allowed to sell contraceptives over the counter, access would rise and cost would fall…

To read more, click here.

Today's Tax Carnival is a bit delayed. You can blame the Fiscal Year 2013 budget, or celebrate it if you're a total budget wonk. Whatever.

Actually, the Obama Administration was late in releasing the federal budget. It is by law supposed to be delivered on the first Monday in February. But for the second year in a row, it's out a week late.

To read more, click here.

As discussed yesterday, the most important number in Obama’s budget is that the burden of government spending will be at least $2 trillion higher in 10 years if the President’s plan is enacted.

But there are also some very unsightly warts in the revenue portion of the President’s budget. Americans for Tax Reform has a good summary of the various tax hikes, most of which are based on punitive, class-warfare ideology.

In this post, I want to focus on the President’s proposals to increase both the capital gains tax rate and the tax rate on dividends.

Most of the discussion is focusing on the big increase in tax rates for 2013, particularly when you include the 3.8 tax on investment income that was part of Obamacare. If the President is successful, the tax on capital gains will climb from 15 percent this year to 23.8 percent next year, and the tax on dividends will skyrocket from 15 percent to 43.4 percent.

But these numbers understate the true burden because they don’t include the impact of double taxation, which exists when the government cycles some income through the tax code more than one time.

The Washington Post did a great job last week comparing spending earmarks by members of Congress with the locations of property they own in their states. Some members are apparently using our tax dollars to expand infrastructure near their homes and businesses, thus gaining a personal benefit from federal spending.

Washington Post reporters usually do great research on the spending behaviors of politicians, but they often don’t ask the big-picture questions. The Post has uncovered waste and corruption in earmarking, housing programs, and other federal activities, but the paper usually only suggests superficial reforms such as better ethics rules.

When you read the Post story on earmarks, the obvious problem with all the projects identified is that they are properly state, local, and private activities. The story summarized questionable earmarks for 30 members of Congress, and the spending activities included repaving roads, expanding highways, building parking lots, replenishing beaches, dredging harbors, improving traffic signals, and building light rail projects.

To read more, click here.

We're now in the 37th month of central government manipulation of the free-market system through the Federal Reserve's near-zero interest rate policy. Is it working?

Business and consumer loan demand remains modest in part because there's no hurry to borrow at today's super-low rates when the Fed says rates will stay low for years to come. Why take the risk of borrowing today when low-cost money will be there tomorrow?

Federal Reserve Chairman Ben Bernanke told lawmakers last week that fiscal policy should first "do no harm." The same can be said of monetary policy. The Fed's prolonged, "emergency" near-zero interest rate policy is now harming our economy.

The Fed policy has resulted in a huge infusion of capital into the system, creating a massive rise in liquidity but negligible movement of that money. It is sitting there, in banks all across America, unused. The multiplier effect that normally comes with a boost in liquidity remains at rock bottom. Sufficient capital is in the system to spur growth—it simply isn't being put to work fast enough.

Average American savers and investors in or near retirement are being forced by the Fed's zero-rate policy to take greater investment risks. To get even modest interest or earnings on their savings, they move out of safer assets such as money markets, short-term bonds or CDs and into riskier assets such as stocks. Either that or they tie up their assets in longer-term bonds that will backfire on them if inflation returns. They're also dramatically scaling back their consumer spending and living more modestly, thus taking money out of the economy that would otherwise support growth.

We've also seen a destructive run of capital out of Europe and into safe U.S. assets such as Treasury bonds, reflecting a world-wide aversion to risk. New business formation is at record lows, according to Census Bureau data. There is still insufficient confidence among business people and consumers to spark an investment and growth boom.

In short, the Fed's actions, rather than helping, are having the perverse effect of destroying the confidence of businesses and individuals to invest and the willingness of banks to loan to anyone but those whose credit is so strong they don't need loans.

The Fed's Jan. 25 statement that it would keep short-term interest rates near zero until at least late 2014 is sending a signal of crisis, not confidence. To any potential borrower, the Fed's policy is saying, in effect, the economy is still in critical condition, if not on its deathbed. You can't keep a patient on life support and expect people to believe he's gotten better.

Yet the economy doesn't need life support. Just the opposite. The patient needs to get up and start moving. We could get out of this mess, if only the Fed believed in the free-market system. In free markets, supply and demand find an equilibrium. That's true whether we're talking about the supply of grain and housing or cash and credit. But a functioning free market requires confidence that the government isn't imposing itself unnecessarily in the works, preventing supply and demand from returning to equilibrium.

All this can change with a shift in Fed policy. This is what investors, business people and everyday Americans should hope to hear from Mr. Bernanke after the next Federal Open Market Committee meeting:

"The Federal Reserve used its emergency powers effectively and appropriately when the financial crisis began, but it is very clear that the economy is on the mend and that the benefit of inserting massive liquidity into the economy has passed. We will let interest rates move where natural markets take them. Our experiment with market manipulation will stop beginning today. Effective immediately, we will begin to move Fed rate policy toward its natural longer-term equilibrium. With the extremes of the financial crisis of 2008 and 2009 long behind us, free markets are the best means to create stable growth. Our objective is now to let the system work on its own. It is now healthy enough to do just that. We hope today's announcement does two things immediately: first, that it highlights our confidence—supported by the data—that the U.S. economy is out of its emergency state and in the process of mending, and second, that it reflects our belief that the Federal Reserve's role in economic policy is limited."

There is a saying in finance: "Don't fight the Fed." It's now time for the Fed to step out of the fight. It did its job. Let's allow the free-market system to do its job. Doing so will restore business confidence and spur much needed new investment.

Mr. Schwab is founder and chairman of the Charles Schwab Corporation.

Link: http://on.wsj.com/zMi6no 

“You ought to be modeling how many people need to leave the workforce, not how many jobs need to be created.”

That was a joke from someone who has been following the HPS projections of job creation needed to get below 8 percent unemployment by Election Day. Like most good jokes, it also happens to have a bit of truth to it.

Because of the significant declines in the labor force during this recovery, it will be exceedingly difficult for net job growth to get the unemployment rate below 8 percent by Election Day without an increase in the labor force pushing the unemployment rate back up.

There are currently over 3 million “missing” workers who should be participating in the labor force but are not actively seeking work.

This white paper explores the impact of labor force changes on the current employment situation and looks at how different scenarios of job growth and labor force growth could impact the unemployment rate on ElectionDay.

The Role of Labor Force Participation in the Unemployment Rate

The size of the labor force makes a big difference in the unemployment rate, and labor force growth has been lagging estimates since the end of the recession – many people have either dropped out of the labor force,or have not entered in the first place. This has contributed significantly to the decline in the unemployment rate over time. (See Exhibit 1)

A LARGE FACTOR IN UNEMPLOYMENT DECLINE HAS

BEEN A DROP IN LABOR FORCE PARTICIPATION!

To understand how participation impacts the unemployment rate, consider the basic math. The unemployment rate is a function of the number of people looking for work, and the total of those in the labor force:

The labor force, in turn, is a subset of the eligible, working age population (defined as those 16 and over who are not institutionalized or in the military). It is helpful to think of it in terms of labor force participation:

There are a couple of important aspects to these equations. First, the unemployment rate is not really a function of those who aren’t working; it’s a function of those who are actively looking for work and have not found it. Second, those who are unemployed but not looking for work are not captured in the unemployment rate, but are reflected in the labor force participation rate, which declines as people drop out of the workforce or choose not to pursue work at all.

How is labor force participation looking today? At 64 percent, it is well below the peak of 67 percent during the dot com bubble, and significantly below the steady state of 66 percent we saw during the 2000s. Given the Baby Boom retirement and other demographic shifts, CBO projections expected it to be declining – 65.3 percent at the beginning of 2012. We are now 1.3 percentage points below that demographic estimate, the equivalent of 3.2 million “missing” workers. If the “missing” people were in the labor force, the unemployment rate today would be 10.4 percent, not the current 8.5 percent. (See Exhibit 3)

GROWTH IN THE WORKFORCE HAS NOT KEPT PACE

WITH PROJECTIONS OR POPULATION GROWTH!

Part of our modeling over the past year has been based on the number of workers projected to enter the labor force. CBO had estimated last spring that in 2011 and 2012, the labor force would expand by roughly 2.9 million workers. Instead, at the midpoint of that period, the labor force has expanded by less than 300,000.

We had assumed in our model that these workers might not all come into the labor force at once, but that in time those 2.9 million would eventually appear. As the job market has dragged on with incremental growth below what is needed to get people back to work, it has become less clear when the jobless will once again start to re-enter the labor force and look for work.

Scenarios for Unemployment on Election Day

Given the possibility that the labor force participation rate remains depressed relative to projections, we have expanded our jobs/election modeling to accommodate different scenarios of labor force growth. Instead of assuming one path to the forecasted trend for labor force participation, we have calculated the unemployment rate on Election Day under a range of labor force participation paths back to full participation. We have examined four basic scenarios for the coming year (See Exhibit 4):

Scenario 1: Continued decline – The participation rate continues the gradual decline we have seen over the previous year, with little growth in the labor force

Scenario 2: Stabilization – The participation rate stabilizes at the current rate of 64 percent. Labor force growth picks up to keep pace with population growth.

Scenario 3: Two-year return to trend – The participation rate rises back to trend over the coming two years as people reenter the labor force.

Scenario 4: One-year return to trend – The participation rate picks back up to trend over the next year as workers respond to stronger job growth.

THERE ARE FOUR WORKFORCE PARTICIPATION SCENARIOS TO CONSIDER OVER THE YEAR!

Source: BLS, CBO, HPS Insight!

Using these four scenarios, we can get a sense of the dependency of the unemployment rate on the size of the workforce and determine the number of jobs needed to get below 8 percent by Election Day under each scenario. As the participation rate returns to trend, the jobs needed to get below 8 percent becomes that much higher (See Exhibit 5).

IF THE WORKFORCE RETURNS DURING 2012, MORE JOBS ARE NEEDED TO REDUCE UNEMPLOYMENT!

Unemployment rate on Election Day under different scenarios!

Source: BLS, CBO, HPS Insight!

Our modeling projects that if the trends of the past year continue (131,000 jobs per month, decline to 63.6 percent labor force participation), the unemployment on Election Day will be 8.1 percent.

As job creation increases and the unemployment rate declines, the participation rate should increase in response, moving us toward better workforce scenarios and increasing the number of jobs needed to get below 8 percent by Election Day. If we return to the historic pattern of laborforce participation over the coming year, we would need 400,000 jobs per monthto break 8 percent on Election Day.

This is the “no-win” situation the President faces as he begins his reelection campaign. Even as we have seen a marginal improvement in economic activity at the end of 2011, we have not yet seen a return of the “missing” labor force. As these workers return, there will be significant upward pressure on the unemployment rate.

While there is still time for economic growth to improve in 2012, it is our assessment that the large number of people waiting to reenter the workforce makes it is exceedingly unlikely that the unemployment rate will drop below the politically important 8 percent level by Election Day.

To read the full white paper, click here.