Tuesday, January 23, 2007

The Urban Institute on Bush's healthcare plan

I would pretty much endorse the entire statement here, from the Brookings-Urban Tax Policy Center (easily available via google search). Much closer to my views than, say, Krugman's denunciation of the plan.

Anyway, herewith their summary statement about it (from the abstract for a longer discussion):

In his State of the Union address, President Bush will propose to replace most current tax exclusions and deductions for health insurance premiums and out-of-pocket costs with a new $15,000 standard deduction ($7,500 for single people) in the federal income tax-as well as an exemption from payroll taxes-for all taxpayers who obtain qualifying health insurance. The plan would eliminate the current bias in favor of health insurance obtained through employers, provide tax incentives for the purchase of health insurance in the private market, and reduce current tax incentives to over-spend on healthcare services. As designed, the proposal would be revenue neutral over ten years, after which it would generate a growing stream of revenue.

The innovative plan is a major step toward improving the efficiency of the market for health insurance. By severing the link between work and insurance, it would offer everyone the same tax incentives to obtain insurance coverage and limit spending on health care. Whether it would succeed in meeting its objectives in a fair way is less clear.

The new tax incentives will help some individuals to gain coverage. But they could also lead employers, particularly those in small firms, to discontinue health plans for their workers, some of whom would end up without insurance. Furthermore, by relying on tax deductions, the plan would continue to provide the largest benefits to high-income taxpayers and offer little or no financial incentive for low-income people who most need help paying for insurance. The plan would encourage states to shift existing funds to subsidize insurance for people with low incomes and chronic health conditions, but those funds could well be too small to be effective.

Changes to the President's proposal could improve its chances of success:

* Replacing the deduction with a refundable credit or voucher would provide more assistance to low-income families, increasing coverage and improving progressivity.
* Requiring that qualifying insurance plans offer community-rated premiums would help to assure the availability of affordable coverage for people regardless of their health status.
* Providing additional funds for complementary programs like Medicaid and SCHIP would help to provide coverage for low-income families and children.
* Explicitly mandating individuals to purchase health insurance, in combination with adequate subsidies for those with low incomes, would increase coverage and reduce adverse selection.
* Eliminating tax subsidies for health savings accounts would remove a bias in favor of those accounts that would otherwise exist.
* Indexing the deduction to the health CPI or even the rate of change in overall health spending would maintain its value over time, albeit at the cost of lost revenue.

Despite its limitations, the President's plan marks an encouraging step in the right direction. With appropriate modifications, it could expand health insurance coverage and improve market efficiency.

[BACK TO ME]: All this being said, it's just pure silliness for anyone to pay much attention to Bush's proposals on any domestic matters - as if he actually cared about any of this stuff, or had the clout to do anything even if he did care. You can't play the sorts of shenanigans he has over the past 6 years and then say "guess what, I'm turning over a new leaf and you guys should start voluntarily doing what I say." BUT, his healthcare proposal may matter in the future as a not-insane Republican guidepost that could actually play a role in a genuine policymaking process. Bad proposals certainly, but one would hope not entirely bad ones as well, never actually die any more than Michael Myers does in the Halloween movies.

Wednesday, January 17, 2007

Cost of the Iraq war

The New York Times has an article today based on the cost of the Iraq war, which to this point stands at $1.2 trillion. The article notes that people have a hard time really grasping big numbers, so it's difficult to evaluate what this actually means. But one can think of it in terms of alternative uses for the same funds.

For example, it would cost less than half as much to engage for ten years in: "an unprecedented public health campaign — a doubling of cancer research funding, treatment for every American whose diabetes or heart disease is now going unmanaged and a global immunization campaign to save millions of children’s lives."

Good point, but here's another way to make the dollar cost easy to grasp. It's a lot crasser, but perhaps all the more salient for that. Since the U.S. population is about 300 million and we are going to pay for it eventually (I call this the no-free-lunch principle), Bush's going to war is fiscally equivalent to his having charged each U.S. citizen an average of $4,000.

That's $16,000 for a four-person household such as mine, ignoring that we'll probably pay more than our per capita share due to being above the mean in affluence.

Glad to know that I have personally, in effect, paid more than $16,000 for all this.

Tuesday, January 16, 2007

A review of my (unpublished) novel

Hope I am not violating any confidences here, or being unduly self-serving. (The barest bit self-serving I see no need to apologize for.) Someone I know who read my unpublished novel "Getting It" sent me these thoughts, which I believe the writer does not plan to use and that I can pass on so long as he/she is not identified. Anyway, here goes:

Who’s not sick and tired of short stories, novels, sitcoms, and movies with or about lawyers? And then, here comes Daniel Shaviro with a fresh, amazing, and so literary novel entitled “Getting It.” I must say, reading it during the long MLK weekend – when we probably are not supposed to be so happy about the world - it really made my weekend!

First of all, the writing is flawless, and I suspect, in my total ignorance of his previous literary sins, that Shaviro made his way to such a skill through many other works that I don’t know anything about. [Not so, actually, unless you count books and articles on my law and policy interests. – DS]

OK, a novel that takes place in the environment of a leading law firm, with a lot of “legal lingo." However, Daniel makes it very easy for the lay person to understand even the most “professional” implications. Cleverly enough, he places his action in 1984, before Shepard’s was online—which gives him the opportunity to explain the reader what “Shepardizing a case” is. He does this in a very natural way, without creating too many asides from the plot, here and with other legal or legal research matters, explaining terminology and approaches as needed. Therefore the novel appeals to a variety of readers. As far as I was concerned, I couldn’t let it go, once I started to be captivated by the plot. Three associates (Doberman, Stellworth, and Porter) are running for the only open spot to make partner, and have to prove that they deserve it to one of the senior partners (Crossley). All this would be done through ways and means determined by their own qualities and shortcomings, by their distinctive personalities. Shaviro plays a kind of mathematical/geometrical game here. He describes his characters in a parallel way (e.g., the way each is perceived by the law firm secretaries; their arts interests and family values, etc), but then he cuts it short with an amazing couple of sentences: “Crossley hated everyone there, including himself. Doberman and Stellworth each hated everyone except himself. Porter hated himself.”

Well, this happens on page 11, and then there are more than 200 pages to prove it. And, yes, it’s true! Intrigues, hide-and-seek, manipulation, some remarkable women figures (Lyla, Gidget, Janet) -- everything develops at a very balanced pace, in a novel that goes beyond the inner circle of the players, attempting to say something more general about society, rotten characters, ambitions, but also about humble people (who may be full of potential, but not aggressive and ruthless, such as Porter) . The tone is sympathetically-cynical, in an original manner, reminding sometimes the best of Philip Roth or Thomas Wolfe. The sense of humor is dry, rather British, and involves references that range from the classics to popular culture. In the end, the most complex character proves to be Doberman, a unique texture of intelligence, ambition, ruthlessness, lack of feelings, and selfishness. He is the true hero of our times! Don’t forget, though, all this happened more than 20 years ago.

But, then, what is 20 years in History?

This novel that does not show the typical hesitations or uncertainties of a first-timer. The emotional tension is nerve-racking, the psychological insight deep and convincing. Shaviro masters both the colloquial dialogue and the parallel storytelling, which in the end is unified by the verdict. “As the ancient Greeks had the Mysteries of Eleusis, so Asby & Cinders had its annual partnership meeting.” [Plot details omitted - DS.]

No moral, whatsoever, but maybe a hint that manipulation, bad faith, selfishness, and egomania do not always pay in the end.

Tuesday, January 09, 2007

My favorite quote from today's NY Times

From the article about the PR roll-out of Bush's surge, AKA escalation, AKA the New Way Forward:

“It’s not just one speech,” the official said. “This is so complicated you couldn’t do it all in one speech. So there will be an ongoing and sustained effort to educate the American people.”

Wow. I'm really going to have to work hard to understand everything the Prez is doing. Hope he stays patient with us all. Maybe I should stay in tomorrow night, because if I miss The Speech, I'll be behind an' everything.

UPDATE: My wife says no problem; we can just ask for Surge Help on Thursday morning if we need it.

Sunday, January 07, 2007

Two new articles posted at SSRN

I have posted two new articles at the SSRN download site. The first is a substantially revised version of a paper I posted some months back that, at the time, was mostly about income averaging. This time, I'm hunting somewhat bigger game. Title, link, and abstract are as follows:

Beyond the Pro-Consumption Tax Consensus.

In the last two decades, the dominant norm in fundamental tax reform has shifted from income taxation to consumption taxation, among academics no less than policymakers. Few have recognized, however, that the case for a consumption tax overlaps substantially with that for lifetime income averaging, an idea that has drawn considerably less support. Likewise, few have recognized that the grounds for unease about the case for income averaging (as an ideal system, leaving aside administrative concerns) apply equally to the case for consumption taxation.

Within a welfare economics framework, the case for both norms is close to irrefutable if one makes three key assumptions: that markets are complete, that individuals engage in consistent rational choice given their preferences, and that the only relevant information about taxpayer "ability" is that provided by an undifferentiated measure of lifetime earnings. Where these assumptions fail to hold, (1) allowing income averaging between periods may be undesirable, (2) the case for a consumption tax becomes less clearcut, and (3) as revealed by the "new dynamic public finance" literature in economics, there may actually be a strong rationale for taxing saving.

The second article is a piece I wrote for a conference at tax and corporate governance that I attended in Munich last month. Title, link, and abstract are as follows:

Disclosure and Civil Penalty Rules in the U.S. Legal Response to Corporate Tax Shelters.

This paper, written for a European conference on tax and corporate governance, evaluates two aspects of the U.S. legal response to corporate tax shelters: the civil penalty rules and the disclosure rules. It argues that, while the disclosure rules do not impose undue burdens, their usefulness to the IRS is limited by the difficulty of steering between the twin dangers of under-disclosure (permitting taxpayers to conceal close cousins of reportable transactions) and over-disclosure (creating information overload for the IRS). Thus, expanded reporting requirements with respect to book-tax differences in income accounting are likely to prove more useful to the IRS.

With respect to penalties, the paper argues that the rules' main flaw is excessive reliance on taxpayer good faith, which induces shopping around for "penalty shield" opinions from tax lawyers. To address this problem and create a better set of incentives in the "audit lottery," the paper argues for no-fault civil penalties, with penalty insurance serving to address any concerns about the proportionality of sanctions imposed on risk-averse taxpayers who may have been acting in good faith.

Thursday, January 04, 2007

Foolishness from the left

George Will raised hackles today around the left blogosphere with a Washington Post op-ed saying that the minimum wage should be abolished. I'd have to say, I lean towards his side on this one.

The reasons I only lean rather than definitvely stand that way are twofold. First, while I think one would basically have to be a moron not to favor trading in the minimum wage for government-provided wage subsidies if this were politically feasible, it isn't. Also, the minimum wage can improve distirbution. As a forced cartel of low-wage workers, it can potentially increase the overall income of the cartel participants. Only, rather than sharing the extra $$ among members like OPEC in its glory days, you get winners (people whose jobs end up with higher wages) and losers (thuse who lose jobs). Second, while from a standard neoclassical view the disemployment effect should be clearcut, in truth the labor market is a bit more complicated and has various odd quirks (e.g., employers choosing between lower-wage, higher-turnover and higher-wage, lower-turnover equilibria). I discuss a lot of this, along with the still-controversial Card-Krueger empirical work showing no detectable job loss, in a 1995 article that I published in the University of Chicago Law Review.

A couple of more points on the progressivity angle. The subsidy is geared to people based on hourly wage not household circumstances. So you get, e.g., teenagers from affluent households getting a lot of the $$. I think of it as conceptually a wage subsidy to low-hourly-wage workers, financed by a tax on commodities produced with low-wage labor. Not the design one would really want in a wage subsidy program that was being designed from any coherent set of criteria grounded in efficiency or distributional concerns. Note also that if, say, it ends up increasing consumer prices for commodities produced with low-wage labor (e.g., fast food), then it's a bit like a retail sales tax targeted at consumer goods that poor people disproportionately buy.

So I am not a big fan, and indeed I'm closer to George Will on this than that statement alone would suggest, although, yes, he is too simplistic about it.

But then again, look who's talking about simplistic if we bring the left blogosphere into this. Let's try Kevin Drum, who says, in supposed rebuke of Will, that workers aren't "commodities." This apparently is meant to be a moral statement of some obscure kind. Hard to rebut an ostensible argument that does not state anything coherent or rooted in consequentialism (i.e., in assessing what a minimum wage will actually do).

Kevin also says: "A rich society really has no excuse for not setting bare minimum levels of decency for all human interactions, including those between employer and employee."

Meaning, I suppose, that it's fine if someone doesn't get a job and is worse off due to the minimum wage - we regulate the job market interaction and care specially about it even if the consequences of our special treatment are Pareto-minimal, i.e., someone is left worse off and no one better off.

Not a very thoughtful post, from an individual I sometimes agree with. Makes me wonder a bit.

Irrefutable problem with his entire line of argument: he fails to recognize the central importance of an empirical, rather than logical, consideration: the question of what (and how great) are the disemployment effects of the minimum wage (at various levels). This remains inadequately understood. I really fail to see how anyone with half a brain can have so cocksure a view about the minimum wage without better knowledge about this question than any of us really has.

If history were art

Amusing link in popmatters.com to something that really should have happened:

From the Friar’s Club Roast of Donald Rumsfeld
Hoover Theater, Washington, D.C.

President George W. Bush: “… heckuva job, Rummy, heckuva job. I should’ve gone with my first choice for Secretary of Defense—a retarded Doberman! (RAUCOUS LAUGHTER FROM CROWD) Hahaha! Haha! Ha! When Don first came to me about Congressional oversight, I said—Donny! Bubalah! Forget about it! If I was worried about Congress, I’d have dissolved the whole branch after breakfast! (MORE RAUCOUS LAUGHTER) … I kid, though, I kid. Look, Rummy, I know how you feel. I once made a real big mess myself—woke up in south Houston with a Mexican hooker and a coke hangover like you wouldn’t believe. Luckily, I had Dad’s pals to bail me out. Hey, wait a second! We got ‘em this time, too! Hawhawhaw! Aha! Ah!"

Wednesday, January 03, 2007

Fun news for the day

There's nothing quite like grading exams to feed the urge to procastinate, hence more posts here lately.

With all the dispiriting news in the papers these days, it's nice to see this in the New York Times concerning a recent spacecraft probe of the Saturn moon, Titan:

"When the spacecraft conducted its first radar search above 70 degrees north latitude, Ellen R. Stofan, leader of the team, said in an interview, 'We saw a huge swath of the surface just covered with lakes, like Minnesota.'”

Kind of makes you want to go there, wandering hand in hand by the shorelines. True, these are methane lakes, and the temperature is a couple of hundred degrees below zero. But then again Minnesota is no picnic in January either.

Line item veto

Bush's silly op-ed in today's Wall Street Journal repeats the tired claim that, if only he had the line item veto, he could hold the line on spending. Bruce Bartlett handled this canard nicely in a NY Times blog some months ago (accessible to Times Select readers only, I believe), noting among other points that Bush has yet to veto any spending bill and that, at the state level, empirical data suggest that all the line item veto does is shift spending to match the governor's priorities more and the legislature's priorities less.

Ever since the election, Bush has of course discovered the earmarks issue, previously a matter of zero concern to him. But it's important, I think, to make the point that line item vetoes can easily increase spending, rather than reduce it. And under Bush that is exactly what I would expect. But perhaps not only under him.

Let's start with the naive static view, in which the legislature passes a bunch of stuff. Then the executive uses his line item veto, in which case spending declines, or else he doesn't use it, in which case spending is unaffected.

This would pretty much be it if all political actors' short-term memories were on a par with that of the protagonist in the movie Memento. (Leaving aside how that character ingeniously tries to act consistently in pursuit of long-term goals despite his short-term memory loss.)

But in fact everyone operates in the budgetary game with enough short-term and long-term memory to maneuver in the shadow of the rules, whatever they are. So the only clear effect of a line item veto is that it strengthens the executive relative to the legislature. If he wants higher spending than does the legislature, the line item veto helps him to get it, by offering him an extra tool to use in bargaining for votes. ("Support my new mega-program or I will line item veto your earmarks.")

The real issue, then, is what effect we should ascribe to its shifting budgetary authority, at the margin, from the legislature to the executive. Here there is a fundamental ambiguity. Legislatures tend to like more small bore piecemeal stuff than executives do, especially if the legislatures aren't tightly run by a leadership in parliamentary style (which can make them more executive-like). After all, there are 435 House districts just waiting to be outfitted with bridges to nowhere, Lawrence Welk museums, unneeded military bases, etc. But executives, while they have less incentive to do that sort of thing, tend to like doing more really big expensive stuff. They are looking for legacy-makers. This could mean a Star Wars missile defense, or national healthcare, or a costly foreign war, or whatever else tickles a particular executive's fancy. One way or another, the job creates powerful incentives to think big.

So here's my bottom line. A President is playing on a big stage and thus, I surmise, is likely on average to want more spending than the Congress does. (Governors aren't on quite as big a stage, so this aspect might show up less in the empirical data from that level.) Give Presidents the line item veto, and the predominant effect is likely to be that it helps them get more big stuff, even if they use it every now and then to reduce the small stuff.

Once again, therefore, Bush's proposed policy points in the direction of greater profligacy, certainly under him but probably in the long run as well. Good to know that he has zero chance of getting it, and is actually just preparing to play the blame game after he doesn't.

Tuesday, January 02, 2007

The "surge"

According to the BBC:

"[T[he speech setting out changes in Mr Bush's Iraq policy is likely to come in the middle of next week.

"Its central theme will be sacrifice.

"The speech, the BBC has been told, involves increasing troop numbers.

"The exact mission of the extra troops in Iraq is still under discussion, according to officials, but it is likely to focus on providing security rather than training Iraqi forces." [Note: This focus is necessary in order to avoid following the Iraq Study Group's recommendations.]

Silly me, I had always thought that you set objectives first, then decide what resources are needed to accomplish them.