The IRS is poised to go from bad to worse

We now understand just how bad the IRS has become in the United States. We are aware that the agency illegally harassed existing conservative groups and illegally discriminated against would-be conservative groups applying for tax exempt status during the run-up to the 2012 elections.We are aware that the agency wastes vast sums of taxpayers’ dollars on boondoggle conferences, including at least one that featured its employees dressed up as Star Trek characters. That is all part of the recent past.

More ominous are expectations about the future. A July 2012 report by the Inspector General for Tax Administration stated that ‘the IRS needs to make improvements to stop billions of dollars in fraudulent or improper tax refunds resulting from identity theft and erroneous claims for tax credits.’ Although this statement does not specifically address the implications of Obamacare, that is where the IRS cess-pit truly will open up.

Let us put the pending crisis into perspective. The IRS claimed that it could not handle an increase of 1,700 applications for tax exempt status, and that spurred its targeting of conservative groups. Under the Affordable Care Act, premium subsidies – the tax credits in Obamacare designed to defray the cost of purchasing health insurance – will go to some estimated seven million tax filers and flow to households earning as much as $94,000 a year. The credits are advanceable and refundable, meaning that the IRS will pay them first and verify the claims later: what some call pay and chase.

The IRS has never been able to handle refundable tax credits in other programs. A lot of such payouts go to households inappropriately and are never pulled back. The Earned Income Tax Credit is a good example. The Treasury department’s inspector general for tax administration reported in April 2013 that improper payments accounted for 21 to 25 per cent of total EITC payments in 2012.

If we apply that percentage to the approximate $1 trillion that will be spent on Obamacare credits in the decade beginning in 2014, the math shows that between $210 billion and $250 billion will be distributed to ineligible households. Since the IRS has no system in place to verify reported households income, most these outlays will never be reclaimed.

Hat Tip: Orrin Hatch, ‘Think the IRS Is Bad Now? Just Wait’, The Wall Street Journal, June 15, 2013

When a president forfeits the trust of his party

In 2009, President Obama begged and pressured a number of reluctant Democrats in the Senate and in the House to vote in favor of Obamacare – a policy that was unraveling in the opinion polls as the debate progressed. A sufficient number voted reluctantly in favor to carry the bill into law, albeit with reliance on a procedural dodge.

In 2010 and 2012, President Obama stood idly by as several of those reluctant political allies walked the electoral plank into the wilderness that awaits lifetime politicians who finally confront the realities of the regular work place.

In 2013, President Obama has begged and pressured a number of reluctant Democrats in the Senate to vote in favor of gun control legislation that is anathema to the voter majorities in their respective constituencies. Electoral memories may be short, but politicians memories are forever. So predictably, this time, those marginal Senators refused to walk the plank for Obama. And Obama’s bill has failed to progress.

The lesson for Barack Obama is serious indeed. For the remainder of his second term, he cannot expect to move his political agenda into law unless he tailors policies to secure political majorities.Any leader who forfeits trust places himself in such a quandary.

Predictably, Obama will now have to tack back to the political center if he desires to earn any presidential legacy for his name other than Obamacare, which is a pending disaster.

Obamacare will shaft private sector labor unions

Barack Obama received major support for the Affordable Care Act (Obamacare) from the labor unions – both in the public and in the private sector of the U.S. economy. Big Labor received a very Big Bone from the administration in return for this support, in the form of exemption of union-run health insurance plans from a high-end Cadillac Tax until 2018. For everyone else, that tax already kicked in in 2013.

However, Barack Obama seemingly has failed to deliver on a key promise that served to unite the labor unions behind the Obamacare initiative:

“If you like your health care plan, you can keep it.” Barack Obama 2008 Presidential Race

John Wilhelm distinctly remembers that unequivocal promise delivered at a Nevada rally. He now understands that Obama’s promise, like that of any politician, will not be honored. And that is a real problem for the chairman of UNITE HERE Health, the insurance plan for 260,000 service-sector union workers. It is now clear that many employers will either cut back coverage or drop coverage altogether, as the administration’s new health care mandates make those private insurance plans uneconomical.

“I heard him say, ‘If you like your health plan, you can keep it,’ Wilhelm recently told The Wall Street Journal. ‘If I’m wrong, and the president does not intend to keep his word, I would have severe second thoughts about the law.”

The problem is very serious for the unions. Negotiating with employers over health care coverage is one of the main benefits they provide to their members. As one union official told the Journal:

“If we’re not offering our members insurance and pension, why would you want to be in a union?”

Big Labor has a solution to this problem. Pressure the administration to extend subsidies to the type of health care plans jointly managed by unions and employers in order to pay off unionized companies not to drop their coverage. The administration is resisting, not least because there is no money from Congress to pay out such bribes. Moreover, paying out bribes openly to Big Labor would not look good in terms of equal protection, however much the left-leaning media might try to disguise the payoff.

Unfortunately for Obama and the Democratic Party, Big Labor helped to deliver key battleground states like Ohio, Pennsylvania and Wisconsin in 2012. Without those states, Mitt Romney would now reside in the White House instead of Barack Obama. And, with overall union membership declining to a mere 11.3 per cent of the workforce in 2012, and to just 6.6 per cent in the private sector, Big Labor can ill afford promise-slips like this from the mouth of their captive President.

Hat Tip: Editorial, ‘Obamacare’s grave threat to labor unions’, Sunday Examiner, February 3, 2013

What to do, what to do? When thieves fall out, honest men sometimes come into their own.

The Second Coming

The crowd was smaller, the cheers more muted, the media less adulatory. Nevertheless, many of the true believers gathered for a second occasion on the Mall yesterday,to glimpse their Messiah, even to touch his hand, or to reach out for his robe, in expectation of deliverance from all mortal afflictions, and the promise of eternal paradise. By His words, the Messiah lived up to all their expectations. They will know fours year on, whether those words were true promises or whether they were false rhetoric floating on the frosty midday air, whether indeed this was the true liberal Messiah, or just another in a long legion of false, self-seeking prophets.

‘I am the government, and I am here to command you’ was the message to the gathered multitude. ‘I promise you, my subjects, that I shall deliver ever more government throughout the coming quadrennium. I warn all those skeptical of my authority, or careless of my commands, that I shall not hesitate to dispatch you, as I dispatched Cain before you, to the land of Nod, on the East of Eden.’

Barack Obama’s inaugural address, as I expected, reflected personal hubris intermingled with disdain for the political opponents whom he had decided to bait. His words were not those of a unifying leader of a divided nation, but rather those of a spokesman for a minimum winning coalition of 51 per cent of the electorate. Almost as surely as the sun rises in the east, hubris is followed by nemesis and that vision is outlined in the column that I posted on the day of the Second Coming. Americans of all views must now brace themselves for four bitter years as the vision of the Founding Fathers will be tested again, as it was tested throughout the second disastrous term of FDR – 1937-1940.

“Democratic government has the innate capacity to protect its people against disasters once considered inevitable, to solve problems once considered unsolvable.” FDR Inaugural Address, January 1937

There then followed four years of indiscriminate government intervention and a consequential collapse of market confidence, that extended the Great Depression in the United States years beyond that suffered by any other nation on the planet.

Economic freedom on the wane in the United States

‘Land of the Free‘

It is right up there in the national anthem. And it is surely treasured by many Americans. But economic freedom is just as surely on the wane during the early years of the 21st century. The Index of Economic Freedom – published annually by the Heritage Foundation and The Wall Street Journal, chronicles this sad story.

As recently as 2008, the United States was ranked 7th worldwide (out of 177 nations) by this Index. It attained an average score of 81 on a scale of 0-100, with 100 reflecting the freest ranking. Last year, the 2012 Index ranked the United States only 10th in the world. In 2013, the Index held the United States in 10th place, with a score of only 76 out of 100, only because of a significant decline in the ranking of Ireland. Save for this, the United States would no longer rank within the top 10 in terms of economic freedom. And that would be a shameful result for this supposedly ‘exceptional nation’.

Economic freedom is measured by the Index in terms of four broad areas, namely (1) rule of law, (2) limited government, (3) regulatory efficiency, and (4) open markets. For the most part, the United States performs moderately well on these measures. Yet, with a score of 76 out of 100, it ranks only under the category of ‘relatively free’. So what specifically drags it down?

Regulatory inefficiency is a major source of US decline in economic freedom. More than 100 new federal regulations have been imposed since President Obama came to office in January 2009. at an annual cost to gross domestic product in excess of $46 billion. Yet, this is not the nation’s weakest spot.The United States remains above the global average for this category.

The Achilles heel, for the United States is category 2. Limited government is subject to severe erosion, with the United States ranking below the global average in this category. The United States has the highest effective corporate tax rate in the developed world. The top-rate for income tax is now 39.6 percent (compared with 13 per cent in Russia for example). The overall tax burden is 24.8 per cent of gross domestic product. Total government spending (at all levels) is 42 per cent of gross domestic product. The debt burden is a consequence of the gap between spending and revenues, and is growing unsustainably.

The drift is clear and the nature of the problem is well-identified. The prognosis is for a continuing decline in the world rankings unless U.S. politicians wake up and initiate significant reforms: income tax reform, major spending cuts, and a significant trimming of regulations are all on the menu. But President Obama has no taste for such an economic diet. And, seemingly, a slim majority of Americans share his prodigality, at least when paid for by rooting through the pockets of others.

Hat Tip: Ed. Feulner, ‘Economic freedom on the wane: limited government isn’t so limited anymore’, The Washington Times, January 15, 2013

There is no such thing as an Obamacare free lunch

Americans should prepare themselves for severe sticker shock when health-insurance premiums rise dramatically later this year thanks to the Affordable Care Act, otherwise known as Obamacare. Do not expect the president to reach into his own pockets to bale you out. He spends most of his waking time rooting into the pockets of other Americans, including yours’. That is the name of the presidential game.

When writing and passing Obamacare into law, President Obama and the Democratic members of Congress – there were no Republicans involved – ignored virtually every actuarial principle governing rational insurance pricing. Preiums will inevitably reflect that disregard.

Specifically, central to Obamaracare mandates are requirements that insurers (1) accept everyone who applies (guaranteed issue), (2) cannot charge more on the basis of serious medical conditions (modified community rating),and (3) include numerous coverage mandates that force insurers to pay for often uncovered medical conditions. Insurance companies that do not wish to end up in the bankruptcy courts will have to find reimbursements for such additional outgoings by increasing average premiums to all customers.

Evidence already exists that these premium advances will be huge for many Americans. Eight states – New Jersey, New York, Maine, New Hampshire, Washington, Kentucky, Vermont and Massachusetts – enacted guaranteed issue and community rating in the mid-1990s and wrecked their non-group health-insurance markets. Premiums increased so much in Kentucky that the state repealed its law in 2000, and several of the other afflicted states modified their community-rating provisions. At this time, consumers in New Jersey, New York and Vermont already pay well over twice what citizens in non-afflicted states pay.

Actuaries calculate that the premium hike associated with Obamacare will average 50 per cent across the United States. This will not be evenly distributed. Large groups will be impacted less, at least initially, because the law grandfathers in employers that self-insure. Small employers will see a significant increase – and many will abandon coverage, pushing employees into the individual exchanges. The individual market will be hit hardest. Citizens of prudent states, outside the listed eight, will be hit especially hard, with individual premiums rising well in excess of 100 per cent.

Expect a lot of arm-twisting and anti-insurance-company rhetoric from the White House as Obamacare premiums soar. At risk for the Democrats will be the 2016 elections, when Americans will be fully aware of the fraud that Obamacare has perpetrated upon them, as they confront much higher premiums for much less effective medical services.

Hat Tip: Merrill Matthews and Mark E. Litow, ‘Obamacare’s Health-Insurance Sticker Shock’, The Wall Street Journal, January 14, 2013

Unforced errors that should cost Obama re-election

President Obama does not possess an analytic mind. For this reason he surely cannot understand economics. One cannot get by with rote learning in economics, though one can do so in public affairs and some aspects of the law. The President cannot be blamed for his lack of little grey cells, though the 2008 electorate surely can.

However a President can always make good his intellectual limitations by choosing economic advisers with great care. Foolishly, President Obama failed this relatively low bar and his presidency is in tatters as a consequence. The choices that he made in January 2009 have put him on the ropes in the 2012 election.

Mistake number 1. Do not choose an economics adviser simply because he is related to two Nobel Prize winners in Economics. Lawrence Summers is the nephew of Paul Samuelson and Kenneth Arrow. However, this apple fell a long way from the original trees. Summers moved into a professorship at Harvard with a silver spoon in his mouth. But a careful review of his scholarship would identify a pedestrian plodder who relied heavily on co-authored papers. It would also have identified an outdated hydraulic Keynesian whose ideas had been rejected decades earlier by stagflation evidence.

Mistake number 2.  Do not choose an economics adviser whose principle co-authored or mentored contributions depend on work by a much smarter husband. No thinking economist believes that Christina is the lead author in  Romer and Romer co-authored scholarship.  Christina Romer is a light-weight, who could not possibly stand up to an arrogant, bullying, self-centered autist like Lawrence Summers. So there would be no second judgment on Larry.

Mistake number 3. Do not choose a Summers’ sycophant as Treasury Secretary. That, of course, is exactly what the President did. Timothy Geithner, with eyes staring like a deer caught in the headlights,  pulled down the stock market and destroyed what little confidence remained every time he appeared on TV. Indeed, a smart investor could have made a pile simply by selling short just before a Geithner interview, and buying back immediately after the address.

Well, a president gets what he deserves. and President Obama was sold a pack of goods by his three advisers. The stimulus package gummed up the economy. The bail-outs produced too big to fail. The financial reforms produced Dodds-Frank rent-seeking corruption. Obamacare will wreck one-sixth of the U.S. economy if it is not repealed. And a president who came in as the Messiah may well now go out spreadeagled on the Cross.

As  George W Bush was fond of saying:  ‘Actions have consequences’. W may not have been right about much else. But surely those were words of  real wisdom, that have come back to haunt his immediate successor.

 

AARP shafts its members to access rents

AARP is a rent-seeking institution. Membership dues account for only 17 per cent of its total revenue.  Insurance business accounts for 60 per cent. So guess which avenue it will pursue when there is a conflict?

Well, there was a direct conflict of interest within AARP with respect to the passage into law of Obamacare.  And AARP shafted its own members in pursuit of lucrative insurance revenues.

AARP members opposed the passage of Obamacare. A Kaiser Family Foundation poll in November 2009 found seniors opposed the bill by 61 to 21 per cent with 18 per cent undecided.  In internal emails – unearthed by the House Energy and Commerce Committee – AARP reported that calls were running 14-1 against the Obama proposal.  Thousands cancelled their memberships because of AARP’s support for the bill. In July 2012, a CNN poll determined that seniors still favor repeal of Obamacare by 54 to 41 percent.  They correctly recognize that the gutting of Medicare will impact adversely on their quality of care within the program.

The conflict arose because Obamacare  diverts $716 billion from Medicare to pay for itself.  The cut is targeted at Medicare Advantage plans popular among AARP members.  As a consequence of these cuts, Obamacare is expected to expand significantly the number of seniors who will purchase  ‘Medigap’ supplemental insurance plans.

AARP controls 34 per cent of the market for Medigap plans.  According to a 2011 House Ways and Means Committee report, AARP stands to make between $55 million and $166 million from Obamacare in 2014 alone. In consequence, as the unearthed emails clearly establish, the supposedly neutral, non-partisan AARP coordinated with the White House on media strategy and in lobbying reluctant lawmakers.

President Obama addressed the September 2012 annual conference of AARP by satellite to tout his health care law:

‘No American should ever spend their golden years at the mercy of insurance companies,’ he said.

What a hypocrite!  The President is personally responsible for placing seniors at the mercy of those insurance companies. and his words were addressed to the most merciless of all those companies. For AARP has ruthlessly sold its own members down the river in pursuit of Obamacare-manufactured Medigap insurance rents.

Hat Tip: Editorial, ‘Obamacare: AARP’s get-rich-quick scheme’, Sunday Examiner, September 23, 2012

When in doubt review the candidates’ resumes

Most Americans are disappointed in the first-term performance of President Barack Obama.  This disappointment runs across the political spectrum.  The man talked an uplifting talk in 2008 but could not walk the walk in the following four years. In every aspect of his portfolio, President Obama has failed to deliver. His failure is most marked in the most important responsibility – helping to create an environment conducive to job creation and economic growth.

Obama made two crucial errors of judgment in the first year of his administration. First he chose as key economic advisers  Lawrence Summers and Christina Romer, two left-leaning Keynesian economists who locked his economic policies into job destruction and economic stagnation.  Those advisers gave the President exactly what he requested, with a  gift that almost certainly will take him out of the White House in 2013. Second, he allowed his attention to switch from the economy to health care reform at a moment of economic crisis. That was a completely unforgivable error for which surely he will be punished

Barack Obama came to the White House with the slimmest of resumes. His principal career in Chicago was that of a community activist. His record of non-attendance in the United States Senate  was a disgrace to his office and to those who voted him into the upper Chamber. Since then, I suggest, a poor resume has spiraled downhill.

Mitt Romney, of course, has no prior White House experience to put on the table – that is always the handicap of the challenger. However, he has built an impressive, diversified resume both in the private and in the public sector that should attract national attention:

“If a resume decided the question, the former Massachusetts Governor would win in a walk.  As convention viewers have heard this week, his range of experience, and success in multiple endeavors, far exceed anything Barack Obama could boast in 2008 or today.  It’s clear that he can make decisions and delegate authority and his choice of Paul Ryan as a running mate suggests good judgment and an eye for talent.  The Mormon Church elder has led what is by all accounts an exemplary life.  He has an admirable marriage and family that seem odd in this era only because they are so free of obvious dysfunction.  Mr. Romney also seems to be comfortable enough in his own skin that Americans needn’t worry about another President with deep but hidden flaws.  He is competitive but not obsessive.  He would not be another paranoid Nixon, bullying LBJ, or Slick Willie.” Editorial, ‘The Romney Opportunity’, The Wall Street Journal, August 31, 2012

Of course, resumes alone are an insufficient basis on which to base one’s vote in a presidential election. Because Governor Romney had to fight off challenges from two trash-talking lightweights – Newt Gingrich and Rick Santorum – he was dragged away somewhat from his admirable focus on job-creation and economic growth into areas that should lie outside the scope of the legislative and executive branches of government – abortion, religion and marriage.

So now that he has been nominated, a courageous Mitt Romney should forcefully explain that economic and not social or religious policy will be his exclusive domestic focus, should he be elected into office. The religious right will not like to hear that message. But will their fanaticism be better served under Obama than under Romney?  Some may not turn out, but they will be overwhelmed by the independents who carry Governor Romney into a White House newly- focused on helping to revive an ailing economy.

 

The Medicare debate: how much do the old care about the young?

The leaders both of the Democratic Party and the GOP  obfuscate as best they can about the future of Medicare in the United States.  They do so because they each fear that telling the truth will cost their Party the votes of senior citizens in the November 2012 elections.

The harsh economic truth is that federal outlays on Medicare are currently on an unsustainable path. Today they account for some 3.5 per cent of gross domestic product. As the baby boomers retire, these costs will rise relative to the economy by some thirty percent, lifting Medicare outlays to some 5 per cent of gross domestic product by 2020.

What is unsustainable will not happen.  So per capita federal  outlays on Medicare assuredly will decline over the coming eight years. This decline will not be passed down exclusively to future retirees. It will quickly impact the present as well as the future. Now not all seniors understand this unpleasant arithmetic – there is a great deal of stupidity in any nation – but many undoubtedly do so.

How those seniors with functioning brains respond to this reality will determine the economic future  of the United States.  If they press narrow self-interest over the well-being of the future generations – their own children and grandchildren – they may be able to drag out reforms until economic Armageddon imposes its will upon the nation.  By ramping up the federal debt and paralyzing entrepreneurship they will lie comfortably in their hospital beds while their offspring stand forlornly  in ever-expanding dole lines.

Somehow, however, that does not seem to me to square with the American way. Most, though surely not all, American adults care about their offspring more than they care about themselves.  In such circumstances, sacrifices will be made, once the options are fully outlined for their consideration.

The President is the person on whose shoulders the relaying of unpleasant arithmetic morally should fall. President Obama has no shoulders for such a responsibility, apparently no moral integrity for such a task. But that will not make the Medicare problem disappear. It will simply fester and infect the economy as the disease metastasizes, thereby rendering the eventual surgery much more problematic for the future good health of the nation.