Author: sgstofka

Lower Taxes

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Want lower income taxes and national health insurance? Move to Britain. As this chart shows, income tax and health insurance takes about 30% of a paycheck in Britain. But wait.. Don’t book your flight to Britain yet. There is also a 17.5% VAT tax (Ouch!), a sales tax on many goods and services, but food and children’s clothing is exempt from the tax.

Here in the good ole U.S.A, about 9.9% goes to state and local taxes, as reported by the Tax Foundation. Keep that in mind the next time you read or hear someone say “half of the population pays no tax”. What they mean is that approximately half of the population pays little or no Federal income tax. Social Security and Medicare tax take a 15% bite (as an employer, I can assure you that the employee pays the company half of the Social Security tax in reduced wages). Add in 10% for state and local taxes and a quarter is gone out of every dollar earned, before the Feds take their share. If you are a breathing adult, you’re probably a taxpayer.

A state by state comparison of median income from the Kaiser Family Foundation shows some surprising data. There are a number of other comparisons at this site.

Health Care Debate

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Joseph Ellis, a historian and author, recently wrote an op-ed in the L.A. Times that provides a historical perspective on the debate about the role of government.

Whatever our position on health insurance, let’s keep it to a debate. The last time we had an unresolvable debate about the role of government was in 1861 and we don’t want to do that again.

Thoughts to Ponder

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“You cannot help the poor by destroying the rich.
You cannot strengthen the weak by weakening the strong.
You cannot bring about prosperity by discouraging thrift.
You cannot lift the wage earner up by pulling the wage payer down.
You cannot further the brotherhood of man by inciting class hatred.
You cannot build character and courage by taking away people’s initiative and independence.
You cannot help people permanently by doing for them, what they could and should do for themselves. “

……Abraham Lincoln —

Thanks to Lydia for passing this on to me.

Stock Returns

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Here’s an interesting table summarizing data from the Federal Reserve on comparative returns on stocks, T-bills and Treasury bonds from 1928 to 2008. What if you had put $100 a stock index like the Dow Jones in 1928? What would it be worth today?

What this illustrates is the power of compounding over a number of years. A nice gift from any parent or grandparent to a newborn child might be a small amount put in a stock index fund in trust for that child.

Confrontational Politics

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It’s called confrontational politics – the yelling and shouting heard this month at town hall meetings on health care. The tactics were first devised in the 1960s by the SDS, the Students for a Democratic Society, to protest the war and include intimidation, physical and vocal defiance and provocation. An underlying presumption of these tactics is that the ends justify the means.

In a twist of irony that would spark a wry smile in Rod Serling, the creator of the Twilight Zone, these strategies were later adopted by the College Republicans in the 1980s to thwart liberal causes on college campuses. Jack Abramoff, a leader of the movement, crafted a disciplined organization that promoted intimidation as an effective tool for conservative political causes.

In the 90s, environmental groups amended the strategy to include both violent confrontation and the passive resistance tactics espoused by Ghandi.

In the late nineties and early in this decade, an anti-corporate movement adopted these “in your face” stategies at several economic forums to challenge the fiscal policies of governments.

Common to all these movements is the perception that compromise is a betrayal of one’s principles. Compromise complicates issues for it requires that one party understand, to some degree, the other party’s point of view. Complexity is the enemy of those who prefer simplicity in their lives, beliefs and ideologies.

Debt Mountain

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There has been a big rally in corporate bonds in the past few months. Decreasing fears of defaults has sparked a huge inflow of money into these bonds. The U.S. corporate bond market is large, with $9.8 trillion in outstanding debt – 1.5 times the amount of outstanding Treasuries, or about 70% of the nation’s GDP.

According to Federal Reserve data, the U.S. mortgage market is even bigger – $14.7 trillion at the end of 2008, of which $8.2 trillion is securitized. The three government agencies Fannie Mae, Freddie Mac and Ginnie Mae now back 90% of mortgages.

Healthy Americans Act

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I’ve been a bit too busy lately to keep up with this blog. This blog is a good update of the continuing saga of health care/insurance reform in this country.

Ron Wyden, a senator from Oregon, initiated Senate bill 334 in 2007 and added several amendments in March 2008. The Congressional Budget Office’s analysis of the proposal found that it was revenue neutral within two years.

Likes: Basic plan is the standard basic Blue Cross/Blue Shield plan offered to federal government employees. State administered private insurance pools to spread the risk to insurers. Individual mandates to purchase insurance. People with low incomes are partly subsidized. Automatic enrollment if an individual makes no choice and no penalty to an individual who fails to make a choice. Ability to buy a more expensive policy if one can afford it. Leaves alone existing insurance policies negotiated as part of a collective bargaining agreement – the unions will like that. The basic plan is indexed to growth in GDP, not medical costs.

Dislikes: The basic plan is indexed to growth in GDP which is sure to grow less than medical costs. Private insurers will surely increase deductibles or reduce coverage for some services to offset the actuarial difference. The plan still involves employers who will pay a sliding scale tax (deductible) on the number of employees they have. However, with medical premiums increasing by 7 – 12% every year, I suppose that a sliding scale tax will at least be a known cost. It also evens up the playing field between larger companies, who pay more than smaller companies.

Of all the proposals I have read, I like this one the best for its fiscal soundness and it’s realistic approach to the competing interests of all.

Health Care Reform – For Real

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It was the summer of 1973. I was working in emergency room x-ray in a teaching hospital in New York City. Back in those good ole days X-Ray techs had to know a lot about MA and KV, exposure time and soft tissue absorption and diffusion of X-rays. Developing x-rays required a knowledge of silver emulsions and development time. Now digital cameras make a lot of those judgments.

The word came down from on high – the top management of the hospital. From then on, all patients who came into the ER with any kind of fall were going to get a basic set of skull x-rays. What precipitated this nonsense, we wondered?

After a fall, a patient had come into the ER with a possible ankle fracture. His ankle was x-rayed. He had a sprain. He had some small skin scratches on his forehead, elbow and hand. These were cleaned and bandaged, his pupils and eye response were checked and he was discharged. A day or so later he was admitted with a brain hematoma. He sued the hospital. Under the new policy, a small child with some cuts and scratches on his knee got a set of skull x-rays. Neither the patients, doctors or staff liked the new policy. It was the dawn of defensive diagnostics. The legal department at the hospital was now making medical decisions.

Today, 36 years later, the House of Representatives passed a health care bill. You can read the jist of it here along with the 537 (and still counting) comments, some of them quite vituperative. No one has been predicting that this House version would be even close to a final version of a health care bill but it has kicked the discussion on health care reform into high gear. The Senate is working on a more moderate proposal. This bill is not about health care reform. It is about health insurance reform.

What is getting far less attention is the utter failure of the Congress to agree on real health care reform – the HOW of health care delivery and the legal environment in which health care is delivered. The Senate Committee on Health, Education, Labor and Pensions killed even a modest limited trial of tort reform, refusing to entertain the idea of special courts to try malpractice claims. Special courts for income tax cases, bankruptcy and workmen’s compensation are common in this country.

Until there is some attempt to slow the huge expense of defensive diagnostics, the ordering of tests to protect the doctor against possible lawsuits, health care costs will continue to climb at a rate far exceeding the consumer price index.

Pres. Obama is asking citizens to encourage their Senators to pass a health insurance reform bill. We need to be encouraging our Senators and Congressmen to pass a real health care reform bill, one that includes at least an attempt at tort reform.

California Welfare

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In a report to Congress published in June 2009, the Office of Financial Assistance (OFA) tallied the September 2008 welfare caseload in each state. The program, Temporary Assistance to Needy Families, is known by its acronym TANF and was created in 1996 to reform the previous welfare program and emphasize getting people back to work.

The dramatic increase in the caseload since 2006 is a testimony to the economic downturn. In September 2006, only California, Tennessee and Rhode Island had a greater than 1% of their population on this welfare to work program. California ranked first with 1.32% of the population on welfare.

Fast forward two years to September 2008 and the data shows that 24 states had greater than 1% of their population on this program.

In 2006, California had almost 1/2 million cases, almost twice as many welfare cases per 1000 people as New York and New Mexico, two other states with large immigrant populations. Texas and Florida, populous states with large immigrant populations, had far, far less cases per 1000 people than California.

In the two years from 2006 to 2008, New York’s caseload per 1000 population increased 60%. New Mexico’s caseload percentage doubled. As bad as the auto industry has been, Michigan had 1.72% of its population on the TANF program, the same as New Mexico.

New York has been hit hard by the financial crisis, Michigan by the auto crisis. California’s economy has a diverse base including agriculture, technology, tourism and the movie industry. In any downturn, diversity is a strength. So why does California continue to claim the top spot among states in welfare caseloads per 1000 population? At 3.25% of the population, this is a 250% increase in welfare caseloads in two years.

As high as California’s caseload is, it has declined 45% since the TANF program went into effect in 1996. California Budget Bites reports “The number of families receiving CalWORKs [California’s welfare to work program] dropped by more than 400,000 between March 1995 and March 2009. Yes, the CalWORKs caseload has gone up since July of 2007 – not surprising, given the economic downturn – but the overall trend in California slopes downward.”

Judging by the above data, we can conclude that as bad as California’s welfare program is, it is not as bad as it used to be. One wonders if this welfare expense might be contributing to California’s budget woes.

Cal Budget Bites notes that “Total spending on welfare fell by nearly one-third (32 percent) between 1996-97 and 2008-09, after adjusting for inflation.” Another factoid: “Welfare spending in California made up about 7 percent of the state budget in 1996-97. Today, it makes up about 3 percent.”

Why do California’s caseloads continue to be two and three times what many other states are? As noted above, a large immigrant population is not the reason. A lack of economic diversity is not the reason. New York, New Jersey, and Connecticut have high housing costs but they don’t have the high caseloads. Could it possibly be a badly structured and poorly managed program? Hmmm, something to think about there.

In 2006, California had 12% of the U.S. population and 25% of the welfare caseloads. In Sept 2008, California still had 12% of total population but 31.5% of caseloads in the U.S.

Debt Burden

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In his book “American Theocracy”, economist Kevin Phillips compares this decade with that of the Depression. In 1929, the total of government, corporate, financial and household debt was 287% of GDP. In 2004, it was 304% of GDP. At the end of the first quarter of 2009, the Federal Reserve estimates that we had almost $34T in debt. With an estimated annual GDP of $14T, we have a debt load about 2.5 times GDP. That sounds better, huh? Not quite.

In 1929, there was no Social Security trust fund for the federal government to borrow from because Social Security would not be set up for another four years. Because Social Security pay outs have been less than Social Security receipts in the past several decades, largely due to the large number of working payers in the boomer generation, the Federal government has been borrowing this extra money. By borrowing from the Social Security trust fund, the federal government does not have to borrow from other countries like China, but the easy availability of this money has allowed politicians on both sides of the political aisle to fund a lot of programs through the years by borrowing against the future – our future and our children’s future.

The Federal Reserve does not include this “intergovernmental” debt in its calculation of total debt, estimated at $4.3 trillion. Add that to the total debt load of $34T and the total comes to more than $38T of debt or a percentage of total debt to GDP that is close to that of the depression.

The good news is that Americans have been reducing their debt load. The bad news is that we still have some ways to go to get healthy. It will be a slow recovery as reduced consumption continues to dampen production.