To Accompany the October 15, 2013 edition of Tidbits
Bob Jensen at Trinity University
My Free Speech Political Quotations and Commentaries Directory and Log
If everyone is thinking alike, then somebody isn't
George S. Patton
The point is not that we should completely ignore
issues of fiscal responsibility. It is that we are nowhere near fiscal crisis;
we aren’t even looking at anything like a fiscal crisis 15 or 20 years from now.
So budget deficits, entitlement reform, and all that simply don’t deserve to be
policy priorities, let alone dominate the national discussion the way they did
for the past few years.
Paul Krugman ignoring the the Congressional Budget Office warnings that entitlement reforms should be a priority now ---
"This Is Not A Crisis," The New York Times, September 17, 2013 ---
In other words don't do anything about the looming entitlements disaster until Zimbbwe-like inflation is the only solution to paying off entitlements. Don's worry. Most of us will be dead before a chicken egg costs $1 billion in the USA.
The Congressional Budget Office does not agree with Krugman ---
Inside the Bone Factory ---
Barack Obama beat Mitt Romney in the 2012 elections 65,909,451 Obama
to 60,932,176 Romney votes.
Among the 48 million people of food stamps, how many voted for Mitt Romney?
The GOP will never win without gaining half the food stamp votes.
Here Are The States With The Most To Lose From Republican Food Stamp Cuts ---
It would do wonders for farmers if we gave food stamps to the 99%. The GOP would do better with that platform.
Read more: http://www.businessinsider.com/here-are-the-states-with-the-most-to-lose-from-republican-food-stamp-cuts-2013-9#ixzz2fWo3A8V9
Remember when US had a real leader, like … George W.
Chris Matthews, President Obama's Campaign Manager on MSNBC
If you treat every situation as a life-and-death
matter, you'll die a lot of times.
Dean Smith, American college basketball coach
As quoted in the CPA Newsletter recently
"Go On, Guess What Amazon's Top-Selling Gadget Is Right Now," by
Adriana Lee Adriana Lee, ReadWriteWeb, October 10, 2013 ---
Hint: It's not a smartphone. (Or a Kindle.)
We may live in a mobile-obsessed world, but it turns out the best-selling consumer-electronics gadget on Amazon isn't made by Apple or Samsung. Neither is it a Kindle—which is kind of shocking, given that Amazon promotes its own tablets and e-readers right on its own home page.
The winner is … Chromecast, the tiny Google device that streams video and music to a TV. Chromecast has topped several of Amazon's bestseller lists—including the biggie, its list of all electronics—for weeks now, displacing a Kindle model as sales leader and leapfrogging ahead of both Apple TV and the Roku.
The two-month-old Chromecast currently tops the charts for every Amazon subcategory it's listed in, including digital media devices, streaming media players and televisions and video. The next most popular TV streaming devices in the general electronics rankings are the Apple TV (at #7) and the Roku 3 (at #8).
It's easy enough to guess why the Chromecast is popular. First, it's cheap—$35 for a gadget with functionality similar to other streaming devices in the $50 to $100 range. Second, when it debuted, Chromecast immediately sold out—at the Google Play store, at Amazon, and at other retailers. Whether that was by design or due to inept supply chain management isn't clear, but one consequence was that Chromecast took on the allure of a hot, in-demand item.
Perhaps most important, Chromecast isn't restricted to a single platform. Although it's produced by Google, Chromecast works for both iPhone/iPad and Android users, at least for the most part, which gives almost anyone with a smartphone, tablet or computer the opportunity to stream to their TV using devices they already know and use. In other words, there's virtually no learning curve.
Chromecast's sales success does suggest that mainstream users aren't too concerned about the lack of streaming options—to date, only two non-Google services, Netflix and Hulu, work directly with Chromecast—or the wait for more apps to emerge. At least not yet.
Should Joe and Susan get their house back free
and clear or be forced out in anticipation of a million dollar settlement after
defaulting on their mortgage?
The Complicated Chaos of Measuring Impairment Losses on Tens of Millions of Poisoned Mortgage Loans "Maybe" Backed by Real Estate Collateral
"Accounting Scholarship that Advances Professional Knowledge and
Practice," by Robert Kaplan, The Accounting Review, March 2011, Volume 86, Issue 2)
(the Presidential Scholar Plenary Speech given by Harvard's Bob Kaplan at the 2009 American Accounting Association Annual Meetings):
. . .
Let us explore the state of the art today on determining fair values for financial instruments, which are, by far, the simplest applications for fair value measurements. The traditional accounting approach of using contemporary market prices works well for assets that trade continually in thick markets. For assets that are not actively traded, banks advocate and accounting educators teach the discounted cash flow approach, using the interest rate at the time the financial asset was issued. While current accounting standards require that impairments in these assets get recognized, most banks argue against recognizing impairments as long as debtors continue to make payments. This leads to nontraded or thinly traded financial assets being carried at historical cost or terminal value . Wachovia, and other banks, resisted fair value reporting of their financial assets by classifying them into their “held-to-maturity” portfolios, a classification that defies economic substance except in a highly restricted case. Wachovia in July 2008, reported $75 billion in share- holders’ equity, even after taking “modest” impairments of more than $10 billion during the previous 12 months in its more than $300 billion loan portfolio valued at historical cost . Yet less than three months later, the bank had failed, and its acquirer, Wells Fargo, wrote down Wachovia’s asset loan position by an additional $74 billion. This incident, and many others at the time, reveals a major shortcoming in the contemporary financial reporting framework. The deterministic is counted cash flow model is not adequate for estimating the fair values of risky financial assets. And, sadly, the ability to estimate fair values of thinly traded financial assets has existed for decades.
Continued in article
CPA auditors failed us by allowing massive overstatements of bank assets and earnings of over a thousand failing banks in 2008, including Wachovia mentioned above by Bob Kaplan.
The audit firms' clients failed to realistically estimate investment losses while the loan and collateral markets were so thin or even nonexistent for poisoned mortgages (loans to home owners that were certain to default on homes that soon would only sell for pennies on the dollar far below what they cost) that computing financial investment impairment losses became fantasy estimates. For a time some homes could not be given away because they were not worth, at least temporarily, the multiple-year property taxes and maintenance that must be paid before a buyer could be found.When banks like Wachovia declared such fraudulent (poisoned) investments would be held-to-maturity (HTM) this was a big lie since default ownership (or so it was thought) the collateral and resale was inevitable.
I agree with Bob Kaplan that the poisoned mortgages should have been written down with massive impairment losses recognized before the banks failed. Investors should have been warned in financial statements about these losses before they read the banks' bankruptcy notices in the local papers.
But the issue is not whether the impairment losses are recognized as bad debt writeoffs as amortized historical cost bites (as in HTM financial instruments) or adjustment bites to fair value carrying amounts (as in AFS financial instruments that at times were worthless). In either of these two impairment loss calculation approaches the fair values of the loan collateral had to be estimated --- which meant trying to appraise housing values in situations where there was no longer a poisoned mortgage market or a collateral real estate market following the bursting of the real estate bubble in 2007. At the bottom of the real estate market these formerly expensive homes were not worth what it would cost to pay their property taxes and maintenance. The problem was that CPA auditors of banks did not insist on such massive impairment charges however computed before the mortgage holders failed.
Example of a Worthless AFS Mortgage
The problem was not write downs in fair values versus historical cost loan loss setting up of contra loan loss amounts with the loan losses being charged to bad debt expense. The problem was that the auditors allowed their clients to understate loan loss estimates computed by whatever means in the burst real estate market. Any type of impairment loss in this case boiled down to estimation of what the real estate collateral was worth of failed loans in a miserable real estate market with no recovery in sight.
Marvene Halterman, an unemployed elderly Arizona
woman with a long history of creditors, welfare, and food stamps, took out a
$103,000 mortgage on her above 576 square-foot shack in early 2007. Within a
year she stopped making payments and drove off in her new $60,000 truck
purchased with her loan proceeds. After she moved out neighbors bought the shack
for $10,000 and tore it down. The hapless bank that purchased her mortgage from
the criminal mortgage broker (Michael T. Asher from Integrity Funding LLC)
eventually ate the loss of over $90,000 that was primarily caused by a
fraudulent Mr. Asher who issued the mortgage to Marvene and then sold the
mortgage to that sucker bank for cash ---
But the story gets worse.
The initiators of those fraudulent poisoned mortgages were criminal mortgage lenders like Countrywide, Washington Mutual, Ameriquest and thousands of lesser-known mortgage brokers who sold this poisoned paper up the sales chain to Wachovia, Merrill Lynch, Lehman Bros., Bear Stearns, Fannie Mae, Freddie Mack, etc. who, in turn, tried to lace CDO bonds with portions of this poisoned paper. But the CDO attempt failed because most of the CDO bonds were sold with recourse such that the junk simply was returned to the investment banks Merrill Lynch who begged for the U.S. Government to pay off the buyers of those hopeless CDO bonds. And the government did so to the tune of over a $1 trillion swindle:
Then when Wachovia, Merrill Lynch, and the like failed the Secretary of the U.S. Treasury, Hank Paulsen, forced the prosperous larger banks like Bank of America and Wells Fargo to acquire some of the failed investment banks like Merrill Lynch and criminal lenders like Countrywide, e.g., Paulsen made hard threats, actually extortion, to a reluctant Bank of America to acquire Merrill Lynch and thereby Paulsen dumped billions upon billions of dollars of poisoned mortgages on Bank of America that really did not previously own poisoned mortgages until the U.S. Secretary of the Treasury forced all those poisoned mortgages onto Bank of America's books.
. . .
Bank of America announced its deal with Merrill in September, as financial markets were seizing up and Lehman Brothers fell to its knees. But Mr. Lewis grew less certain once the bank discovered that Merrill’s finances were worse than imagined, and considered pulling out of the deal.
On Thursday, Mr. Lewis maintained that federal officials pressured him to keep the merger alive, and acknowledged that his job had been at risk if he did not. But he resisted lawmakers’ efforts to characterize the situation as a threat. And he backed away from earlier statements in which he suggested that Mr. Bernanke and Mr. Paulson had urged him not to reveal Merrill’s troubling state before the merger was sealed, calling them “two honorable people” who had “good intentions.”
“It’s important to remember that we have heard only one side of the story today,” said Edolphus Towns, a Democrat from New York who heads the House Committee on Oversight and Government Reform, which held the hearing. But, he said, “the regulators and financial institutions seemed to be making up the rules as they went along.”
For a merger once hailed as the way forward for Wall Street, the backstory keeps getting messier. The bank’s executives, including Mr. Lewis, face continued scrutiny from regulators and pressure from shareholders.
And Mr. Paulson and Mr. Bernanke, who thought preserving a deal would keep markets calm in the thick of the financial crisis, are being questioned on whether they pressured a company’s executives into ignoring their duty to their shareholders.
According to notes taken by Bank of America executives to record their conversations with regulators at the time, Timothy F. Geithner, now the secretary of the Treasury, and Lawrence H. Summers, currently the president’s lead economics adviser, were also aware of the effort to seal a merger as the Bush administration prepared a transition to the incoming administration of Barack Obama.
Mr. Lewis, for instance, typed up notes from a phone call he had on Dec. 31 with Mr. Bernanke on the subject of the merger. According to the notes, which were provided to the Congressional committee by Bank of America, Mr. Bernanke told him: “Geithner, Summers and Paulson up to date. Geithner would like to see what is done as a template for the industry.”
Continued in article
Although a few investment banks like Lehman Bros. were not saved by Hank Paulsen, most like Merrill Lynch were saved by forced buyouts by banks who did not realize that the poisoned mortgages that they bought may not even be owned after the purchase (see below). Wachovia was sucked up by Wells Fargo along with its billions in poisoned mortgage investments.
But the story gets even worse.
Along with all this shuffling of hundreds of billions in fraudulent poisoned mortgages from Main Street to Wall Street and the accounting coverups along the way, much of the original paper signed by hopeless (could-never-pay) homeowners was also lost. In other words, when Joe and Susan Smith signed a $500,000 subprime mortgage in 2004 intending to flip their house for a profit in four years (with no hope on their income of $70,000 per year of paying off that mortgage) the piece of paper they signed got lost by Countrywide or Merrill Lynch or Bank of America or whomever. Nobody can belatedly find the original mortgage signed by Joe and Susan Smith!
When the real estate market crashed in 2007 Joe and Susan Smith had no hope flipping their 2004 home for anywhere close to what they owed on their subprime mortgage. Instead they would have to sell for pennies on the dollar if they could even sell for pennies to reluctant potential buyers who did not want to take on their property taxes. Instead they decided to simply become squatters in their own home and make no more payments of their mortgage as it worked its way up from Countrywide to Merrill Lynch to Bank of America. They did not even pay the property taxes that were paid by whatever bank thought it owned their mortgage.
It gets even better for the Smiths because the banks who thought they owned the Smith mortgage continued to pay the Smith home property taxes.
Eventually, Bank of America or Wells Fargo or whomever "owned" the Smith' mortgage wanted to send the local sheriff to Joe and Susan and their kids out of their house because they were no longer making any mortgage payments. This proved difficult, however, without a copy of the original signed mortgage. When the eviction case wound up in court, the lawyer for Joe and Susan Smith demanded to see the original loan that they signed. Sadly for the banks, much of the original paper got incinerated (unintentionally) or shredded when the offices of Countrywide and the other fraudsters were hurriedly emptied out for that failed company.
It's currently estimated that about 50% of
the foreclosed homes are still occupied
by the borrowers who are squatting in those homes and making no loan payments or
property tax payments because the banks cannot find their original mortgage
The banks are still paying the property taxes while hoping the courts will resolve this enormous problem.
The net results include the following:
The banks that purportedly "own" the mortgage
financial instruments and have paid property taxes for years cannot prove
they legally own the mortgages without having copies of the original signed
mortgages. Hence it's not clear they can foreclose on the original owners
The banks' CPA auditors face an enormous task
of estimating loan value impairments on financial instruments that may or
may not be owned by their clients. To make matters worse courts in different
district courts may not consistently handle the ownership adjudication.
Joe and Susan Smith who are squatters making no
mortgage or tax payments can smirk at Sam and Judy Jones next door who dug
down deep into savings to keep paying their mortgage payments and property
taxes. Something seems terribly unfair if home owners like Joe and Susan
Smith who defaulted fare much better than people neighbors who honored their
obligations. Should Joe and Susan Smith get their house back free and clear
or be forced out in anticipation of a million dollar settlement?
What keeps Sam and Judy Jones from playing the
same game as Joe and Susan Smith is that Sam and Judy cannot be certain that
their mortgage holder does not have the original copy of their loan. It
would be risky for them to default, be tossed out on the street, and then
later discover in court that their original paper was not lost.
Is it ethical for Joe and Susan Smith to receive an enormous settlement just because the banking system let their original mortgage papers accidentally go up in smoke or be shredded? It's up to the courts to decide, and until then CPA auditors will have an enormous problem valuing financial instruments (mortgage investments) that the banks may or may not own depending upon contingency court decisions on tens of millions of non-paying squatters now living in their own homes and former squatters who are trying to cash in the the legal lottery for damages, pain, and suffering.
From an accounting standpoint in some banks, especially JP Morgan, these issues become even more complicated by probes into criminal activities regarding manipulation of the mortgage markets.
From the CFO Journal's Morning Ledger on September 26, 2013
J.P. Morgan discussing $11 billion settlement
J.P. Morgan is in discussions to settle probes related to mortgage-backed securities for $11 billion, the WSJ reports. The amount being discussed would include $7 billion in cash and $4 billion in relief to consumers. As large as the potential settlement may be, two people familiar with the matter cautioned that even if a deal is reached, it may not resolve one of the biggest dangers for the bank: the potential for criminal charges stemming from the mortgage-backed securities probe
As far as the consumer tort lawyers are concerned no settlements will be enough for defaulting homeowners who were tossed out on the street and defaulting squatters awaiting ownership resolutions.
Meanwhile Joe and Susan Smith may squat out most of their lives without making mortgage payments or property taxes while awaiting a million dollar settlement.
CPA auditors face an enormous problem of booking loan loss impairments on these foreclosed properties. The markets for these properties and their mortgages are nonexistent until ownership issues are resolved by the courts. The magnitudes of the potential loan losses are so enormous that the lives of some of the biggest banks in the USA are hanging by a thread.
I don't agree with Bob Kaplan that companies should not be allowed in general to declare financial instruments as held-to-maturity (HTM). Many companies do indeed plan to carry some of their financial instrument assets and liabilities to maturity for various reasons, usually because of transactions costs of not carrying them to maturity. Fair value adjustments of such HTM securities become fictional gains and losses in interim periods that adds misleading noise to interim financial statements prior to maturity. Nor do I think that unrealized market value gains and losses of available-for-sale (AFS) securities should be combined with legally revenues in the calculations of net earnings. I do think that separate columns should be provided for legally realized revenue transactions versus unrealized value change transactions of AFS securities. Unrealized value changes on HTM securities should be disclosed but not combined with unrealized value changes of AFS financial instruments.
The point of this tidbit is to stress that the loss impairment calculation problem is much more complicated when there are hundreds of billions of dollars in mortgage investments for which there are no financial instruments markets and the "values" must be determined by estimates of the collateral (homes) values. It is even more complicated when the original signed mortgage notes cannot be found, thereby complicating the issue of who owns the homes.
What are befuddled auditors and clients supposed to book in these circumstances? The simple answer is full disclosure. But full disclosure might require paper trails that would reach to the moon.
"FHA to draw $1.7b from Treasury to Cover Losses," SmartPros,
September 27, 2013 ---
Bob Jensen's threads on the bottomless bailout ---
The Greatest Swindle in the History of the World ---
"The Most Tax-Friendly and Unfriendly States For Business," by Charley
Blaine, 24/7 Wall Street, October 11, 2013 ---
There may be better ways to define "friendly" than in terms of business and individual taxes. For example, Texas did not make the tax-friendly list in comparison with Wyoming, Alaska, New Hampshire, and Nevada. Yet firms are flocking more to Texas that all of those other states combined. Being tax friendly does not trump such things as available workforce (yes Hispanics in Texas are good workers) and incentives provided by state and local governments. Location is important with Texas being a gateway to commerce south of the Rio Grande. Large airport hubs are important to attracting new businesses. This also gives Dallas and Houston an edge. And not having labor union strife is all-important which favors southern states relative to New England and New York.
"The Heartland Tax Rebellion: More states want to repeal their
income taxes," The Wall Street Journal, February 7, 2012 ---
Oklahoma Governor Mary Fallin is starting to feel surrounded. On her state's southern border, Texas has no income tax. Now two of its other neighbors, Missouri and Kansas, are considering plans to cut and eventually abolish their income taxes. "Oklahoma doesn't want to end up an income-tax sandwich," she quips.
On Monday she announced her new tax plan, which calls for lowering the state income-tax rate to 3.5% next year from 5.25%, and an ambition to phase out the income tax over 10 years. "We're going to have the most pro-growth tax system in the region," she says.
She's going to have competition. In Kansas, Republican Governor Sam Brownback is also proposing to cut income taxes this year to 4.9% from 6.45%, offset by a slight increase in the sales tax rate and a broadening of the tax base. He also wants a 10-year phase out. In Missouri, a voter initiative that is expected to qualify for the November ballot would abolish the income tax and shift toward greater reliance on sales taxes.
South Carolina Governor Nikki Haley wants to abolish her state's corporate income tax. And in the Midwest, Congressman Mike Pence, who is the front-runner to be the next Republican nominee for Governor, is exploring a plan to reform Indiana's income tax with much lower rates. That policy coupled with the passage last week of a right-to-work law would help Indiana attract more jobs and investment.
That's not all: Idaho, Maine, Nebraska, New Jersey and Ohio are debating income-tax cuts this year.
But it is Oklahoma that may have the best chance in the near term at income-tax abolition. The energy state is rich with oil and gas revenues that have produced a budget surplus and one of the lowest unemployment rates, at 6.1%. Alaska was the last state to abolish its income tax, in 1980, and it used energy production levies to replace the revenue. Ms. Fallin trimmed Oklahoma's income-tax rate last year to 5.25% from 5.5%.
The other state overflowing with new oil and gas revenues is North Dakota thanks to the vast Bakken Shale. But its politicians want to abolish property taxes rather than the income tax.
They might want to reconsider if their goal is long-term growth rather than short-term politics. The American Legislative Exchange Council tracks growth in the economy and employment of states and finds that those without an income tax do better on average than do high-tax states. The nearby table compares the data for the nine states with no personal income tax with that of the nine states with the highest personal income-tax rates. It's not a close contest.
Skeptics point to the recent economic problems of Florida and Nevada as evidence that taxes are irrelevant to growth. But those states were the epicenter of the housing bust, thanks to overbuilding, and for 20 years before the bust they had experienced a rush of new investment and population growth. They'd be worse off now with high income-tax regimes.
The experience of states like Florida, New Hampshire, Tennessee and Texas also refutes the dire forecasts that eliminating income taxes will cause savage cuts in schools, public safety and programs for the poor. These states still fund more than adequate public services and their schools are generally no worse than in high-income tax states like California, New Jersey and New York.
They have also recorded faster revenue growth to pay for government services over the past two decades than states with income taxes. That's because growth in the economy from attracting jobs and capital has meant greater tax collections.
The tax burden isn't the only factor that determines investment flows and growth. But it is a major signal about how a state treats business, investment and risk-taking. States like New York, California, Illinois and Maryland that have high and rising tax rates also tend to be those that have growing welfare states, heavy regulation, dominant public unions, and budgets that are subject to boom and bust because they rely so heavily on a relatively few rich taxpayers.
The tax competition in America's heartland is an encouraging sign that at least some U.S. politicians understand that they can't take prosperity for granted. It must be nurtured with good policy, as they compete for jobs and investment with other states and the rest of the world.
"Our goal is for our economy to look more like Texas, and a lot less like California," says Mr. Brownback, the Kansas Governor. It's the right goal.
Continued in article
State Individual Income Tax Rates in the 50 States, 2000-2011 ---
On a per capita basis ---
50-State Table of State and Local Individual Income Tax Collections Per Capita
Comparison of Corporate Income Tax Rates in the 50 States ---
On a per capita basis ---
This is a little misleading since many states like Illinois give their largest corporate employers "Get Out of Tax Free" cards (or offsetting subsidies)
State Sales, Gasoline, Cigarette, and Alcohol Tax Rates by State,
"Management from a Climate Change Perspective" linked by Jim Martin
on MAAW's Blog, September 25, 2013 ---
"Ten American Companies Cutting the Most Jobs," by Alexander E.M. Hess
and Michael B. Sauter, 24/7, October 9, 2013 ---
JP Morgan lays off 19,000
Global PC Sales Drop as Industry Faces Layoffs ---
"The President's Shutdown Where leadership is needed, Obama stays on the
sidelines—except when he's attacking Republicans," by Fred Barnesm, The
Wall Street Journal, October 1, 2013 ---
. . .
President Obama is sitting out one of the most important policy struggles since he entered the White House. With the government shutdown, it has reached the crisis stage. His statement about the shutdown on Tuesday from the White House Rose Garden was more a case of kibitzing than leading. He still refuses to take charge. He won't negotiate with Republicans, though the fate of ObamaCare, funding of the government and the future of the economic recovery are at stake. He insists on staying on the sidelines—well, almost.
Mr. Obama has rejected conciliation and compromise with Republicans. Instead, he attacks them in sharp, partisan language in speech after speech. His approach—dealing with a deadlock by not dealing with it—is unprecedented. He has gone where no president has gone before.
Can anyone imagine an American president—from Lyndon Johnson to Ronald Reagan, from Harry Truman to Bill Clinton—doing this? Of course not. They didn't see presidential leadership as optional. For them and nearly every other president, it was mandatory. It was part of the job, the biggest part.
LBJ kept in touch daily with Everett Dirksen, the Republican leader in the Senate, and never missed an opportunity to engage him in reaching agreement on civil rights, taxes, school construction and other contentious issues. Mr. Obama didn't meet one-on-one with Mitch McConnell, the Senate GOP leader, until 18 months into his presidency and doesn't call on him now to collaborate.
Presidents have two roles. In the current impasse, Mr. Obama emphasizes his partisan role as leader of the Democratic Party. It's a legitimate role. But as president, he's the only national leader elected by the entire nation. He alone represents all the people. And this second, nonpartisan role takes precedence in times of trouble, division or dangerous stalemate. A president is expected to take command. Mr. Obama hasn't done that.
The extent to which he has abdicated this role shows up in his speeches. On the eve of the shutdown, he warned that a government closure "will have a very real economic impact on real people, right away." Defunding or delaying his health-care program—the goal of Republicans—would have even worse consequences, he suggested. "Tens of thousands of Americans die every single year because they don't have access to affordable health care," Mr. Obama said.
In an appearance in the White House pressroom, he said that "military personnel—including those risking their lives overseas for us right now—will not get paid on time" should Republicans force a shutdown. At an appearance in Largo, Md., the president accused Republicans of "threatening steps that would actually badly hurt our economy . . . Even if you believe that ObamaCare somehow was going to hurt the economy, it won't hurt the economy as bad as a government shutdown."
Yet as he was predicting widespread suffering, Mr. Obama steadfastly refused to negotiate with Republicans. He told House Speaker John Boehner in a phone call that he wouldn't be talking to him anymore. With the shutdown hours away, he called Mr. Boehner again. He still didn't negotiate and said he wouldn't on the debt limit either.
Mr. Obama has made Senate Majority Leader Harry Reid his surrogate in the conflict with Republicans. Mr. Reid has also declined to negotiate. In fact, Politico reported that when the president considered meeting with Mr. Boehner and Mr. McConnell, along with the two Democratic congressional leaders, Mr. Reid said he wouldn't attend and urged Mr. Obama to abandon the idea. The president did just that.
By anointing Mr. Reid, President Obama put power in the hands of the person with potentially the most to gain from a shutdown. Mr. Reid's position as Senate leader is imperiled in next year's midterm election. Republicans are expected to gain seats. They need a net of six pickups to take control and oust Mr. Reid. His strategy is to persuade voters that the shutdown was caused by tea-party crazies in the GOP, and that turning over the Senate to them would be foolhardy. If Mr. Reid's claim resonates with voters, it might keep Republicans from gaining control of the Senate.
Mr. Obama insists that he is ready to discuss tweaks in ObamaCare "through the normal democratic processes." But, he said last week, "that will not happen under the threat of a showdown."
It probably won't happen in less frantic situations either. The president in the past has proved to be a difficult negotiating partner. In his first term, he blew up a "grand bargain" on taxes and spending with Mr. Boehner by demanding even higher taxes at the last minute. Without what Mr. McConnell calls a "forcing mechanism," no major agreement on domestic issues has been reached.
The three deals that Mr. Obama has signed off on—all negotiated by Vice President Joe Biden—were forced. The president agreed in 2010 to extend the Bush tax cuts for two years as they were about to expire. In 2012, he made the Bush cuts permanent except for the wealthiest taxpayers. In 2011, he agreed to spending cuts in exchange for an increase in the debt limit as it was close to being breached.
The president's tactic of attacking Republicans during a crisis while spurning negotiations bodes for a season of discord and animosity in the final three-and-one-quarter years of the Obama presidency. That he has alienated Republicans doesn't seem to trouble Mr. Obama.
Continued in article
The problem is that in 2016 the big government advocates wanting to print and spend trillions of dollars may well clean sweep the GOP out of Washington DC in 2016. It won't be long until Starbucks begins to charge $25 for a simple cup of coffee and another $30 for a donut.
"Paul Ryan: Here's How We Can End This Stalemate Both Reagan and Clinton
negotiated debt-ceiling deals with their opponents. We're ready to negotiate,"
The Wall Street Journal, October 8, 2013 ---
The president is giving Congress the silent treatment. He's refusing to talk, even though the federal government is about to hit the debt ceiling. That's a shame—because this doesn't have to be another crisis. It could be a breakthrough. We have an opportunity here to pay down the national debt and jump-start the economy, if we start talking, and talking specifics, now. To break the deadlock, both sides should agree to common-sense reforms of the country's entitlement programs and tax code.
First, let's clear something up. The president says he "will not negotiate" on the debt ceiling. He claims that such negotiations would be unprecedented. But many presidents have negotiated on the debt ceiling—including him. In 1985, Ronald Reagan signed a debt-ceiling deal with congressional Democrats that set deficit caps. In 1997, Bill Clinton hammered out an agreement with congressional Republicans to raise the debt ceiling, reform Medicare and cut capital-gains taxes. Two years ago, Mr. Obama signed the Budget Control Act, which swapped spending cuts for a debt-ceiling hike.
So the president has negotiated before, and he can do so now. In 2011, Oregon's Democratic Sen. Ron Wyden and I offered ideas to reform Medicare. We had different perspectives, but we also had mutual trust. Neither of us had to betray his principles; all we had to do was put prudence ahead of pride.
If Mr. Obama decides to talk, he'll find that we actually agree on some things. For example, most of us agree that gradual, structural reforms are better than sudden, arbitrary cuts. For my Democratic colleagues, the discretionary spending levels in the Budget Control Act are a major concern. And the truth is, there's a better way to cut spending. We could provide relief from the discretionary spending levels in the Budget Control Act in exchange for structural reforms to entitlement programs.
These reforms are vital. Over the next 10 years, the Congressional Budget Office predicts discretionary spending—that is, everything except entitlement programs and debt payments—will grow by $202 billion, or roughly 17%. Meanwhile, mandatory spending—which mostly consists of funding for Medicare, Medicaid and Social Security—will grow by $1.6 trillion, or roughly 79%. The 2011 Budget Control Act largely ignored entitlement spending. But that is the nation's biggest challenge.
The two political parties have worked together on entitlements before. In 1982, Social Security's trustees warned Congress that the program would go bankrupt within a year. If it had, seniors would have seen an immediate cut in their benefits. Instead, Congress passed a package of reforms—the most important of which was an increase in the retirement age. Because Congress phased in this reform over time, there were no budget savings in the first five years. But through 2012, the savings were $100 billion. In the next 75 years, Social Security's actuaries expect that these reforms will save $4.6 trillion.
Just as a good investment gets higher returns through compound interest, structural reforms produce greater savings over time. Most important, they make the programs more secure. They protect them for current seniors and preserve them for the next generation. That's what the president and Congress should talk about.
Here are just a few ideas to get the conversation started. We could ask the better off to pay higher premiums for Medicare. We could reform Medigap plans to encourage efficiency and reduce costs. And we could ask federal employees to contribute more to their own retirement.
The president has embraced these ideas in budget proposals he has submitted to Congress. And in earlier talks with congressional Republicans, he has discussed combining Medicare's Part A and Part B, so the program will be less confusing for seniors. These ideas have the support of nonpartisan groups like the Bipartisan Policy Center and the Committee for a Responsible Federal Budget, and they would strengthen these critical programs. And all of them would help pay down the debt.
We should also enact pro-growth reforms that put people back to work—like opening up America's vast energy reserves to development. There is even some agreement on taxes across the aisle.
Rep. Dave Camp (R., Mich.) and Sen. Max Baucus (D., Mont.) have been working for more than a year now on a bipartisan plan to reform the tax code. They agree on the fundamental principles: Broaden the base, lower the rates and simplify the code. The president himself has argued for just such an approach to corporate taxes. So we should discuss how Congress can take up the Camp–Baucus plan when it's ready.
Reforms to entitlement programs and the tax code will spur economic growth—another goal that both parties share. The CBO says stable or declining levels of federal debt would help the economy. In addition, "federal interest payments would be smaller, policy makers would have greater leeway . . . to respond to any economic downturns . . . and the risk of a sudden fiscal crisis would be much smaller."
This isn't a grand bargain. For that, we need a complete rethinking of government's approach to helping the most vulnerable, and a complete rethinking of government's approach to health care. But right now, we need to find common ground. We need to open the federal government. We need to pay our bills today—and make sure we can pay our bills tomorrow. So let's negotiate an agreement to make modest reforms to entitlement programs and the tax code.
This is our moment to get a down payment on the debt and boost the economy. But we have to act now.
The Federal Reserve won't keep interest rates low forever. The demographic crunch will only get worse. So once interest rates rise, borrowing costs will spike. If we miss this moment, the debt will spiral out of control.
Continued in article
"127 cons got jobless pay behind bars Unemployment scammers net $150G,"
by : John Zaremba, Boston Herald, October 5, 2013 ---
"The Ethanol Enforcers Even mandates and subsidies aren't enough for the
political fuel," The Wall Street Journal, October 7, 2013 ---
In its zeal to impose the ethanol boondoggle, Congress has mandated it, subsidized it, and protected it from competitors. Now some Senators are siccing prosecutors on those who still won't get on their ethanol cornwagon.
That's the gist of a recent letter from Iowa Republican Charles Grassley and Minnesota Democrat Amy Klobuchar, demanding the Justice Department and Federal Trade Commission investigate the oil industry for "anticompetitive practices aimed at blocking market access for renewable fuels." That's Senatorial Cornspeak for saying oil companies should have to put their gas stations in the service of Big Ethanol.
Congress's 2007 Renewable Fuels Standard mandates the blend of 36 billion gallons of renewable fuels (ethanol) annually into the nation's gasoline supply by 2022. But gasoline consumption remains flat. Refiners are thus crashing against the 10% "blend wall"; beyond that concentration in gasoline, ethanol begins to damage motors.
So now ethanol's promoters are scrambling for new outlets, pushing for more pumps that supply straight 85% ethanol, or "E85." Problem is, few retailers want to sell it. Installing E85 equipment is costly, while "flex-fuel" cars that can use E85 account for less than 3% of the U.S. fleet.
Faced with market reality, the ethanol squad has now seized on the case of a lone Kansas Phillips 66 PSX -2.15% franchisee who sells E85 ethanol. The franchisee also began selling E15 (gasoline with 15% ethanol), which reduced the amount of Phillips 66's own gasoline on offer (and exposed Phillips 66 to liability for any E15 damage to engines).
According to the Renewable Fuels Association, Phillips 66 insisted that the franchisee use at least one of its tanks to sell Phillips' premium gasoline. Phillips 66 refused to comment on a private customer arrangement, though it "strenuously" denies it is trying to frustrate ethanol use.
No matter. The two Senators are howling that Phillips 66's demand that its franchisee carry premium along with regular may amount to "a tying arrangement in violation of the Sherman [Antitrust] Act." (Tying is when customers are forced to purchase related products.) The Grassley-Klobuchar letter mirrors a March complaint from the Renewable Fuels Association that demands the FTC, the Environmental Protection Agency, and the Departments of Agriculture and Energy investigate the "unlawful conduct" of the oil industry in "blocking the introduction of cheaper, cleaner, and renewable alternatives."
The only purpose of these letters is to intimidate. (The Kansas gas station took the easy step of breaking ties with Phillips 66 and is now selling non-branded product. So much for an antitrust situation.) Having mandated huge volumes of a fuel that has little willing market, the ethanol lobby is bullying auto makers to warranty cars that use damaging E15, pushing legislation to require more flex-fuel vehicles, and now using the threat of investigation to force the oil industry into selling a rival product. All this for a fuel that raises gas and food prices and has no anti-pollution benefits.
If ethanol is the miracle its supporters claim, it shouldn't need a mandate or subsidies. And it shouldn't need to bully the oil industry to do its selling for it.
"Where Wal-Mart Isn't: Four Countries the Retailer Can't Conquer," by
Susan Berfield, B;oomberg Businessweek, October 10, 2013 ---
Wal-Mart (WMT) is the biggest retailer in the world, with sales of $135 billion in 26 countries outside the U.S. But it doesn’t have stores in some of the world’s biggest markets. Not in Germany, not in South Korea, not in Russia. And as of this week, not in India, either.
On Oct. 9, Walmart announced that it is breaking up with its Indian partner, Bharti Enterprises, which means the American company’s ambitious plans to open hundreds of supercenters around India won’t be realized soon. In the official statement, Scott Price, head of Walmart Asia, referred obliquely to “investment conditions” as part of the problem. He had been more direct in an Associated Press interview two days earlier at the Asia-Pacific Economic Cooperation summit. Price said that the Indian government’s requirement that foreign retailers source 30 percent of the products they sell from small and medium-sized Indian businesses is the ”critical stumbling block.” Walmart does have a wholesale business in India, which it is keeping.
Price didn’t mention that the Indian government is investigating allegations that Walmart violated rules governing foreign investment in the retail industry, or that Walmart is conducting an internal probe on possible violations of U.S. anti-corruption laws.
Walmart has not figured out a way to enter Russia, either. For nearly six years, it looked to buy a local company that could ease potential cultural and bureaucratic misunderstandings. Walmart lost a bid for a promising partner, a discount chain called Kopeyka, in 2010. Walmart later closed its Moscow office after saying disagreements on price had thwarted its acquisition plans.
Then there’s Germany and South Korea. After opening stores in both countries, Walmart closed them in 2006. Germans didn’t like Walmart employees handling their groceries at the check-out line. Male customers thought the smiling clerks were flirting. And many Europeans prefer to shop daily at local markets. In South Korea, Walmart also stuck to its American marketing strategies, concentrating on everything from electronics to clothing and not what South Koreans go to big markets for: food and beverages.
Continued in article
There are parts of the USA that ban Wal-Mart stores. Exhibit A is Boston where labor unions run the city. Exhibit B is Vermont that protects both small businesses and labor unions like a tiger even though employees in those small businesses are often not in labor unions.
Only a veto of the mayor recently blocked the banning of Wal-Mart stores in Washington DC. It's not that the mayor loves Wal-Mart. In this case, he vetoed the legislation to provide more job opportunities to the unemployed in Washington DC, including construction worker jobs for six planned new stores in his city.
"California's Green Trade War: Sacramento uses carbon mandates to
punish out-of-state businesses," The Wall Street Journal, October 11,
Environmental policies are often economic protectionism in green clothing. A case in point is California's low-carbon fuel standard, whose constitutionality is being challenged in federal court. It's also a case study of the incredible contortions of green policy-making today.
California's low-carbon fuel mandate requires the state, by 2020, to reduce the "carbon intensity" of its transportation fuels by 10%. Carbon intensity is a fuel's "life-cycle emissions," which include the energy needed to produce and transport it. You guessed it: California fuels tend to qualify as less carbon intense than imported out-of-state fuels because they're produced closer to market and use "cleaner" (i.e., renewable) sources of power.
But there's one big exception: Some California-based oil that is extracted using "thermally enhanced" techniques produces lots of emissions. But the state's oil industry is a key source of employment in inland areas. What to do? The California Air Resources Board came up with a formula that assigns older sources of crude oil, no matter its production technology, the same score.
What this means is that California's crude oil now rates the same as Alaskan light—even though California's actual carbon intensity is four times as high. Yet another convolution puts oil recovered from Canada's Alberta tar sands at a ratings disadvantage in California.
Now comes the kicker: By the California Air Resources Board's own admission, the state's fuel standard "does not result in reductions in greenhouse gas emissions on a global scale" because more carbon-intense fuels will be sold elsewhere anyway.
So what's the point of all this? The goal is to corner the market for "advanced" biofuels, such as soybean oil, landfill waste and even animal lard. This stuff will be in high demand when the U.S. EPA ratchets up the federal Renewable Fuel Standard. California subsidized the biofuels industry by $23 million this year.
The American Fuel & Petrochemical Manufacturers and other affected parties have sued the state for violating the U.S. Constitution's Commerce Clause by discriminating against out-of-state fuels. In 2011, federal Judge Lawrence O'Neill of the Eastern District of California ruled that the fuel mandate is unconstitutional and issued a preliminary injunction.
Then a three-judge panel of the hyper-liberal Ninth Circuit Court of Appeals weighed in. It vacated the district's court order, arguing that it should have considered whether the local benefits of controlling climate change exceeded the burden on interstate commerce. As argued by Justice Ronald Gould, California could see "its labor force imperiled by rising temperatures, and its farms devastated by severe droughts" due to rising emissions.
By this expansive logic, California could impose restrictions on virtually any out-of-state product on the pretext of reducing carbon emissions as the state defines them. France's wine producers take note.
Last week, the plaintiffs in the case requested en banc review by the Ninth Circuit. If the full appellate court rules that the climate trumps the Commerce Clause, the U.S. Supreme Court may have to bring California back to earth.
SEC = Substitute Environmental Cop
"SEC’s White Says Lawmakers Should Respect Agency’s Independence," by
Joshua Gallu, Bloomberg Businessweek, October 3, 2013 ---
U.S. Securities and Exchange Commission Chairman Mary Jo White said lawmakers left the agency “no room” for independent judgment when they mandated rules related to mining safety and conflict minerals.
Those legislative directives “seem more directed at exerting societal pressure on companies to change behavior, rather than to disclose financial information that primarily informs investment decisions,” White said in remarks prepared for a speech today at Fordham Law School in New York. “I must question, as a policy matter, using the federal securities laws and the SEC’s powers of mandatory disclosure to accomplish these goals.”
The SEC has faced court challenges of rules mandated by the 2010 Dodd-Frank Act related to minerals originating in the Democratic Republic of the Congo and a requirement that oil and gas companies disclose payments made to foreign governments, which a court voided in July.
“To my mind, the SEC achieves the best results and best fulfills its mission, when it uses its expertise, acts independently, and defends that independence against all comers,” White said. “It is a simple principle. And as long as I am chair, I will be guided by it.”
Judges also should respect the agency’s independence and its ability to reach appropriate settlements with securities law violators, she said. The agency’s settlements came under increased scrutiny after U.S. Judge Jed Rakoff rejected a proposed agreement with Citigroup Inc. in part because the bank didn’t admit to any misconduct.
"SEC chair chastises Congress over new disclosure rules." by Aruna
Viswanatha, Reuters, October 4, 2013 ---
"SEC Chairman: Congress, Courts Crowding in on Regulator's Role White Says
Courts Should 'Defer' to Agency's 'Reasoned Judgments'," The Wall Street
Journal, October 3, 2013 ---
Has the SEC ever been "independent" of Congress and the lobbying pressures that pull the strings of Congressional puppets?
"Casey Mulligan: How ObamaCare Wrecks the Work Ethic," by Casey B.
Mulligan, The Wall Street Journal, October 2, 2013 ---
A new wave of redistribution will arrive in America on Jan. 1, primarily thanks to the Affordable Care Act. The president's health-insurance plan forces those who hire, work and produce to pay full price for health care, while creating generous discounts for practically everyone else.
This second redistributionist wave of the Obama era will follow a first wave of tax hikes, additional unemployment benefits, food-stamp expansions, waived work requirements for welfare benefits, etc. These measures were supposed to be temporary, intended to help people cope with the recession. The recession officially ended in mid-2009, but many of the administration's measures continue.
Regardless of whether redistribution is achieved by collecting more taxes from families with high incomes, levying employment taxes on businesses, providing more subsidies to families with low incomes, or all of the above, an essential consequence is the same: a reduction in the reward for working. In a National Bureau of Economic Research paper issued in August, I quantify the combined effect of the two redistribution waves and higher payroll taxes on the financial reward for working.
The chart nearby shows an index of marginal tax rates for non-elderly household heads and spouses with median earnings potential. The index, a population-weighted average over various ages, occupations, employment decisions (full-time, part-time, multiple jobs, etc.) and family sizes, reflects the extra taxes paid and government benefits forgone as a consequence of working.
The 2009-10 peak for marginal tax rates comes from various provisions of the "stimulus" programs in the American Recovery and Reinvestment Act of 2009 and the extension of unemployment benefits to 99 weeks in some states. At the end of 2012, the marginal tax rate index reached its lowest value since 2008: 43.9%. A little over a year later (January 2014), the index will be close to 50%, driven up by the expiration of the payroll tax cut and multiple provisions of the Affordable Care Act. The ACA employer penalty, delayed until 2015, adds more than a percentage point in that year alone, while other ACA provisions strengthen their disincentives for the various reasons cited above.
By 2016, the index exceeds 50%, which is at least 10 percentage points greater than it was in early 2007.
The 50% rate is even higher than the rates that prevailed when the so-called Recovery and Reinvestment Act's redistribution was at its peak. Without new federal legislation and a departure from the strategy of forcing workers and employers to finance everyone else's health care, the new 50%+ rate will not be a peak, but rather a new normal for tax rates.
To appreciate the added burden that the two redistribution waves put on the labor market, look at what people keep, on average, when they decide to retain or accept a job, or to take on a longer work schedule. Before the recession, a decision to work would benefit public treasuries by an amount equal to 40% of the compensation from the job. The worker and his family got the other 60%.
In the years 2015 and beyond, full-time workers with median incomes will keep only half of the compensation created by their decisions, with the other half going to the government in the form of additional taxes and savings on subsidy payments. By keeping 50% rather than 60%, workers will find that the reward for holding a job will have fallen a damaging 17%.
Advocates of redistribution try to perpetuate the income-maximization fallacy that business continues as usual as long as tax rates are less than 100%, because receiving even 1% of your compensation is supposedly better than getting no compensation at all. But even if full confiscation were the only way that taxes would depress the labor market, recall that the nearby chart is just an average: The average rate rising to 50% and above involves millions of people with rates far higher.
Continued in article
"The IRS Scandal, Day 152," by Paul Caron, TaxProf Blog,
October 8, 2013 ---
Watch the video!
America's Best Selling "Cars" ---
Only four USA brands made the list and two of them are trucks (Ford F Series is Number 1 and Chevrolet Silvarado is Number 2). Three of the USA best sellers are Fords. Think Japanese for the other six best sellers, although some of the Japanese models are assembled in the USA. All the the Japanese models have superior high mileage expectancy.
"The Business End of Obamacare," by James Surowiecki, The New
Yorker, October 14, 2013 ---
Of the countless reasons that congressional Republicans hate the Affordable Care Act enough to shut down the government, the most politically potent is the claim that it will do untold damage to the economy and cripple small companies. Orrin Hatch has said that Obamacare will be “devastating to small business.” Ted Cruz argues that it is already “the No. 1 job killer.” And the vice-president of the National Federation of Independent Businesses called it simply “terrible.” So it comes as some surprise to learn that Obamacare may well be the best thing Washington has done for American small business in decades.
The G.O.P.’s case hinges on the employer mandate, which requires companies with fifty or more full-time employees to provide health insurance. It also regulates the kind of insurance that companies can offer: insurance has to cover at least sixty per cent of costs, and premiums can’t be more than 9.5 per cent of employees’ income. Companies that don’t offer insurance will pay a penalty. Republicans argue that this will hurt companies’ profits, forcing them to stop hiring and to cut workers’ hours, in order to stay below the fifty-employee threshold.
The story is guaranteed to feed the fears of small-business owners. But the overwhelming majority of American businesses—ninety-six per cent—have fewer than fifty employees. The employer mandate doesn’t touch them. And more than ninety per cent of the companies above that threshold already offer health insurance. Only three per cent are in the zone (between forty and seventy-five employees) where the threshold will be an issue. Even if these firms get more cautious about hiring—and there’s little evidence that they will—the impact on the economy would be small.
Meanwhile, the likely benefits of Obamacare for small businesses are enormous. To begin with, it’ll make it easier for people to start their own companies—which has always been a risky proposition in the U.S., because you couldn’t be sure of finding affordable health insurance. As John Arensmeyer, who heads the advocacy group Small Business Majority, and is himself a former small-business owner, told me, “In the U.S., we pride ourselves on our entrepreneurial spirit, but we’ve had this bizarre disincentive in the system that’s kept people from starting new businesses.” Purely for the sake of health insurance, people stay in jobs they aren’t suited to—a phenomenon that economists call “job lock.” “With the new law, job lock goes away,” Arensmeyer said. “Anyone who wants to start a business can do so independent of the health-care costs.” Studies show that people who are freed from job lock (for instance, when they start qualifying for Medicare) are more likely to undertake something entrepreneurial, and one recent study projects that Obamacare could enable 1.5 million people to become self-employed.
Even more important, Obamacare will help small businesses with health-care costs, which have long been a source of anxiety. The fact that most Americans get their insurance through work is a historical accident: during the Second World War, wages were frozen, so companies began offering health insurance instead. After the war, attempts to create universal heath care were stymied by conservatives and doctors, and Congress gave corporations tax incentives to keep providing insurance. The system has worked well enough for big employers, since large workforces make possible the pooling of risk that any healthy insurance market requires. But small businesses often face so-called “experience rating”: a business with a lot of women or older workers faces high premiums, and even a single employee who runs up medical costs can be a disaster. A business that Arensmeyer represents recently saw premiums skyrocket because one employee has a child with diabetes. Insurance costs small companies as much as eighteen per cent more than it does large companies; worse, it’s also a crapshoot. Arensmeyer said, “Companies live in fear that if one or two employees get sick their whole cost structure will radically change.” No wonder that fewer than half the companies with under fifty employees insure their employees, and that half of uninsured workers work for small businesses or are self-employed. In fact, a full quarter of small-business owners are uninsured, too.
Obamacare changes all this. It provides tax credits to smaller businesses that want to insure their employees. And it requires “community rating” for small businesses, just as it does for individuals, sharply restricting insurers’ ability to charge a company more because it has employees with higher health costs. And small-business exchanges will in effect allow companies to pool their risks to get better rates. “You’re really taking the benefits that big companies enjoy, and letting small businesses tap into that,” Arensmeyer said. This may lower costs, and it will insure that small businesses can hire the best person for a job rather than worry about health issues.
Continued in article
The New Yorker is a liberal (er progressive) magazine that generally backs anything said or done by President Obama. But The New Yorker was also among the first magazines to warn of deceptions early on in the Affordable Health Care Act.
Once the reforms are up and running, some
employers will have a big incentive to end their group coverage plans and dump
their employees onto the taxpayer-subsidized individual plans, greatly adding to
John Cassidy, The New Yorker, March 2010
Fuzzy CBO Accounting Tricks
"ObamaCare by the Numbers: Part 2," by John Cassidy, The New Yorker, March 2010 ---
This is a long and somewhat involved followup to my previous post on ObamaCare. . For those of you with O.A.D.D. (online attention-deficit disorder), I’ve provided an express and local version.
The official projections for health-care reform, which show it greatly reducing the number of uninsured and also reducing the budget deficit, are simply not credible. There are three basic issues.
The cost and revenue projections rely on unrealistic assumptions and accounting tricks. If you make some adjustments for these, the cost of the plan is much higher.
The so-called “individual mandate” isn’t really a mandate at all. Under the new system, many young and healthy people will still have a strong incentive to go uninsured.
Once the reforms are up and running, some employers will have a big incentive to end their group coverage plans and dump their employees onto the taxpayer-subsidized individual plans, greatly adding to their cost.
For future reference (or possibly to roll up and beat myself over the head with in my dotage) I have filed away a copy the latest analysis (pdf) of health-care reform from the Congressional Budget Office. By 2019, it says, the bills passed by the House and Senate will have cut the number of uninsured Americans by thirty-two million, raised the percentage of people with some form of health-care coverage from eighty-three per cent to ninety-four per cent, and reduced the federal deficit by a cumulative $143 billion. If all of these predictions turn out to be accurate, ObamaCare will go down as one of the most successful and least costly government initiatives in history. At no net cost to the taxpayer, it will have filled a gaping hole in the social safety net and solved a problem that has frustrated policymakers for decades.
Does Santa Claus live after all? According to the C.B.O., between now and 2019 the net cost of insuring new enrollees in Medicaid and private insurance plans will be $788 billion, but other provisions in the legislation will generate revenues and cost savings of $933 billion. Subtract the first figure from the second and—voila!—you get $143 billion in deficit reduction.
The first objection to these figures is that the great bulk of the cost savings—more than $450 billion—comes from cuts in Medicare payments to doctors and other health-care providers. If you are vaguely familiar with Washington politics and the letters A.A.R.P. you might suspect that at least some of these cuts will fail to materialize. Unlike some hardened skeptics, I don’t think none of them will happen. One part of the reform involves reducing excessive payments that the Bush Administration agreed to when it set up the Medicare Advantage program in 2003. If Congress remains under Democratic control—a big if, admittedly—it will probably enact these changes. But that still leaves another $300 billion of Medicare savings to be found.
The second problem is accounting gimmickry. Acting in accordance with standard Washington practices, the C.B.O. counts as revenues more than $50 million in Social Security taxes and $70 billion in payments towards a new home-care program, which will eventually prove very costly, and it doesn’t count some $50 billion in discretionary spending. After excluding these pieces of trickery and the questionable Medicare cuts, Douglas Holtz-Eakin, a former head of the C.B.O., has calculated that the reform will actually raise the deficit by $562 billion in the first ten years. “The budget office is required to take written legislation at face value and not second-guess the plausibility of what it is handed,” he wrote in the Times. “So fantasy in, fantasy out.”
Holtz-Eakin advised John McCain in 2008, and he has a reputation as a straight shooter. I think the problems with the C.B.O.’s projections go even further than he suggests. If Holtz-Eakin’s figures turned out to be spot on, and over the next ten years health-care reform reduced the number of uninsured by thirty million at an annual cost of $56 billion, I would still regard it as a great success. In a $15 trillion economy—and, barring another recession, the U.S. economy should be that large in 2014—fifty or sixty billion dollars is a relatively small sum—about four tenths of one per cent of G.D.P., or about eight per cent of the 2011 Pentagon budget.
My two big worries about the reform are that it won’t capture nearly as many uninsured people as the official projections suggest, and that many businesses, once they realize the size of the handouts being offered for individual coverage, will wind down their group plans, shifting workers (and costs) onto the new government-subsidized plans. The legislation includes features designed to prevent both these things from happening, but I don’t think they will be effective.
Consider the so-called “individual mandate.” As a strict matter of law, all non-elderly Americans who earn more than the poverty line will be obliged to obtain some form of health coverage. If they don’t, in 2016 and beyond, they could face a fine of about $700 or 2.5 per cent of their income—whichever is the most. Two issues immediately arise.
Even if the fines are vigorously enforced, many people may choose to pay them and stay uninsured. Consider a healthy single man of thirty-five who earns $35,000 a year. Under the new system, he would have a choice of enrolling in a subsidized plan at an annual cost of $2,700 or paying a fine of $875. It may well make sense for him to pay the fine, take his chances, and report to the local emergency room if he gets really sick. (E.R.s will still be legally obliged to treat all comers.) If this sort of thing happens often, as well it could, the new insurance exchanges will be deprived of exactly the sort of healthy young people they need in order to bring down prices. (Healthy people improve the risk pool.)
If the rules aren’t properly enforced, the problem will be even worse. And that is precisely what is likely to happen. The I.R.S. will have the administrative responsibility of imposing penalties on people who can’t demonstrate that they have coverage, but it won’t have the legal authority to force people to pay the fines. “What happens if you don’t buy insurance and you don’t pay the penalty?” Ezra Klein, the Washington Post’s industrious and well-informed blogger, asks. “Well, not much. The law specifically says that no criminal action or liens can be imposed on people who don’t pay the fine.”
So, the individual mandate is a bit of a sham. Generous subsidies will be available for sick people and families with children who really need medical care to buy individual coverage, but healthy single people between the ages of twenty-six and forty, say, will still have a financial incentive to remain outside the system until they get ill, at which point they can sign up for coverage. Consequently, the number of uninsured won’t fall as much as expected, and neither will prices. Without a proper individual mandate, the idea of universality goes out the window, and so does much of the economic reasoning behind the bill.
The question of what impact the reforms will have on existing insurance plans has received even less analysis. According to President Obama, if you have coverage you like you can keep it, and that’s that. For the majority of workers, this will undoubtedly be true, at least in the short term, but in some parts of the economy, particularly industries that pay low and moderate wages, the presence of such generous subsidies for individual coverage is bound to affect behavior eventually. To suggest this won’t happen is to say economic incentives don’t matter.
Take a medium-sized firm that employs a hundred people earning $40,000 each—a private security firm based in Atlanta, say—and currently offers them health-care insurance worth $10,000 a year, of which the employees pay $2,500. This employer’s annual health-care costs are $750,000 (a hundred times $7,500). In the reformed system, the firm’s workers, if they didn’t have insurance, would be eligible for generous subsidies to buy private insurance. For example, a married forty-year-old security guard whose wife stayed home to raise two kids could enroll in a non-group plan for less than $1,400 a year, according to the Kaiser Health Reform Subsidy Calculator. (The subsidy from the government would be $8,058.)
In a situation like this, the firm has a strong financial incentive to junk its group coverage and dump its workers onto the taxpayer-subsidized plan. Under the new law, firms with more than fifty workers that don’t offer coverage would have to pay an annual fine of $2,000 for every worker they employ, excepting the first thirty. In this case, the security firm would incur a fine of $140,000 (seventy times two), but it would save $610,000 a year on health-care costs. If you owned this firm, what would you do? Unless you are unusually public spirited, you would take advantage of the free money that the government is giving out. Since your employees would see their own health-care contributions fall by more than $1,100 a year, or almost half, they would be unlikely to complain. And even if they did, you would be saving so much money you afford to buy their agreement with a pay raise of, say, $2,000 a year, and still come out well ahead.
Even if the government tried to impose additional sanctions on such firms, I doubt it would work. The dollar sums involved are so large that firms would try to game the system, by, for example, shutting down, reincorporating under a different name, and hiring back their employees without coverage. They might not even need to go to such lengths. Firms that pay modest wages have high rates of turnover. By simply refusing to offer coverage to new employees, they could pretty quickly convert most of their employees into non-covered workers.
The designers of health-care reform and the C.B.O. are aware of this problem, but, in my view, they have greatly underestimated it. According to the C.B.O., somewhere between eight and nine million workers will lose their group coverage as a result of their employers refusing to offer it. That isn’t a trifling number. But the C.B.O. says it will be largely offset by an opposite effect in which employers that don’t currently provide health insurance begin to offer it in response to higher demand from their workers as a result of the individual mandate. In this way, some six to seven million people will obtain new group coverage, the C.B.O. says, so the overall impact of the changes will be minor.
The C.B.O.’s analysis can’t be dismissed out of hand, but it is surely a best-case scenario. Again, I come back to where I started: the scale of the subsidies on offer for low and moderately priced workers. If economics has anything to say as a subject, it is that you can’t offer people or firms large financial rewards for doing something—in this case, dropping their group coverage—and not expect them to do it in large numbers. On this issue, I find myself in agreement with Tyler Cowen and other conservative economists. Over time, the “firewall” between the existing system of employer-provided group insurance and taxpayer-subsidized individual insurance is likely to break down, with more and more workers being shunted over to the public teat.
At that point, if it comes, politicians of both parties will be back close to where they began: searching for health-care reform that provides adequate coverage for all at a cost the country can afford. What would such a system look like? That is a topic for another post, but I don’t think it would look much like Romney-ObamaCare.
Read more: http://www.newyorker.com/online/blogs/johncassidy/2010/03/obamacare-by-the-numbers-part-2.html#ixzz0jrFSFK3j
Ten States With the Worst Health Care Coverage ---
Coincidentally the worst coverage is in the states with the highest percentage of illegal immigrants, including Texas, New Mexico, Arizona, and California.
"Providing High-Quality Health Care to Americans Should Trump Politics,"
by Gregory Curfman and Stephen Morrissey, Harvard Business Review Blog,
Harvard Business Review Blog, October 1, 2013 ---
Jensen Reply to Zafar
Like it or not government and politics of government are at the heart and center of rationing most scarce essential goods and services as well as protecting the quantity and quality of non-scarce resources.
Inequities are likely to arise when health care is is rationed by market pricing. However, scarce medical care services and medications will have inequities under any other rationing system.
Your statement leads to the classic question of how very scarce goods and services can be rationed in ways other than market pricing. For example, socialism is replete with examples where health care is rationed according to power with the socialist party elite receiving the best health care available while the masses receive pretty lousy health care as in Cuba today and the Soviet Union in history.
The fact of the matter is that scarce goods and services would not be "scarce" if they did not have to be rationed in some way. Socialist economist Oskar Lange proposed an economic theory that prices to ration scarce goods and services could be derived in the absence of markets --- http://en.wikipedia.org/wiki/Oskar_Lange
The fact of life is that scarce goods and services must be rationed by some means whatever the political and economic system. In nationalized health care systems like Canada the access to critical life saving services is available to virtually everybody, but access to elective surgeries for things like knee replacements may be delayed for months or years, thereby forcing Canadians to suffer in pain a very long time relative to the millions who have received rather speedy replacements in the USA.
In England the national health play a few decades ago would not pay for kidney dialysis of older people. For many who cannot otherwise afford dialysis this is a prescription of death by age rationing. Rationing improved somewhat in recent years, but providing dialysis and kidney transplants is still problematic in most of Europe. The U.S. Provides twice as many kidney transplants per million people.
In the USA it's not just the wealthy who receive speedy knee replacements.Rather low-waqe professors and factory workers get such replacements rather quickly and from the best surgeons if their employers provide health insurance to supplement low wages. But the high price for such insurance coverage must be borne by all members of the insurance plan.
The very poor on Medicare and Medicaid can also get new knees rather quickly.
The problem in the present health insurance system is that there are too many uninsured.who are not poor enough for Medicaid, not old or disabled enough for Medicare, and are either unemployed or their employers do not pay for health coverage. The main goal of the Affordable Health Care Act is to remedy that inequity. But much of the cost will be borne by taxpayers since the providers of scarce medical services and medications are still going to command high prices and the uninsured will not be able to afford decent health insurance unless it is heavily subsidized by employers and/or taxpayers.
Market rationing may be imperfect for health care, but every other alternative known to mankind is also inequitable in some way for scarce medical services and medications. The countries having the best of both worlds are typically those nations with gazillions in oil revenues (e.g., Norway and Kuwait), small populations that are not poor (e.g., Switzerland), and nations without low income minorities to abuse (e.g., Finland and Denmark)..
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Enron --- http://www.trinity.edu/rjensen/FraudEnron.htm
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American History of Fraud --- http://www.trinity.edu/rjensen/FraudAmericanHistory.htm
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Against Validity Challenges in Plato's Cave ---
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· With Replies in Appendix 4 to Professor Kachemeier by Professors Jagdish Gangolly and Paul Williams
· With Added Conjectures in Appendix 1 as to Why the Profession of Accountancy Ignores TAR
· With Suggestions in Appendix 2 for Incorporating Accounting Research into Undergraduate Accounting Courses
Against Validity Challenges in Plato's Cave ---
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The Sad State of Accountancy Doctoral Programs That Do Not Appeal to Most
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