The Heritage Insider: Congress wants to fix Medicare by making it worse, Export-Import bank is welfare for really big corporations, did ObamaCare really reduce health care inflation? and more

March 28, 2015

Latest Studies
40 new items, including a Pacific Research Center report on the real quality of Michigan public schools, and a Fraser Institute report comparing the oil booms and Texas and Alberta

Notes on the Week
Congress wants to fix Medicare by making it worse, Export-Import Bank is welfare for really big corporations, did ObamaCare really reduce health care inflation? and more

To Do
Assess the future of innovation

Latest Studies

Budget & Taxation
• $4 Trillion and Counting: President Obama’s 2016 Budget Presents a Vision of Government Largess – The Heritage Foundation
• Time to End the Federal Subsidy for High-Tax States – The Heritage Foundation
• How Tax Uncertainty Harms Economic Growth: Agricultural Investment and Section 179 – Institute for Policy Innovation
• HJR 4210, to Repeal the 60 Percent Vote Requirement to Increase Local Public Debt – Washington Policy Center

Economic Growth
• The Minimum Wage and the Great Recession: Evidence of Effects on the Employment and Income Trajectories of Low-Skilled Workers – Cato Institute
• Economic Performance: Sound Cyclically but Longer-Run Concerns – e21 – Economic Policies for the 21st Century

Education
• “Moneyball” for Education: Using Data, Evidence, and Evaluation to Improve Federal Education Policy – American Enterprise Institute
• The ABCs of School Choice: The Comprehensive Guide to Every Private School Choice Program in America, 2015 Edition – Friedman Foundation for Educational Choice
• Michigan: Not As Good as You Think: Why Middle-Class Parents in Michigan Should be Concerned About Their Local Public Schools – Pacific Research Institute

Elections, Transparency, & Accountability
• Collective Bargaining Transparency – Commonwealth Foundation for Public Policy Alternatives
• China’s Political Ecology and the Fight Against Corruption – Hoover Institution
• China’s Communist Party More Focused on Power than Growth – Hudson Institute

Foreign Policy/International Affairs
• Cross-Strait Relations: The Times They Are A-Changin’ – Hoover Institution

Health Care
• ACA Lawlessness Plagues the States – Cato Institute
• Beyond Medical Licensure – Cato Institute
• Still Awaiting the “Biosimilars” Revolution – Cato Institute
• 49 Changes to Obamacare … So Far – Galen Institute
• 2015 ACA-Exchange-Premiums Update: Premiums Still Rising – The Heritage Foundation
• Always Care, Never Kill: How Physician-Assisted Suicide Endangers the Weak, Corrupts Medicine, Compromises the Family, and Violates Human Dignity – The Heritage Foundation
• Replacing Medicare’s Unsustainable Sustainable Growth Rate – Manhattan Institute
• The High and Hidden Cost of Medicaid Expansion for Kansas – Mercatus Center

Monetary Policy/Financial Regulation
• Primer on DOL Fiduciary Standards: Impact and Outlook – American Action Forum
• A Roadmap to Monetary Policy Reforms – Cato Institute
• Guidelines for Policymaking and Communication During Normalization – e21 – Economic Policies for the 21st Century
• Rules-Based Guidelines for Monetary Policy Normalization – e21 – Economic Policies for the 21st Century
• U.S. Inflation Is Not Too Low – e21 – Economic Policies for the 21st Century
• A New Direction for Housing Policy – National Affairs

National Security
• Defense Reform by the Numbers: Four Crucial Priorities for the Next Administration – The Heritage Foundation
• The U.S. Needs to Respond to North Korea’s Latest Cyber Attack – The Heritage Foundation
• A Real Downside to Any Deal With Iran: It Could Push Moderate Sunnis into an Alliance With ISIS – Manhattan Institute

Natural Resources, Energy, Environment, & Science
• Cheaper Oil Will Not Hurt the Economy – Cato Institute
• Oil Train Angst – Cato Institute
• A Tale of Two Energy Booms – Fraser Institute
• The Antiquated Act: Time to Repeal the Antiquities Act – The Heritage Foundation

Regulation & Deregulation
• Bootleggers, Baptists, and E-Cigs – Cato Institute
• Concerns about Federal GMO Food Legislation – Cato Institute

Transportation/Infrastructure
• America Needs a Rational Transit Policy – The Heritage Foundation
• The Road Forward: Improving Efficiency in Texas Transportation Spending – Texas Public Policy Foundation

Welfare
• 2015 Welfare Reform Report Card: A State-by-State Analysis of Anti-Poverty Performance and Welfare Reform Policies – Heartland Institute
• How to Fix Disability Insurance – National Affairs

Notes on the Week

Taxation without representation: The federal deduction for state and local taxes is a handout to high-tax states. It lets them raise their taxes higher than would otherwise be politically sustainable by shifting that tax burden to taxpayers in other states—the ones who don’t vote for the lawmakers who raised their taxes.

What if the federal government eliminated that deduction and commensurately lowered federal taxes for everybody? According to a new analysis by Rachel Greszler and Kevin Dayaratna, federal income tax rates could be reduced by as much 12.5 percent without reducing federal revenue. Further, they calculate that at least 70 percent of taxpayers would face lower combined federal and state taxes because they do not itemize their deductions.

Just 10 states account for 62 percent of the value of the deduction, and the deduction primarily benefits high-income earners. But even taxpayers in those high-tax states may be better off without the deduction. If taxpayers were unable to deduct their state and local taxes, they would start demanding a dollars’ worth of state services for every dollar they paid in state taxes. Lawmakers would then face pressure to trim state budgets and cut taxes to make voters happy. [“Time to End the Federal Subsidy for High-Tax States,” by Rachel Greszler and Kevin D. Dayaratna, The Heritage Foundation, March 26]

The Export-Import Bank is welfare for really big corporations. The Export-Import Bank’s charter expires on June 30, but Congress is considering a bill to extend the life of the bank, which provides financing for foreign purchasers of U.S. goods. That would be great news for a number of big companies but bad news for thousands of small companies who compete with the foreign purchasers being subsidized by the U.S. taxpayer. Dan Ikenson explains:

[I]n 2013 about 75 percent of Ex-Im largesse was dispensed to the benefit of ten large, creditworthy companies, including Boeing, General Electric, Bechtel, Dow Chemical, and Caterpillar. But another large company, Delta Airlines, raised objections last year over Ex-Im’s financing of Boeing aircraft sales to foreign carriers, such as Air India. Delta’s complaint was that the U.S. government, as a matter of policy, was subsidizing Delta’s foreign competition by reducing Air India’s cost of acquiring airplanes. Those lower capital costs enabled Air India to offer lower prices than it otherwise could, which had an obvious, adverse impact on Delta’s bottom line. In essence, Ex-Im forces taxpayers to underwrite the success of some U.S. companies at the expense of others. […]

While it is relatively easy for a big company like Delta to connect the dots and see that Boeing is being favored at its expense (airplanes constitute a large share of Delta’s total costs), most manufacturing companies are unaware that they are shouldering the costs of government subsidies to their own competitors. But the victims include big and small producers — of electrical equipment, appliances, furniture, food, chemicals, computers, electronics, plastics and rubber products, paper, metal, textiles — from across the country. Companies producing telecommunications equipment incur an estimated collective tax of $125 million per year.

The industries in which companies bear the greatest burdens — where the costs of Ex-Im’s subsidies to foreign competitors are the highest — are of vital importance to the manufacturing economies of most states. In Oregon, Delaware, Idaho, New Jersey, Nevada, and Maryland, the 10 industries shouldering the greatest costs account for at least 80 percent of the state’s manufacturing output. The most important industry is among the ten most burdened by these costs in 33 of 50 states. The chemical industry, which bears a cost of $107 million per year, is the largest manufacturing industry in 12 states. [Forbes, March 17]

Congress wants to fix Medicare by making it worse. Congress wants to fix Medicare’s doctor payments so that seniors don’t suffer even worse access to health care than they already have. But they may end up making the program worse for the sickest patients. The bill passed by the House on Thursday would replace the Sustainable Growth Rate formula—the source of the automatic cuts that Congress annually suspends—with something called the Merit Based Incentive Program (MIPS). MIPS uses a scoring system to calculate bonuses and penalties to doctor’s payments. As David Hogberg explains, MIPS will encourage doctors to avoid the sickest patients:

Consider A1c, the level of a patient’s blood sugar and a common quality measure for diabetics. Physicians who are subject to this quality measure can boost their score by limiting their diabetic patients to those who watch what they eat, exercise regularly, and take their medication. They will avoid diabetic patients who need much more encouragement and monitoring, since taking on too many of those patients could result in a below average score on the A1c measure and, hence, a penalty.

MIPS will also incentivize the most talented physicians to pursue the least challenging avenues of medicine. The least challenging areas of health care will be the ones where it will be easiest to achieve high scores on quality measures and thus receive bonuses. It likely won’t be long before the “best and brightest” in medicine figure that out. Since the least challenging areas will also probably contain the healthiest patients, then the most talented physicians will not be treating the sickest patients.

Ultimately, the sickest patients will suffer as MIPS incentivizes the best physicians to avoid them. [The Federalist, March 27]

New Mexico is nearing a major victory for civil liberties. Last Saturday, both chambers of New Mexico’s legislature passed a bill that will make it a lot harder for law enforcement to take the property of people not convicted of a crime. The bill places significant restrictions on a civil procedure known as civil asset forfeiture, under which police can seize property that they suspect has been used in a crime. The property owner then has to prove his property wasn’t used in a crime in order to get it back.

If Gov. Susana Martinez (R) signs the bill, police will be unable to seize property unless there is first a conviction for the criminal act in which the property was allegedly used, proceeds from seized property will be deposited into the state’s general fund rather than the coffers of the police departments, and state and local law enforcement will be unable to get around these restrictions through the federal equitable sharing program (which gave local and state police departments a share of assets seized in federal investigations in which state and local police participated).

Paul Gessing of the Rio Grande Foundation said the bill “strikes exactly the right balance by allowing law enforcement to bring criminals to justice while protecting the property rights of innocent New Mexicans.” [Rio Grande Foundation, March 22]

Last year, an Institute for Justice video explained how civil asset forfeiture turned robbers into cops. [Institute for Justice, August 12, 2014] And Rep. Tim Walberg, Radley Balko, and Scott Bullock talked about the need for reform of civil asset forfeiture laws at The Heritage Foundation last year. [The Heritage Foundation, July 29, 2014]

Lee Kuan Yew’s Singapore showed that Health Savings Accounts work. Lee Kuan Yew died last week at the age of 91. One of the most important things he did as Prime Minister of Singapore, argues John Fund, was to show that voucherizing social programs is the way to have a welfare state that doesn’t run out of money or trample a free economy:

Singapore’s approach to the provision of health care, retirement income, and housing is in sharp distinction to that of other countries. People are required to make relatively high payments into savings plans from which they can later buy a home, pay tuition, and purchase a variety of insurance policies. For those under age 50, the employee contributes 20 percent of his income, and the employer 16 percent. A third of the employee’s share is put into a private Medisave account. When the balance reaches 34,100 U.S. dollars, any excess funds can be used for non-health-care purposes. All are enrolled in a catastrophic-health-care plan, although they can opt out.

Health-care expert John Goodman is credited (along with economist Richard Rahn) with first proposing medical savings accounts in the U.S. He says Singapore shows that they can work as the backbone of a health-care system. “The issue is,” he says, “can individuals be counted on to manage their own health-care dollars responsibly, or does health care work better if all the dollars are controlled by government or insurance companies?”

The answer is clear.

Not only is Singapore’s population healthy, but the private sector dominates health-care spending, and consumer choice keeps health-care costs down. In Singapore, the government’s share of health-care spending has fallen to 20 percent, down from 50 percent 30 years ago. “Singapore has found a rational way to provide services that are provided by legalized Ponzi schemes in the rest of the developed world,” Goodman told me in an interview. “Those governments have made promises they must either default on or impose draconian taxes to pay for. Singapore has avoided that problem.” [National Review, March 27]

The Hudsucker Proxy shows the value of a price-coordinated system. Market prices are signals that help people figure out what economic activity is valuable to society and what isn’t. The film The Hudsucker Proxy helps us to see the point, explains Andrew Heaton in the latest edition of EconPop:

Did ObamaCare really reduce health care inflation? ObamaCare’s defenders seem to believe the law contains a wayback clause, the “most celebrated effect” of which, writes David Catron “is its retroactive reduction of medical inflation during the years preceding the law’s implementation.” [American Spectator, March 23]

He’s referring to the tendency of the law’s supporters to give ObamaCare credit for lower health care inflation after the law passed in 2010, even though most of its provisions didn’t take effect until 2014. Chris Conover has put together this chart that tells a different story. It shows “excess” health inflation—the difference between overall inflation and health care inflation:

thf 2015-03-28 insider excesshealthinflation.png

Conover writes:

This provides a more realistic (and I would argue, far less rosy) picture of Obamacare’s impact on medical inflation. Admittedly, there is a lot of year-to-year variation, but in this chart, we can see even more clearly that a general downward trend in gradually diminishing “excess” medical inflation began well before President Obama’s arrival in the Oval Office. And since Obamacare was enacted, at best this metric has been flat. And at worst, one can detect a slight upward trend rather than a continuation of the downward trend that had been in place for at least a half decade for President Obama took office. It’s a rather sizable stretch to point to this chart and argue it is proof that Obamacare has whipped healthcare inflation. One might generously say it has not made things worse on the medical inflation front. But even that comes with a caveat in light of the sharp upward spike in January 2015. This may well turn out to be only a temporary spike, but the point again is to emphasize that any conclusion that Obamacare has tamed the medical inflation monster really cannot be supported by the evidence at hand. [Forbes, March 9]

Good policies should be able to withstand scrutiny. The deal on Iran’s nuclear program, writes Danniel Henninger, is shaping up to be “a virtual Rube Goldberg machine, a patchwork of fixes” that does not have adequate political support—in other words, the ObamaCare of arms control:

Presidents Kennedy, Nixon and Reagan all submitted major arms-control treaties and agreements for Senate approval. They did so to give their work political credibility with the American people and indeed the world. But somehow Mr. Obama believes he has an exemption from the basics of U.S. politics. So we wake up one day to find he is substituting the judgment of the Security Council, with such famous allies as Russia and China, for consent from the U.S. Senate. Result: an arms deal as politically flaccid as ObamaCare.

After the Affordable Care Act became a one-party law, many governors refused to participate. A mirror-image opt-out from the Iran deal is emerging now among the most significant nations of the Middle East.

Earlier this week, Prince Turki al-Faisal, Saudi Arabia’s former intelligence chief, told the BBC, “I’ve always said whatever comes out of these talks, we will want the same.” He wasn’t talking about forsaking the nuclear option. Elaborating, he said, “If Iran has the ability to enrich uranium to whatever level, it’s not just Saudi Arabia that’s going to ask for that. The whole world will be an open door to go that route without any inhibition.” By the “whole world” he of course means Egypt, Turkey, Jordan and the United Arab Emirates. Are all these countries opposed to the Iran deal because they “hate Obama?”

On March 5 at the deal’s 11th hour, Secretary of State John Kerry flew to Saudi Arabia to reassure King Salman about the Iran deal, which is at least more time than Mr. Obama gave doubting U.S. governors on his health-care plan. The result was the same: no political buy-in. Emirates commentator Mishaal al-Gergawi told The Wall Street Journal: “A lot of the Gulf countries feel they are being thrown under the bus.” Welcome to the club. [Wall Street Journal, March 18]

If you think a carbon tax matters, then you should also be against the minimum wage. Many liberals tend to believe both that raising the minimum wage will help low-income workers and that a carbon tax will succeed in reducing carbon emissions. Don Boudreaux, seeing a “first-rank inconsistency” between those propositions, addresses the following question to one of his readers:

[I]f you (correctly) understand that a government mandate that forces businesses to pay more for each unit of carbon they emit will cause businesses – regardless of their cash holdings – to reduce the amounts of carbon they emit, why do you think that a government mandate that forces businesses to pay more for each unit of low-skilled labor that they employ will not cause businesses to reduce the amounts of low-skilled labor that they employ? [Cafe Hayek, March 13]

To Do: Assess the Future of Innovation

• Assess the future of innovation. The Mercatus Center’s Tyler Cowen will have a conversation with Peter Thiel. The talk begins at 2 p.m. on March 31 at the Founders Hall Auditorium at the Arlington Campus of George Mason University.

• Celebrate human achievement. The Left wants you to think turning your lights off for an hour during Earth Hour represents some kind of penance for your impact on the Earth. The Competitive Enterprise Institute says phoey: Turn your lights on and celebrate the technology that enhances our lives. Human Achievement hour will begin at 8:30 p.m. on March 28. Celebrate by enjoying some television, listening to music, talking with friends over the Internet, or in whatever other way you want (except sitting in the dark).

• Learn why basic economics works in a crisis, too. The John Locke Foundation will host Peter Boettke, talking about what policymakers did wrong during the 2008 financial crisis. Boettke’s talk will begin at noon on March 30 at the John Locke Foundation in Raleigh, Va.

• Find out why school choice is important to hispanic and other minority communities. The Texas Public Policy Foundation will host a panel discussion on the value of school choice on Tuesday at 11:30 a.m. in the Texas State Capitol, Room E2.1002.

• Learn about the issues facing Latin America. The Heritage Foundation will host former President of Mexico, Vicente Fox, who will discuss Mexico’s energy revolution, the crisis in Venezuela, the upcoming Summit of the Americas, and other topics. Fox’s talk will begin at 11 a.m. on March 31.

(Also at The Heritage Foundation next week: Living Life to Its Fullest: Supporting the Sick and Elderly in their Most Vulnerable Hours, noon, March 30; and Does Antitrust Trump State Regulation? – The Supreme Court’s North Carolina Dental Decision, noon, March 31.)

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