Wednesday, March 24, 2010

Obamacare: Petty and Arbitrary Tax Rules Bad for Capitalist Principles, and Other Complaints has a summary of some of the tax implications of the law the President has just signed into law, in New Health-Care Taxes Help Obama 'Spread the Wealth'.

What is the logic of the refusal to allow insurance companies to not be able to deduct executive salaries above $500,000? A CEO can make millions a year elsewhere. Why insurance companies? Why not financial companies, auto companies, oil companies, medical product companies, steel companies, exporting companies, importing companies, computer companies, etc?

More to the ideological point, why not state that no organization can have non-profit status if it pays anyone more than $500,000 per year?

Moving on, did someone from Nevada or Florida decide to impose a special tax on tanning salons? What's special about them to single them out?

The law plans to impose a 3.8% tax on rental income as well as dividends. But working as a landlord is hardly the same as buying stock in a REIT. Why tax this occupation?

More broadly, the government gets the media to buy into the fiction of a "Medicare tax". There is no Medicare tax. There is only a tax.

Taxing something yields less of it. With the growing number of taxes aimed not at the truly high earners but only at a couple earning $250,000-- which could include two very hard-working people simply living a middle-class life in San Francisco-- it must be assumed that fewer professionals will do the marginal extra work, that more people will opt to aim below that number who might otherwise be more productive, and that more people will do less investing and more spending for the moment.

Moving on from incentives, why is there a tax on medical devices?

And what is the humanitarian intent of imposing a 2.3% tax on wheelchairs? Huh??? Wheelchairs?

Consistency and fairness matter in capitalism. Level playing field and let the better or luckier competitor win. Not in Obamacare. And not in economic policy, where Mr. Obama continued the Bush policy of bailouts of financial companies and their bondholders but destroyed bondholders of certain auto companies.

Keeping promises also matters. The President campaigned vociferously opposing Mrs. Clinton's preference for an individual mandate. Whoops! Once in power, position forgotten.

This blog stated over a year ago that there was a depression but it was not the Great Depression and never was going to be so, that all the conditions were present for a smoother functioning of the economy, and that in fact in some ways the economy was better balanced than when Big Finance was riding high.

Unfortunately, the typical post-bubble, post-credit crunch scenario is playing out. This involves financial asset prices rising faster than hiring.

Remember that what has happened has been a financial shell game. The government has used the Fannie/Freddie unlimited bailouts to work with the Fed to socialize the losses and sort of start the game again.
Thus the big banks may "surprise", but these surprises will be solely due to the public's assumption of their bad lending practices along with the Fed's massive money-printing.

The next thing you will see is stagflation, if the script is followed. There will be reports of growth but off of a horribly depressed base, but those reports will serve to embolden the mass of "investors" who sell stocks near the bottom of a recession/depression and who buy them only when prices are high and "confidence" has returned.

There will be growth in the spring, but all this money-printing has caused a huge inflation in stock prices and prices for short-term Treasuries and the like (causing unnaturally low yields on short term money). As the money gradually creeps back into the real economy and out of the financial system where too much "money" is overwhelming the supply of securities, then assuming the Fed stays easy, there is every reason to expect a rerun of the prior cycle, where eventually the inflation will cease being in financial assets. It is unlikely to move disproportionately to housing, but house prices will do OK if the government continues to support it heavily. We do not know yet what will be the favored asset class as people see the inflation and see their standard of living declining due in part to the arbitrary and unfair government policies in favor of Big Finance and the increasing control of the economy according to political dictates from a redistributionist President, Speaker of the House and Majority Leader of the Senate.

Mostly, the real standard of living is declining or in good times holding steady and the above pols are in power because America has lost its mojo. It has become too dependent on debt and not equity (savings or true wealth creation). There are too many people with no savings who then use the ballot box to improve their lot rather than the old-fashioned way of thrift and hard work. There is too little government support for the nuclear family. America recently was ranked 30th out of 30 countries in reading skills. This ranking follows decades of new thinking in education and large increases in spending on education. Unemployment among people in their 20s is at post-war records, yet Obamacare taxes them with an individual mandate to support medical care for the older folks, even if these youngsters do not smoke, exercise regularly, and otherwise maintain good health habits. There is no surer way to prevent a 20-something year old from becoming an entrepreneur than forcing him/her to pay through the nose for individual health insurance while trying to become a success by providing a new good or service to society. In the future, why not just do government work or relatively secure big-company work, get government-subsidized health coverage, and forget about the adventurous, risky course?

Just as with Fannie and Freddie, we can predict that the Democratic Party will move heaven and earth to make the new entitlement a success and that eventually it also will prove to be a financial house of cards. The first card to topple will probably be the lie that the CBO was forced to accept, namely that the Medicare "doc fix" will not once again be repealed for another year.

Many other nations simply set up a one-payer system paid for out of general revenues and leave it at that with variations on that theme.

This has the virtue of simplicity, especially if unlike Medicare and Medicaid, billing fraud is prevented.

What Obamacare instead has done is begin to build a large, complicated structure build on a deteriorating, irregular foundation. If you want a clean new stable house, you have to get a permit to demolish the old one. The President never applied to the people for that permit and thus got in bed with the Big Pharma guys. Now he can walk down the street with Big Finance on one side of him and Big Pharma on the other side.

And if the Repubs get in, the insurance companies they love now remain alive and with more customers than even coming, and they will get more goodies. The people will remain the losers.

What's coming promises to be a mess run largely by people who have run nothing other than political campaigns and professorial offices in academia. All sold to the American people on untrue statements including that the low-margin insurance companies are the villains in our current mess and that physicians take out tonsils rather than prescribe antibiotics because they are greedy and that surgeons make tens of thousands of dollars to take off a limb rather than prescribe diabetes medicine.

And on the half-lie that taxing for a few years before spending really begins counts as deficit reduction. Just wait for the spending to start in earnest.

"Bush lied" is old hat and literally not true re Iraq ("Cheney lied" is less false if such an epistemological statement can be made).

Candidate Obama misled us, and President Obama did the same.

How can transforming the health system this way end well?

Copyright (C) Long Lake LLC 2010

1 comment:

  1. The people will suffer from "Obamacare" like they have not suffered since 1993 when the last attempt at healthcare reform failed? Costs have gone up much faster than income, and at an increasingly rapid rate, but it is better to do nothing? Oh, but I forgot, I'm OK. I'm going onto Medicare, so I don't have to pay premiums of $750 per month anymore; I get subsidized single-payer now! Hooray for me, too bad for you if you aren't 65 yet.