Tax Reform: Serious And Not

The editors at the WSJ and Kevin Williamson at NRO show the two sides of conservative discussion of tax reform.  The latter is serious while the former is not.

The editors are all about rates.  It seems, but is not clear, that they are talking about personal rates and they certainly don’t care much about the deficit:

In an ideal world, the Senate deal would create room for tax cuts of $2.5 trillion or more. That’s at least how much more revenue the government would get if the economy returned to its historic growth rate of 3% a year from the Obama era’s 2%.

Kevin, on the other hand, recognizes the challenges that the Congress faces.  We have a significant deficit.  We have escalating entitlement costs.  We need to have dynamic scoring but tax cuts are not self-financing.  He reports (with comments) that:

President Trump’s preferred policy would reduce the top rate to 35 percent, while congressional Republicans have aimed at 33 percent, along with modest reductions in other brackets and, possibly, a large reduction in the corporate tax rate. Our corporate tax rate is one of the world’s highest on paper, but the effective rate — what corporations actually pay — is on average unexceptional, though it varies significantly from industry to industry and firm to firm.

We favor reductions in the corporate tax rate because of the variation that Kevin notes.  Corporations do things because of tax rates.  Those industries that face higher rates take actions like tax inversions to avoid them.  Rather than try to outlaw such inversions we should make the USA a tax haven so corporations and their profits come here.  It is also a reason why we favor lower corporate rates rather than immediate expensing.  We hope that the Congress takes a serious look at tax reform and make it into law.

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Math Depends Upon Assumptions

Glenn Reynolds, Instapundit, discusses aging in his USA Today column.  He is in favor of extending lifespans. One of the arguments he gives is:

If we could extend healthspan by 20 years — so that 85 is the new 65 and 90 is the new 70 — people could retire that much later, and those pension obligations would pose a much less pressing problem. [emphasis added]

Agreed.  If folks worked longer and kept roughly the same retirement span then personal, corporate, and governmental finances would brighten considerably.  Unfortunately, that is not what has happened historically.  Here is a chart we used to help students understand the changes in retirement over generations:

Retirement Age versus Life Expectancy

Year Average Male Retirement Age Average Male Life Expectancy Years in Retirement
1950 66.9 65.5 0
1960 65.2 66.8 1.6
1970 64.0 67.0 3.0
1980 63.0 70.1 7.1
1990 62.6 71.8 9.2
2000 62.3 74.1 11.8
2005 61.7 75.2 13.5

We are not positive where this comes from as it was just class information but we think at least part of it comes from Mark Perry at Carpe Diem so a general h/t to him.  Over 55 years the life expectance went up by almost 10 years but the retirement age went DOWN by over five.  It seems unlikely that increasing the life expectancy by 20 will increase the retirement age much if at all.  Increasing our lifespan seems more likely to darken finances, especially public finances.

We would support increasing our useful lifespan too.  You can’t play too much handball.  But increasing our lifespan is more likely to exacerbate the entitlement problem than solve it.  What do you think is the probability of Congress increasing the age for receiving Social Security to 85?

 

It Will Be A Binary Choice Chris

Senator Chris Coons (D, DE) is fighting to keep at least a single Obamacare insurer in his state.  He said this about the failing enactment:

“I’ve never said (Obamacare) was perfect,” Coons said. “I wasn’t a member of Congress when it was passed. It was passed by only one party [his], and it was passed with the expectation that the ACA would be amended, would be fixed, would be improved over time, as experience showed some of its limitations.”

It will soon come to a binary choice Chris.  He says he won’t work with the GOP but will party be more important than constituents?  The Democrats have been able to create amazing party loyalty recently.  It is a major reason why their numbers have dwindled in the Obama era.  Here is the Washington Post trying to put some lipstick on the deceased.

 

Healthcare And Binary Choices

In our last post we were sucked in to the healthcare maelstrom.  Soon we will be down to a binary choice: The GOP proposal or the status quo.  But we are not there yet.  We would like to discuss George Will’s support of the Pat Toomey amendment.

First George talks about the critical need to rein in entitlements:

It required tenacity by Toomey to insert into the bill a gradually arriving, but meaningful, cap on the rate of growth of per-beneficiary Medicaid spending. It is requiring of Toomey and kindred spirits strenuous efforts to keep it there, which reveals the Republican party’s itch to slouch away from its uncomfortable but indispensable role as custodian of realism about arithmetic.

We agree 100% that entitlements including Medicare, Medicaid, and Social Security need to be brought under control.  We have no choice and it is easier to do it early rather than to wait.  Then he tells us what Pat did:

In the Senate draft, for eight years the growth of Medicaid spending would equal inflation in the health-care sector (somewhat more spending for the elderly and disabled). After eight years, Toomey’s measure would lower the growth rate of per-beneficiary spending to meet the normal measure of inflation — the basic consumer price index.

Color us much, much less excited.  It doesn’t say how this rate of growth reduction will happen.  It sounds to us like this is or will lead to price controls and revives George’s question of why do we need Republicans if this is the best they can do?

Still, it will eventually come down to a binary choice: GOP or the status quo on healthcare.  This attempt to reform healthcare might be better than the status quo and we might support it but we would prefer a process to limit entitlements.  An optimist might say that the process will follow the restriction.  George is being much more optimistic than usual.

It Is Not Our Fault

We were not going to write on the current issues of health insurance and health care but Catherine Rampell forced us into it.  There are real important issues in the debate and decisions about what the federal government should do about health insurance and health care.  Some of them include:

How to stop Medicare/Medicaid from bankrupting the government?  See George Will at NRO.
Treating employer paid health insurance as taxable income. This creates all sorts of perverse incentives but might reduce the next issue.
How to keep the supply of health care sufficient despite price controls?
How to find competition so consumers have choices.  One-third of the counties will have one Obamacare provider in 2017.

When we saw Catherine’s yogurt analogy headline we were hoping she would come out for less varieties of yogurt.  The number of yogurt options at the supermarket is astounding.  And then there is frozen yogurt.  We could use a few less but then we don’t eat it in any case.  Rather she suggests that there will be a plan that covers one kind of cancer but not another.

Sidebar: The University of Wisconsin System has 28 health plans and four different levels to choose from.  That would be 112 choices.  I’m sure Catherine thinks that is far too many for human processing.  Not everybody at every school can enroll in all programs.  End Sidebar.

Healthcare reform is difficult because there are lots of moving parts.  The few choices that the GOP might add is not going to overwhelm consumers.  Neither will the GOP be able to fix all that is wrong in one bill.  We hope they make progress and hope that they recognize that the job won’t be finished.  Let’s tune out Catherine and worry about serious stuff.

Local Virtue Signals

Sigh!  One of the local mayors is virtue signaling as reported in the La Crosse Tribune recently:

La Crosse Mayor Tim Kabat supports La Crosse state legislators urging Gov. Scott Walker to commit Wisconsin to a state-based plan for combating climate change.

“It is essential that local and state legislators present a united front in the face of the president’s withdrawal from the Paris agreement,” Kabat said. “I commend these legislators for their dedication to the environment and join them in their commitment to combating climate change. In La Crosse, we have made substantial progress in reducing carbon dioxide emissions and will continue working toward our goals, regardless of the president’s actions.”

One of these things, the Paris agreement, has nothing to do with the other, local carbon emissions.  Should we be reducing carbon emissions in La Crosse?  Well we ought to reduce costs.  We certainly hope that the city is not increasing costs to battle carbon dioxide.  Why it would be essential for local and state legislators to present a united front is anybody’s guess.  If there happened to be a united front it would be nice to have debate about what it should be.  Our guess and hope is that he will have opposition for his next term.

 

The Growth Fairy

It is one of Kevin Williamson’s favorite topics but he is not the only one.  Check out this Internet search.  Kevin is not a fan but Stephen Moore is a big fan as he explains in the WSJ:

Growth of 3% [instead of 1.9%] would stop the debt-to-GDP ratio from skyrocketing. Instead it would start to fall almost immediately, eventually to about 50%, because the economy would be so much larger. Congress and the White House ought to understand that what matters most for heading off a fiscal crisis is making sure that the economy grows faster than the government. No other debt-reduction policy—certainly not a tax increase—comes close to having the fiscal effect that sustained prosperity does.

It is the impact of compound interest.  The same force that makes Medicare/Medicaid such a big problem makes economic growth a potential savior.  The issue is can the government or anyone else do things to make 3% growth in the US more likely than 1.9% growth over the next several decades?  Kevin thinks no and Stephen thinks yes.  Kevin is particularly worried about personal tax cuts while Stephen is enamored with them.  They both agree on the need for entitlement reform.

We are somewhere in-between.  We think that the government can take actions that will lead to more growth.  Regulation is one of those areas that has a zero or perhaps positive budget impact because less regulation costs the government less and leads to a more productive economy.  The Donald is off to a productive start in this area.  On the other hand, increasing tariffs is a terrible idea for growth.  So can The Donald do better than his predecessor at encouraging growth?  Even more troubling today is looking at the next Democrat president.  If it is Kamala or Cory we are in big budget trouble because growth isn’t on their minds.

We think the crucial tax cut andThe Donald seems to agree is business taxes.  It has less of a deficit impact and we hope it gets done.

So, yes, we think The Donald and the GOP can increase growth over the next seven plus years.  We think they should emphasize it because they need to develop the next JFK in the other party.  Pessimism is in order now but politics change quickly.

Then we can go on to entitlements.  It should take five minutes to decide whether we should raise Social Security taxes on professionals (mostly) or means test their payments.  Social Security decisions are about professionals because doctors, lawyers, professors (well in some disciplines), and related fields make their income in wages.  The really rich make it in capital gains that are not taxes by Social Security.  Everyone should agree that means testing is the way to go.  We think means testing should start now and include the retired MWG.  Medicare is a way bigger problem that will take more time.

We believe in the growth fairy but we see no need to blow open the deficit.  Regulation is really important.  Heather Mac Donald has some great ideas on how to increase efficiency in policing.  In addition we should reduce corporate taxes.  Then try not to do anything stupid like increase tariffs.  We shall watch the quasi-experiment with great interest.