Healthcare And Incentives

Clark Harvighurst, professor emeritus at Duke, writing at the WSJ Editorial Page has an interesting article related to health-care and taxes.  He mostly addresses it to three CEOs, Bezos, Buffett, and Dimon who he summarizes with BB&D.  We love the ampersand too Clark.  We are 100% in agreement with his point that excluding health-care benefits provided by employers from employee income is major problem with the US health-care system.  We are not convinced, however, that folks react exactly how he describes.

To be clear, when an employee receives health-care benefits paid by the employer it is valuable to the employee but it is not part of gross income as determined by the Internal Revenue Code.  Specifically:

Under IRC sections 105 and 106, employer-provided health benefits, including reimbursement and insurance, are generally excluded from the income of employees.

It is one of those weird parts of the tax law that excluded almost $22,000 in income from MWG tax return a few years ago.  We agree that BB&D would provide a major service if they pushed to treat health-care income as taxable like other income.  We are not convinced that the beneficiaries are acting as Clark says.  Here is his quote:

Because employees don’t pay taxes on employer-paid insurance premiums, most workers assume that—and behave as if—their health-care costs are borne by employers. True, most employees now pay some share of premiums directly, along with copayments and deductibles. But they still unknowingly pay far more in lower take-home pay. When working Americans say they like their health plans, it’s clear they aren’t seeing the whole cost picture.

We don’t see it that way.  It seems to us workers act as if health-care costs are not taxable while wage income is.  Thus, getting a whole dollar of health-care insurance rather than a dollar of wages that are reduced by FICA and income taxes seems rational.  We think they are knowingly taking less take-home pay.  Folks buy way too much insurance (they cover everything they can) because it is cheaper with before-tax-dollars.

Sidebar: Another problem with the current system is that a few folks are worse off under this deal.  An example is the Lady de Gloves who did not take the health-care play offered by her employer because MWG was already covered.  She got nothing while most folks got thousands of dollars worth of insurance.  End Sidebar.

It is also rational for the employer since they pay a dollar in health care instead of a dollar plus FICA.  So we see the current system as a rational reaction to the current irrational tax system.  We do agree with Clark that the current system makes many of us uninterested in that actual costs of medical care.  We entirely agree with Clark that we hope BB&D can change the tax treatment of fringe benefits.  If we can fix corporate taxes then why not this?

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Priorities

Priorities are critical.  As department chair, we have lots of nodding agreements supporting this, that, and the other thing.  Chairs have a long list of goals but because of the regular demands of the office like budgeting, scheduling, and students and the difficulty of creating coalitions only a few priorities ever get addressed.

Sidebar One: We recollect it was Woodrow Wilson used his experience to compare politicians to college faculty and administrators.  We found the quote here: “As compared to the college politician, the real article seems like an amateur.”  We don’t have Woodrow’s experience but tend to agree.  End Sidebar One.

The same is true of formal politics at every level, especially the national level.  The recent State of the Union speech was criticized because it, like most of it predecessors, was a long laundry list without priorities.

Sidebar Two: Well, it seemed to us that immigration was the priority.  We think that one priority, especially immigration, is OK. End Sidebar Two.

We are interested in what to push.  We had mused about the possibility really free trade rather than the mixed results of agreements like the Trans-Pacific Partnership.  Michael Brendan Dougherty’ polemic against free trade helps us see the difficulty of such progress. To his credit he recognizes that his position on taxing assets (nonproductive property) puts off folks but then he tries to lump the free traders with him.

First, he tries to link open borders with free trade:

We should not fool ourselves that somehow some authority out there called “the market” wants no limits on the supply of labor and then open our borders in response. Doing so against the consent of the people would jeopardize the democratic character of our society and doom what’s left of the egalitarian ethic that makes democracy possible.

The Venn Diagrams of folks for free trade and open boarders do overlap, especially on the WSJ editorial page, but they are two different things.  We are in the part that doesn’t overlap.

Next, he tries this:

Governments have a right and sometimes a duty to inspect what comes into their ports, not only for security reasons but to enforce the rules of the market that entrepreneurs depend on.

This is certainly a duty and great opportunities for cronyism and graft.  A small example of cronyism is when Irish butter was banned in Wisconsin.  It is part of the argument for thousand-page agreements. The US would like other countries to limit non-tariff issues to security and market concerns.  The problem is the agreements expand into questionable areas.

[Ron] Paul [as an example of a doctrinaire libertarian] thinks that if Japan’s government subsidizes the manufacture of a car to the tune of $4,000, then American consumers should just rake in the free gift from Japanese taxpayers. I do not. I think mercantilists can erode the support for worthwhile trading arrangements in both countries at once. I similarly fear it will be deleterious to a liberal system if these nations succeed in creating monopoly pricing power for their firms.

We support the American consumers as Paul does.  Part of the reason is the accounting problem of what is a subsidy?  Another part is the difficulty of creating monopoly pricing power.

Lastly, Michael gets into a double dose of security.  First, we need military stuff and we can’t depend on other counties for it and second, the US Navy is critical to maintaining the freedom to trade.  The first part seems like a good argument to support fracking but at least some military stuff will need to be imported.  From whom seems to be the interesting question. We agree on the importance of the US Navy but fail to see any connections with tariff policy.

If conservatives are this far apart on priorities it is easy to see why political progress is hard.  It is not clear what priorities Michael has other than never Trump although he seems to be on the social and international beat.   He tried humor, we think, in Anthony Kennedy Can’t Be Allowed To Die.  Arguments matter but it will be hard to support any of Michael’s political priorities ahead of ours.  Baseball is another matter entirely.

 

Hands Off Venezuela

The Weekly Standard recently had and editorial and support piece by Barton Swaim on getting Maduro and his cronies out of Venezuela.  We don’t think such an aggressive stance is warranted.  The support piece quotes the editorial:

The reality is that the Chavistas must be deprived of their oil. Otherwise Maduro stays, and Venezuela’s nightmare continues. If the Trump administration wants to rid the Americas of their most odious regime, it will have to embargo Venezuelan oil. Announce the decision six months in advance: Maduro and his cronies step down peacefully or the U.S. deprives them of their only real source of money. In the meantime, strengthen the opposition with clandestine funding and overt encouragement.

Barton goes on to suggest that an alternative is to have a Venezuela airlift like the one in Berlin.  Except it wouldn’t be anything like it.  The most important difference would be that the allies controlled West Berlin according to treaty.  Then Barton goes on to conclude:

It [the airlift] might be a wild idea. Perhaps the saner move would be the more immediately consequential one of embargoing the country’s oil. But either is better than watching another generation of Venezuelans starve.

There are two problems with US intervention leading to regime change in Venezuela:  First, the set of variables are large and the possibility of disastrous outcomes is too large.  The Knowledge Problem will make us ineffective.

The results would not be limited to Venezuela.  US actions in Central and South America reverberates through all of Latin America.  As NRODT tells us, Argentina has made remarkable progress in the last few years.  Still, including the Caribbean, according  Heritage, it is home to six of the 23 repressed economies in the world.  Why do we take aggressive steps to fix the other five?

The empathy of Barton and the others at the Weekly Standard speaks well for them.  Unfortunately, it is not something that we can fix.  To create a working economy the Venezuelans (Zimbabwean etc.) need to fix it for themselves.  We hope that they renounce socialism immediately but it is up to them.

Don’t Forget Venezuela

Venezuela continues to circle the drain.  Remember it has the largest oil reserves in the world.  In the last three months the price of oil (yes there are lots of prices but they move in tandem) has gone from $54.53 to $65.41.  Unfortunately, it is trying to apply socialism.  Scott B. MacDonald reports on the impact:

Venezuela is a mess. It clings on the edge of total debt default only thanks to the timely recent assistance of Russian money. At the same time, the economy has imploded—oil production and exports are struggling, inflation has zipped well above 2,000 percent (into the realm of hyperinflation), unemployment is in excess of 20 percent, and there are growing numbers of outbreaks of looting in the face of widespread shortages of food and basic goods. By one estimate, Venezuela’s economy has contracted by 40 percent in per capita terms from 2013 to 2017, while the country has one of the world’s highest homicide rates.

There is limited ability for the The Donald to have an impact here.  We can safely say that he will avoid his immediate predecessor’s “Mi amigo” moment.

Sidebar:  Reporting of Obama’s mi amigo doesn’t come up on Google’s first page.  There are two negative comments on it, one being the link, but there is no reporting of it.  Interesting.  End Sidebar.

Scott says it is up to Venezuela’s military because, like the Congo, Zimbabwe, and eastern Europe, the solution, or lack of a solution, is up to the folks in the country.  Scott says:

For change to occur it will have to come from within the ranks of the armed forces. While the top leadership has benefited from its close relationship with the Maduro gang, much of the rank and file is not immune to the ravages of socialist policymaking and mismanagement.

We hope for the best but much will have to go right to get from the current situation to a functioning country,  Good luck to the reformers and good luck to outsiders in identifying reformers.

 

Nope On Trade

We tend to agree with Larry Kudlow.  We believe that there are government policies that will awaken the growth fairy.  Per capita economic growth is critical to funding the government and providing for the people.  We generally agree with Larry’s article on The Donald and Davos.  America is open for business.  There was one part with which we strongly disagree:

In an illuminating interview with my friend and CNBC colleague Joe Kernan, Trump said he’s willing to deal on trade — including NAFTA, and perhaps the Trans-Pacific Partnership (TPP). But he correctly insisted on reciprocity. Barriers should be torn down by both sides. Arbitrations must protect America, not penalize it.

Arbitrations must protect America from what?  The answer would seem to be cheaper washing machines for consumers.  America first would mean the opposite.  We should tear down our barriers and not care about the barriers elsewhere.

Yes, it is more complicated than that.  America also benefits from free trade policies by other counties and we should encourage capitalism. Still, Larry should know that free trade is a good thing and surely he believes that raising taxes such as tariffs is a bad thing.

Three Trade Ideas

The Donald, Kevin Williamson, and Jonah Goldberg have put forth take ideas and actions recently.  It shows the difficulties of politics.  In politics we need to make priorities and often end up supporting the least worst solution, like The Donald.  Kevin and MWG are for unilateral tariff elimination.  We agree with Kevin that:

Which is why my preferred Plan B — unilateral free trade — is, politically speaking, a DOA proposition. I simply reject the notion that free people should have to ask the permission of, well, anybody before they can buy ordinary goods from whomever they like, including producers in China, India, Poland — or on Mars.

Well, we think of it more as tax policy than human rights but we are still on the same page.  Jonah is close to that and The Donald is very far away from us.  Let’s start with The Donald.  He recently gave a speech in Davos where the WSJ reported:

[The Donald] also echoed previous calls for “fair trade,” saying the U.S. would “no longer turn a blind eye to unfair economic practices.”

“We cannot have free and open trade if some countries exploit the system at the expense of others,” [The Donald] warned.
[snip]

The [Donald’s] administration drew criticism from abroad this week for its announcement Monday that it would impose steep tariffs aimed at protecting U.S. makers of solar panels and washing machines.

All three paragraphs represent foolishness of the first order.  Theresa May, in the same article, speaks for us when she says:

Free trade and the global rules-based system had together “delivered the greatest advances in prosperity we have ever known.”

The Donald had an excellent year in 2017.  This is a rocky start for 2018.

Sidebar One:A president does not and should not have control of the country such that, good or bad, it is all on him.  Events were such that The Donald had a banner year in 2017.  It was not all him.  End Sidebar One.

Jonah takes, and has always taken, our side in the trade issues:

[The Donald’s] administration is now moving to put some teeth on its promise to punish “unfair” trade from China and other countries. This week it imposed punitive tariffs on Chinese and South Korean manufacturers of washing machines and solar panels. The move is ill advised on its own, but you can be sure this is just the beginning of renewed debate over the benefits of free trade, with any number of once-passionate opponents of the government’s “picking winners and losers” rushing to defend the sagacity of “America first” economics.

Jonah is getting to be like Conrad Black.  Conrad can’t write an article without puffing up at least one of Nixon or FDR.  Jonah just has to fly his Never Trump flag but he does get to a good point in his conclusion:

Every form of statism — from absolute monarchy to socialism to fascism — involves the state forming an alliance with some faction or another and giving it preferential treatment. Protectionism is simply statism applied to trade.

Sidebar Two: Unlike Jonah, we are not convinced that folks have a hard time distinguishing between pro-business and pro-market.  He says: “But it is a rare corporate titan who favors a free market if doing so is bad for his or her bottom line.”  It is much more general than that as his quotes from Adam Smith indicate.  Neither businessmen nor workers want a free market.  Only consumers do.  End Sidebar Two

Jonah’s conclusion of protectionism as statism leads to Kevin’s idea that the left, where the statists dwell, might be the opportunity for free trade.

Capitalism isn’t what it used to be [the kinds of businesses].  And neither is free trade. Once largely an Anglo-American project, free trade today is a European project, a Canadian project, an Asian project, and a pan-Pacific and trans-Atlantic project, too. It is, properly understood, a global humanitarian project. For the moment, the leaders of that project are people such as Trudeau, Merkel, and Shinzo Abe. And Michelle Bachelet, too: The remarkable fact is that Chile’s socialist president is more pro-trade than is the nominally Republican president of the United States of America.

There is a big problem with Kevin’s analysis.  There is also a minor point in ignoring the UK and Theresa’s quote above.  His major example is the Trans-Pacific Partnership (TPP). Here is an an example of the big problem:

So far, the Democratic party has largely resisted efforts to purge members who supported TPP, fast-track negotiating authority for the president, and other pro-trade measures.

The problem is that Kevin opposed TPP as a free trader.  None of us, Jonah, Kevin, or MWG, were enamored with TPP and the thousands of pages it entails.

The problem is that our first preference is unilateral free trade.  Our second preference is one sentence free trade on a bilateral basis.  We are not interested in imposing thousands of pages interpreted by hoards of bureaucrats on ourselves or other countries.  The statists who Kevin hopes to work with are interested in such agreements.  We tend to favor negotiation but perhaps we need to move to free trade absolutism.  It is always the problem in politics.  Sometimes negotiation takes you so far from your goals that you lose more that you gain.

 

Waiting For Joy Is Worth It

Michael Rand is a sports writer in Minneapolis.  He is also a life-long Minnesota Vikings fan.  As it happens, his team is just a year younger than our team but because Michael just passed forty he is in a similar situation to us a couple of decades ago.  He writes about the Viking loss to the Eagles:

After the sting of Sunday wears off and the Super Bowl has come and gone, maybe we can appreciate this 2017 Vikings season for what it was: a good team that overachieved and gave us one amazing playoff finish before ending with one huge disappointment.

Maybe sometime in this lifetime the story will end differently.

We could have written much the same thing in the nineties.  We even matched up with him on wife and two kids.  Then came Bill in January 2000.  Now all the folks that had faux pity for us then have real envy now.

Michael is ahead of where we were twenty years ago because the Twins won a couple of World Series early in his life.  We were zero for ninety combining baseball and football.  Stick with your teams Michael and it will make it much more sweet when the ultimate success comes.  If you are a fan then believing is the only choice.