Wednesday, March 24, 2010
Now that the battle against socialized medicine in America is largely over, I have decided to suspend publication of my SOCIALIZED MEDICINE blog. I will of course still be posting on the issue when matters of particular interest arise but I will do so on this blog from now on -- as you will see below. My AUSTRALIAN POLITICS blog will also continue to cover the disasters of socialized medicine in Australia.
Healthy tax increases, not only on wealthy
Half-trillion dollars over 10 years to pay for bill
When it comes to the taxes associated with the new health care bill, Vice President Joseph R. Biden Jr.'s assessment stands: It's a big — very big — deal.
The historic overhaul of the nation's health care system that President Obama signed Tuesday, when combined with the fixes making their way through Congress, will raise taxes over the next 10 years by more than a half-trillion dollars.
The tax increases range from hundreds of billions of dollars in new Medicare levies, including one that taxes investment income such as capital gains and dividends for the first time, to a 10 percent excise tax on indoor tanning services that will raise less than $3 billion over the next decade.
Imposing a Medicare tax on investment income "would reduce demand for investment, which is the last thing that the economy needs right now. It would slow [economic] recovery, reduce employment opportunities and hinder wage growth," said Karen Campbell of the conservative Heritage Foundation. "Less investment, lower investment values and lower wages hinder the ability of households to build wealth."
Under a procedure that doesn't require a 60-vote majority for approval, the Senate is considering a package of changes to the new health care law to placate House members' concerns about the Senate bill, which the lower chamber approved Sunday with no Republican support. Among other things, the Senate must approve the numerous tax-law changes that the House passed in a second bill Sunday to fix the upper chamber's December proposal.
By far the biggest tax increase — more than $210 billion from 2012 through 2019 —. involves Medicare, the $500 billion federal health care program for the elderly and disabled. Medicare taxes would be raised in two ways.
First, the new law increases the Medicare payroll tax on employee wages and salaries from 1.45 percent to 2.35 percent on earnings above a certain amount — $200,000 for individuals and $250,000 for couples who file jointly. The employer's share would remain at 1.45 percent for all wages and salaries — creating an effective 3.8 percent tax rate for income in those higher brackets.
Second, for the first time ever, the bill would apply Medicare taxes to several forms of "unearned income" — capital gains, dividends, interest, royalties and other sources besides wages and salaries — above the $200,000 and $250,000 thresholds. The individual or couple must pay the whole 3.8 percent Medicare tax because there is no employer with whom to split the bill on "unearned income."
Consider a married couple who earn $300,000, divided evenly between salaries and capital gains. Their total salary income of $150,000 would be subject to the combined 2.9 percent Medicare tax — split evenly between employee and employer. The first $100,000 in capital gains would not be subject to any Medicare tax, but the couple would have to pay a 3.8 percent Medicare tax on the last $50,000 in capital gains.
The two Medicare provisions "would improve both tax equity and economic efficiency," said Chuck Marr of the liberal Center on Budget and Policy Priorities, who notes that the two taxes would affect "only the 2.6 percent of U.S. households with the highest incomes." Mr. Marr reports that 91 percent of the increase in Medicare taxes would be paid by people earning more than $500,000.
An Off-Budget Office?
by Thomas Sowell
Under the headline "Costly Bill Seen as Saving Money," the San Francisco Chronicle last week began a front-page story with these words: "Many people find it hard to understand how the health care legislation heading for a decisive vote Sunday can cost $940 billion and cut the horrendous federal deficit at the same time."
It's not hard to understand at all. It is a lie.
What makes this particular lie pass muster with many people, who might otherwise use their common sense, is that the Congressional Budget Office vouched for the consistency of the budget numbers that say you can add millions of people to a government-run system and yet save money.
The Congressional Budget Office does honest work. But it can only use the numbers that Congress supplies-- and Congress does dishonest work. It is not the CBO's job to give their opinion as to whether any of the marvelous things that Congress says it will do in the future are either likely or possible.
The Congressional Budget Office is like a computer: Garbage in, garbage out. The numbers in the health care bill are especially smelly garbage.
Do we really need a government agency to give us a false sense of security? Don't we already have politicians to do that? Weren't they doing that at the height of the housing boom that preceded the collapse, which then brought down the whole financial system and the whole economy? Many warnings were brushed aside by Barney Frank, Christopher Dodd and many others in Congress.
What we really need-- and will never get-- is a Congressional Off-Budget Office. This would be an agency that does not have to accept whatever numbers Congress sends them and pretend to take those numbers seriously.
An independent agency could add up all of the government's financial liabilities, whether they are in the official budget or not. For example, the Federal Deposit Insurance Corporation, which guarantees bank accounts, has only a fraction of the money that it is supposed to have on hand to see that people's life savings don't get wiped out when a bank fails.
No administration of either party is going to let people's life savings get wiped out. That would be political suicide. FDIC is definitely too big to fail. But none of the billions of dollars that will be necessary to pour into FDIC at some point, as banks continue to fail and the FDIC's reserves continue to shrink, appears in the official budget numbers that the CBO sees.
It is a similar story with the Federal Housing Administration, which has what the Wall Street Journal calls "razor thin reserves" as it goes around the country, merrily guaranteeing ever larger mortgages for ever larger numbers of people, while 14 percent of those mortgages are already delinquent.
When the FHA is finally scraping the bottom of the barrel, trying to come up with the money to redeem all the reckless-- but politically popular-- guarantees it is making, where do you think that additional money they need will come from? From taxpayers-- current and future.
But none of this money is in the official federal budget that the Congressional Budget Office sees. There are many other financial liabilities of the government that are "off-budget," which means that they do not show up in the official numbers.
What if an individual operated this way? If you are 80 years old, and your assets exactly balance your liabilities, you're in good shape, right? Wrong.
At your age, you know that there may be some big medical bills coming, somewhere down the road. If you have been following politics-- which may be bad for your blood pressure-- you know that the mountainous federal deficits that extend into the future, as far as the eye can see, are likely to set off inflation that will silently steal a big chunk of the value of whatever money you have put aside for your old age. But none of that shows up in the numbers measuring your current assets and liability.
Moreover, at 80 years of age, you are not likely to be able to resume a career and make anything like the money you once made. What can you do? Unlike the federal government, you cannot just send your official numbers over to the Congressional Budget Office and have them announce that you are in great financial shape.
Israel spat no worry for Democrats
Domestic issues seen as more pressing
The Obama administration's spat with Israel over Jewish settlement activity in occupied East Jerusalem is unlikely to hurt Democrats politically in any major way, primarily because of voters' preoccupation with domestic issues, such as health care and the economy, analysts say.
The administration's actions, they say, also indicate that it is not very worried about domestic political consequences. Not only has it refused to back off its demands, but this week it again clashed publicly with Prime Minister Benjamin Netanyahu about what is in Israel's interests.
"They are not letting Netanyahu off the hook," said Michele Dunne, senior associate at the Carnegie Endowment for International Peace. "They clearly see some utility in airing their disagreements with him in public."
According to polls, President Obama is seen by many Americans as being tougher on Israel than his predecessors, but that is unlikely to become a major issue in this year's midterm elections, said John R. Bolton, U.S. ambassador to the United Nations in the George W. Bush administration.
"Unfortunately, there is an overwhelming emphasis on domestic issues, and it's difficult to break through the economic news — and when you add health care, this is one more problem many people don't want to have," Mr. Bolton said.
In fact, Ms. Dunne said, Mr. Obama may be more emboldened to maintain pressure on Israel now that he has had a domestic success in passing health care reform. The failure to do that last fall was one of the reasons the president "backed down from a confrontation" with Mr. Netanyahu at the time, she said.
At the same time, Mr. Obama is unlikely to escalate his dispute with the Israeli leader and "distract public attention from this week's story line of success on social domestic legislation," said Daniel Levy, co-director of the Middle East Task Force at the New America Foundation.
Mr. Levy, who was a special adviser to Israeli Prime Minister Ehud Barak — the current defense minister — in the late 1990s, said that a "vocal mobilized minority" of Jewish Americans most likely will try to make the dispute an election issue, but they will not be successful.
"The vast majority of American Jewish voters in November won't be basing their vote on this spat," he said. "A small minority for Jewish Democrats will raise it, and part of the Republican base will use it as one of many mobilizing vehicles, but those voters will be mobilized anyway — though, on margins, it could raise money for certain candidates."
Members of Congress from both parties have urged the administration to end the dispute, which began with Israel's announcement of 1,600 new housing units just as Vice President Joseph R. Biden Jr. arrived in the Jewish state two weeks ago. Lawmakers have signaled that they care more than the administration about domestic perceptions.
The Left's favorite mantra justifying income redistribution is "excessive benefit from Bush policies." The liberal illogic goes that "the wealthy" have been receiving too much and paying too little and should now make it up with higher taxes. The flaws in this slanted reasoning are many. The danger in it is even greater.
For those who missed it, let's recount what "the wealthy's excessive benefit" was. For one thing, they got to pay a top federal tax rate of 35 percent. That means the federal government got to take over a third of everything they earned. In reality, it means "the wealthy" got to keep well less than 65 cents of every dollar they made, once state and local taxes are added to the federal tax rate.
This "too-low" top rate means that "the wealthy" paid taxes at the same federal rate as corporations. Of course, as many correctly argue, the corporate tax rate is too high to be globally competitive. The fear is that businesses and investment will migrate abroad. For some reason, the same concern does not exist for top individual producers.
If the wealthy's gains are ill-gotten, then wouldn't justice be better and more quickly served to prosecute, rather than persecute, them? There rightly was no hesitation with Bernie Madoff. Seeking to tax the wealthy to justice is the least efficient manner for redressing the Left's claimed wrong. Unless, of course, you presume that all the wealthy's gains are ill-gotten…
Top earners' real "crime" is success. What do they do with their excessive benefits? Invest, save, and start businesses. All of which employ others and give customers goods at the lowest possible prices. Criminal.
Who are these insanely wealthy souls? A married couple making over $374,000 this year would qualify for the top tax rate. It is impossible to put a face on them though -- because their ranks change every year. As people age, they migrate through the tax rates -- the "wealthy" one year, were likely "poor" earlier, and will likely return to lower tax rates again as they reach retirement.
This income migration points out the dangerous but implicit element of the Left's redistribution justification. Raising present taxes in order to penalize past benefits smacks of retroactivity. As income migration shows, it is a very imprecise imposition -- people who had lower tax rates in the past may no longer be in the top income group next year, and people in the top income group next year, may not have been in the top over the previous decade. No matter to the Left.
The retroactive nature of the Left's justification should indeed be a concern to the rest of us though. It is more dangerous than the taxes themselves. It not only offers an unlimited rationale for raising future taxes, but leaves neither amount nor type of income immune from its rearward reach.
By all competent projections, Washington is on an unsustainable spending path. Generated by entitlements and inertia, there is no effort on the Left to avoid excessive spending. Its demand will therefore turn for more and more revenue. The two largest pots will be in baby-boomer savings and middle class earnings. If someone's past success can justify a reach-back revenue-grab, what makes retirement accounts safe? If someone can be deemed to have benefitted "excessively," why does anyone have comfort that today's middle class do not become tomorrow's wealthy?
We can never rest secure in liberals' limits because there is no limit for liberals. The Left thinks in non-economic terms and acts under anti-economic rules. Under its system, there are no market forces to align supply to demand. Therefore there are no means to enforce boundaries on actions. There are only the Left's own good intent and the inherent belief that it can order society better than society and markets can order themselves.
Thus liberals can not tell us how much "the wealthy" need pay in taxes. Already those in the top tax bracket pay almost 35 percent of all federal income taxes paid in the U.S. This despite the fact that they make up less than four percent of federal taxpayers. How much more a burden should they shoulder? The Left cannot be more precise than to simply say "more."
The Left should say what it means. If it believes America is under-taxed -- in whole or in part -- it should say so. If it believes that Washington must have more revenue because spending cannot be cut -- it should make the claim. Of course, it will say neither, because America would reject both assertions.
For this reason, the Left rarely says what they mean. But the Left does mean what it says. And often far more. The problem is America just does not listen.
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The Big Lie of the late 20th century was that Nazism was Rightist. It was in fact typical of the Leftism of its day. It was only to the Right of Stalin's Communism. The very word "Nazi" is a German abbreviation for "National Socialist" (Nationalsozialist) and the full name of Hitler's political party (translated) was "The National Socialist German Workers' Party" (In German: Nationalsozialistische Deutsche Arbeiterpartei)