Author: Derek Thompson

Health care reform is expensive, and the Democrats wanted to draw up a revenue-raising plan that would make it deficit neutral — or even deficit-slashing in the long term. So the bill raises taxes. Starting in 2018, there is a new 40 percent excise tax on expensive insurance plans. In 2013, health reform will also raise special taxes for households earning more than $250,000: Medicare payroll taxes will go up by 0.9 percentage points and investment taxes (capital gains) go up by 3.8 percentage points. That last tax is expected to generate more than $30 billion per year by 2019, according the Joint Committee on Taxation.

TaxVox blogger Howard Gleckman is worried that some of these taxes might not last until the end of the decade. The United States is seriously overdue for comprehensive tax reform. We haven’t had a major spring cleaning of the tax system since 1986 and in the last quarter century, unruly deductions, exemptions and carve outs have sprouted like weeds in the tax code. Any comprehensive reform plan will likely touch all parts of the tax system: it will eliminate wasteful deductions, alter tax brackets, pick up a national consumption tax and tinker with corporate income and investment taxes. That last part is key, because there’s a decent chance that comprehensive tax reform will overrule some taxes created to pay for health reform.

Tuesday afternoon Gleckman told me: “The first step of this is to keep in mind that the two big tax increases to pay for health care don’t take effect for many years. So there is a very good chance given the fiscal situation that there will be significant tax reform certainly by 2018. So what that does is it throws all the current tax system including the Cadillac tax and the Medicare tax and the investment tax into the mix. And there’s no way to know what’s going to come out the other end.”

Gleckman says the tax in the most danger is the investment tax. If comprehensive tax reform slashes capital gains taxes in exchange for a broad based consumption tax like a VAT, which is entirely in the realm of possibility, it will overrule that investment surtax.

This doesn’t mean that health care reform is doomed. Taxes will still come in to pay off the subsidies — perhaps even more
than today. Revenues get mixed up in one big pot, and if you raise taxes, the revenue pot gets bigger. Gleckman observes, “The big point here really is not to try to guess which taxes will be enacted and overruled. It’s just to say when you pass a tax increase that doesn’t take place in ten years, a lot can happen. The chances of this tax plan going into effect as passed is about zero.”

Zero?

“Yes, zero. In ten years, something is going to happen that changes this proposal.”

This morning I peered into the crystal ball to think about how some provisions in the health care bill could shake out in the next ten to twenty years. I acknowledge that this experiment is of limited value because Congress can always pass laws that change the way we regulate, tax and spend our way through health policy, but it’s useful I think to extrapolate based on current law since health reform is, after all, the law of the land.

Jon Chait, in a long post blasting Rep. Paul Ryan and his anti-communitarian ilk, says this about employer-based insurance:

Ryan would turn that on its head. Medicare and the employer-based
health care system mitigate the risk of chronic or severe sickness.
Ryan would slash the former and eliminate the latter.

And then this:

Dissolving employer-based insurance would help a healthy, low-earning
25-year-old at the expense of a diabetic high-earning 50-year-old.

I come into this argument closer to Chait’s side than Ryan’s, but I think it’s important to be clear that in the long run this health care bill erodes the prominence of employer-provided health care. Employer-provided insurance is tax free. In 2018, an excise tax on gold-plated plans kicks in that will grow faster than inflation, hitting more business over time. Americans will have the chance to break with their employer insurance and enter the exchange market where they can receive subsidies (that will also shrink in value over time). Exchange-care will grow. Employer-care will shrink. That’s the plan.

Chait should mostly like this. The employer subsidy is awfully regressive because the tax subsidy disproportionately goes to richer insurance plans. Beginning to tax insurance would not only be fair — inasmuch as wages and benefits should receive similar tax treatment — it would also correct a fundamental distortion in the health care market, which is that employees don’t see the money they’re spending on health care because it’s taken out of their compensation pre-wages. Economists on all sides of the spectrum agree that tax subsidies on employed-based coverage are critical distorters, and also low-hanging fruit compared to, say, dismantling fee-for-service Medicare.

Health care reform is the law of the land. But that doesn’t mean it’s time to stop paying attention. This is a fluid piece of legislation, not only because the law is going back through reconciliation, but also because reconciliation would make two very important changes:

(1) The subsidies will become more generous, but they grow more slowly until they
eventually fall back to the levels that existed in the House bill
pre-reconciliation.

(2) The excise tax on expensive employer insurance
plans (note: all employer-provided insurance plans are currently tax
free) is delayed until 2018 and hits fewer Americans in the first few
years, but it is indexed to grow faster than in the Senate or House plan.

Notice what happens here. Federal subsidies for lower-income and jobless Americans on the regulated exchanges fail to keep pace with medical inflation in the second decade. At the same time, insurance taxes creep into the workplace, forcing employers to switch to cheaper, simpler plans and possibly encouraging workers to switch their coverage to the exchanges. Matt Yglesias acknowledges, “by design the country will shift from a mixed employer/exchange system to an exclusively exchange-based one.” But it will also, by design, shift from a subsidized market to a market where consumers have considerably more “skin” in the game, as Ross Douthat puts it.

Let’s turn this into a thought experiment. The exchange system will grow while
federal subsidies fall. Without federal assistance, families won’t be able to afford their old health care plans. So they’ll be forced to buy cheaper plans, which will mean less comprehensive plans. Meanwhile, Medicare and Medicaid will continue to grow considerably with the baby boomer generation in retirement. With families squeezed on private insurance while the government’s share of health care grows, you can imagine the feds might step in to create a public option for catastrophic care that covers the expenses that cheap insurance options on the exchanges will not. You can further imagine that this supplementary public option could grow to become a national public option once Americans of all ages feel more comfortable with government insurance.

Back to the present. That thought experiment is my way of building a bridge between the long-term health projections of Ross Douthat and Tim Noah. You should take a look at their arguments because crystal balls are fun to peer through, but the picture is cloudy and dark. In the short term, the significance of this funky indexing with federal subsidies and the excise tax means one thing: that the administration needed to set certain rates to guarantee that health care reform would save a politically acceptable sum of money. In the long term, the significance of these rates is close to nil. If they cause politically unpalatable pain, we’ll fix them.

A new provision in the health care reform bill would require calorie counts at all chain restaurants with more than 20 locations. The law (in PDF form here) requires labeling “in a clear and conspicuous manner” on menus and menu boards.

It’s not clear what effect menu labeling has on consumer choice. Calorie postings didn’t change eating habits in its first few months in NYC, according to this study. But as Atlantic Food editor Corby Kummer points out, Starbucks changed its default milk from whole to 2 percent because the calorie numbers from whole milk Frappuccinos were too embarrassing. A separate study found that average calories per transaction at Starbucks fell 6% after calories counts appeared on menus without affecting Starbucks’ revenue.

The New York study that found calorie counts were failing to curb calorie intake focused on fast food chains in poor neighborhoods. But it seems to me that most people know that fast food has a lot of calories (and low-income neighborhoods are infamous for lacking enough healthy choices). Calorie statistics at fast food restaurants don’t provide new information, really. They affix a number to something the patrons should already suspect: the food is nutritional garbage.

The kind of people who are most likely to be swayed by scary numbers in the high hundreds are the middle class “yuppies” Corby mentioned who get scared by the White Mocha Frappuccino figures and elect to stick with a large iced coffee instead; or see the calorie count of a Cosi Signature Salad and decide to go with the Hummus sandwich. There’s no way to know exactly what impact this change will have. But I cannot believe that that the impact will be nil.

Health care overhaul is through Congress. Is Social Security next on the operating table?

The New York Times’ Jackie Calmes predicts that “addressing Social Security‘s solvency could well become the next big thing for President Obama and Congressional Democrats.” The reason: the administration has to demonstrate that it can act on the deficit, and with Medicare cuts and Medicaid expansion at the heart of health care reform, Social Security is the only entitlement left.

Social Security is not nearly the time bomb that Medicare is. But
Americans’ post-retirement longevity has doubled in the last 30 years,
and the looming retirement of the baby boomer generation will strain
the system. Social Security will start to pay out more benefits than it
collects in payroll taxes in 2016, according to the the annual report of government trustees. By 2037, it projects that reserves will be exhausted.

It is generally acknowledged that there are three ways to fix Social
Security without privatizing the program: raise the retirement age, raise taxes or means-test the
program to preserve payouts to low-income recipients but scale back on
benefits for the wealthy. I don’t get the sense that the administration or the House is poised to do any of this. The Democratic House and Speaker Nancy Pelosi have just delivered to Obama a political miracle with health care reform. Can you see the administration expressing its thanks by forcing the liberal House caucus to draw up a plan to cut benefits to seniors in a fraught election year? Or raise payroll taxes on employers just weeks after passing a bill that cut payroll taxes to incentivize employers to hire? Or means-test Social Security after raising Medicare payroll taxes in the health care bill on households earning more than $250,000? The whole thing just screams non-starter.

Update: This is also an important point from Dean Baker: Slashing Social Security benefits too soon after the recession devastated the savings of so many Baby Boomers would be worse than bad politics, it would be bad policy.

The same day that Amazon announced a free Kindle app for the Apple iPad, one of my favorite economic writers, the New Yorker’s James Surowiecki, has a great column about how Apple routinely bucks the conventional wisdom that cheap, mediocre products for the middle market, are the ticket to profitability. The ‘good enough revolution’ has sustained companies like Ikea and H&M, but Apple consistently aims to reinvent the market with its expensive machines and ideas.

I like writing about the iPad not because I’m going to buy one, but because I’m fascinated that so many people are. Apple’s sleek little slab doesn’t make sense as a computer, or a book, or a utility instrument. It’s a high-end entertainment screen that carves its own category and stand athwart numerous popular conceptions. Here are four:

1) Magazines are doomed. This is the one I hear about the most in the journalism industry, but weirdly it’s also the idea I have the least to say about. If a flat touchscreen slab is the savior of the magazine, good stuff. But as somebody who subscribes to four dead-tree magazines and reads dozens more on the Web, I don’t anticipate buying an iPad for the privilege to pay for glitzy magazine apps. I like purple prose and tax policy (though not always in the same pieces). I’m basically a words guy, and words aren’t a medium-specific experience.

2) You don’t need something superior, just cheap and good enough. Surowiecki notes that many business models like Ikea and H&M are successful because they build simple things not well, but well enough — and so cheap! Apple is the precise opposite. It builds machine not just well, but superbly — and for a pretty penny. This is, and has been, Apple’s gamble and meal-ticket. While cheap and mediocre desktops and laptops are still commanding the majority of the market, Apple has carved out a particular high-middle luxury market for superior computer hardware.

3) Software beats hardware in the tech world. Atlantic Business editor Megan McArdle wrote her last magazine column on the “return of machines as market makers.” It’s an interesting point. Microsoft and Google have made bank on the premise that hardware is fungible, but superior software is a portable moneymaker. Microsoft makes lots of things, but its revenue keystone is its operating system, browser and Office software. Google also dabbles eclectically, but its revenue pie is practically entirely Web advertising. Apple makes software too but its game changers are in the hardware space: the iPod (and iTunes) changed music; the iPhone changed smart phones; and now the iPad aims to change entertainment and computing. If Steve Jobs’ latest gambit strikes a chord, it will be because he invented a machine that changed the way Americans think about their computers….

4) Computers are for work. Most personal computers are work machines on which you can entertain yourself with music and movies and browsing. But the iPad is an entertainment machine on which you can work. Sure, it is compatible with Microsoft Word, and it accesses the Web, and it does other computery things. But the Apple iPad can’t multitask — not yet anyway — so it
cannot be a first-order work computer. If the iPad sparks a tablet revolution, it will mean that millions of Americans want multiple personal computers in their life: one for work and one for procrastination and entertainment. [Adapted from this piece.]

Taxes discourage behavior. But the announcement of new taxes can theoretically stimulate that behavior. For example, if I tell my roommate that starting today I’m going to make him pay me one dollar for every box of cereal he buys (maybe I’m sick of all the Special K crumbs in the living room), he’ll buy less cereal. But if I tell him I’m going to start charging that tax tomorrow, he’ll hit up CVS immediately to pick up ten boxes of Special K before the tax starts.

That’s part of the thinking behind Robert Frank’s crazy idea to tax high levels of consumption. In his millionaire tax plan, the top one percent of the country making more than $1 million per household would be subject to a tax if they spend more than $500,000 a year. Spending would be calculated as the difference between income and savings as reported to the IRS. Announce the imminent surtax now and rich people accelerate their spending to beat the tax. More spending means more employer profits, which means more hires. If you make the surtax counter-cyclical — that is, say it will go into effect when unemployment dips below 6 percent and sunsets when unemployment rises above 7 percent again — it could theoretically juice spending when the economy needs a jolt of demand and tame spending when the economy is running hot.

What’s not to like? Joe Rosenberg of the Urban Institute, who’s done research on the implications of a value added tax (which is like a national consumption tax, except it would affect all American spenders) says he doesn’t think this plan is particularly feasible. “It seems almost impossible to administer,” Rosenberg said. “It’s basically trying to estimate consumption from income minus savings but that’s not workable for a lot of reasons. For one, not all income shows up on the tax reform, like unrealized capital gains.”

Broadly what Frank is calling for is a progressive tax on consumption. Advocates for a VAT acknowledge that a broad-based consumption tax is naturally regressive because it taxes a greater percent of wages from the poor, who spend rather than save more of their earnings. That’s why most VAT plans include tax rebates to offset the impact of higher prices on low-income families. Frank’s plan is like a VAT for rich people. But whereas a VAT is collected at various stages along the production chain by taxing the “value added” at each stage, a millionaire consumption tax on spending higher than $500,000 can only be implementing after taxes and savings have been reported. Gaming would be rampant. In sum, I agree with Frank that the United States should look at a consumption tax to increase tax revenue and offset other tax cuts like corporate income, but I also agree with Rosenberg’s opinion that a millionaire tax is the wrong strategy to backdoor our way into taxing consumption.

If you watched the health care debate on TV last night, you probably caught one or one hundred Republicans arguing now is the wrong time to raise taxes. Let’s evaluate. It’s true that health care reform will raise some people’s taxes. It is also true that now is the wrong time to raise taxes. But it is not true that health care reform is raising taxes now.

Here’s the health care tax situation in a nutshell. For two-plus years, nothing. Richer Americans families will have to pay higher Medicare taxes in 2013. The individual mandate to buy insurance (which some would argue is a tax) hits in 2014, the same year the government expands Medicaid and enacts federal subsidies to help poorer Americans bear the insurance burden. The 40 percent excise tax on expensive insurance plans debuts in 2018. For better or worse, the revenue-generating portions of the health care bill are scheduled to go into effect years after the recession is over.

And yet, the Republicans’ critique, misleading as it is, provides a useful reminder that the recession has a way of
creating excuses for all sorts of otherwise reasonable reforms. We might want a value-added tax to generate more government revenue or to offset reductions to corporate and income taxes, but a VAT taxes and discourages spending, and now is the wrong time to reduce consumption. Eliminating the mortgage interest deduction would be a smart way to stop incentivizing Americans to take on unaffordable debt or artificially inflating the housing market, but now is the wrong time to discourage home buying. Eliminating the state and local tax deduction is a smart way to simplify the tax code, but it allows states to keep taxes higher when they’re running enormous deficits. Non-entitlement government spending is unsustainable, but you can’t cut spending this soon after a recession.

Health care reform is just about sealed, but our nation’s problems go beyond expanding coverage and bending down medical inflation. Many of those problems live in a bloated and byzantine tax code that hasn’t seen a proper spring cleaning since 1986. And yet the argument against addressing them for the next six months to year will be “now is the wrong time.”

Cable TV is doomed, Max Fisher wrote last week. As broadband access and online content channels like Hulu and Apple and YouTube develop sustainable business models, more Americans will migrate from their cable box toward their computers, where television will be cheaper, on-demand and on-the-go.

I’m still holding out to see how Websites like Hulu grow from ad-only networks to ad-plus-a la carte pricing (ie, you pay for most shows with your eyeballs, but some shows require actual cash) to online bundling deals that use cable’s business model but undercut the price because there are no installation or hardware fees for a website.

But it’s important to note that to a certain extent, Max’s prediction of the television’s migration to the Web is already coming true. March Madness offers the perfect opportunity to capture the nation’s readiness to live-stream broadcasts through their computers because it’s a live sports event that is on all day with financial implications for the millions of Americans who put money against their brackets. And live-streaming is up 20% over last year already. In fact the double-overtime first round game between Florida and BYU had 50% more traffic than any day one game in 2009.

Of course, the wonderful thing about watching sports on CBS.com (or the big news stories on MSNBC.com) is that we’re looking at a model that is even simpler than Hulu or Apple TV. There is no middle man. The TV lives between the network Website and your eyeballs, and the price is your patience through occasional Web ads. CBS doesn’t appear to be experiencing much drop-off on TV, however. March Madness ratings are up 13% over 2009.

Last night the House of Representatives passed the Senate health care bill, and the Democrats’ year of living flirtatiously with failure ended with what I would call the greatest progressive achievement of the last two generations. We — that is you, me, and everyone we know — have spent months wrangling over the implications of health care on the deficit and the cost curve and the tenor of DC politics. But now that the bill has become a law, the most useful approach to health care is to servicey rather than debatey: so what does it mean for you, anyway?

Ultimately health care reform is about expanding insurance coverage to 32 million new Americans by growing Medicaid, mandating that all Americans buy health care and offering subsidies to those living under 400% of the poverty line. For the tens of millions of Americans who already get health care through their employer, this law does not change very much. For Americans without insurance, it changes quite a bit. Starting at the end of the year, new college graduates can stay on their parents’ insurance until age 26. For less fortunate Americans without coverage, the law will offer tax credits to help them buy insurance through new regulated “exchanges.” For Americans enrolled in Medicare, the law should not dramatically
change coverage even though it calls for billions in cuts, primarily in the
Advantage program. It will, however, close the prescription drug
“doughnut hole” to help seniors buy medicine below the catastrophic coverage threshold.

On the revenue side, the bill delays its taxes until at least 2013. For richer families, the law will add additional Medicare payroll and investment taxes in three years. In eight years, it will add an excise tax on high-cost insurance plans that is indexed to creep into more insurance plans in the second decade of the law. On regulatory reform, the law bars insurers from rescinding coverage to the sick; discriminating based on pre-existing conditions; and capping lifetime coverage.

Now let’s make this personal. The Washington Post has put together this useful interactive tool that asks users to enter their source of health care (employer, Medicare, etc), household members, marital status and income, which it uses to calculate how the new health care law will affect you. For example:

— An entry-level 22-year old employee making between $30,000 and $40,000 a year will get to stay on his employer’s plan with the option to switch insurance to the exchange market with the help of government subsidies.

— A married, employed breadwinner with one child making $100,000 will see no change to his or her coverage through the law.

— A family making more than $250,000 with two children will see Medicare payroll taxes increase by 0.9% to 2.35% and they will have to pay a 3.8% tax on investment income.

Check out the WaPo tool. To get a better sense of when the major provisions of health care reform go into law, check out this time line.

Viacom claims YouTube has lost the so-called “safe harbor” protection of the Digital Millennium Copyright Act. The DMCA, adopted in 1998, provides internet service providers like YouTube immunity from infringement lawsuits if, among other things, they promptly remove copyrighted content at the request of the rightsholder.

Here are two current headlines in the New York Times “Most Emailed” box: “How Privacy Vanishes Online” and “I Need to Vent. Hello Facebook.” The second answers the question posed by the first. Why is our privacy vanishing online? Because we want it to.

The numbers were derived using a simple formula. The first three digits, called the “area number,” refer to the state where the card was issued. The fourth and fifth digits, the “group number,” are assigned in a predetermined order to divide the applicants into arbitrary groups. The last four digits, the “serial number,” are assigned sequentially, from 0001 to 9999 in each group. 

You don’t need me to tell you that America’s finances are on an unsustainable trajectory. Revenues have plunged to their lowest levels in decades, as a percentage of GDP. Spending has soared in the recession so that we’re projected to run a $1.7 trillion deficit. For a while I’ve argued that the solution should begin with both spending reforms and new taxes. One new tax I can get behind in the value added tax.

Moms are taking over Facebook. According to the analytics firm comScore, 36 million U.S. mothers visited Facebook in February, about one-third of the total audience. This is bad for the reputation of sons and daughters facing potential ridicule nationwide, but it’s good news for Zuckerberg’s juggernaut. Facebook recently surpassed Google to become the most visited site in the U.S. last week, as John Hudson explains here. There’s a lot of college kids clicking around to see their classmates’ pictures, but college students aren’t particularly trigger-happy with their credit cards. Moms are more likely to have disposable income, and a husband and kid(s) to spend on. Caitlin McDevitt of The Big Money explains what this means for advertisers:

Pampers has experimented with selling diapers on Facebook, while laundry detergent brand Tide has grown its fan base to more than 400,000 through home page ads. The National Retail Federation has found that “moms frequently share experiences and information, and say other people’s opinions influence their purchases.” Thus, they’re a particularly profitable group to target on Facebook, where they can easily recommend products that they like to their friends.

One thing I don’t understand about Facebook — or rather, opinion journalism about Facebook — is that every few months I read some screeching takedown by some middle-aged person about how it’s ruining friendships, or becoming boring, or suffering from mass exodus. Then the next statistic story I read shows that Facebook is not only booming, but also it’s booming among the exact demographic that I so often read criticizing it.

Somebody more generous than I once said “it is better to give that to receive.” Whether or not that is actually true in an emotional or ontological sense, it is certainly true in a tax-break sense. Wages you receive in exchange for work are taxed. Charitable givings are tax deductible.

Gene Steuerle from the Tax Policy Center praises a new rule that allows Americans to deduct donations to Haiti on their 2009 or 2010 tax returns. I agree that it’s a perfectly good idea to encourage people to donate to charity. I also agree that allowing taxpayers to itemize charitable donations and deduct them from their taxable income is a perfectly good way to inject charity into our tax system.

But that charity might be under siege . Take a look at the last two major tax reform plans to come out of Congress: the Wyden-Gregg tax reform plan and Paul Ryan Roadmap. These are very different plans. The first focuses on simplifying the tax code without dramatically affecting revenues, while the latter introduces more than a trillion dollars of new taxes while slashing taxes on the richest Americans and corporations by even more. But they have one thing in common: they could both discourage charitable donations.

Let’s back up a second. Tax experts on both sides of the aisle want to reform the tax system by simplifying our complex array of deductions and exemptions. It’s not politically popular to remove deductions and exemptions, because they save money. Take them out, and some politicians will accuse you of raising taxes. So instead, you raise the standard deduction to encourage tax payers to stop itemizing entirely. The good news is that dramatically increasing standard deductions gives you the political space to clear out a lot of detritus in the tax system. The bad news is that if tens of millions of Americans stop itemizing, charitable donations effectively lose their tax-preferred treatment.

The Wyden-Gregg plan would triple the standard deduction to $15,000 for individuals and $30,000 for joint filers. What effect would that have on donations? It could reduce the incentive for middle class families to give, but “the big givers wouldn’t be affected,” said Roberton Williams at the Tax Policy Center. That means the charities who feel the largest impact will be those who rely on middle class donations, especially religious organizations. The Ryan plan is a different story, because it kills the charitable donation entirely. Today rich folks in the top tax bracket only pay 65 cents for every dollar they donate because of the tax deduction at 35%. If you take away that deduction, it raises the cost of giving by 50 percent. On the one hand, the rich would get richer under Ryan’s plan, which might encourage them to give more. On the other hand, Williams said evidence suggests that raising the after-tax price of giving hurts donations. It’s possible that Ryan’s plan could hurt charitable giving at all levels.

To be sure, these are quixotic tax plans. And given the outcry over the Obama administration’s plan to cap charitable deductions last year, you can bet that the charity deduction will have loud supporters. But these plans highlight an important debate with real implications within the tax policy community. We can agree that some deductions and exemptions and other tax expenditures distort the market. We can also probably agree that raising the standard deduction is the best political cover for clearing out a lot of special interest underbrush in the tax code. But the same way that a good, strong medicine can take out a virus but also cause nausea, the Standard Deduction Solution to our byzantine tax system could both solve and create problems for both public sector politicians and private sector interests.

The President signed the Hiring Incentives to Restore Employment Act (HIRE) this morning, which puts $18 billion toward tax credits for employers who hire new workers in 2010. The heart of the plan, which also extends infrastructure investment through the end of the year, is a payroll tax exemption that will save employers 6.2% of any new hire’s wages in 2010, plus a $1,000 tax credit for workers held more than 52 weeks. The bill is offset under PAYGO rules by giving the IRS new powers to
crack down on offshore tax abuses and by delaying an obscure tax credit.

Yesterday on NPR, I said I think this bill has two sides: there’s what it looks like, and there’s what it can actually do. What it looks like is good. It’s bipartisan (11 Republicans voted for it) and it’s pro-active about reducing unemployment. What it can actually do is not so good. For $18 billion in hiring tax credits, the Congressional Budget Office predicted we won’t create more than 300,000 jobs. Optimistically, this moves forward our job creation by about a month and a half.

Obama signed his first “jobs bill” the same day the Congressional Budget Office released the Washington policy equivalent of the Ten Commandments tablets: the final analysis of health care reform. On both the New York Times and Washington Post homepages as of 12:27PM Thursday, health care is the top story, and HIRE is a small tab at the bottom of the page. On Google News and Huffington Post, I can’t even find a link to the jobs bill. Maybe that’s the proper attention to a $18* billion bill at a time when trillion-dollar figures are losing their shock value. Or maybe it’s just bad timing.

*Updated.

The Democrats’ health care reform is projected to cost $940 billion over the first ten years, reduce the deficit $130 billion over that time and save $1.2 trillion in the second ten years. That’s the conclusion of this long-awaited report from the Congressional Budget Office and Joint Committee on Taxation on the reconciliation bill that could get a House vote on Sunday. This will not persuade any Republicans to vote for health care, but it could help push a handful of conservative House Democrats to vote for the overhaul.

Anyway, that’s the politics. Let’s check out the policy. What makes this health care reform plan different from all other health care reform plans? Basically it comes down to more subsidies and a weaker tax on expensive insurance plans. But wouldn’t those two items dramatically undercut health care’s cost savings? Yes. So how come this reform saves more money than either the Senate or House bill? Good question.

It’s all about delaying the pain. The subsidies are more generous, but they grow more slowly until they eventually fall back to the levels that existed in the House bill, pre-reconciliation. The excise tax on expensive employer insurance plans (note: all employer-provided insurance plans are currently tax free) is delayed until 2018 and hits fewer Americans in the first few years, but it grows faster than in the Senate or House plan. The reconciliation proposal indexes the excise tax to the rate of general inflation rather than inflation plus one percentage point. In short: by messing with growth rates, Democrats are front-loading the benefits of the plan and leaving the cost-cutting goodies for the second decade.

Here’s where we get into the debate about whether Democrats are introducing a benefit that future governments will be unwilling to pay for. I imagine conservatives might hang on to the last  clause of this CBO sentence

the reconciliation proposal would probably continue to reduce budget deficits relative to those under current law in subsequent decades, assuming that all of its provisions would continue to be fully implemented. 

We can go back and forth on whether the cost cutting measures in HCR will be more like the Medicare reforms that stuck through the 1990s or the Alternative Minimum Tax, which gets a regular fix. I don’t know what future governments will do to this health care reform bill if it passes. But I know that this would change the default position. If future congresses don’t want to live
with the measures that are projected to cut more than $1 trillion in
health costs in the 2020s, they will have to vote to defeat those
measures. Today there is no foundation on which to build any kind of health care reform. There is only a system that doesn’t work and tens of millions of Americans locked out of it. By next week, we could have a bill that covers 95% of legal residents, reduces the deficit, and lays the groundwork for more significant cost cutting in the future. I guess you know where I stand.

If you only read one article about the perils of our pay-less/get-more budget, you can’t do much better than David Leonhardt’s column from the New York Times. There’s plenty of clear writing about our screwed up finances, but these are the key paragraphs:

As a society gets richer, its tax rates tend to rise…

Sure enough, the United States followed this path for most of the last
century. In 1900, federal taxes amounted to just 2 percent of gross domestic product. By 2000, the share had risen to 21 percent.

Over the last couple of decades, though, we have repealed Wagner’s Law
— or, more to the point, only partly repealed it. Taxes are no longer
rising. They fell to 18 percent of G.D.P. in 2008 and, because of the recession, to a 60-year low of 15.1 percent last year.

Yet our desire for government services just keeps growing. We added a prescription drug benefit to Medicare. Farm subsidies are sacrosanct. Social Security is the third rail of politics.

Phrasing our deficit crisis simply doesn’t make it simple to solve. But this is useful perspective. It reminded me of an event I attended in D.C on Tuesday, where President Bill Clinton told Newsweek editor Jon Meacham that the nation’s problems essentially boil down to “the typical problems of old, wealthy countries.”

This is right and wrong. It is true that are victims of our own success. Consider our health care system. In 1965 we passed into law Medicare to assist the medical expenses of our elderly, retired population. Social insurance for old people is a good thing. In the last 45 years, medical technology has improved dramatically. Better medical care is also a good thing. In the last half-century, Americans have doubled their post-retirement life expectancy. Living longer is a really, really good thing. But these three good things have three bad financial consequences: advanced technology makes treatments more expensive; longer lives extends expensive health care coverage; and Medicare requires younger generations to foot the bill for this extraordinary financial guarantee.

But consider Leonhardt’s lede (which is also known as Wagner’s Law): as a society gets richer, its tax rates tend to rise. Whether or not we think this is a good thing — I do, some of my commenters might not — we can certainly agree that it is no longer a “law” of any kind in the United States. In a way, our nation’s problems are not at all the “typical problems of old, wealthy countries.” Rather than continuing to track with Wagner’s Law, American budget politics has veered into a kind of parallel post-historical universe, where society gets richer, services rise and tax rates fall. Taxes and services are simultaneously moving backward and forward at the same time, and the distance between them is measured by our increasingly cavernous debt.

The solution, like the problem, is easily explained, but difficult to implement. It will require tax increases and spending cuts. Any don’t-touch-taxes solution would dismantle our entitlement program. Any don’t-touch-spending solution would require us to adopt the highest tax burdens in the world. Does anybody really think either of those is an acceptable answer?

How would the college basketball tournament turn out if each game were decided by graduates’ median salaries rather than points? Amazingly, there are people who think about this sort of stuff, and put together elegant graphs to prove it.

From PayScale (via Catherine Rampell), here is your Sweet Salary Sixteen:

Duke again. No real surprises there. But one thing to consider is that the PayScale folks are looking at median mid-career salaries. If you changed the metric to median starting salary, you’d probably a different bracket. Schools with strong engineering programs might bump out some liberal arts-focused programs. I’m only guessing that because another PayScale study ranked top colleges by highest median mid-career salary (first chart) and median starting salary (second chart). There’s a bit of overlap, but the first list is mostly Ivies and Ivy-ish schools while the second is heavy on the engineering programs:

Now that the $18 billion jobs bill is headed to the White House, the next stimulus debate will focus on the $150 billion plan that would extend unemployment insurance past a record 99 weeks. One hundred weeks is an awfully long time to be living on the government’s dole. It’s also an awfully long time to be living without a job. But it government money helping or hurting the unemployment rate?

In this lengthy piece, I tried to give a fair hearing to both sides of the issue. I concluded — as the Congressional Budget Office has — that unemployment benefits are not only swell, humane things to do for our fellow Americans, but also smart things to do for our economy. Today in the New York Times, Casey Mulligan disagrees:

Economists had found
that a large fraction of unemployed people delay going back to work
solely because the unemployment insurance program was paying them for not working. Fewer people working means a lower employment rate, and less output
because unemployed people are not yet contributing to production.

Subsidizing something makes more of it. So yes, if you pay people to be unemployed, you risk discouraging them to seek work and contribute to productivity. But Mulligan’s missing two things here. First there is very little work to seek. Below is a graph that shows job openings and total unemployment (both listed
in the thousands) in January 2009 and through the last six months. The
unemployed-to-openings ratio for each month is on the right:

What does this chart say to me? It tells me that job openings have fallen year-over-year even after two quarters of positive GDP growth. In other words, we’re still in a hiring crisis. Moreover, the unemployed-to-job openings ratio has increased by almost a third. Put more starkly: our economy isn’t opening any more jobs than it was in the worst quarter of the recession, and still competition for those jobs has dramatically increased. There is no evidence that the job market is teaming with all these positions for which Americans aren’t applying because they’re getting government money to stay unemployed.

On the contrary, I see millions of cash-poor Americans (about a third of the unemployed receive benefits) taking government money that they will spend immediately in the economy. “Unemployed people are not yet contributing to production,” Mulligan writes. But surely, extending limited money to jobless Americans will help them pay bills and other necessities that would otherwise go unpaid, which supports demand, production, and job creation. The Congressional Budget Office called extending unemployment benefits at a time of limited job opportunities the most timely and cost-effective job-creating stimulus out there.

Mulligan argues that it might be “just and compassionate” to extend unemployment benefits even if they contribute to higher unemployment, lower demand and lower productivity. I don’t understand this position. If I could be persuaded that announcing an insurance cap would bring down the unemployment rate effective immediately, I would loudly advocate for limiting the weeks of insurance benefits to bring down the unemployment. But where are the millions of jobs these newly cashless fathers and mothers would find? They’re not there. I don’t think we should extend unemployment aid today simply because it’s nice, but bad economics. I think we should extend jobless aid because it’s nice, and it’s good economics.