Taxing Employees Who Receive Health Insurance

The health care policy debate rages within the Washington, DC Beltway. Recently, President Obama's first nominee for Secretary of Health and Human Welfare, Tom Daschele, along with Obama's head of his transition, John Podesta (both whose wives as well as themselves are highly paid lobbyists...remember, the reason Daschele withdrew is because he neglected to pay tax on the limos he rode around in while he was lobbying) have announced that they believe employer provided health care plans should be taxed as income to the recipients. That means if you have a benefit at work, a health care plan, you will pay income tax for the benefit.

Remember, John McCain believed that if there was health care reform, this would have to be instituted in order to pay for the reforms and candidate Obama rejected the idea. But here it is, several months later, and two of his closest advisors are advocating for the tax.

Which seems like a great idea, but...

Medicare is taxed as income, why not employer provided plans?

However, if the idea is to get people insured, to get them using preventative medicine, like annual check-ups, mammograms, and vaccines, then what will a tax do to that policy goal? Won't many people, particularly those who we want insured, opt out? And aren't we in a depression (oops, sorry) where every single nickel and dime matters to working folks?

I think it is going to be harder and harder to keep our eyes on what is happening during this policy debate. But I also believe if we leave it to the swanky operatives, the same folks who live inside the DC bubble, we might all wake up one morning with a bad headache.

Another Rant on Transportation Planning

First, let me get my defensiveness out of the way. Years ago I was going from mid-town Manhattan to the upper east side for an event at Christies (I wasn't bidding, just there to drink wine). It was a work event, so as I left the building my boss and another colleague decided to join me. My colleague, a long time New Yorker flagged a cab. And we promptly got stuck in traffic. My boss, a native New Yorker dryly said: If only we'd taken the subway...I love mass transit. Particularly in cities where it actually gets you somewhere you want to go and works. The whole time I lived back east I rarely rarely drove my car into the city.

Having said that, in cities like Seattle there really is no mass transit. Oh, I know, in a month we will be having a huge hoopla about a light rail link opening from downtown to the airport. Good idea, except a small problem. Parking.

Parking in Seattle has become a new form of social engineering and taxation. First the social engineering part. When the light rail opens it will run from downtown Seattle through a tunnel bored under one of our famous hills, out through a neighborhood south east of the city, then back west toward the airport. Along this whole route, except for downtown Seattle, there will be no parking. Unlike the Bay Area Rapid Transit (BART) which has parking lots near BART stations, Seattle and the regional government bringing us this light rail (billions over budget and years late) want us to bus to the light rail station, light rail to the airport, stand in the TSA line, and what was a two hour flight to San Francisco has now become a 5 or 6 hour ordeal. Great.

And while the city is eliminating parking, in other areas, small business districts, where parking was once free, they are putting up meters as fast as they can.

Chicago is finally admitting there are some unintended consequences to this parking meter taxation. In Chicago, Mayor Daly (a good friend of Seattle's mayor) "sold" the parking meters to a private company who promptly made them 24 hour. With 2 hour limits. And parking rates in private garages soared. So if you want to attend an art event or a movie, you begin watching the clock and you don't linger. Arts organizations have begun to notice their customers are leaving quickly and don't seem as relaxed during performances.

Remember, having density in urban areas is a good thing. But if these social engineers in transportation (and planning) offices make it hard for people to live in cities, well, be ready for another flight to suburbia. The unintended consequences of social engineering. I am old enough to remember all the planners ideas in the '50s, '60s, and '70s just had to be implemented and we spent the '80s knocking them all down! We should really try to learn from our history.

Mortgage Interest Deductions

In today's on-line version of the New York Times came an interesting proposal.  Eliminate the deduction of mortgage interest on your taxes.  Of course, in the political world, that is like talking about changing Social Security, the mortgage interest deduction is the sacred cow of tax planning.

But I suggest you read it.  I recall during the real estate financing boom I would receive direct mail pieces from, oh, let's see Countrywide, Citibank, Wells Fargo, Bank of America, among many others, who trolled the public records, saw the mortgage on the house, saw it wasn't re-financed.  They tried to lure me with suggestions that I re-finance to "reduce" my credit card interest rate and oh by golly, the interest on mortgages was deductible!  

Almost every other country does not allow home mortgage deductions from income taxes.  Yet, home ownership rates in countries like Canada and many in Europe, are as high as the United States.

While I do not think an income tax deduction is the sole reason people by houses, I also believe proposals like this, re-examining the sacred cows, are good for us.  Whether it all pencils out is another matter.  It is challenging the paradigm, as a friend would say.  And in these times, we need to be doing just that.

More Thoughts on Compensation

First, here is a link to a video of President Obama discussing the salary caps he ordered on firms (banks and auto industry so far) that receive bail-out money from the federal government.

But I have some more thoughts about this issue.  As I type this, lobbyists for every single business group (oops, I almost said industry group, but we really don't have much industry in this country, so...) are walking the halls of state legislatures and Congress, seeking more and more tax credits or breaks.  Their usual song is if we don't get more tax credits or breaks, we'll up and leave for another country.  Business lobbyists are whispering in the ears of city council members, mayors, and county executives, asking for incentives, heck, even cash, to keep their businesses from moving to another location which will be willing to offer them land, money, and God knows what else.  I would guess that nine times out of ten, these businesses will get what they are asking for.  Meanwhile, the rest of us, you know, the ones that don't have a lobbyist working the halls, whispering in ears, we get tax hikes to pay for the tax credits the businesses get.  And I am not talking about small businesses, I am talking about Boeing, Microsoft, Google, IBM...

Meanwhile the executives of those companies continue to pull in millions of dollars in compensation.  

So I would ask, aren't the tax credits and incentives that we give those companies similar to the cash the federal government is giving banks and the auto industry?  Shouldn't state governments, heck, even Congress, begin demanding that if the corporations want special favors then they have to give something back other than staying in some state for a few years then bailing anyway?  And, oh, does anyone every evaluate whether they are successful?  Millions in tax credits to Boeing and they are laying off, not retaining employees in Washington State.

Nope, I think it is time that we examine the whole cocoon that has woven around American corporations.  It's a myth that there is a free market.  Each and every company has become a, to use the crass term from the Reagan era, welfare queens, driving in their limos to the welfare office, which happens to be the legislative bodies, and asking for hand outs without having to make their business actually work.  We cut off women who weren't looking for work from welfare, I think it is time we cut off corporations that are not working for us.  We seek further restrictions on executive salaries (I frankly don't buy the hiring the best help, because they sure weren't doing a good job for the past few years, now were they?  Plus, where are the "smart ones" going to go anyway?), we increase their taxes, and we hold them to the fire on environmental and labor issues.  

Maybe we'll begin to have businesses that actually produce quality products and that succeed.  

That's a Lot of Car Service

The recent news of former US Senator Tom Daschle's failure to declare much less pay taxes on the limo or car service he received for free from a friend (and Democratic fund raiser) brings up many many issues.  While I will speculate that he will be confirmed by the US Senate, I have, even before this tax issue arose, wondered about this appointment.  Tom Daschle is a man who has evolved from Washington, DC.  His wife (Linda Hall) is a lobbyist for aircraft manufacturers and other businesses, that while she claims she is not doing health care lobbying, hello!, aircraft manufacturers and associated businesses all provide health care benefits to their employees.  Working the "inside" the Beltway has become the family business for the Daschles.  And, after Tom Daschle is gone from being the Secretary of Health and Human Services you can bet he will be back at the lobbying angle.  As the former Democratic leader of the US Senate, Tom Daschle stood to make a lot of money from his connections after he lost the election for his seat in South Dakota.  Why go back to South Dakota for God's sake when you can ride around Washington, DC in a free limo?

So, really, here are my concerns: we're putting in someone for this job who is a creature of a bubble.  Understanding what is going on in not only health care, insurance, welfare, drug and alcohol addictions, and all the other pedestrian mandates in Health and Human Services takes, in my opinion, someone who has walked the walk.  Being a creature of DC is not that person.

Much less the fact his life is so far outside of the every day lives of the people he will impact the most.  I mean, to owe $128,oo0 on free limo services means he used an awful lot of limo service.  Just assume that the $128,000 is taxed at 25%, that means he used, what, over $500,000 in limo services during a less than three year time period!  That's amazing!  Hey, Tom, the rest of us take Metro!  That's a lot of self-importance.

Last, I am still concerned that so many of President Obama's appointments are from the same backgrounds.  By that I mean, federal legislators or people who have spent almost all of their careers in government service.  I don't know what is so unappealing about the Senate, but there sure seems to be a stampede to get out of there (sounds like a rather nice job to me, frankly).  While President Obama may not be afraid of having a lot of smart people around him (that's good), the one problem is that when all those smart people have had essentially the same lives, isolated in Washington, DC, it his team of rivals could end up being an echo chamber.  And that is not good.

Time to ditch Daschle and find someone who has actually had to live a normal life.

Tax Credits?

Several days ago, President-elect Barack Obama announced that he was including in his economic stimulus package tax credits.  An individual could get as much as $500 and a couple up to $1,000.  While I am no fan of paying taxes and believe that often our tax money is wasted (nope, I happen to think the DNA study on Northern Rocky Mountain Grizzlies was a good thing, but don't get me started on the things I think are a waste, like all the opulent offices for Members of Congress...)I am a little concerned about these tax credits.

As he was announcing the tax credits, President-elect Obama was also voicing his concern over the record deficits in our national budgets.  And of course, given the apparent need for Keynesian economics the national deficit will increase to levels unimaginable even a decade ago.  A brief econ 101 here: when the federal government has a budget with a deficit, they have to raise money to pay for things that are over and above the income (taxes) they bring in.  So, the government can either print money and cause inflation (think Zimbabwe with astounding inflation) or they can sell treasury bills, which is essentially borrowing money.  And the problem with borrowing money is that the federal government is, simplistically put, competing with us for a finite amount of lender's dollars.  If you're a lender, who would you rather lend to, the US government or a private business?  Deficit spending essentially inhibits private sector economic growth.  There is also that dicey moral issue of having our children, grandchildren, and great-grandchildren pay for our current services, since that is when the debt is paid off, many many years in the future.  Much less the issues surrounding who the government borrows money from: China, governments in the Middle East...

Ok, so giving tax credits will further increase the deficit.  

Many of my progressive friends object to the tax credit because it appears to be appeasing the Republicans, who they blame for this whole economic melt-down.  The reality is, in Washington, DC, policy is not made with out compromise.  And trust me, there are a lot of Democrats who also want a tax credit.

Obama justifies the tax credit as "putting money back into the pockets" of those who need it the most.  I disagree.  

Let me ask you, does the elderly woman who tries to get her prescriptions filled and is told the cost is over $600, she lives on Social Security and has to make a decision to eat or buy drugs, much less pay rent, transportation costs, utilities...you get the drift, does she even pay taxes?  Nope.  But could she use $500 cash to help pay some monthly bills?  Or more importantly, a whole revision of the so-called prescription drug benefit so our senior citizens are not put into embarrassing situations at the drug store.  Really, I believe the people who could use the tax credit the most are the people who don't pay taxes.  Poor people spend money (and hence stimulate the economy) because they have to.  Moderately well off people can take the tax credit and save it, thus not stimulating the economy, which is what we saw in the refund checks the summer of 2008.

As exhibited by the amount of time I spend on this issue, President-elect Obama has a huge nightmare on his hands.  Today I heard that for every available job in this country, 3.1 people are seeking it.  And that if, by the height of this economic melt-down, unemployment increases by 50%, it would make approximately 10 people seeking every job.  Those are scary numbers.  Clearly a whole range of policies must be implemented to prevent a national disaster, or at least mitigate the one we are in.

Without running the numbers, my guess is that legislating this proposed tax credit will not eventually cost the federal budget very much money, but it makes Obama sound reasonable, concerned about the middle class, and bi-partisan.  It is in a sense giving him money in the bank to perhaps ask Congress for subsequent measures which may be controversial, such as overhauling the health care insurance system.  

But the reality is it will not alone or even with his other proposals, be a significant stimulus to the economy.  It's just an example of how the games of politics are played.

Gas Tax

Recently, the New York Times editorial board encouraged Congress and the Obama Administration to increase the federal gas tax.  Their reasoning is, of course, that the more we pay at the pump the less we consume.  Which is traditional economic theory.

There is some good policy reasons behind this idea.  Oil, whether we are at peak oil or not, probably is a finite resource.  And clearly, as we witnessed during the summer of 2008, global consumption has vastly increased, causing prices here in the US to soar suddenly and with consequences to consumer's pocketbooks.  On the global security front, relying on international sources for oil obviously dictates our foreign policy in ways which probably cause diplomats to cringe.  We are held hostage to our consumption.

Decreasing that dependence as well as conserving a resource that no matter what, we will continue to use, is good public policy.

However, here we are teetering on a depression the breadth and depth is probably unknown to us.  The fact gas prices have declined is a good thing for most Americans, freeing up dollars to spend on food, clothing, education (and yes, a flat screen TV).  For those of us who heat with fuel oil, certainly the decline in oil prices is helping (I can actually feel comfortable turning on the heat!).

The reality is that our whole economy is wrapped up with oil.  Not just for cars driving in cities, but fertilizers for farming, resins for plastics, and jet fuel, to name a few.  While the proponents of an increased gas tax appear to only be leveling their tax at gasoline, whole economies will suffer having to pay more for gas.  For instance, not everyone lives in a city.  Rather, farmers and ranchers, from who we get our food, have to use lots of gasoline.  Increases in prices could severely hurt them.  Or what about the families that are trying to keep kids off the streets by participating in after school or Saturday programs, where a parent is required to shuttle their children across town?  

The one-size fits all policies attempting to solve environmental issues only backfires, causing resentment for taxing or regulation based solutions.

Rather, we need to look at our oil consumption issues much more holistically and broadly.  For instance, Wes Jackson and Wendell Berry have written about totally revising our farming policy.  

Their ideas are an example of how we need to seek solutions that have a much longer and larger view.  That are incentive based and help people live quality lives, not struggle trying to figure out how they can get by or around government policies.  Encouraging perennial crops in order to use less fertilizer and stabilize the soil (a natural resource if there ever was one) seems simple but will take lots of effort to overcome a century of farm policies intended to grow crops by pummeling the land.  But their suggestions are long sighted and can help reduce our dependence on oil.

Before we decide to attempt standard economic theory to change people's behavior, we really do need to understand all the consequences.  

In the meantime, walking is a good thing!

Since writing this, President-elect Barack Obama announced the appointment of Cass Sunstein as an advisor.  Sunstein, who taught at University of Chicago School of Law and is now at Harvard (also married to Obama's foreign policy advisor, Samantha Powers) is a proponent of behavioral economics, which, among other things, encourages, for lack of a better word, nudges, inducements, to get people to "behave" differently.  I suspect he would not support an increase in the gas tax.