Daily Policy Digest

Provided courtesy of: http://www.ncpa.org/

Daily Policy Digest

How Not to Make Public Policy: The Payroll Tax Cut

22 Feb 2012 07:00:58 CDT -

In order to further stimulate economy, the Obama administration advocated a reduction in the payroll tax for the entirety of 2011, which was subsequently extended for the first two months of 2012.  However, the tax holiday is a public policy package that exhibits all of the worst possible traits of policymaking, says Charles Blahous, a research fellow with the Hoover Institution.

First and most importantly, the use of the payroll tax holiday as a means of recovery undermines the fiscal health of the federal government.

• The holiday irreparably damages the financial strength of the Social Security Trust Fund, famously separate from the general revenues fund; the tax cut reduced Social Security tax income by $105 billion in 2011 alone.
• Furthermore, because funds were diverted from the general revenues to cover the losses to Social Security, the tax cut further exacerbated total deficits, which have maintained unsustainable levels for four consecutive fiscal years.
• By allowing a comingling of these two funds, the policy blurs the lines between them and undermines the autonomy of the Social Security program, causing it to resemble a public safety net more than a public retirement savings program.

In these ways, the policy has done a great deal of damage to the fiscal health of the federal government on the whole and Social Security in particular.  Additionally, the decision to lower the tax rate undermines several principles that have, until now, guided decision-making for the national government.

• The volatile nature of the cut, which was intended only for 2011 only to be extended into 2012, confuses taxpayers and limits their ability to project their tax burden.
• By allowing the aforementioned transfer of funds from general revenues to the Social Security Trust Fund, the policy limits transparency and ignores the time-honored autonomy of the two funds.
• The policy also undercuts the quality of the public policy debate, as its supporters rely on economic theory that supposes a long-term cut, while the reality is that it is a short-term, unpredictable tax change.

Source: Charles Blahous, "How Not to Make Public Policy: The Payroll Tax Cut," Economic Policies for the 21st Century, February 15, 2012.

For text:

http://www.economics21.org/commentary/how-not-make-public-policy-payroll-tax-cut

For more on Tax and Spending Issues:

http://www.ncpa.org/sub/dpd/?Article_Category=25

Competitive Bidding Can Help Solve Medicare's Fiscal Crisis

22 Feb 2012 07:00:57 CDT -

A major reason Medicare faces a severe fiscal crisis is because it pays too much for basic benefits.  But chronic overpayment can be cured by harnessing market forces in the form of competitive bidding.  Competitive bidding for services would drive down costs of the government program while holding benefits stable for participants, say Roger Feldman, of the University of Minnesota, Robert Coulam, of the Simmons College School of Management, and Bryan Dowd, of the University of Minnesota.

• According to the American Enterprise Institute, fully implemented competitive bidding would save 9.5 percent of Medicare spending (using data from 2009).
• Because the Patient Protection and Affordable Care Act is expected to yield savings of 4.2 percent, the marginal percent savings expected from competitive bidding is reduced to 5.6 percent.
• Nevertheless, by those standards, the implementation of such a policy would create savings of $339 billion over the next 10 years.

Savings on this level cannot be ignored, especially because it is widely believed that such a policy would not necessitate a reduction in basic benefits.  Rather it would maximize market efficiency, reduce bad incentives to overtreat, and decrease overpayment by requiring competitive prices.

It is important to take into account that competitive bidding will raise premiums for some seniors for plans that they currently hold.  However, the distribution of such increases is highly variable, with many participants facing no changes at all.

• Forty-three percent of all enrollees would face no changes at all to their rates, causing no need to switch plans among that population if they are already satisfied with their level of care.
• An additional 22 percent would face a premium increase of less than $40, meaning that almost two-thirds of all enrollees would face little disruption by staying with their current plan.
• For the final third (35 percent) of enrollees who face payment increases of more than $40, competitive bidding will create numerous alternatives of comparable care that can be opted into in the place of current plans that face higher rates.

Source: Robert Coulam, Roger Feldman and Bryan Dowd, "Competitive Bidding Can Help Solve Medicare's Fiscal Crisis," American Enterprise Institute, February 16, 2012.

For text:

http://www.aei.org/outlook/health/healthcare-reform/competitive-bidding-can-help-solve-medicares-fiscal-crisis/

For more on Health Issues:

http://www.ncpa.org/sub/dpd/?Article_Category=16

The Facts behind the EPA's Latest Proposal

22 Feb 2012 07:00:56 CDT -

The Environmental Protection Agency (EPA) recently put a regulation on the books called the Mercury and Air Toxics Standards (MATS), which targets power plant emissions of mercury and other toxins. While this stated goal is admirable, in so far as clean air is a crucial component of a nation's health, the regulation is largely misplaced, as it will fail to bring about cleaner air and will be the most expensive air quality regulation of all time, says Adam Peshek, a research associate at the Reason Foundation.

• By the EPA's own estimation, the total cost of the regulation will be approximately $10 billion per year.
• MATS will require the installation of expensive equipment on over 700 power plants -- an imposition that, in tandem with several other regulations, will shut down 10 percent of coal generating electricity in the country.
• This will hamper efforts to create cheaper energy -- a key component to economic recovery.

The EPA justifies the regulation by stating that it will reduce mercury emissions in the air, which are linked to developmental disorders and respiratory illnesses.  However, in their economic assessment of the benefits of the rule, only a tiny fraction was due to reduced toxins in the air.

• The EPA estimates the economic benefits of MATS to be between $33 billion and $90 billion.
• However, the benefits due to the reduction of mercury are only estimated by the EPA to be between $500,000 and $6 million.
• EPA analysts do not rely on reductions in mercury and toxins (the stated purpose of the regulation) in order to achieve the $90 billion economic benefit, but rather claim that reductions in general soot will provide the net profit.

While reducing soot may be justifiable if it is actually dangerous, there remain several reasons why the EPA's method does not make sense in this case.

• The EPA already regulates the creation of soot through other standards.
• By including reductions in soot through those other standards, the EPA is essentially double-counting the same benefit and using it to justify two separate regulatory actions.
• If the true goal is the reduction of soot, other industries should be targeted as well, but as it stand now the coal-firing industry is being singled out.

Source: Adam Peshek, "The Facts behind the EPA's Latest Proposal," Reason Foundation, February 16, 2012.

For text:

http://reason.org/news/show/the-facts-behind-the-epas-latest-pr

For more on Environment Issues:

http://www.ncpa.org/sub/dpd/?Article_Category=31

The Myth of Runaway Health Spending

22 Feb 2012 07:00:55 CDT -

The fraction of national wealth that is spent on the consumption of health care, and the rate of annual growth of this fraction, has given rise to the belief that extensive government involvement is necessary to contain this out-of-control spending.  However, strides made over the course of the last decade have created a downward pressure on health care spending that undermines this myth, says J.D. Kleinke, a resident fellow at the American Enterprise Institute.

• Health care spending increased continuously since the 1970s, consistently outstripping inflation and economic growth.
• This trend continued into the last decade, with the 7 percent rate of growth in 2000 rising to more than 9 percent by 2002.
• However, this trend has since turned negative with the rate dropping almost every year since 2002, reaching a low of less than 4 percent in 2009.

It is crucial, in reviewing this trend, to note that the downward pressure existed long before the recession began -- this lends credence to the belief that the ingredients that drove down spending are independent from the economic situation as a whole.  Specifically, a number of developments in the early 2000s are largely responsible for the gradual reduction.

• A number of expensive medicines that were developed in the 1980s and 1990s, such as drugs for mental illness, HIV, cancer, heart disease and schizophrenia, have since become generic and are much cheaper.
• Greater information channels exist for communicating health care options and preventative measures.
• Market forces have slowly permeated the health care industry with higher deductibles, new copayments, and Health Savings Accounts allowing participants to have a hand in controlling their own health care spending.

This final development especially took off between 2000 and 2004 -- the same period during which health care spending trends gradually reversed.  This is because the introduction of these options allowed market forces to play a greater role in the industry as consumers were given a greater number of choices.

Source: J.D. Kleinke, "The Myth of Runaway Health Spending," Wall Street Journal, February 17, 2012.

For text:

http://online.wsj.com/article/SB10001424052970204792404577227050656680024.html?mod=WSJ_Opinion_LEFTTopOpinion

For more on Health Issues:

http://www.ncpa.org/sub/dpd/?Article_Category=16

Fuel Efficiency Proposal Will Price out Millions of Buyers

22 Feb 2012 07:00:54 CDT -

The Obama administration has been creating higher fuel standards for domestic car manufacturers that will extend well into the next decade, in hopes of reducing aggregate emissions.  Thus far, the auto manufacturers have been supportive of the proposed regulations, but more stringent standards reaching as far as 2025 have caused a backlash among car companies, says Fox News.

• The government has already mandated an average fuel economy of 35.5 miles per gallon by 2016.
• The latest proposal would raise this requirement to 54.5 miles per gallon by 2025.
• The Obama administration, in support of the new proposal, has stated that the average consumer by purchasing a more fuel-efficient vehicle would save between $5,200 and $6,600 on gas over the life of the vehicle.

However, the National Automobile Dealers Association (NADA) has responded that the administration's projections as to the impact of its new policies underestimate its impacts on buyers.  They argue that the new policies will create a substantial burden on car companies in terms of compliance costs, and will in turn raise the prices faced by consumers.

• While the Obama administration has pegged the additional cost faced by the average consumer at $3,000, the NADA has stated that this estimate ignores certain fixed costs, and that the real figure is closer to $5,000.
• Nevertheless, using the conservative $3,000 estimate, the NADA has projected that by 2025, 6.8 million car buyers will be priced out of the market, unable to get a loan to make the purchase.
• Furthermore, the Alliance of Automobile Manufacturers has stated that compliance costs for the first phase of regulations will total $52 billion, while the second phase will cost between $133 billion and $157 billion.

The ultimate question, then, seems to be what the aggregate benefits of the policy will be.  While the Obama administration emphasizes the lower fuel costs that consumers will realize by more efficient fleets of vehicles, the question remains whether or not consumers will be able to afford the new makes.  Auto dealers' estimates suggest that many will not.

Source: Judson Berger, "Auto Dealers Warn Fuel Efficiency Proposal Will Price out Millions of Buyers," Fox News, February 15, 2012.

For text:

http://www.foxnews.com/politics/2012/02/15/auto-dealers-warn-fuel-efficiency-proposal-will-price-out-millions-buyers/

For more on Environment Issues:

http://www.ncpa.org/sub/dpd/?Article_Category=31

State and Local Sales Taxes in 2012

21 Feb 2012 07:00:53 CDT -

Sales taxes are among the most transparent forms of taxation that a government can levy, and the simplicity of sales taxes allows for state-by-state comparison, says Scott Drenkard, an economist with Tax Foundation.

In a new Tax Foundation analysis, Drenkard gives the population-weighted average of local taxes in each state.  This enables him to calculate a combined rate between the state and local sales taxes in order to demonstrate the real burden of sales taxes across the country.

• The five highest combined rates are Tennessee (9.45 percent), Arizona (9.12 percent), Louisiana (8.85 percent), Washington (8.80 percent) and Oklahoma (8.66 percent).
• Alaska, Delaware, Montana, New Hampshire and Oregon have the lowest combined rates because they do not have a statewide sales tax and only Alaska has any local sales taxes.
• The single highest combined rate in the United States is in Tuba City, Arizona -- with a 6.6 percent state tax, a 1.125 percent Coconino county tax and a 6 percent tribal tax levied by the To'Nanees'Dizi local government, the locality has a combined rate of 13.725 percent.

Local rates are usually significantly smaller than the statewide rate, meaning that much of the combined rate is determined at the state level.

• California, despite a 1 percent reduction in its sales tax rate that took effect July 1, 2011, still has the highest state-level rate at 7.25 percent.
• Five states tie for the second-highest statewide rate with 7 percent each: Indiana, Mississippi, New Jersey, Rhode Island and Tennessee.
• Among states with a sales tax, Colorado's 2.9 percent rate is the lowest, followed by seven states that all levy a 4 percent tax: Alabama, Georgia, Hawaii, Louisiana, New York, South Dakota and Wyoming.

Some states do have an average local tax rate that is a significant contributor to the combined rate.

• The five states with the highest average local sales tax rates are Louisiana (4.85 percent), Colorado (4.54 percent), New York (4.48 percent), Alabama (4.33 percent) and Oklahoma (4.16 percent).
• The highest local rate is 7 percent in Wrangell, Alaska.

Source: Scott Drenkard, "State and Local Sales Taxes in 2012," Tax Foundation, February 14, 2012.

For text:

http://www.taxfoundation.org/publications/show/27967.html

For more on Tax and Spending Issues:

http://www.ncpa.org/sub/dpd/?Article_Category=25

Health Policy Digest

Provided courtesy of: http://www.ncpa.org/

Consumer Driven Health Care

Health Care Reform Tax Will Hurt Franchisees

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Saving Jobs from Health Reform's Harmful Regulations

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GALEN INSTITUTE

Does Health Insurance and Seeing the Doctor Keep You Out of the Hospital?

04 Oct 2011 12:43:58 GMT - Gaining health insurance and using more primary care services leads to more hospitalizations as a result of physicians' discretionary decisions regarding aggressive and intensive treatment...

AMERICAN ENTERPRISE INSTITUTE

The Case for Competition in Medicare

04 Oct 2011 12:43:58 GMT - A well-functioning marketplace would set in motion the forces needed to transform American medical care into a model of efficient patient-centered care...

HERITAGE FOUNDATION

Potential Effect of Health Care Reform on Emergency Department Utilization Not Clear

04 Oct 2011 12:43:58 GMT - In 2010, 71 percent of emergency physicians said that they expected emergency department visits to increase due to the implementation of the Affordable Care Act...

NEW ENGLAND JOURNAL OF MEDICINE