Happy Tax Day

First, let me apologize for the unusually long hiatus from the blog. I’m hoping to get back in to the swing of things here, so I’ll start off a little slow with a gentle reminder on the subject of taxes. Namely, people tend to be generally confused — sometimes willfully — by the term “income tax.” Consider this garbage from Scott Hodge, President of the Tax Foundation:

But that is no longer the case for a growing class of Americans for whom the price of civilized society has been reduced to zero because the tax code’s generous credits and deductions completely erase their income tax liability.

And for many of these nonpayers, civilized society actually pays them a hefty refund, which is not much different from a welfare check except that it’s run through the tax code instead of through the Department of Health and Human Services.

It’s true that a segment of the population pays no federal income tax, which is the federal tax applied to working income. Of course, this ignores completely the contributions to civil society made by people in lower income brackets through other payroll taxes like those for Medicare, Social Security, State, City and excise and sales taxes — all of which are broadly regressive since they are applied at a more or less fixed rate. When you look at all the full taxation spectrum, things are hardly so dire for those who pay income taxes.

This myth that a large swathe of Americans pay no taxes is absurd, but is also a byproduct of our needlessly complicated patchwork tax system.


When Genius Fails, Keep Trying

There’s been some surprise among a number of bloggers that John Merriweather, of ignominious Long-Term Capital Management fame, is starting his third hedge fund using the same strategy that failed so spectacularly in the late 90s it almost brought down the entire banking system. It’s also the same strategy that failed last year in a less grandiose fashion — simply losing 44 percent. Felix Salmon remarks:

You’ve got to give this to Meriwether, though: the guy’s clearly a spectacularly good salesman. That’s a key attribute of hedge fund managers which they tend not to talk about: after all, they love to give the impression that people are giving them billions of dollars just because of their unsurpassed investment prowess. The truth is clearly very different.

This is pretty clearly true, but I’d also add that Merriweather’s salesmanship is at least equaled by much of the elite investor class’ steadfast faith in the power of humans to decode the machinations of complex markets. Obviously, we’ve shown a fair bit of acumen in doing this, but really the only predictable constant is that from time to time, markets behave irrationally. It’s one thing to say it, but it’s another to really understand what this should mean for highly leveraged investing, and frankly, if you really do understand it, I don’t think you’d do it. Participation in these sorts of funds almost necessarily requires you already believe in the soundness of the pursuit. In this case, being a good salesman is really a lot like preaching to the choir. As Matt Yglesias quips, “If [Merriweather] finds investors for a third spin around the wheel I’m going to propose confiscating all the rich peoples’ money and giving it to capuchin monkeys.”

Paranoia Is Just That

I’m a pretty big fan of Eugene Robinson, who along with E.J. Dionne, is one of the only actual liberals on the Washington Post’s editorial page. This is just nonsense though.

That’s the reason people are so frightened and enraged about the proposed measure that would allow Medicare to pay for end-of-life counseling. If the government says it has to control health-care costs and then offers to pay doctors to give advice about hospice care, citizens are not delusional to conclude that the goal is to reduce end-of-life spending. It’s irresponsible for politicians, such as Sarah Palin, to claim — outlandishly and falsely — that there’s going to be some kind of “death panel” to decide when to pull the plug on Aunt Sylvia. But it’s understandable why people might associate the phrase “health-care reform” with limiting their choices during Aunt Sylvia’s final days.

Incorrect. As far-right Republican Johnny Isakson argues, this interpretation is “nuts.” The provision in question would allow Medicare to pay for voluntary counseling sessions on end-of-life care that in some form another, exist in all 50 states already. It is not reasonable to leap from the premise of  “the government is aiming to control health care costs” to the conclusion “the government will pull the plug on Aunt Sylvia.”

I understand the point Robinson is making — that a serious discussion of cost controls may entail addressing high rates of spending on end-of-life care — but this notion that “the government” is some sort of rogue entity that can’t be trusted not to kill its own citizens is patently insane.

Health Care Should Reform Health Care

So, the big news in health care is the CBO’s assessment that the bills under consideration (sans, of course, the Wyden-Bennet bill) won’t do anything to curb spending — or in wonk speak, “bend the curve.” This is partially a reflection of the difficulty of scoring expected, but essentially uncharted savings in things like health IT and comparative effectiveness. However, the bigger problem is that it’s right.

Asked what provisions should be added, Elmendorf suggested changing the way Medicare reimburses providers to create incentives for reducing costs. He also suggested ending or limiting the tax-free treatment of employer-provided health benefits, calling it a federal “subsidy” that encourages spending on ever-more-expensive health packages.

It seems the Administration is responding to this charge, most notably through this proposal to give teeth to proposed Medicare adjustments.

The proposed five-member Independent Medicare Advisory Council would be charged with making two annual reports dictating updated rates for Medicare providers including physicians, hospitals, skilled nursing facilities, home health and durable medical equipment. Congress could block the recommendations only if lawmakers agreed within 30 days on a resolution, and the greater veto power would lie with the White House itself.

To be sure, this is a demand trimming measure. Basically, the IMAC would set reimbursement rates (limit demand) and those who take Medicare would be forced to accept them. The problem is that while this might be great for reducing federal expenditures on health care, it’s a bit more difficult to see how savings would spread widely to the rest of the system. That is, the mechanism for lowering Medicare and Medicaid payments is simple: contain costs by fiat (subject to Congressional review). However, there’s really no reason this would prevent providers from simply making up the difference — or a large chunk thereof — elsewhere. It’s worth noting the same thing applies to ending the employer tax exclusion. Obviously, this would do a great deal to reducing federal spending on health care, but it’s not clear why it would reduce total health spending on its own.

In order to contain health spending across the entire economy, both of these measures need to be paired with broader reforms that will have more systematic reach. A strong public option to which anyone had access — like the one included in the House Tri-Committee Bill with a greater emphasis on access — would accomplish this, but it looks like that proposal faces significant hurdles in the House, not to mention the Senate.

I guess what I’m trying to say is that it’s useful to differentiate between what’s the right thing to do, what’s good for the federal treasury, what’s good for the economy and what’s good for all of the above. The House bill, which sadly is the best option being seriously debated (unless the Wyden-Bennett bill picks up steam), performs best on the “right thing to do” metric. The HELP bill is similar, but will be worse for the treasury and economy, and the Finance bill will be best for the treasury and worse on the other two metrics.

I guess I’ve talked myself into being a bit pessimestic, but it seems the real danger to health reform is forgetting that we’re trying to reform the health system. The legislative process is just that — the process.

Nativism Circa 2009, Part IV

As an addendum to my earlier post concerning the legal troubles of young Marcus Epstein, I offer Bay Buchanan’s utterly stomach turning defense:

With respect to the incident I have been asked not to comment by Marcus’ attorney since the case is still pending.  But putting the incident aside, the stories about Marcus were for the most part inaccurate and incomplete.  Yet, the left wing bloggers ran with this little factoid because the assailant worked for organizations associated with Pat Buchanan and Tom Tancredo.   

What happened next was a modern day lynching by a faceless, angry, ignorant mob who reveled in the collective assault on their victim.  They had wounded an adversary and drawn blood — without pausing to ask how so talented a young man could have found himself in such a mess.  

“But putting the incident aside…”

Just to briefly review the “incident” Buchanan asks to “put aside,” this “talented young man” planted a karate chop on a black woman he ecountered on the street after calling her a Nigger. And he’s being lynched by “left wing bloggers.”

If you feel like raising your blood pressure to an even higher level, check out the comments section to this atrocious piece.

Nooklear North Korea


In the wake of North Korea’s newest missile test, many on the more hawkish right have renewed their call for a tougher stance toward the regime, advancing the possibility of increased military presence in the Korean peninsula. Bill Kristol commented that “targeted air strikes” might be an effective deterrent against North Korea’s consistent belligerence. On Fox News, Charles Krauthammer recently argued that Obama should encourage Japan to produce a nuclear arsenal, thereby shifting regional influence away from Beijing. The Wall Street Journal even weighed in, rebuking the “futility” of Obama’s (and GW Bush’s) diplomatic overtures and advocating the US send a “very clear signal” instead.

I think that preventing North Korea from augmenting its nuclear capabilities is both an admirable and essential objective. Already, the international community has observed an emerging rapprochement between Iran and Kim Jong-Il, who fairly recently shared nuclear technology. Without question, this is an unbalanced regime with little to no regard to international order.

Unfortunately, in my view, there is little to nothing the United States can unilaterally accomplish without sacrificing major strategic interests and alienating regional allies. In particular, the Chinese government clearly has no desire for heightened American influence on the peninsula, an area they perceive as their sphere of influence. Although officials publicly declared their government to be “resolutely opposed” to North Korea’s nuclear program, I think Kim Jong-Il’s regime has assumed a useful role for China. As a rogue, potentially nuclear state, North Korean deterrence has attracted much of the region’s military investment, establishing missile defense as an attractive option for Japan and South Korea—neither of which have traditionally maintained strong relations with China.

Additionally, the autocratic state has created a convenient buffer between South Korea’s more western, market based economy and China’s managed communist-capitalist hybrid. By not sharing a border with South Korea, China can avoid a political and economic proxy struggle that would likely emerge with one of America’s strongest allies. Moreover, unless Korean reunification produces a miraculous pull out of American GI’s, a large US military presence bordering China would undoubtedly rankle Beijing.

Most significantly, it simply does not appear the United States has the leverage to convince the Chinese otherwise. On numerous issues, China has levied its considerable influence to aid American objectives. For instance, despite China’s unambiguous interest in re-asserting their political influence over Taiwan, the Pacific island remains (largely) autonomous—primarily due to its close alliance with Washington. Economically, it would also be highly imprudent to offend the same government currently financing President Obama’s ambitious economic policies. Just weeks after Tim Geithner kindly suggested that China stop deflating its currency, he travelled to Beijing to kiss the Don’s ring in contrition.

Simply put, I just don’t believe the United States presently has the bargaining chips necessary to convince Chinese officials that military action would serve their interests. Pumping North Korea with just enough aid to sustain their tepid economy helps ensure that China holds all the cards, so to speak. It’s not a conclusion I’m eager to advance, but I think it best reflects the regional and international dynamic concerning North Korea.

Troglodyte Watch

I think Michael Goldfarb takes the cake today:

…Obama seems to have the views of a 21-year-old Hispanic girl — that is, only by having a black president, an Hispanic justice, a female secretary of State, and Bozo the Clown as vice president will the United States become a true “vanguard of societal ideas and changes.”

I keep trying to think of something clever to say about this — maybe some cutting remark about Goldfarb’s expertise with Hispanic girls — but I’m pretty sure this is actually too crazy to improve.