Congress and taxpayers bailed out too-big-to-fail financial firms that now seem interested only in profits; not in repairing damage that they did. This column demonstrates how Wall Street firms and Congress subsidize each other at the expense of the middle class. Continue reading Your Christmas Gift From Wall Street
Category Archives: taxes
An Economy Divided Against Itself
On June 16, 1858 a little-known candidate for the Illinois Senate spoke these words, “A house divided against itself cannot stand. I believe this government cannot endure, permanently, half slave and half free. I do not expect the Union to be dissolved — I do not expect the house to fall — but I do expect it will cease to be divided. It will become all one thing or all the other. Either the opponents of slavery will arrest the further spread of it, and place it where the public mind shall rest in the belief that it is in the course of ultimate extinction; or its advocates will push it forward, till it shall become lawful in all the States, old as well as new — North as well as South.” Abraham Lincoln was defeated in that election.
Twenty-first Century America is a house divided. Like Lincoln, we should expect that our nation will cease to be divided, not that it will fall. Like the America of 1858, we must choose our destiny. We may become a commonwealth where everyone has opportunity to develop her or his full potential; benefitting financially and socially from personal efforts. Or we may become a winner-take-all nation where the wealthy grant only subsistence to those who labor. Continue reading An Economy Divided Against Itself
FRACKING DANGERS ARE WORSE THAN WE THOUGHT
North Carolina’s Republican Governor and a nearly unanimous majority of Republican lawmakers have recklessly dashed ahead to allow hydraulic fracking for production of natural gas. They have ignored the growing body of evidence that fracking imperils our health and the safety of our air and water. They missed the “look before you leap” lesson and took all of us along when they jumped into fracking. Continue reading FRACKING DANGERS ARE WORSE THAN WE THOUGHT
AN ALTERNATIVE ISIS STRATEGY
There must be better ways to relate to Middle Eastern Muslims than the ones we have chosen. Three fallacious assumptions have formed the basis for many mistakes: “The enemies of my enemies are my friends.” “The friends of my enemies are my enemies.” “Those who are not for us are against us.” Here are two examples of where that logic took us. Continue reading AN ALTERNATIVE ISIS STRATEGY
IS NO NUKES ALWAYS GOOD NEWS?
January 11, 1994 BRUSSELS — “President Clinton on Monday announced agreement with Ukraine and Russia to dismantle Ukraine’s entire nuclear arsenal, hailing the long-sought accord as “a hopeful and historic breakthrough that enhances the security of all three participants.” – The Los Angeles Times.
From the breakup of the Soviet Union, Ukraine had inherited 176 intercontinental missiles aimed mostly at the US and over 1200 nuclear warheads about 600 of which were loaded on bombers. The US and Russia promised security to Ukraine if they would give up their nuclear weapons. The US provided assistance for turning the weapons into fuel for nuclear power plants. Russia agreed to provide fuel rods for Ukraine’s nuclear plants. The world no longer feared Ukraine’s nukes being stolen or sold to the highest black market bidder. Russia no longer had a nuclear armed neighbor. Continue reading IS NO NUKES ALWAYS GOOD NEWS?
JUST SAY YES TO MEDICAID
The decision by North Carolina’s governing Republicans (every single one of them) to reject Medicaid expansion will cost the state’s residents $37 billion by 2022. That is roughly enough money to run the entire state government for 21 months. They looked at the money and just said “no”. They looked at uninsured people living in poverty and just said “no”. They looked at hospitals and doctors who care for uninsured people, and they just said “no”. And they just said “no” to unemployed workers who would have found jobs in the Medicaid expansion. Continue reading JUST SAY YES TO MEDICAID
N.C. LEGISLATURE’S HASTE MAKES WASTE
Current events bring to mind two lessons from childhood: “Stop, look and listen.” and “Haste makes waste.” Although they are using different words, those are the messages that I hear Governor McCrory and DHHS Secretary Aldona Wos sending to the North Carolina Legislature.
A hastily proposed bill now in the Legislature would require every facility performing abortions to meet ambulatory surgical center licensing standards. The purported goal is to assure that the procedure is safe for women but the apparent effect is to severely limit the availability of abortion because only one facility in the state could meet the standards. Both the Governor and Secretary Wos have urged the legislature to slow down and to look at the bill and the situation carefully before acting. The governor has even threatened to veto it.
If the bill is about patient safety, the sponsors should be able to present data indicating a problem. What percentage of women have complications after the procedure? What is the evidence that the complications would be reduced in an Ambulatory Surgical Center? The absence of facts is stunning. Many surgical procedures are permitted in physician offices. Without evidence that safety would be better in a surgical center, the law will be extremely vulnerable to court challenges and we will waste lots of tax money defending it. It seems obvious, that the bill is not about the safety of patients. Instead, it is a dishonest attempt to nearly eliminate abortion services in the state under the guise of patient safety, clearly infringing on women’s rights to make decisions about their own bodies. In their haste to act, the legislators could run us into the street and get all of us hit by an oncoming car – the lawsuits which will inevitably follow passage of the law.
In a similar matter, Governor McCrory is urging caution in the tax reform debate where radical legislators would reduce the state’s revenue so much that major new spending reductions would be required – and they would do that without a plan for which budget items would be cut. They would do it in a state which already ranks 44th among the 50 states in the percent of our economic output that is collected in taxes. The legislators will run into the street without looking and get us hit by a large truck – inability to fund public education, health services, infrastructure, and public safety needs.
It is to the Governor’s credit that he is warning the legislature that haste makes waste but he is far too late in confronting the legislature’s radicals. They have already rejected the return of $15 billion of federal taxes which North Carolina residents will pay for Medicaid expansion through 2019. They also gave back federal money for unemployment benefits at a time when we rank fifth in the nation in unemployment. And they have cut spending on public education in our state which already ranks 44th among the 50 states in per student spending. Yet excellence in public education may be the single most important key to economic vitality.
In November 2012, before the takeover by extremists, Site Selection Magazine ranked North Carolina as the best state in the nation for locating a new business. The magazine cited our “combination of work-force availability and skill sets of interest to employers, proactive business-development agencies, logistics assets and higher education infrastructure” as reasons for the top ranking. The legislature is taking us backwards. To see how the rest of the nation is viewing us now, you can Google “the decline of North Carolina” and read the opinion of the New York Times Editorial Board. In part, the observation from what may be the most influential newspaper in the country is, “In January, after the election of Pat McCrory as governor, Republicans took control of both the executive and legislative branches for the first time since Reconstruction. Since then, state government has become a demolition derby, tearing down years of progress in public education, tax policy, racial equality in the courtroom and access to the ballot…North Carolina was once considered a beacon of farsightedness in the South, an exception in a region of poor education, intolerance and tightfistedness. In a few short months, Republicans have begun to dismantle a reputation that took years to build.” The growing crowds at demonstrations opposing the legislature’s actions are ample evidence that something is seriously wrong and that many North Carolina Citizens recognize the problem. We ignore these problems at our peril.
When I listen to Republican friends, the ideas that I hear are not the ones that are emerging from the legislature. Instead, I hear thoughtful fiscal conservatives who want to improve efficiency, reduce waste, and limit the scope of government’s role in our lives. While we may disagree on some issues, we share goals of economic growth, excellence in education and efficient use of tax money. We can hope that the Governor is having a change of heart and that public opposition will slow down the march of radical lemmings which is headed for a cliff over which few of us want to fall. On the other hand, maybe the lemmings who walk over the cliff will not be returning to the next session of the legislature. Maybe by letting them go ahead we can improve the legislative gene pool…just a thought…
NORTH CAROLINA TAX REFORM
We create some of our own big problems when we act on our beliefs without checking to see if the beliefs are true. Governor McCrory and the North Carolina Legislature are about to do that as they reform our taxes. They have been cutting spending and now they plan to cut taxes with religious zeal based on two erroneous beliefs. One belief is that cutting taxes will stimulate creation of good jobs and economic growth. The other belief is that North Carolina taxes are too high.
First, let’s look at how much we are actually spending compared to other states. Counting all forms of state taxes including corporate and personal, we collected $2320 per person in 2011. That ranked us 34th highest among the 50 states. Gross State Product measures the total economic output within the state. Our combined state and local government spending as a percent of our Gross State Product ranked 44th among the 50 states. That means that the tax burden on our state economy was lower than all but six states.
Our spending on public K-12 education has been a hot topic. Our per pupil spending in 2011 ranked 44th among the 50 states and the legislature has already cut it below that level. As a percent of GSP, our per pupil spending ranked 46th. The K-12 tax burden on our GSP was 4.8%. Some states with low GSPs are trying to catch up with the rest of the nation. While we go backwards, low wealth states like West Virginia, Mississippi, Alabama, South Carolina and Arkansas are placing a tax burden of 7% to 8.4% on their GSP to support K-12 education.
What about the other reason for cutting taxes – to bring more jobs and economic development? High wage employers will be looking for a highly educated and skilled workforce. That is the reason, for example, that tech industries have concentrated around Seattle, San Francisco and Boston. It is because strong public education K-PhD produces a strong workforce and because those regions provide the quality of life (some of which is tax supported) which attracts and retains highly skilled people. Here in North Carolina, the Research Triangle Park has been a viable competitor for those companies. A few other communities have made some headway, mostly in proximity to universities which help attract the workforce. A tech company might put a call center or data center in other parts of our state (and that would be a good thing) but the corporate headquarters and the R&D functions which provide the best jobs will be elsewhere.
If our taxes and wages are reduced enough, we may indeed attract some jobs because there are some businesses which consider small differences in tax rates as an important criterion when choosing a location. They are also typically looking for the lowest labor costs. They don’t need a highly educated and skilled workforce and they keep benefit costs low by using as many temporary workers as they can. Those are also the jobs which are most vulnerable to outsourcing and automation. Having a mix of jobs available is a good thing but if we can’t attract our share of the high wage jobs then why will our brightest and most ambitious children return home for their careers? Or will they migrate to other parts of the country (or the world) for better wages and the environment that they want?
My conclusion is that the legislature and the Governor have entered us in a race to the economic bottom and if they continue cutting taxes and spending we are likely to win that race. I hate waste and don’t enjoy paying taxes but I’m very willing to pay for excellence in public education from birth through college. And I’m willing to pay fair wages to public servants who make our lives safer and better, and for parks, arts, and other government programs which promote the general welfare. Business leaders already know, but may require an occasional reminder, that it is a lot easier to earn a profit when your customers have money to spend. For that to happen, we need high wage jobs and a high skill workforce and public education to support both.
Tax reforms to close loopholes, to begin taxing services, and to reduce corporate taxes may indeed be good things but the design of the changes should increase rather than decrease state revenue and the tax burden must not be shifted to the middle class and poor who are least able to bear it.
I am an optimist. I believe in the people of my community and my state – good people who are working hard toward better lives for themselves and their families. We need to see ambition and optimism from our leaders including an understanding of that phrase “promote the general welfare” from the US and North Carolina constitutions. Taxation is not a win-lose game and neither is good government. When we spend our resources wisely on education and enhancements to quality of life, we all win. When wages go up, so does demand for products and services. It is time now for North Carolina to reclaim our dual heritage as a pro-business and progressive state.
KEEPING MEDICARE SOLVENT
There is a straightforward way to keep Medicare financially solvent without reducing benefits, changing the retirement age, or raising taxes. Medicare should pay standard rates for each service to all health care providers and let them compete to see who can provide the best combination of cost and quality for that price. The payments should be enough to allow high quality and efficient health care providers to earn a modest profit but should not include special provisions for favored organizations or locations. Right now the rates vary to unjustifiable degrees and patients are not even aware of it.
Here is an example to demonstrate what is currently wrong. In Medicare’s diagnostic classification system, the most frequently occurring inpatient payment is for hip and knee replacement surgery on uncomplicated (otherwise well) patients. There are separate diagnostic categories with higher payment rates for complicated patients. In 2011 Medicare paid for 427,207 of these procedures and the average payment was $14,324. That adds up to over $6 billion. The best paid hospital in the country was the Baylor Surgical Hospital in Fort Worth, Texas which received $38,686 per surgery. The worst paid was Saint John Hospital in Broken Arrow, Oklahoma which received $9,130. Baylor got more than two and a half times the national average and more than four times the price Saint John Hospital would have received for the same service to the same patient. Here in North Carolina, UNC Hospital was paid the most, $20,610 while the North Carolina Specialty Hospital in Durham was paid the least, only $11,058. In the Piedmont Triad, the payments were $18,656 to NC Baptist Hospital, $14,045 to Forsyth Hospital, $13,758 to Moses Cone Hospital, $12,726 to High Point Hospital, and $12,412 to Randolph Hospital. The same pattern exists for other diagnoses and similar variances exist for medical practices. Readers who want to explore the data in detail can find it at the CMS.gov website or Email me and I will send the link to you.
The hospitals that are paid more do not get better results for their patients. Nor do they have better patient satisfaction. Supposedly the payment variances are because of factors like regional wage differences and costs incurred in educating specialty physicians. That may sound reasonable but the net effect is that Medicare subsidizes high costs at expensive hospitals and penalizes those with lower costs – the exact opposite of a free market economy. The political clout of local congressional delegations has been a huge factor at times, with special rates being set for certain cities or states. Medicare’s proper role is to purchase good health care for beneficiaries regardless of where the patient lives or which health care provider they choose. If we taxpayers are to subsidize medical education (and I believe that we should) then money should be appropriated for that purpose and separate contracts should be established to fund the medical education that taxpayers are purchasing. Educational grants should not be hidden in Medicare.
Medicare pays extraordinarily high prices to a few organizations which often use the surplus to acquire other hospitals or medical practices at the expense of taxpayers and consumers. Then they raise the prices. The UNC system, which also gets preferential rates from the state’s troubled Medicaid system, has used its taxpayer subsidized profits to gain control of large medical practices and other hospitals. With the increased negotiating leverage of the UNC system, prices can then be raised to insurance companies and benefit plans. Private insurance markets, just like Medicare, pay more in large cities and to large hospital systems. The idea that large size brings economies of scale is mostly a myth in health care. If the myth were true, the biggest hospitals would have the lowest costs. They don’t. But they do get paid more just for being big. The American ideal of a free market in health care where high quality and low cost are rewarded can work if we will design our payment system to work that way.
If Medicare rates are set and periodically adjusted to levels that allow good quality hospitals and doctors to make a modest profit, the best hospitals and physicians will thrive. Poor performers will fail financially or be taken over by someone else. That is how competitive marketplaces work. Healthcare resources will be more evenly distributed across the country if payment rates are standardized. We will soon discover that it is less expensive and more convenient to deliver high quality care outside of the bureaucracies of huge medical centers. If payment rates for doctors were the same in extremely rural areas of North Carolina as they are in Raleigh, there would be plenty of doctors in the mountains and down east. The need for the federal agency that operates rural clinics would likely disappear.
A free and competitive market will bring more community based health care, less centralization around large medical centers, better quality, better accessibility and lower cost. It will also bring powerful opposition from the organizations now being paid the most.
OBAMACARE 2013
Please take a few minutes to return with me to the basics of whether “ObamaCare” or an alternative universal health coverage program should exist. The underlying question is ethical and philosophical. “Are there circumstances under which a person who is uninsured and lacks money to pay for health care should receive it?” If you answer the question “yes” then we can have an intelligent discussion of who gets care and how to pay for it. If your answer is “no” and if you find yourself uninsured and critically ill, then you have a moral obligation to die without burdening others with the cost of your care.
Today, hospitals are required by law to provide emergency services without regard to a patient’s ability or willingness to pay. Hospitals are also required to force the doctors who have privileges there to serve in on-call rotations for non-paying patients. It is not free. Hospitals and doctors try to cover the cost of serving those who don’t pay by charging more to those who do pay. The system functions exactly like an invisible tax on health services but it doesn’t provide support for preventing serious illness and hospitalization by keeping people well and treating illness early. It doesn’t provide a colonoscopy to prevent colon cancer but if you are bleeding to death from advanced colon cancer, it could get you a transfusion. The law was well intended but it is irrational.
The basic principle of ObamaCare is to strongly encourage everyone to purchase health insurance either through an employer or as an individual. For those who can afford to buy insurance and choose not to, there are tax penalties. Those penalties help pay for services that some who refused to buy insurance will surely need and receive. For those who can’t afford the full cost of insurance, there is a subsidy to make it more affordable. For those who have incomes below 140% of the federal poverty level there is 100% federal funded expansion of Medicaid. In combination with Medicare and other existing programs, ObamaCare makes a reasonable level of health care available to all Americans. There are incentives built into ObamaCare that are intended to drive the cost of health care down and to improve the quality. It appears that some of them are already having a positive effect in reducing hospital readmissions, for example. And it bans insurance companies from onerous practices like not covering pre-existing conditions.
ObamaCare is not even close to perfect. The President would agree with that statement. It should not be compared to “perfect”. Americans could not even agree on a definition of perfect. Instead, ObamaCare should be compared to what we had before it passed. Those who want to repeal the law would take us back to the exploding costs and inefficiency of a non-system where every year the percentage of the population covered by private insurance went down because fewer employers and employees could afford it. Many insured employees saw no increase or even reductions in take home pay because the cost of insurance escalated so rapidly. The opponents of ObamaCare have nothing to put in its place except the failed laws of the past.
After nearly a century of debate, going back to Republican President Theodore Roosevelt, we have a start in providing universal access to some level of health care. The best part of the new law is that we finally made that commitment. ObamaCare marks the beginning of the evolution of a uniquely American health care system that emphasizes consumer choice and leaves most of the health care system in the hands of the private sector.
It is time for us to rally around the idea that all of us are going to have at least a basic level of health care. We will be forced to have the debates that have been held for generations in other democracies about what kinds of care will and will not be covered in taxpayer funded programs. Insurance market regulations will be debated and will need revisions to create health care markets that reward quality and cost, even to the extent of allowing low quality and high cost health care providers to fail financially. That, after all, is the nature of truly free markets.
I hope that attempts to obstruct the law so that it will fail or to repeal it prove futile. I know that they are counterproductive. It is long past time for opponents of universal coverage to acknowledge the end of that debate and to begin proposing their own ideas as ways to improve the law. And it is time for the North Carolina legislature and Governor to back away from their refusal to implement the Medicaid expansion. We will pay the cost of it in federal taxes regardless of what the legislature does but because of their action most of our poorest citizens will receive only emergency care. Refusing the expansion is wasteful of the tax dollars that we are already paying and mean-spirited toward those who with low incomes. It is time to quit fighting the President who finally got something done and to begin making health care better and less expensive for all Americans.