Time for a (Limited) Land Value Tax

Anyone who reads my comments on various sites, especially those of a libertarian bent like the Free Liberal and various mailing lists, know that I have been a frequent critic of the Georgist ideal of a Land Value Tax as a single levee. The current voice for this view is Dr. Fred Foldvary and his current and former students, including Brian Green. We enjoy our arguments on whether an LVT should be a single tax and whether now is the time for its adoption.

Land Value Taxes extract excess value from the location value of property, called economic rent. An effective LVT will negate such values and prevent significant appreciation, which works a bit like a sin tax. Most local jurisdictions do extract some land value, but not to the extent to prevent the housing bubble just witnessed. Indeed, local democracies find it hard enough to extract enough value to run the local school - and some don't even do that. Democratic theory shows why. Unless the assessors have some separation from the voters, an honest assessment is all but impossible. The other difficulty is that an effective tax decreases values over time and makes it hard to raise needed revenue - it is better for localities to allow values to increase, leave tax rates as they are and rake in the proceeds.

When a significant number of borrowers are underwater, it is probably not the time for a vigorous LVT with the goal of price stabilization. That was, of course, until yesterday. The White House has announced a procedure to allow people who are under water on their mortgage to have their principals written down. This makes it the perfect time to put in an LVT to prevent a new bubble from forming in later years. Since values usually stay low for a few years, we have time to fight about it, however the effort should start now.

Should it be a single tax? Absolutely not. Taxes should be economically linked to the activities they fund. Services to property, such as police and fire protection, corrections and mental health, and home inspection, local streets, sanitation, snow removal and rental enforcement should be paid from both an LVT and a tax on improvements (since expensive homes cost more to protect). Notice I left schools out of the mix.

School levies should come from a tax that redistributes income from all sources, not just land. While some are of the opinion that only land values make people rich, most will argue that celebrity CEOs are rich because of the economic rent they extract from worker wages rather than from the property they hold. Services to families, such as schools, remedial adult education, health care, and credits to assure a guaranteed income should come from a tax on employers. Such a tax would ideally force a just distribution of benefits and services (including tuition at both charter and sectarian schools) and not collect any revenue for the state.

A separate sales or Value Added Tax would fund the state to the extent it cannot self-fund. As a more visible levee, it would provide an incentive to reduce state activities, such as domestic military bases, weapon systems not deployed, commercial regulation and other non-entitlement general government not covered elsewhere.

An income surtax should extract income from accumulated economic rent and excess wages and inheritances, as well as activities that require further borrowing. These include overseas and at sea military deployments, net interest on the debt and debt retirement - including debt held by the government for retirees. The only out from paying such a tax (which should be on high incomes only and range from 3% to 23%) should be charitable contributions and income from selling shares to broad based employee-ownership plans.

Retirement taxes should go to employee-ownership shares and a large insurance fund holding such shares (with workers at non-stock firms paying into the insurance fund). Taxes should be employer-paid only and should be credited to employees equally, regardless of pay. Bonuses for actual accomplishment or educational attainment (rather than position only), as well as reinvestment of dividends, should go to both retirement accounts - with a protion of dividend income going to longevity increases. This removes the incentive to fire middle age workers as they get too expensive.

TEA Party Economics

Lest we forget, TEA is for Taxed Enough Already, but the question is, are they? We are getting some idea of their basic demographics, but I'm interested in something meatier. Are they, in fact, taxed enough for what they get? (They can also use these questions to look for themselves, but I doubt as a group they are that self-reflective).

What is the range of their Adjusted Gross Income? What is the range of their taxable income? What is the range of their marginal and effective tax rates?

How many have FHA and VA mortgages? How many have other subsidized mortgages? How many have mortgages owned by Fannie and Freddie? How many are in subsidized housing?

How do they earn their money? How many are military or governmental retirees, current members or reservists? How many work in the defense industry or have worked there? How many get Veteran's Benefits (including free health care with presecriptions that are bought more cheaply because the VA negotiates with drug companies)? How many work building roads or are in some way in the transportation industry (road, rail or air?)

How many work for employers that take advantage of the tax exclusion of health care benefits? How many take the mortgage and property tax deductions? How many take the Child Tax Credit (regular and expanded), energy credit or other credits?

How many have businesses in an industry with special tax breaks (like oil and gas)? How many work for a business that benefits from agricultural inspection programs to make sure that the food they sell is safe? What is the value to them of this service being offered? How many benefit from agricultural subsidies up the supply chain? To what extent does that show up in their employer's or their own bottom line?

Based on their income tax liability, what is their share of the Net Interest expense of the government? (or, if they prefer, their family share based on their average family size).
What is the average benefit from each type of government activity, the total average benefit and how does it compare to their tax burden? Are they "taxed enough already"?

Feel free to add other question or suggest a researcher who might ask them in the comments section.

A Compromise on Health Care: Single Payer Catastrophic

As I wrote Wednesday nite, some type of single payer insurance is inevitable because the mandates in the law are simply too weak to have everyone buy insurance, while pre-existing condition reforms will likely bend the cost curve the wrong way and bankrupt insurers and send them to TARP for a bailout or liquidation.

We could wait for a financial crisis, or we could put through a real bipartisan reform of the reform. Of course, this means giving up on univeral comprehensive but it also means giving up on for profit insurance.

The only proposal that does this is to have single payer catastrophic insurance funded by a payroll tax. Employers would fund Health Savings Acccounts for workers and employees would fund Flexible Spending Accounts for optional services.

Why do both an HSA and a FSA? Two reasons - bending the curve requires that consumers notice the pain (simply allowing them to cash out savings is not enough) and abortion funding. Single payer means that all catastrophic care would be government funded and the insistence on Hyde means that without some consumer funded account, abortion services would be cash only. Additionally, an FSB could included OTC (which the reform takes out) and can be accessed for their full value on day one, while HSAs have to build in value - meaning that providers have to wait to get paid. Eventually, as HSA values increase, FSB requirements go down, however they will at least fund normal use of copays and non-covered expenses.

Medicaid and Medicare HSA contributions would be paid by the government out of the same payroll tax which funds Catastrophic (and Long Term Care) coverage and everyone would have only one Health Security Card to access all three accounts. All beneficiaries would also have the same card, so the discrimination against Medicaid beneficiaries would stop. The payroll tax should be shifted entirely to employers, allowing salary but not net pay deductions to finance this. Compromise should mean that we stop arguing about the cost and hiding the tax from most employees would do this.

Research shows that HSAs would bend the cost curve by giving consumers the incentive to shop smarter, which would save money over time and avoid the necessity of price controls. Of course, the AMA would not like this development unless we threw in malpractice reform. Then the trial lawyers get upset, so the reform must take their needs into account. Also, reform must also make sure incompetent (rather than unlucky) doctors are punished or it will never fly.

The way to reform malpractice is to have special juries with medical society participation hear these cases and empower these juries to discipline doctors, including license revocation. Compensatory damages would remain uncapped, however punitive damage caps must not be allowed to damage the due process rights of plaintiffs by allowing defendents to outspend them on legal talent. To keep the playing field level, the cap should be three times defendent legal fees or some set amount - whichever is higher. Awards would remain untaxable until all appeals are exhausted and are only taxable on money actually received - with compensatory payments remaining tax free. With a capped award, excessive award appeals will no longer be allowed and a bond against the judgment must be posted by the insurer during the appeals process.
Would insurers fight this? It depends upon the timing. At first, they might. Eventually, when their stock price starts to tank and the only way they can stay in business is to provide administrative services to the single payer plan, they will likely come around.

I would offer one further loophole, throwing a bone to the die hard libertarians. Employers can opt out of single payer by prepaying hospital and specialist services at their employees' preferred hospital and by hiring their own doctors to treat employees and their families onsite. This would also take care of the cost curve and is similar to how we deliver health care to the military, veterans, Congress and the President. If retirees are allowed to keep the same coverage and long term care coverage is provided separately, this should also be deductible. Some tax for services to the poor would still have to be paid, however, so there won't be a total opt-out on the payroll tax.

Now that we have health care reform, there is no longer any advantage to the Republicans to avoid negotiation - of course, they may be too partisan to realize this and are so badly staffed with PR specialists that compromise proposals have to use small words - but that should wear off when they realize they've just made themselves look dangerous and foolish and that, if they really care about the cost curve, they have to play ball.

Why should the Democrats negotiate? Some of us still want single payer and believe that the for profit model can't work for much longer. Circumstances will prove us right in less than a decade, however there is no gaurantee of having sixty Senate votes when it finally does. Also, single payer alone only bends the cost curve through capping fees while the approach I have outlined is more likely to bend fees without price controls. Like it or not, we own the debt that we inherited from Dubya and bending the curve is likely the only way to avoid catastrophe.

The Inevitability of Single Payer

Cross-posted from Daily Kos from two days ago:

I see that there is still activity around seeking a public option in reconciliation. I think this is a mistake. If you are going to offer any grudge amendment from the left, offer one to make TARP money available to health insurers in financial difficulty and give the USG the authority to liquidate operations as it sees fit. The USG should see fit to start offering its own insurance plan which will grow and grow until it eats everyone else. (UPDATE: Of course, there was not such amendment, but the analysis still applies).

How will Single Payer happen? Its pretty obvious. The Republicans knew, it seemed, but were not clear. They spent too much time on historionics and not enough time explaining their position - that reform is a prelude to real government run health care - either a single payer Canadian system or a British national health service. They left people with the impression that if you give the Democrats an inch, they will take a mile. That is not how it will happen, however.
Here is what I told the White House, the Senate Finance Committee and the House Ways and Means Committee majority and minority staffs:

"The main attraction of single payer comes from the nature of commercially provided insurance to seek profit, and how that effects the delivery of service. The problem is that even with all of the consumer responsibility you can think of, the drive for greater and greater profits will have insurance companies constantly searching for ways to avoid paying for the care they promise their policy holders.

Firms are less concerned about deductible levels as they are about how to avoid paying for serious chronic illness. Patients with several risk factors, such as a high BMI and advancing age, are not attractive to insurers since they detract from the bottom line due to the possibility of stroke, diabetes, heart attack et al.

If insurers must cover everyone and can't charge potentially sicker people more, their ability to increase profits over time (which seems to be the goal of privately held firms) will be greatly impacted. In the end, their business model will not handle covering everyone at a market rate. This will lead to either consolidation (until they can't consolidate anymore), bail outs or the offloading of the sickest to some kind of public fund.

In other words, single-payer insurance is almost inevitable - whether by government mandate or because of the natural tendencies of the market. Does this mean Congress can pass single payer healthcare now? It would be extremely unlikely for the industry or Congress to be that forward thinking. The best thing measure at this time is to pass something now and let events develop. If and when the bottom falls out of the industry, however, Government must be ready with some kind of single payer proposal."

Private insurance is doomed. (The Bill is now law, we can say it now). It will be doomed faster if mandates are found unconstitutional or are inneffective to really force participation (especially if you can drop coverage until you get sick).

If the GOP had said this more clearly, rather than sounding like a bunch of conspiracy nuts, they could have stopped the inevitability of single-payer, which will come about once the insurance industry starts running to TARP after their stock price starts to tank.
My advice if you have a small fortune and want a big fortune is to buy a CDO betting that within 10 years the Insurance companies will go to TARP and be liquidated (or be ready to sell their stocks short).

If we want real, sustainable, health care reform it is time to realize that we need a payroll tax or a VAT to pay for it. More importantly, we need to start spreading the word that private insurance is doomed. The more we say it, the more it is true and the quicker we get real reform.
Tell Cramer and give him a big Booyah! from me.

Paying for McCain/Boehnercare

In the lead up to the health care summit between the congressional Democratic and Republican leadership and the White House, the GOP plan and the President's plan were compared. It was an apples to oranges comparison, however, since the GOP plan was not fully fleshed out - not in terms of details or in scope. The GOP plan (which has been taken down from the GOP web page) included an expansion of SCHIP, Medicaid reforms and malpractice reform, however it did not flesh out comprehensive reform which would have bent the cost curve.

The closest the Republican Party has come to a oomprehensive plan was John McCain's proposal from the 2008 campaign, which would have provided a tax credit large enough for catastrophic health care, taxed all other health care coverage and provided for(presumably) tax free Health Savings Accounts. This reform would have effected every American rather than reforming around the edges. By providing a credit rather than a tax exclusion, however, it would have been more expensive if it were universally adopted, as it would have been in a few years - since no one would retain comprehensive insurance or employer provided insurance coverage - although most would not have been happy with such an option. Given the Republican allergy to progressive taxation, this plan would have either increased the deficit still further or would have required some form of payroll or consumption tax (maybe a Value Added Tax) to fund it.

This actually sounds like something I once proposed, since according to economic theory, such measures would be necessary to bend the cost curve, although the total price tag would be just as high as Obama care once you finished adding up tax credits and exclusions.
How much this plan would bend the curve, however, is seriously disputable. Health care is not a "normal good." It is a good that makes consumption of other goods possible, at least in dire situations. You cannot buy a car if you are dead or disabled. Such non-normal goods do not respond well to supply and demand - especially if one has guaranteed access because one has an insurance card and a Health Savings Account/Flexible Spending Account. Except for elective procedures, there is absolutely no incentive to hold back on getting the best and most expensive care possible. I am also fairly sure that we do not want people to make such choices anyway. Indeed, as a small business household, we have such coverage (it is all we can afford). It has stopped us from seeking dental care, but after meeting the deductible last year, it did nothing to dissuade two emergency room visits and several tests the doctor ordered for my high blood pressure.

Budgetarily, after the second or third year after adoption, the combination of catastrophic insurance and an HSA costs as much as comprehensive insurance. It does not, however providing the same level of coverage.

Would such a plan be more popular than Obamacare? Given that most people would be dropped from their comprehensive insurance as the tax exclusion for it goes away, I seriously doubt it. Indeed, this was an issue in the election. To the extent that people voted based on health policy, they chose the President's plan. If reminded of the elements of McCain's plan, they would chose it again.

A retraction and a challenge on health care and abortion

I must first of all print a retraction. I had my facts incorrect on the number of Stupak supporters in the Senate (in my own defense, when the vote was taken I was preparing for major abdominal surgery). I had thought that there were 54 votes for Stupak in a cloture motion. This was incorrect, there were 54 votes to table Stupak. This is important, because there is no way that Stupak will ever be included in reconciliation in its current form and pass. Unless Harry Reid, Scott Brown, Olympia Snowe, Joe Biden and one other Democrat (maybe Jim Webb?) support Stupak, then Stupak is dead in reconciliation. I apologize for saying it would be easy to do.

Now comes the challenge. If the Church wants Stupak, it needs to line up some Republican votes for final passage. Indeed, it needs to find at least 30 and get the President to promise 30 Democrats. If they can pull that off, then Stupak can be added back to the Senate Bill as an amendment in the House and then sent back to the Senate who would accept the amendment. Of course, that would require amending Stupak so Olympia Snow et al would support it. Oh, and turn off the war of words against reconciliation.

Of course, I doubt this challenge will be accepted. The Church can't even get the National Right to Life Committee to designate Health Care cum Stupak as an RTL vote - requiring a yes vote for a perfect rating. If it can't even get NRLC to play ball, it is playing poker with a busted flush (which is worse than trying for an inside straight, which is what Obama is doing in the House - probably successfully). The bottom line is, until they can get Bunning, McConnell and Cantor to vote for final passage they have no business asking me to get Webb, Warner and Moran. My message to the bishops, especially my own Bishop Loverde, is to not even think about playing hardball with Catholic Democrats until you first get NLRC on board for final passage.

About Global Warming

It was cold this winter. Indeed, it was so cold, that people are saying that man-made global warming cannot be true.

There is evidence to the contrary and evidence that warming is partly natural. It could be both sides are correct, since climatology is an exact science.

Where I part with most environmentalists, however (especially the Zero Population Growth types) is whether warming is a bad thing. Indeed, if man-made warming is true, then perhaps we would still be in the minor ice age which lasted from the 14th Century to the late 19th Century and that only industrialization ended the ice age.

How does that make warming a bad thing? Indeed, we have still not returned to 13th Century temperatures. It should never snow in either Washington, DC or London, England. Greenland should have pastureland. We don't have these things. In fact, variable weather is not the artifact of warming, it is the artifact of unstable cool periods.

We may still be in the tail end of the cold period now. If emitting carbon dioxide is all that is keeping us from a return to pre-industrialization weather, than I say Drill, Baby, Drill and thank God for dirty coal. Now, if sea levels rise so that rich beach condos are washed away, so much the better. Homo Sapiens is a migratory species. People will move before they die off and will probably have a better life for having expended the energy to move.