Adventures in interventionism

Hidden taxes hurt just as much

This in-depth story provides a detailed look at the cost of regulations on business – something that often gets short-shrift in news accounts about new legislation. But even the federal government acknowledges the massive costs of regulation; a Small Business Administration report notes that total regulatory costs are at about $1.75 trillion annually, which is almost twice the amount of all individual income taxes collected last year.

Obviously, a society cannot proceed without regulations of some sort, but the story notes that even when the facts show that the costs of regulation exceed the benefit, regulators will still plow ahead… that’s what they do, after all.

Programs to fix programs

When government intervenes in the markets to achieve a “socially desirable” outcome, there are always unintended consequences, and there are always ways around the intervention. Such is the case with Medicaid, as explained in this insightful article about how its price-fixing mechanism was established to reduce costs. It hasn’t worked, of course, but you can see the contortions interventionists will undergo to fix a fatally flawed program rather than to admit that it’s simply unsustainable.

Reality-aversion therapy

On election day last November, Montanans voted to use their government to cap interest rates on payday loans at 36 percent annually. Good for the poor? No.

At first blush, it might seem reasonable, since most people complain when credit cards charge just half that rate. But payday loans are not used as annual loans, so an APR is the wrong way to judge them. The fact is, these loans are used by people who need cash immediately, and so they provide a post-dated check for a week or two in the future, and get cash to meet their immediate needs. They end up paying $10 to $20 per $100 of immediate cash.

This may seem exorbitant, and for many of us, it would be. But for obvious reasons, these lenders face high default rates, which means their costs are high. The folks who need cash right away are part of a pool of people at high risk for default, and so the rates they pay reflect how much the lenders lose to the folks in that risk-pool.

Given that the high-cost loans are a response to the high cost of providing the loans, it makes no sense to cap the prices charged by lenders. The result is obvious and predictable: the businesses that provided the loans pack up and leave the state. If you were required to sell your products at less than it costs you to buy them, wouldn’t you do the same?

According to a story in Reason magazine, Montana can expect an exodus: “When Arizona’s payday loan rates were capped at 36 percent in June, payday lenders immediately started checking out. Joe Coleman, president of the Financial Service Centers of America, told USA Today that Montana will be no different: ‘As has been the case in other states, because of the numerous costs involved, virtually no operator can offer the product at that rate, and all of them will almost certainly go out of business,’ he says.”

The need for quick cash remains after payday lenders leave, and studies show the poor therefore turn to check-bouncing, utility shutoffs, bankruptcy and other unfortunate measures.

Economic reality, it seems, constantly thwarts liberal legislative dreams.

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Raising taxes to reduce the deficit NEVER works; here’s why

It’s easy to argue that raising taxes is not a viable way of increasing federal government revenues in the long-term, because it tends to reduce prosperity in the areas being taxed and provides incentive for people to avoid the new or higher taxes; after all, the richer people are, the more they have to lose via taxes, and the more willing they are to hire accountants and tax lawyers to help them find loopholes, tax shelters, and other exemptions.

But this article offers an even better reason for avoiding tax-hikes to reduce the deficit: history shows that it is never used to reduce the deficit, because Congress can’t resist the temptation to simply spend it.

Specifically, the authors point out that every dollar in new tax revenues results in more than a dollar in new spending. This holds true regardless of the time period, financial data, lag structures, and control variables they considered. In short, no matter how they sliced it, the data shows that Congress spends more than the revenues that come in, period.

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The side of Social Security Bernie won’t mention

One of the most frustrating things about being a liberal or a conservative – or anyone in between, for that matter – is that both sides seem to shoot their arguments right past each other without hitting head-on often enough. Social Security is a perfect example.

Despite Bernie's contention that Social Security reform robs poverty-stricken seniors, the fact remains that Social Security isn't means-tested; even millionaires get Social Security checks. Why is that?

Vermont’s own ultra-liberal Sen. Bernie Sanders says, “Republicans have falsely claimed that Social Security is going bankrupt and is in crisis.  This is a lie.”

It’s easily verifiable that Republicans (and other fiscal conservatives) do indeed claim Social Security is going broke, so how can Sen. Sanders and other liberals be so categorically staunch in their denial of such?

This is where the arguments have to meet point-for-point, and in detail, rather than devolve into the banal generalities that often characterize both sides’ rhetorical efforts.

What it all comes down to is what constitutes the truth, as opposed to what constitutes the whole truth. Here’s what Sen. Sanders says about Social Security’s solvency:

“Social Security is running a $2.6 trillion surplus that is projected to grow to over $4 trillion by the year 2023.  The non-partisan Congressional Budget Office has estimated that even if no changes are made, Social Security will be able to pay full benefits to every eligible American until the year 2039.  After that, it will still have enough funding to pay about 80 percent of promised benefits.”

That is the truth.

But let’s not breathe a sigh of relief yet, because we still haven’t gotten to the whole truth, which requires a bit more explanation:

According to the Social Security Trustees Report, payroll taxes collected since 1983 should last until 2037. But this is only in the Social Security Trust Fund, which is an important distinction to make; by law, this trust fund has to purchase Treasury Securities with its tax income. In other words, the trust fund is full of IOUs from the U.S. Government, and no cash.

In fact, the Federal Budget acknowledges this on page 421, in this quote: “The existence of large trust fund balances, therefore, does not, by itself, increase the government’s ability to pay benefits.”

Because the U.S. Treasury must pay back those IOUs when they’re due, some might argue that it’s as good as cash, but it’s not. The only ones who can pay U.S. Government debt to the Social Security Trust Fund are you and me – the taxpayers. In short, we’ll have to either raise taxes or borrow more to pay the IOUs. So make no mistake; the money isn’t there, and we have to come up with it, no matter how resolutely Sen. Sanders accuses his political opponents of being liars.

So what about the actual cash flow coming into the Social Security Trust Fund? Since Sen. Sanders is fond of pulling figures from the Congressional Budget Office, let’s do that: The CBO’s 2010 estimate (released in October) is that the trust fund will be paying out more than it takes in by 2014, and that this deficit will continue to grow in perpetuity if nothing is done.

That’s a big “if.” So what should be done?

I do not pretend to have a lot of answers, and Social Security is no exception. But it seems that there are at least a few low-hanging fruit to be plucked. For one thing, Social Security should be means-tested. It’s absolutely idiotic that Social Security benefits are paid to everyone, regardless of their need for this cash. Despite the fact that millionaires get Social Security checks, liberals consistently portray reform efforts as stealing food and medications from financially precarious senior citizens.

The President’s independent commission report on how to reduce the federal deficit and debt has excellent ideas put together by a bipartisan group, and I won’t second-guess their recommendations without having read the final, full text. Similarly, lawmakers like Wisconsin’s Paul Ryan and others have fiscally responsible approaches to reform. They might actually get a hearing in upcoming Congressional sessions.

Social Security – and all taxpayer-funded assistance, for that matter – should be seen as a last resort. The first resort for retirement should be savings in stocks, bonds, gold, bags of cash buried in the back yard, or whatever else meets with a person’s risk tolerance. That would not only promote self-reliance and frugality, but also give a significant bump to the stock market and the bond markets, creating greater prosperity for many more people, which in turn results in more tax revenue for the government. Even Sen. Sanders would like that outcome.

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