Category Archives: New York Times

How Can We Boost Stagnant Wages?

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Today’s Wall Street Journal has a column by Neil Shah, “Stagnant Wages Crimping Economic Growth”, pointing out that the average hourly pay for non-supervisory workers, adjusted for inflation, has declined to $8.77 last month from $8.86 in June 2009, when the recession ended.  It has also been reported recently, e.g. in the New York Times, that U.S. medium household income, now at $52,100, has not nearly recovered from its prerecession peak of $55,500 and is even below its $54,500 level in June 2009, at the end of the recession.
Lower income for workers and households mean lower consumer spending.  This is a major reason for our economy’s low annual growth rate of only 2% of GDP since the end of the recession.  Of course, the high unemployment rate, currently 7.4%, as well as increasing global competition, contribute to downward pressure on wages.  But there is another factor, directly under government control, which is a major contributor to stagnant and declining wages.
Washington Post columnist, Robert Samuelson, in a recent column reprinted in the Omaha World Herald, reported that, from 1999 to 2013, wages and salaries rose 50% (adjusted for inflation) while health insurance premiums increased 182%.
Most health insurance is provided and largely paid for by employers and is therefore an indirect form of compensation.  The huge disparity between wage gains and health insurance premium increases in recent years means that wages are being held back by the rapidly increasing cost of health care.  The U.S. spends 18% of GDP on healthcare, twice as much as any other country and this is clearly out of line.
The best single thing we can do to slow down healthcare inflation is to remove the tax exemption for employer provided healthcare (and offset it with lower overall tax rates).  Employees would then pay taxes on their health insurance benefits as part of their pay. This would have the beneficial effect of making consumers far more conscious of the true cost of healthcare and therefore consumers a strong incentive to hold down these costs.
It is up to Congress to change this provision of the tax code.  Let’s insist that they get this done!

Is the Cost of Health Care Under Control?

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Today’s New York Times reports that “Health Care Costs Climb Moderately, Survey Says”.  The average annual insurance premium for a family rose 4% in 2013 compared with a 1.1% overall rate of inflation, according to the Kaiser Family Foundation which conducted the survey.  Since 1999 health insurance premiums have increased by almost 300% while consumer prices have increased by 40%.  As insurance premiums rise, deductibles are also getting bigger.  About 38% of all covered workers now face an annual deductible of $1000 or greater.  Dr. Drew Altman, CEO of the Kaiser Foundation, refers to this “quiet revolution” as an attempt by consumers to keep the cost of health insurance from rising even more quickly.
A 4% increase in insurance costs may seem moderate, but at almost four times the rate of inflation, it is really very large.  Obama Care is unlikely to have any impact in holding down such a rapid increase and, in fact, is likely to make matters worse because of massive new health care regulations which are coming.  The basic problem is that America spends 18% of GDP overall on health care, almost twice as much as any other country.
What can we do about this?  One major step would go a long way.  We need to remove the tax exemption from employer provided health insurance.  Employers could still provide health insurance for their employees, but the cost would be added to an employee’s salary for tax purposes.  This can be offset with a lower tax rate, of course.  But it would make employees, i.e. all consumers, far more conscious of the cost of healthcare and therefore to have a direct incentive to hold down these costs.  For example, Dr. Altman’s “quiet revolution” would pick up steam as employees raise deductibles even higher in order to lower overall costs.
How can we get going in this direction?  The Employer Mandate of Obama Care should be repealed, and not just postponed for a year.  Ideally, removing the tax exemption for employer provided health insurance would become part of the broad based tax reform which is so badly needed to stimulate the economy.
Our fiscal and economic problems can be addressed with smart leadership.  We should insist that our national leaders get going on such badly needed reforms!

One Way to Solve the National Debt Problem

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In today’s New York Times, the economists Glenn Hubbard and Tim Kane write that “Republicans and Democrats Both Miscalculated”.  They say that “when the Congressional Budget Office recently lowered its forecast of future deficits, many voices on the left claimed that the problem had been overblown by ‘austerity scaremongers’” and that “some voices on the right have renewed calls to ‘starve the beast’ now that deficits are under control.”  But they point out that just because the deficit is likely to shrink for the next couple of years, CBO also projects that it will soon be back up to a trillion dollars per year indefinitely into the future.  And this is all optimistically assuming full employment, robust growth and moderate interest rates.
The Hubbard/Kane solution is to amend the Constitution with a flexible Balanced Budget Amendment.  Its features would include: 1) a provision that spending in a given year would not exceed income averaged over the previous seven years, 2) no restriction on tax rates which would have to be hashed out by Congress and 3) an exception to spending restraint for national emergencies.
There are, of course, valid objections to a Balanced Budget Amendment to the Constitution.  It reduces the flexibility of Congress and the President to act as needed.  It would be much better for Congress to act in a fiscally responsible manner on its own initiative.  But we all know that this doesn’t happen.  The pressure is always to adopt new spending programs and never to cut existing programs, no matter how ineffective they are.
Debt is the “single biggest threat to our national security” declared Admiral Mike Mullen, the former Chairman of the Joint Chiefs of Staff.  Many other prominent citizens express similar thoughts on a regular basis.  It is really just basic common sense that no governmental unit can flagrantly ignore this fundamental economic principle year after year without very serious repercussions.  It is (well past) time to force our national leaders to bite the bullet and do what almost every sane person knows what must be done.

The National Significance of the Municipal Pension Crisis

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The New York Times reported yesterday that “Chicago Sees Pension Crisis Drawing Near”.  “A crushing problem lurks behind the signs of economic recovery in Chicago: one of the most poorly funded pension systems among the nation’s major cities. … The pension fund for retired Chicago teachers stands at risk of collapse.”
William Daley, former chief of staff for President Obama and now a Democratic candidate for governor of Illinois says that “Anyone who thinks that this is just a problem on paper, those are the same people who looked at Detroit 20 years ago and said, ‘Don’t worry about it, we can handle it.’”  Chicago Mayor, Rahm Emanuel, another former chief of staff for President Obama, says that “What the system needs is a hard, cold, dose of honesty.  I understand the anger.  I totally respect it.  You have every right to be angry because there were contracts voted on.  People agreed to something.  But things get updated all the time.”
Just as Chicago and Illinois need a cold dose of honesty about the public pension crisis in that city and state, so does our entire country need a cold dose of honesty about our national fiscal crisis.  Shall we wait 20 years or until this problem explodes in our faces (or our children’s faces), or shall we start to deal with it now, while we can still proceed in a rational manner?
Our current public debt (on which we pay interest) is now $12 trillion.  With artificially low interest rates, we are paying “only” $250 billion annually in interest on this debt. When interest rates resume their historical average of 5%, our annual interest rate will jump to $600 billion.  Where will we find an additional $350 billion per year for interest payments alone?  Will we take it from entitlements, from social services for the poor, from our defense budget?  Or will we just increase our deficit even more to pay for it?  It will have to come from somewhere!
Wake up, America!  Learn from the municipal pension crisis.  Now is the time to get things straightened out.  Further procrastination will have dire consequences.

The New York Times is in Denial

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An editorial in yesterday’s New York Times, “Republican No-Shows in the Budget Wars”, ridicules House Republican leadership for having the temerity to propose $4 billion in cuts from this year’s budgets for transportation and housing, and expecting Republican representatives to support such “draconian” cuts.  “But the House’s skittishness at the decidedly unpopular costs of some of the party’s budget strictures presented a revealing tableau of both hypocrisy and weakness: Republicans could not pass their own cramped vision of the future.”
The underlying problem is that the House Budget for discretionary spending for 2014, at $967 billion, is almost $100 billion less than the Senate’s $1058 billion budget.  The House insists on continuing the sequester cuts for the full ten years agreed upon when the sequester mechanism was set up two years ago.  The Senate is ignoring the sequester agreement because it wants to replace it by a combination of milder cuts and tax increases.  The Republicans would prefer to replace the across-the-board sequester cuts by a more rational budget cutting plan but the Democrats are unwilling to negotiate such a plan.
The Democratic Party, and its media supporters such as the New York Times, simply refuses to acknowledge that the United States has a fiscal problem.  $6 trillion in deficit spending in the last five years apparently does not make a serious impression.  The mantra is that we’ll worry about our enormous deficits, and exploding national debt, later, after the economy more fully recovers from the Great Recession.  But after four years of recovery such an argument makes no sense.  There are lots of effective ways to boost the economy but continued artificial stimulus (deficit spending) is not one of them.
Wake up, Keynesians!  We need to turn things around and the sooner the better.  Stop ridiculing the mostly Republican fiscal conservatives who are valiantly striving to accomplish this herculean task under the most trying circumstances.

What Is the Best Way to Reform the Tax Code?

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In today’s New York Times it is reported that President Obama, “Obama Proposes Deal Over Taxes and Jobs”, proposes “a cut in corporate tax rates in return for a pledge from Republicans to invest in more programs to generate middle class jobs.”  Reducing the top corporate tax rate from 35% to 28%, for example, balanced by tightening tax deductions and loopholes, would raise additional revenue on a one time basis as companies switch from one tax system to another.  It is this new one time revenue which would be spent on the president’s priorities.
The President’s proposal has given a boost to Senator Max Baucus and Representative David Camp, the chairs of Congress’s tax writing panels, “Lonely Bipartisan Push to Overhaul Tax Code Finally Gets Noticed”, who are working together to construct a broad based, pro-growth, plan to reform the entire tax code, for both individuals and corporations.
Which is the better way to proceed?  What is the best way to boost the economy? Revamping only the corporate tax structure to raise new tax revenue for public spending projects?  Or by eliminating as many deductions and loopholes as possible over all in order to enact the lowest possible tax rates for both individuals and corporations?
To me the answer is obvious.  It is investment, risk taking and entrepreneurship which create the most jobs for the long term.  The best way to stimulate the private economy is with the lowest possible tax rates for all.  It is unfortunate that the President will not accept this basic economic truth and work with Congress in a bipartisan manner to move the economy forward and create more jobs.

What Is the Best Way to Help the Middle Class?

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An article in yesterday’s New York Times, “Obama Says Income Gap Is Fraying U.S. Social Fabric”, quotes the President that “If we don’t do anything, then growth will be slower than it should be.  Unemployment will not go down as fast as it should.  Income inequality will continue to rise.  That’s not a future that we should accept.”  He says that “I will seize any opportunity I can to work with Congress to strengthen the middle class, improve their prospects, improve their security.”
A recent editorial in The Wall Street Journal, “The Inequality President”, shows with a chart that median household incomes have fallen from $54,218 in June 2009 as the recession ended to $51,500 in May 2013.  As the WSJ says, “For four and a half years, Mr. Obama has focused his policies  on reducing inequality rather than increasing growth.  The predictable result has been more inequality and less growth. … The rich have done well in the last few years, thanks to a rising stock market, but the middle class and poor have not.”
There are many things that Congress and the President could do to boost the economy if they were willing to work together and compromise.  Obamacare doesn’t need to be repealed, just modified by dropping the employer mandate which is a job killer.  Broad based tax reform, with lower tax rates, paid for by eliminating tax preferences, would be a big boost to investment, risk taking and entrepreneurship.  A reasonable compromise would be to use a part of the revenue raised from eliminating loopholes for deficit reduction.
But little progress will be made unless the President is willing to show leadership by rising above partisanship.  There are all sorts of ways he could do this.  One simple way would be to show that he understands the seriousness of the rapidly growing national debt by supporting some of the many thoughtful proposals for more government efficiency.
A large majority of people want our first African-American President to be successful.  But right now he is not on track to achieve this.

Should the Federal Government Bail Out Detroit?

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The former Obama administration auto czar, Steven Rattner, wrote in yesterday’s New York Times that “We Have to Step in And Save Detroit” from bankruptcy.  Detroit has $18 billion in liabilities, half of which are for municipal employee pension plans and retiree health benefits.  Mr. Rattner says that “It isn’t fair to cut pensions.  The workers didn’t cause this mess.”
Many state and local governments are indeed in terrible financial condition because of the cost of public employee pensions.  There have already been several municipal bankruptcies around the country and there will be many more.  The state of Illinois is in particularly bad financial shape, for the same reasons as Detroit, and will almost certainly have to declare bankruptcy in the near future.
The basic problem is that state and municipal governments often have so-called “defined benefit” pension plans for their employees rather than the “defined contribution”, or 401(k), retirement plans used by private business.  Defined benefit plans guarantee a certain level of pension payment, based on the employee’s salary, regardless of the investment returns of the contributions to the fund.  Defined contribution plans, on the contrary, only pay out in benefits what has actually been accumulated in investment earnings.  For a defined benefit plan the employer (i.e. the government and therefore the taxpayers) is at risk for any shortfall in funding.  For a defined contribution plan, the individual employee is at risk for underperforming investment of the fund.  The only viable solution to this massive problem is for state and local government to shift as rapidly as possible from defined benefit to defined contribution retirement plans.
For the federal government to jump in and bail out one particular struggling municipality would create a moral hazard.  Every other state and local government with the same problem, numbering in the hundreds or thousands, would want equal treatment.  The federal government can’t afford such an expense because of its own perilous financial condition.  Furthermore, federal aid would just delay the fundamental changes in fiscal policy which must be made at the state and local level.
It is a very bad idea for the federal government to bail out Detroit!

Should the Employer Mandate Be Repealed?

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In last Sunday’s New York Times the columnist Ross Douthat makes an excellent case in “A Hidden Consensus on Health Care”,  that Obamacare’s employer mandate, recently postponed for one year until January 1, 2015, should be repealed altogether.  The reason for delaying its implementation is because of the complexity of the process for the government to gather all the necessary information about a company’s employees and coordinating with IRS tax returns to verify incomes.  This is, of course, a mammoth job.
Furthermore, small and medium sized companies, near the 50 employee cutoff for mandatory coverage, will not have to immediately slow down their growth, in order to avoid the health insurance requirement.  This could help boost the economy in the short turn.
In addition, as Mr. Douthat points out, it is the tax exemption for employer provided health insurance which is the biggest impediment for getting the cost of healthcare under control.  It means that employees are shielded from the true costs involved in receiving care and therefore have little, if any, incentive to hold down the cost of their own care.
If this tax exemption was eliminated, perhaps as part of a broad based tax reform initiative, then employers could still offer an optional health insurance benefit to their employees but it would be taxed as part of their total pay.  This would give employees an interest in holding down the cost of their own insurance.  And they would also have the option to shop around on the private market, perhaps on the new exchanges, for a better deal.
The Employer Mandate is thus altogether a dead weight on our struggling economy.  It’s certainly beneficial to have it postponed for a year.  Let’s go the rest of the way and repeal it altogether!   This would be a significant step towards true healthcare reform!

Who is Conducting War on the Unemployed?

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In his ever provocative fashion, columnist Paul Krugman claims in today’s New York Times that fiscal conservatives, i.e. Republicans, are conducting “War On the Unemployed” because extended unemployment benefits are being allowed to expire both nationally and in various states around the country.  According to Mr. Krugman it is “meanspiritedness converging with bad economic analysis” because more government spending will boost the economy and, moreover, the federal deficit is nothing to be concerned about.
The problem is that we have now had enormous fiscal stimulus, i.e. huge federal deficits, for five years, as well as a highly expansive monetary policy, and the economy is still barely limping along at a 2% growth rate.  It is unfortunate that so many liberals are ideologically opposed to broad-based tax reform whereby tax rates would be lowered in a revenue neutral way by either eliminating entirely, or else cutting back substantially, the many tax preferences, deductions and loopholes which pervade the tax code.  By emphasizing profit potential over tax avoidance strategies, this would give a big boost to business risk takers and thereby lead to economic growth and lower unemployment.
At the same time that our economy is suffering from low growth and high unemployment, our national debt is exploding to a large extent because the federal government is spending too much money.  Efforts to rein in government spending across the board are highly desirable and should be supported as simple common sense.
By advocating tax reform to boost the private economy and, at the same time, restraining federal spending wherever possible, fiscal conservatives are helping the long-term unemployed far more than their supposed champions who are doing just the opposite!