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Posts from the ‘Government’ Category

Marketplace of Ideas

Before you head out for the holiday weekend, catch up on some of the week’s economic news:

 

UncleSam
  • Congratulations, America—most of you survived tax day! If you’re getting a refund, you essentially made an interest-free loan to the government last year. According to the Brookings Institution, tax overpayments in 2013 totaled $192 billion. Washington Post’s Wonkblog has some maps illustrating how over- and underpayments are distributed across the country. Overpayments are centered in Appalachia and the deep South, while underpayments are concentrated in the Plains states. Wonkblog also looks at H&R Block’s claim that taxpayers are leaving $1 billion in potential refunds on the table by doing their own taxes. While Americans’ tax returns are rife with errors, those errors can lead to both under- and overpayments—even when a tax professional does the return. Worried about getting audited? Wonkblog says the likelihood is decreasing, in part because the IRS has fewer auditors now than in the 1980s. Last year fewer than 1 percent of returns were audited. Meanwhile, the New York TimesEconomix blog looks at debates over whether the tax code is “fair”—a tough task, since there are many, often conflicting, ways to evaluate fairness. Wherever you stand on the issue, you can likely agree that the chances Congress will get its act together and reform the tax code are pretty low.

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Marketplace of Ideas

Mr. Money BaggsHere are some stories from this week’s economic news worth a closer look:

  • SAC Capital Advisors this week wrapped up the last piece of a $1.8 billion settlement for criminal and civil insider trading charges—the largest such deal in history. What’s next for Steven Cohen, the guy who ran the hedge fund? It’s not jail time. Cohen has morphed SAC into Point72, a so-called family office that will exclusively mange his personal fortune of about $12 billion. As CNBC has reported, many hedge funds are converting into family offices. Why?  Perhaps it’s because family offices fall into a regulatory loophole that exempts them from certain disclosure requirements under Dodd-Frank. That’s not an accident: The benignly named Private Investor Coalition lobbied Congress for the loophole, claiming that because family offices don’t take money from outside investors, their oversight should be less stringent. If you’re a multi-billionaire looking to start your own family office, the CFA Institute has a helpful FAQ for how to comply with the SEC’s definition of what constitutes one. Getting straight to the point, it includes this all-important question: “How likely is it that I’m going to get caught?” According to family office attorney David Guin, “I don’t think the SEC has a ton of resources to run about and try and identify noncompliant family offices.” So you can probably breathe a sigh of relief.  But look out—that might change now that the notorious Cohen is in the game.

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Cutting Through the Noise to Clarify the Affordable Care Act

AIER ACA CoverSince starting my research on health care and the Affordable Care Act, also know as the ACA, I have been inundated with countless opinions from the media, literature, and personal interaction, mostly weighing in on whether the ACA is simply good or bad for the United States and its citizens. Because the ACA is a complicated law and a polarizing political topic, many misconceptions have arisen and persisted in the public sphere. A student at AIER’s career development seminar asked me “After researching the ACA, would you sign up for Obamacare?” Instead of breaking it down and explaining exactly what the ACA entails, I simply acknowledged that it is a loaded topic, and if I did not have health insurance I would buy it in 2014.

Here is what I should have said–

The ACA is a law, not a health insurance plan. It is a law that regulates the insurance industry, which affects everyone who purchases health insurance to different degrees. It mandates that Americans have health insurance and that certain businesses offer it. One does not sign up for “Obamacare” or the Affordable Care Act. One purchases a health insurance plan that will be regulated within the framework of the ACA legislation.

The extent to which I am affected by the ACA depends on my current source of coverage, or lack thereof. If I get health insurance through my employer, in most cases, there will not be a discernible change to my health policy and my world will carry on uninterrupted in 2014 and beyond. If I get health insurance through a public program such as Medicaid or Medicare, almost nothing changes for me. If, however, I buy insurance in the individual market or I don’t have health insurance, I will see important changes.

There are many special cases, exemptions, and specific mandates/provisions that the ACA has created, making the law obscure and, more importantly, hard to predict. It’s impossible to accurately estimate how aggregate health care costs in America will change. It is also impossible to predict how many people will sign up for coverage through the exchanges and how different states will handle the implementation process.

Until implementation is complete and premiums are clearly identified for all insurance providers and enrollees and their plans, we cannot make a precise prediction of how the ACA will affect the healthcare landscape or the American consumer.

What we can do is provide our readers with data and information that will help identify where Americans are, and where they will likely end up as a result of the legislation. Based on ACA provisions and mandates, we can also give consumers a sense of how premiums may change. The numbers below are taken directly from AIER’s study, How the Affordable Care Act Affects Your Health Insurance Costs.

 Pre-ACA Health Care Coverage

Using 2012 Census data and the HHS Medical Expenditure Panel Survey we were able to estimate where Americans access health care coverage. Eighty-five percent of the U.S., 267 million people, had health insurance in 2012, while 47 million were uninsured. Of this total, we estimated that that about 230 million people will see “little to no noticeable change in premiums” and about 50 million will see a significant increase in premiums. Conversely, about 30 million people will see reduced or low premiums.

We cannot estimate what uninsured people paid for health care before the ACA, because they did not pay premiums and only incurred out-of-pocket expenses. Therefore we are judging the relative cost of premiums across the uninsured population. For example, previously uninsured Americans now eligible for Medicaid (13 million) will not pay premiums, but they may incur nominal out-of-pocket expenses; therefore we categorize them in the 30 million with reduced or low premiums. Of the uninsured with incomes too high for Medicaid or federal subsidies, we put them into the group of 50 million with significant increases in premiums.

In addition to our estimates, our report presents a detailed guide on how the ACA will affect each type of insurance plan. It also offers analysis on health care distribution in the United States, eligibility for subsidies, Medicaid, and the impact of the ACA on premiums for the total population.

 

Marketplace of Ideas

They say the coldest days of winter are now behind us. Warm up this weekend with these stories from the week’s economic news.

  • How much is your privacy worth? Julia Angwin, in a New York Times op-ed, documents how she spent $2,200 in an effort to safeguard her personal information. “In our data-saturated economy,” she explains, “privacy is becoming a luxury good.” She also has this helpful reminder: “If you aren’t paying for the product, you are the product.” You don’t have to pay to use services such as Facebook and Twitter, but that doesn’t mean they are costless: The information you routinely give up when you use the internet is worth something to someone. The Financial Times has a handy calculator to help you determine the going rate for your personal data. It’s likely no more than a few dimes, depending on the details of your health, personal habits, and stage of life. But in aggregate, the harvesting and selling of personal data is a big business. Senate democrats recently proposed the Data Broker Accountability Act, which would prohibit companies from using deceptive means to collect your personal data, but the measure has been dropped.
  • The legalization of marijuana has had a big impact on a few states’ revenues. Colorado’s governor has announced that the state expects to reap over $130 million in taxes and fees from the sale of pot over the next fiscal year.  In Washington State, the projection is a lesser $51 million over the next two fiscal years, but the windfall is projected to escalate to nearly $140 million over the following two fiscal years. State and local officials are already grousing over how the proceeds will be divvied up. The Huffington Post points out that projections for tax revenues from pot sales are fraught with uncertainty, so perhaps states shouldn’t bank on a huge boost to revenues just yet. Even as states stand to benefit from increased pot sales, a report from NPR brings a stark reminder of potential negative impacts from marijuana legalization:  While 60% of high school seniors think marijuana is safe, new studies show pot use can have a long-term negative impact on teenagers’ brains.
  • “A cornerstone of American thinking has been the hope of social mobility,” says James Surowiecki on the Financial Page of this week’s New Yorker. President Obama has opined that economic mobility is falling, but a study conducted by economists at Harvard and Berkeley shows that it has in fact remained pretty stable since the 1950s. That sounds like good news, but not when you look at the starting point: Income mobility in the United States has always been pretty low. The same study shows that 70% of those born into the bottom quintile of income distribution fail to make it into the middle class, and 40% are still poor as adults. According to Census data, the lower quintile in 2012 took home 3.4% of aggregate U.S. income, on an equivalence adjusted basis, versus 49.9% for the highest quintile. More bad news: Mobility in the U.S. is lower than in most European countries. Surowiecki argues that policy should focus on raising the standard of living for the middle and working classes, “instead of raising their chances of getting rich.”
  • The budget proposed by President Obama this week attempts to address both income mobility and income inequality. The New York Times refers to the budget as a “populist wish list.” It has provoked a media frenzy, with about a dozen separate posts on the Washington Post’s Wonkblog alone, on topics including: the reduced size of the physical budget document, which agencies get more and which get less in Obama’s budget, five questions from Twitter on the budget, and a chart showing 60 years worth of government revenue versus spending. However, that is not one of the two charts the Wonkblog says you need to see to understand the budget. But wait, there’s another “amazing” chart, illustrating the difference between presidents’ budgets and actual spending in each year. There’s also a post illustrating how actual spending has diverged from projected spending over time. As the Wonkblog points out in yet another post, the budget is more of a wish list than an action plan for government spending, especially with a hostile Congress pitted against the president. So perhaps you should save yourself a couple hours of aggravation and skip all the media coverage.

Marketplace of Ideas

Before we wrap up the week’s news, some guiding wisdom from the immortal Pete Seeger: “I’m convinced that it’s impossible to have education without controversy. People who think that’s false will find themselves trapped.”

  • It could have been worse” has become a common refrain recently when it comes to the legislation cobbled together by Congress. The new farm bill is the latest specimen. The House this week finally passed compromise legislation, after what NPR describes as a “two-year-long legislative saga.” The bill now heads for a vote in the Senate. While a lengthy and complicated piece of legislation, the farm bill can be broken into two broad components—the Supplemental Nutrition Assistance Program (food stamps) and agricultural subsidies. The current legislation cuts spending for both components, but the American Enterprise Institute warns that the changes to the agricultural subsidies program is a bait-and-switch maneuver that could cost taxpayers more in the end. AEI has devoted an entire website to promoting a return to free-market principles for agribusiness: The American Boondoggle.
  • This week’s report on fourth quarter GDP growth shows a slowing of the economy at the end of 2013 to a 3.2% annualized pace from 4.1% in the third quarter. Not many are expressing disappointment about that result. While not stellar compared to the rates achieved before the recession, there seems to be a consensus among analysts and policymakers that any growth rate above 2% may actually be overshooting the economy’s potential, given lingering adjustments from the 2007-08 financial crisis.
  • A new policy initiative from the Obama administration recruits some of the nation’s largest employers to address the problem of long-term unemployment. According to the latest data from the Bureau of Labor Statistics, nearly 40% of unemployed workers are in the long-term category—those looking for a job for 27 weeks or longer. The long-term unemployed face a compounding series of economic hardships, which may be destructive to the productive capacity of the overall economy. Studies suggest that employers tend to be biased against the long-term unemployed, passing over their resumes, regardless of skills or experience, for workers who have held a job more recently. The plight may be especially difficult for older unemployed workers: The Guardian this week takes a closer look programs to assist those aged 55 and up.
  • Finally, it’s that time of the year when people all over the United States, from all different backgrounds, return to a common ritual passed down through generations. That’s right, it’s Super Bowl weekend. What does it mean for the economy? While the economic boon to the host city—or region, in the case of New York/New Jersey this year—is debatable, there are some hard data on the implications for the financial markets: According to the Super Bowl Indicator, U.S. equity markets will have an up year if the winner is an original NFL team or an NFC team. If or an AFC team or a former AFL team wins, equities will suffer. What does that mean for this year’s contest? Bet on the Seattle Seahawks, an NFC team, if you want stocks to rise. However, the last two Super Bowl victories for the Denver Broncos, the AFC team, in 1997 and 1998, corresponded to gains in the S&P 500 of 33% and 29% respectively. Place your bets!

State of the Union – A Word Search

Next year, try spicing up the State of the Union like we did at my house, with State of the Union BINGO!!!

SOTU BINGO

It’s simple really, just pick a few themes that you know will run rampant throughout the speech and create a couple of bingo cards. When the President talks about opportunity, America, community, health care, and Iran…BINGO, you hit the payday!

In the name of fairness, you’ll need to avoid the most obvious choices; for instance, the most commonly spoken word in last night’s nearly 7,000 word speech was “the,” uttered 277 times by President Obama. However, there were 197 words spoken more than five times during the Address.

A brief analysis of these words shows that the message was one of jobs, security, and community. There was naturally an over-arching theme of unity and the ongoing reinforcement of the strength of America and Americans.  Those themes are a good bet in any year…

A categorized list of significant words spoken more than five times is provided below.

012914 Search

Source: AIER word count from transcript pulled from CNN.

Marketplace of Ideas

Immigration ReformThe World Economic Forum is on in Davos, bringing together the planet’s economic and financial glitterati for photo ops and sound bites. According to one Davos-skeptic, the annual ritual is just “an exercise in self-preening and group think.” So we’ll take a pass on a Davos roundup and focus on the other economic stories in the news this week:

  • With President Obama’s State of the Union address coming up next week, PBS NewsHour looks at how much progress has been made on the president’s agenda since last year’s speech. One glaring shortfall is immigration reform: With legislation stalled in Congress, the Washington Post reports that states have cobbled together their own approaches: “Red” states are supposedly clamping down on undocumented immigrants, while “blue” states are easing restrictions. But Texas, New Mexico, Oklahoma, and Nebraska all have “tuition-equity” laws, making it easier for undocumented immigrants to attend college, and several non-“blue” states are easing driver’s license restrictions. So perhaps the political lines in the debate are not so clear-cut. What about claims that immigrants steal jobs and drain taxpayer resources? With U.S. labor force growth fading, a bipartisan task force says the economy would benefit from a pro-immigration policy. Meanwhile, a study from New Jersey Policy Perspective shows that immigration reform would take many immigrants out of the “cash-only” economy and boost the state’s tax revenues.
  • Despite a wobble from higher mortgage rates, 2013 was the best year for the housing market since 2006, according to a report from the National Association of Realtors. At just over five million last year, existing home sales were about 30 percent below their 2005 peak, during the bubble. Some say the current pace is the new normal. But there are signs that the housing market is far from healthy. The foreclosure rate hit a three-year high in 2013, and over 16 percent of all U.S. residential housing sales last year were foreclosures or short-sales. A study from the IMF on structural unemployment in the U.S. showed that weak local housing markets can exacerbate skill mismatches in the labor market, resulting in higher unemployment rates. The Obama administration is floating ideas to give housing a boost by reforming the mortgage market, including lowering lending standards and restarting the market for mortgage-backed assets. Hmmm… isn’t that what nearly brought down the global economy in 2007-08?
  • A new study suggests that some economies actually benefit from climate change. According to the Copenhagen Consensus Center, based in Massachusetts, climate change won’t become a net drain on the global economy until 2070, though mitigating the negative impact would require policy action today. Meanwhile, with the European economy still struggling to recover from the financial crisis, the EU is looking to ease some of its more aggressive environmental policies. The New York Times says this is a problem for many economies, which face trade-offs between “mending economic problems today or addressing the environmental problems of tomorrow.” For some corporations, climate change is already affecting their supply chain, requiring a more urgent approach. According to Coca-Cola’s vice president for environment and water sources, “increased droughts, more unpredictable variability, 100-year floods every two years… When we look at our most essential ingredients, we see those events as threats.”
  • What’s the matter with Wall Street? According to one repentant financier, it’s wealth addiction. In a New York Times op-ed, Sam Polk reaches out to others who, like himself, are “making millions every year” but feel “trapped and empty.” “Maybe we can form a group and confront our addiction together,” he says—earnestly. In Salon, Les Leopold lashes out against the concept of wealth addiction as a “bogus trend,” arguing, “What Polk and the New York Times miss entirely is why it is possible in the first place to become a wealth addict on Wall Street.” So, the folks sitting on millions aren’t the victims.

[Photo: Anuska Sampedro/Flickr]

Marketplace of Ideas

MPI: War on PovertyThe 50th anniversary of President Johnson’s address launching the War on Poverty has prompted a spirited debate this week.  Here are some of the key stories in the news:

  • Has the War on Poverty been a success? Some say we’re winning and some say we’ve lost. The Atlantic says you should forget about the poverty rate altogether—it’s deeply flawed. The official measure of poverty, compiled by the Census Bureau, is based on an estimate of basic food expenditures. Critics point out that this overly simplistic calculation fails to account for changes in households’ consumption bundle since the official poverty measure was developed in the 1960s. It also doesn’t factor in income assistance and other programs to aid the poor. Since 2011, the Census Bureau has published an alternative measure that might be more effective, but the data doesn’t go back far enough to assess the change in poverty over time.
  • A key tactic in Johnson’s War on Poverty was raising the minimum wage. While the purchasing power of minimum wage workers peaked when Johnson was in office, such workers earn less today than they did in the 1960s, adjusted for inflation. Polls show there’s now broad-based support for a hike in the minimum wage. Bruce Rauner, a republican gubernatorial candidate from Illinois, has argued that a hike in the federal minimum wage makes more sense than state-by-state changes. What are the broader implications for the economy? Some worry it will only lead to higher unemployment; the Washington Post takes a closer look at the data.
  • What about workers who can’t find a job? Congress has struggled this week over legislation to extend unemployment insurance benefits for the long-term unemployed. The standard period for jobless benefits is 26 weeks, but the latest report from the Labor Department shows that 37.7% of the unemployed have been out of work for 27 weeks or longer. The same report shows a drop in the unemployment rate to 6.7% from 7.0%, but mostly due to a drop in the labor force participation rate. This suggests that some unemployed workers are so discouraged that they’ve given up looking for a job. One argument against an extension of jobless benefits is that the $6.4 billion necessary to fund it would be better spent on small business investment, to boost job creation. The Economist looks at one controversial proposal to guarantee jobs for everyone.

If you’re curious about what Johnson actually said in his state of the union address 50 years ago—rather than what pundits and politicians are saying about it today—you can read and listen to the entire speech here.

No Change to Economic Outlook from Budget Deal

Bipartisan Budget Act of 2013The budget deal passed last week has been hailed as a “major breakthrough” and a “step in the right direction.” Conservative columnist Charles Krauthammer said that his “heart leapt” at the deal. But the so-called Bipartisan Budget Act of 2013 is mostly receiving praise for its political implications, not its fiscal outcome. In short, it’s better than another government shutdown. But claiming that the budget deal is a success because at least both sides could agree on something is a bit like saying it doesn’t matter where you drive your car—down the road, into a wall, over a cliff—or how far you get, as long as you’re in motion.

We at AIER have toiled over the details of the agreement in attempt to offer you some insights into its economic impact. We’ve come up empty handed. Why? Because while some of the adjustments to expenditure levels for certain programs will undoubtedly make a huge difference to the lives of some people, the impact on the overall economy is peanuts.

The budget deal—formally H.J. Res. 59—provides roughly $48 billion in relief from the mandated cuts of the sequester in 2014 and 2015, evenly divided between defense and non-defense programs. That reduces the shrinkage of the federal budget, with discretionary outlays dropping to $1.012 trillion in fiscal year 2014 instead of $967 billion, about a 4.5% difference. That means the size of the headwind to the economy from reductions in federal government outlays—often referred to as “fiscal drag”—will be slightly less than initially anticipated. But we’re talking about just a few tenths of a percentage point off GDP growth next year—a fraction of the reductions in recent years.

The budget deal sustains the longer-term goals for deficit reduction by extending the sequester cuts for two extra years, into 2022 and 2023. Raise your hand if you think there’s a chance actual federal government expenditures in 2022 and 2023 will bear any resemblance to the plan inked last week. I can’t see you, but I’m guessing your hand isn’t raised.

The real story is that the budget deal does not represent the outcome of a thoughtful debate about the fiscal goals and priorities of the nation. Rather, it represents the bare-minimum necessary for the federal government to keep functioning. Washington may congratulate itself over that fact, in yet another lowering of the bar for fiscal accountability. Meanwhile, the rest of the economy will continue to chug along. Check out our latest Business Cycle Conditions report to see where we think it’s going.

[photo: MorgueFile.com]

Marketplace of Ideas

Mary Barra, General MotorsWelcome to the Friday the Thirteenth edition of Marketplace of Ideas!

  • What’s the most important aspect of this week’s budget deal?  It exists.  That’s the Washington Post’s view: “The agreement’s importance is not fiscal but political: It amounts to a truce in the destructive budgetary wars.” Over at Forbes, Karl Smith says that the “failure to slash entitlements and raise taxes leaves us on the road to ruin.” On the bright side, however, that is “less true now than at just about any time in our post war history.”
  • In a week when one of the biggest stories was GM’s appointment of Mary Barra as CEO, making her the most powerful woman executive in the U.S., the Guardian warns that focusing on the handful of women who have shattered through the glass ceiling distracts us from making changes that would improve more women’s working conditions and opportunities. Unfortunately, pseudo-scientific claims like this one in Forbes, suggesting that the “feminine” hormone oxytocin contributes to a better business environment than testosterone, only play into the stereotypes that hold women back in the workplace.
  • Who goes to work to have fun?  In a New York Times op-ed, Oliver Burkeman, author of “The Antidote: Happiness for People Who Can’t Stand Positive Thinking,” criticizes the Fun at Work movement.  While enjoying your work is never a bad thing, Burkeman is wary of deliberate efforts to make employees have a good time — a sort of unpaid emotional labor.  Earning a living wage with dignity would probably make workers happier than free doughnuts or posters featuring cringe-worthy humor. How many of the top-ten employers for 2014 have an executive role for a “fungineer”?
  • There’s been a lot of debate since the 2008 crisis over the future of economics as a discipline.  Did economists get it wrong, or are critics short-sighted and politicized?  The academic job market for economists may have some answers:  The Chronicle of Higher Education reports that the number of new job openings for economics PhDs fell 6.6% in 2013 to 1,924.  That may sound grim, but the demand for economists is still higher than for sociologists (507 jobs), historians (740 jobs in 2012, the latest data available), or political scientists (531). Perhaps things aren’t so bad for the dismal science.

Photo Mary Barra, courtesy GM.com