Sunday, May 18, 2014

That wonderful government medicine and its perverse incentives again

 Germaine Clarno is a VA social worker and employee representative in Chicago. She alleges there are multiple secret waiting lists of veterans kept at the Hines VA Medical Center.

Asked which divisions of the hospital kept the secret waiting lists, Clarno says, "Employees are coming to me from all over the hospital, from outpatient, inpatient, surgery, radiology."

Clarno says veterans were put on secret waiting lists when they called for appointments, but they wouldn't formally get an appointment booked in the computer until one came up within the VA's goal of 14 days. The purpose of the lists, she says, was to hide how often veterans were not being seen on time.

Clarno says the purpose of the lists was "to make numbers look better for their own recognition and for bonuses."

The VA grants bonuses to executives and doctors, partly based on short wait times. Whistleblowers -- including Dr. Sam Foote, who revealed the scandal in Phoenix, where up to 40 veterans may have died -- believe bonuses give an incentive to conceal delays in care.

Clarno says it is easier for bosses to claim short wait times -- and collect the reward -- than it is to explain why the target can't be met. She says she believes that throughout the VA, people are faking the wait time data in order to receive bonuses.

The VA told CBS News that bonuses based on 14-day appointments began in 2011, but that "the 14-day wait time target is a small portion of an executive's assessment, which is comprised of nearly 80 separate (measurements)."

Most veterans tell CBS News appointments take much longer. Paul Rodriguez, a veteran of Iraq and Afghanistan, sees several different doctors at Hines VA and says he never sees doctors within 14 days.  "It can be anywhere between one, two, three, four months," he says.

The director of the Hines VA, Joan Ricard, told CBS News in a statement that she has no direct evidence of any falsified wait times. VA investigators are due at the medical center Wednesday as part of the national audit to determine exactly how long veterans are waiting for health care.



New IRS Revelations – and What the Obama Administration Is Doing Behind the Scenes

Could the IRS do anything to make itself more unpopular? Apparently, things are far from over with the agency’s targeting of conservative political groups.

Emails obtained by Judicial Watch and released yesterday indicate that the Obama administration lied when it tried to pin the scandal on IRS employees in an Ohio branch office. In fact, the Washington, D.C., office of the IRS was coordinating with the employees to hold up tea party groups’ applications for nonprofit status and subject them to extra scrutiny.

At the heart of the controversy is Lois Lerner, who was head of the division that approved nonprofit applications at the time.

“This latest revelation by Judicial Watch showing that the IRS targeting of conservative organizations was being run by its Washington office demonstrates that the House acted correctly when it held Lois Lerner in contempt,” said Heritage legal expert Hans von Spakovsky.

The House voted last week to hold Lois Lerner in contempt of Congress for refusing to answer questions about the IRS scandal. But it’s up to Attorney General Eric Holder to take any action – the first step of which would be forcing her to testify – and that hasn’t happened.

Von Spakovsky said:

    "Lerner claimed that this problem originated in the Cincinnati office of the IRS, so it is pretty clear she was misleading the public and congressional investigators. The contempt citation needs to be enforced and if the Justice Department refuses to do so, it will be another example of unethical behavior by a law enforcement agency that has repeatedly failed to adhere to its duty to enforce the law on an objective, nonpartisan basis."

In other words, the odds aren’t great that Lerner will face real consequences.

But perhaps the worst news is that the Obama administration has been working behind the scenes to change the rules for political activism – permanently.

In a new paper, von Spakovsky details how the administration has proposed rules for the IRS that “appear to be an attempt to implement the ‘inappropriate criteria’ used by the IRS to target tea party and other conservative organizations applying for tax-exempt status.”

Turning the IRS’s targeting of these organizations into actual rules, he explains, would:

    "ignore Supreme Court precedents and the Internal Revenue Code; fail to provide clear guidance to citizens and organizations attempting to comply with the Code and accompanying regulations; and  threaten to restrict or violate the First Amendment rights of Americans."

The IRS scandal has become a bipartisan concern, as evidenced by a number of Democrats voting to hold Lerner in contempt of Congress and voting to appoint a special counsel to investigate the scandal.

But the administration’s effort to rewrite the rules for political activity is an even more serious threat that must be stopped.



Will Obamacare's Employer Mandate Ever Be Implemented?

Several days ago, a trio of researchers at the Urban Institute released a paper titled "Why Not Just Eliminate the Employer Mandate?" The paper argues that the provision in Obamacare requiring employers with 50 or more workers to provide health coverage or pay a penalty could be ditched without significant effect on insurance coverage.

The paper's particulars are probably less relevant than its overall argument: It's the latest in a series of motions designed to test the waters for the elimination of the requirement. Movement began last summer, when, over a long holiday weekend, the administration called for a one-year delay of the employer mandate and reporting requirements. It continued this year when an additional year's delay for smaller businesses, as well as a reduction in the requirement for larger employers, was tacked on.

At this point, it's widely expected that the provision will remain in limbo permanently. Former White House Press Secretary predicted last month that the provision would never go into effect; the Urban paper will give the administration ammunition to defend the move on policy grounds if and when another delay or permanent postponement is announced.

The policy rationale for ending the employer mandate is clear enough: Because it requires employers to provide coverage for full-time workers once the 50-employee threshold is reached, it creates incentives for firms to avoid hiring, or to cap employee hours so that they do not qualify as full time. End the mandate, and those incentives disappear.

But the employer mandate wasn't included in the law for no reason. It's meant to prevent employers from simply dropping coverage and sending full-time workers to get insurance through the exchanges. In an initial draft of the law that lacked a mandate, the Congressional Budget Office (CBO) estimated that about 15 million employees would lose their workplace coverage and be sent to the exchanges instead—increasing the law's disruption of current coverage arrangements and the cost of subsidies for exchange-based insurance. The inclusion of an employer mandate significantly mitigated the CBO's estimate of these effects.

This is an old concern. If a health law creates a venue for subsidized coverage outside the workplace, won't employers drop coverage and shift workers to new insurance? When Hillary Clinton worked on a health policy reform plan in the 1990s, she remarked in congressional testimony that "we worry that the numbers of people who currently are insured through their employment will decrease because there will no longer be any reason for many employers" to offer coverage to workers.

The more important concern, however, is not the transition away from employer-sponsored coverage, which is a necessary and desirable component of most productive health reform proposals (although Obamacare's mechanism is probably not ideal). Instead, the question is whether the Obama administration would have the legal authority to abandon the employer mandate, should it choose to do so. The initial delay, announced last summer, was, generously, a legal stretch. The second delay, announced in February, was almost certainly an illegal maneuver, as even some supporters of the law have conceded. Further postponements would presumably also be illegal. If the administration is to proceed as Gibbs has suggested, then it will need more than a policy rationale. It will need a basis for its legal authority as well.



Why Capitalism is Worth Defending against Marx Madness

The Economist magazine rightly calls French professor Thomas Piketty the new Marx, although a watered-down version. Piketty’s bestseller (rated #1 on Amazon) is a thick volume with the same title as Karl Marx’s 1867 magnum opus, “Kapital.” The publisher, Harvard University Press, appropriately designed the book cover in red, the color of the socialist workers party.

And most importantly, Piketty’s focus is on the distribution of income and capital, not the creation of wealth. He’s not so much concerned with the size of the economic pie, but how it’s cut up.

His main thesis is that inequality grows under capitalism, that unfettered free markets make the rich richer and the poor poorer — a standard Marxist position — and that the only solution is to tax the dirty, filthy, stickin’ rich with highly progressive taxes on their income and wealth.

I don’t want to be picky, but Piketty often ignores data that contradicts his theory of growing inequality. For instance, he selectively chooses members of the Forbes magazine billionaires’ list to show that wealth always grows automatically faster than the average income earner. He repeatedly refers to the growing fortunes of Bill Gates in the United States and Liliane Bettencourt, heiress of L’Oreal, the cosmetics firm. “Once a fortune is established,” he claims, “the capital grows according to a dynamic of its own, and it can continue to grow at a rapid pace for decades simply because of its size.”

Come again?  I guess he hasn’t heard of the dozens of millionaires and billionaires who lost their fortunes, like the Vanderbilts, or to use a recent example, Eike Batista, the Brazilian businessman who just two years ago was the seventh-wealthiest man in the world, worth $30 billion, and now is practically bankrupt.

Piketty conveniently ignores the fact that most high-performing mutual funds eventually stop beating the market and even underperform. Take a look at the Forbes “Honor Roll” of outstanding mutual funds. Today’s list is almost entirely different from the list of 15 or 20 years ago. In our business, we call it “reversion to the mean,” and it happens all the time.

The professor seems to have forgotten a major theme of Marx, and later Joseph Schumpeter, that capitalism is a dynamic model of creative destruction. Today’s winners are not necessarily next year’s winners. IBM used to dominate the computer business; now Apple does. Citibank used to be the country’s largest bank. Now it is Chase. Sears Roebuck used to be the largest retail store. Now it is Wal-Mart. GM used to be the biggest car manufacturer. Now it is Toyota. And the Rockefellers used to be the wealthiest family. Now it is the Walton family, who a generation ago were dirt poor.

Piketty is no communist and is certainly not as radical as Marx in his predictions or policy recommendations. Many call Piketty “Marx Lite.” He doesn’t advocate abolishing money and the traditional family, confiscating all private property or nationalizing all of the industries. But he’s plenty radical in his soak-the-rich schemes, a punitive 80% tax on incomes above $500,000 or so, and a progressive global tax on capital with an annual levy between 0.1% and 10% on the greatest fortunes.

Why assess a tax of even 0.1% on wealth? It destroys a fundamental sacred right of mankind — financial privacy and the right to be left alone. An income tax is bad enough. But a wealth tax is worse. A wealth tax is Big Brother at his worst. Such a tax would require every citizen to list all his or her assets. The intent is to prevent any secret stash of gold and silver coins, diamonds, artwork or bearer bonds. Suddenly, the privacy guaranteed to Americans by the Fourth Amendment would be denied and produce an illegal and underground black market.

Equally important, a wealth tax is a tax on capital — the key to economic growth. The worst crime of Piketty’s vulgar capitalism is his failure to understand the positive role of capital in advancing the standard of living in the world. As Andrew Carnegie simply said, “Capitalism is about turning luxuries into necessities.” The latest example is the smartphone. It’s the great equalizer. Virtually everyone rich and poor has one, thanks to the ingenuity of entrepreneurs like Steve Jobs. This is democratic capitalism at its best. Income inequality may be growing, but when it comes to goods and services, inequality may be shrinking.

To create new products and services and raise economic performance, a nation need capital, lots of it. Contrary to Piketty’s claim, it is good that capital grows faster than income, because it means people are increasing their savings rate. The only time capital declines is during war and depression, when capital is destroyed.

Piketty blames the increase in inequality on low growth rates. He says return on capital tends to be higher than the economic growth rate. Good, let’s increase economic growth with tax cuts, sensible deregulation, better training/education, productivity and opening trade.

Even Keynes understood the value of capital investment and the need to keep it growing. In his “Economic Consequences of the Peace,” Keynes compared capital to a cake that should never be eaten. “The virtue of the cake was that it was never to be consumed, neither by you nor by your children after you.”

If the capital “cake” is the source of economic growth and a higher standard of living, we want to do everything we can to encourage capital accumulation. Make the cake bigger, and there will be plenty to go around for everyone. This is why increasing corporate profits is good — it means more money to pay workers. Studies show that companies with higher profit margins tend to pay their workers more. Remember the Henry Ford $5-a-day story of 1914? (In honor of its centennial, I’m telling this story again at FreedomFest this July 9.)

If anything, we should reduce taxes on capital gains, interest and dividends, and encourage people to save more and thus increase the pool of available capital and entrepreneurial activity. A progressive tax on high-income earners is a tax on capital. An inheritance tax is a tax on capital. A tax on interest, dividends and capital gains is a tax on capital. By over-taxing capital, estates and the income of our wealthiest people, including heirs to fortunes, we are selling our country and our nation short. You can never have too much capital.

What country has advanced the most since World War II? Hong Kong, which has no tax on interest, dividends or capital.



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