Philadelphia Reflections

The musings of a physician who has served the community for over six decades

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Philadelphia Economics (3)
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Right Angle Club: 2015
The tenth year of this annal, the ninety-third for the club. Because its author spent much of the past year on health economics, a summary of his latest book on the topic takes up a third of this volume. The book I published in 1980 is now selling on Amazon for three times its price when new, so be warned that at one time, the subject used to improve with age. George Fisher

Economic Proposals For 2015-16, A Trial Balloon

Glenn Hubbard, former Chairman of George W. Bush's Council of Economic Advisers, has written his proposals for 2015-2016 as an Op-Ed piece in the New York Times, in January, 2015. The choice of newspaper probably has some significance, since the Chairman of a President's Council of Economic advisers sometimes does, and sometimes does not, formulate the economics views of his party and his President. It's possible he seeks to influence the role of his party's Congressional leaders, or possibly represents the views of the two former Bush Presidents, or even a variant of them meant to influence Jeb Bush in his run for the 2017 Presidency. Time will probably tell, as the last two years of the Obama second term could be a time of compromise, or a time of bitter dissention. Hubbard makes ten or eleven points, usually as single-sentence assertions without associated arguments.

Broadened Budget Neutrality. The first point is that Congress has long been working within the boundaries of tax neutrality for any changes in the tax revenue derived from individual social or economic classes, a restriction Hubbard feels is unnecessary. The example he gives is corporate income taxation, which is very likely the area he had in mind. Perhaps, I think he is suggesting, corporate taxes could usefully be lowered without considering the personal benefits to the upper class of corporation stockholders. In effect, Labor Unions are seen to be acting out the attitudes of the Molly Maguires, in which only cigar-smoking plutocrats would be gaining if the corporations they own were taxed less. In the Gilded Age, perhaps family-owned corporations were the norm, but for fifty years American corporations(but strangely, not German corporations) have been stockholder-owned, or even index-fund owned. And if not officially, individual retirement assets are a growing part of every family's savings. There was a time when only rich folk owned stock, but nowadays employee pension assets have become a growing power in the marketplace. Double taxation is much less a class issue than formerly, and perhaps even cigar-smoking union bosses can be persuaded to change their stance and their rhetoric. Lowering corporate taxes might well help the working class more than the top one percent of earners if matters were scored in a balanced way.

Flattening the Steep Step A second point is made that increasing subsidies and tax credits for the poor, leads to a steep step up to employment and a sudden loss of subsidies, as a further hindrance to joining the work force. Deriding the loss of subsidies as favoring the "trickle down" process, is an unfortunate obstacle to searching for more gradual approaches to general prosperity.

Consolidated Business Tax. An effort to achieve a gradual transition is suggested, of a consolidated business tax rather than industry taxes and exemptions, and very likely a gradual merger of the customary bank loans, versus bonds. There is a sound of general plausibility about this, but no reasoning is offered in the editorial. Depreciation might be loosened somewhat for the general purpose of increased flexibility, but in general the main area where depreciation ought to be made merely discretionary, is in non-profit companies.

Specifying the Top Tax Bracket. It's interesting to read Mr. Hubbard's proposal to make the top bracket for personal income tax the same as the top bracket for business income. The reasoning behind this proposal is not given, and is not immediately obvious. However, it does seem to be an improvement to have this issue removed from class warfare language of "fairness", to be replaced by some other benchmark with a rationale. Hubbard similarly is inclined to replace subsidies to the poor with tax credits, a move which has the additional advantage of smoothing out the "steep step" up to income tax which is more graduated by effectively having more gradations than merely poverty versus no-poverty. Whether this is the underlying reasoning or not, anything which softens the Molly Maguire rhetoric of the 19th Century coal mines, would be a step forward.

Health Care It certainly is heartening to see Health Savings Accounts recommended in both of the two alternatives he proposes for paying for healthcare, one with continued employer-based insurance and one with a tax deduction on the personal income tax. And it is certainly time for a way to be found to give equal tax deductions to those who pay for their own health insurance.

Educational Tax Deduction. A truly innovative proposal is made about tax deductions. Mr. Hubbard proposes a personal tax deduction for education and training, similar to the one already given for investment in technology and equipment. There's a question of whether this should be given to the individual or his employer, but that can be worked out in Congress. The idea is excellent, particularly when it is limited to out-of-pocket investments in education, since it has the additional potential to address rising tuition costs, while encouraging more education.

Block Grants. It is also innovative to consider block grants to the states to replace the tradition of making Federal funds conditional on state "cooperation", which the Supreme Court has begun to disapprove, as an invasion of states rights. This one might even rise to the level of a proposed Constitutional Amendment. There is little doubt the state legislatures are the weakest part of our federalized system, that the Supreme Court recognizes that fact, and leans toward attributing this problem to the system of conditional grants.

Consolidated Entitlements. Unless I am mistaken, there is a welcome proposal to address entitlement programs by consolidating them; and in the process begin to meet the looming issue of underfunded retirement costs. In a sense, the retirement costs are an outgrowth of improved health and longevity, a truly difficult problem created by a desirable effort.

Let's plan to review this program before the end of the year. By that time, it will have been tested in the fire of adversary process. And since the following year will be disordered by election campaigns, we can then surmise how much will be passed into legislation, how much will be exposed as impractical, and how much will fail passage but become the lore of long-term party positions in the far future.

 

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