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Thursday, April 23, 2015

Moving the goal posts on ACA success UPDATED

Right. So the the same day that I posted about the substantial fall in the uninsured rate for adults that we have seen since Obamacare went into effect, a conservative writes at the Wall Street Journal making exactly the same arguments that Matt Yglesias had refuted. Cliff Asness writes in the WSJ:
That more people would be insured was never in dispute. If you mandate that people buy something, penalize them if they don’t and give it away to some, more people will end up with it. The proper response to this is: Duh.
So, as I said, Yglesias had already refuted this, giving a number of examples of conservatives who predicted there would be no reduction in the number of uninsured Americans. Today, Paul Krugman takes us to Jonathan Chait's response to Asness, where of course he piles on more examples of conservatives predicting a failure to improve the uninsured rate. Then he goes further. Asness wrote that a critical issue was "how many people covered by ObamaCare were previously uninsured." You can probably guess Chait's answer: "Well, that’s why you measure the net number of uninsured people, not just the gross expansion of coverage under Obamacare." Which leads us back to the chart showing the substantial fall in the uninsured rate that was in my last post (and Yglesias', Krugman's and no doubt many more besides).

The latest round is that yesterday Asness responded to Chait. Here is where the goal post move comes in:
In contrast the rise in coverage is heralded by a myriad of Obamacare supporters as one of two major pieces of proof the law is working. But, how can something we knew before the fact be proof of anything?
Did you catch that? If we predict that something good will happen as a result of a new law, and that good thing happens, it doesn't count as proof that the law was good. This is silly. We didn't actually know the insurance rate would fall, but we had economic models that told us it would. So not only is the fall evidence that the law is working, it's evidence that the models were right!

Somebody wake these people up.

UPDATE: @HaroldPollack points me to a new J.D. Power survey finding that people who signed up for insurance on the exchanges were more satisfied (696 out of 1000) than people with non-exchange plans, usually through employers (679 out of 1000). People re-enrolling on the exchanges scored even higher, with a score of 744 for people who re-enrolled on the Exchanges. Private plans offering multiple options were able to reach the 696 average for Exchange enrolees, which means that companies offering one insurance option had to be doing substantially worse than 679. Not surprisingly, new enrolees for 2015 were a large 55 points more satisfied than 2014 enrolees, who of course went through the disastrous rollout of healthcare.gov.  So people like their subsidies and they like their actual insurance policies, on average. Maybe that's why Republican Senators are getting antsy that there will be hell to pay if the Supreme Court rules for the plaintiffs in King v. Burwell.

Cross-posted at Angry Bear.

Wednesday, April 15, 2015

Oh, look! The uninsured rate fell again!

As any conservative can tell you, Obamacare is a job-killing "train wreck." Not only is it a job killer, there is no way that it could possibly work. Except, of course, it does.

When I last visited this issue, the percentage of adults without health insurance had fallen from its peak of 18.0% in the third quarter of 2013 to 13.4% in the second quarter of 2014. Now, as Gallup (via Matt Yglesias) shows us, it continues to fall, dropping to 11.9% in the first quarter of 2015, based on over 43,000 interviews throughout the quarter. This is a drop of exactly one percentage point from the fourth quarter of 2014, or about 2.4 million adults.

The gains that we have seen now through two enrollment cycles (Q4 2013 through Q1 2015) affect every major demographic group, as the following table from Gallup shows.

Percentage of Uninsured Americans, by Subgroup

Especially notable are the gains for minorities (8.3 percentage points for Hispanics and 7.3 for African-Americans), those with income below $36,000 per year (8.7 points) and adults from 26-34 (7.4 points). But notice that even Americans making over $90,000 annually have seen their uninsured rate fall by 2.3 points, meaning that 40% of this group is no longer uninsured. This is actually the biggest percentage gain among any of the demographics Gallup surveyed.

As Gallup and Yglesias both point out, part of the reason for the improvement is the declining unemployment rate. But Yglesias is right on the money that this undermines the "job-killer" meme. In fact, as he shows, 2014 was "the best year of job creation since 1999."

This is one argument conservatives aren't going to win. In fact, it looks like they've already lost the vote of one Tea Partier who was able to retire early because of Obamacare.

Cross-posted at Angry Bear.

Saturday, April 11, 2015

Good Jobs First reveals top federal subsidy recipients: Subsidy Tracker 3.0

Slow to be getting to this, but I have to come back to such a major development. Good Jobs First, a national non-profit best known for its work on state and local subsidies to business, unveiled in March its Subsidy Tracker 3.0. This work differs from previous publications on federal subsidies by being project-based/firm-based, rather than program-based. This lets us know which companies have received the most federal subsidies over the years.

"Uncle Sam's Favorite Corporations" finds that the federal government has awarded $68 billion in "grants and special tax credits" in the last 15 years. 2/3 of this has gone to large corporations. This is on top of hundreds of billions of dollars given to the banking sector during the financial crisis. One advantage of using Subsidy Tracker 3.0 is that it incorporates previous work by Good Jobs First tracking parent/subsidiary relationships.

One substantial finding is that:
Six parent companies have received more than $1 billion in grants and allocated tax credits (those awarded to specific companies), 21 have received $500 million or more, and 98 have received $100 million or more. Just 582 large companies account for 67% of the $68 billion total.
All six of the billion-recipients are in the energy sector: Spanish company Iberdrola tops the list with $2.2 billion, followed by NextEra Energy, NRG Energy, Southern Company, Summit Power, and SCS Energy. And five companies were on all three of the top 50 federal subsidy recipients list, the top 50 bailout list, and the top 50 state & local subsidy list: Boeing, Ford, General Electric, General Motors, and JPMorgan Chase.

It's important to recognize that project-based and program-based subsidy databases serve two functions that that do not reduce to each other. If you want to know the total amount of money governments give in incentives, you need program-based reporting. This is because many subsidy programs provide benefits automatically to all investors meeting certain criteria and they rarely list all the automatic recipients. In that case, you need to know what the program as a whole is spending. This is the approach I have taken in my subsidy estimates in Competing for Capital and Investment Incentives and the Global Competition for Capital, and Louise Story took in the New York Times program database ("State Money Flow") in its December 2012 series "The United States of Subsidies." To understand the overall scope of the problem, you need program-based reporting.

Of course, program-based reporting can have its flaws. A number of think-tanks with widely varying ideologies have produced these reports over the years, and they appear to give dramatically different answers. In fact, as I showed in Competing for Capital (pp. 152-158), the answers are all highly consistent, as they are based on a handful of federal studies (the Joint Committee on Taxation's Tax Expenditures reports, the Congressional Budget Office's Reducing the Deficit: Spending and Revenue Options, and the CBO's occasional publication, Federal Financial Support of Business). The differences, even when they are seemingly vast, stem from clear ideological choices by think-tank researchers.

To take the most obvious example, when the Cato Institute estimates "corporate welfare," it does not include the value of subsidies which take the form of tax expenditures. This give a much smaller number than estimates that follow the JCT/CBO methodologies closely, since tax expenditures easily total 2/3 of federal subsidies (and often 90% of state and local subsidies). In Cato's 2012 estimate of federal corporate welfare, author Tad DeHaven admits (p. 12) that tax expenditure are a "form" of corporate welfare, but he does not include them in his claimed total of $98 billion in federal "corporate welfare" annually. On the flip side, for any federal agency Cato wants to see privatized, it counts the entire budget as "corporate welfare." This inflates the Cato estimates relative to those which stick closer to the JCT/CBO methodologies, such as Citizens for Tax Justice.
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Project-based reporting, like Good Jobs First does with Subsidy Tracker and Megadeals, can find large individual recipients and projects, but it does not get you anywhere near the total amount of subsidies given by an individual government. As mentioned above, many programs with automatic tax breaks for investors do not give individualized listings of their recipients. (Hopefully this will change when the Government Accounting Standards Board releases its final tax incentive rules.) But because you can document every single individual award, you can derive an absolute baseline which is irrefutable.

The inauguration of Subsidy Tracker 3.0 is a great addition to the transparency tools brought to us by Good Jobs First.

Cross-posted at Angry Bear.

Thursday, March 26, 2015

Wikileaks Releases Trans-Pacific Partnership Investment Chapter

Via Daily Kos, we learn that Wikileaks has released the investment chapter of the Trans-Pacific Partnership (TPP). This is a critical chapter, as it was in the North American Free Trade Agreement (NAFTA), because it establishes investor-state dispute settlement (ISDS) mechanisms.

Despite its neutral-sounding name, ISDS is actually a radical concept. Instead of using the courts to settle disputes, which have appeals procedures and build up case law via precedent, ISDS allows companies to take governments to arbitration, where neither precedent nor appeals exist.

Susan Sell gave several examples of ISDS in her guest post in February, which illustrate the dangers well. Eli Lilly had two of its pharmaceutical patents invalidated in Canada; the company appealed both of these decisions to the Canadian Supreme Court, and lost both times. Then the company turned to investor-state dispute settlement under NAFTA to receive $500 million in compensation for the Supreme Court decisions. That case is still ongoing.

In an example also noted by Wikileaks, Sell points out that U.S. tobacco maker is using ISDS against Australia because the country mandated plain packaging on cigarettes to make them look less attractive. This should not be possible, because the U.S.-Australia Free Trade Agreement does not include investor-state dispute settlement provisions. Instead, the company is using a subsidiary in Hong Kong, which has a free trade agreement with Australia that does include ISDS, to bring the complaint. Indeed, the government alleges that Philip Morris Asia bought the Australian subsidiary, already owned by the parent company, so that it could bring this complaint.

Unsurprisingly, Australia is opposed to including ISDS in the TPP agreement, and in the current draft has excluded itself completely from ISDS. However, the draft also shows that Australia might end its objection "subject to certain conditions." Since the negotiation is being conducted in strict secrecy, there is no way to find out what those conditions might be, unless someone leaks them to the press.

The Obama administration continues to seek "fast track" negotiating authority from Congress for the TPP. This would allow the agreement to be voted on only as negotiated, with no amendments allowed. Note that this also means that the TPP would be incorporated as a U.S. law rather than as a treaty. As a law, it only needs a majority in both Houses of Congress. If it were to be offered for approval as a treaty, it would need a 2/3 majority in the Senate, with no House vote. Both NAFTA and the World Trade Organization agreements were passed as laws rather than treaties.

Don't forget that ISDS is also on the negotiating table in the Transatlantic Trade and Investment Partnership (TTIP) with the European Union. ISDS is also under fire in the European Union. In an ironic twist of events, the European Commission, a supporter of ISDS (h/t Washington Post) so far in the negotiations, has ruled in a state aid case involving Romania that paying an ISDS award (Micula v. Romania) to a company whose subsidies were terminated due to EU law, would itself be an illegal state aid! The Commission's effort to effectively nullify the decision (further irony: brought under the Sweden-Romania bilateral investment treaty, so both EU members) is not sitting well with proponents of ISDS. Too bad!

If we're lucky, the combined opposition of Germany, a large part of the EU public, some parts of the European Commission, and a growing portion of the U.S. public will kill off ISDS in the TTIP. We need to make sure it disappears from the TPP as well, even if that means rejecting the TPP. And we may well want to reject the TPP anyway over its provisions on medicines and other intellectual property issues.

Cross-posted at Angry Bear.

Thursday, March 12, 2015

More evidence low taxes didn't create the Celtic Tiger

The Tax Justice Network has just inaugurated a new blog, Fools' Gold. It just came out with an excellent piece on taxes and Irish economic success in the "Celtic Tiger" era, written by Nick Shaxson. As I argued in 2011 and in my book Investment Incentives and the Global Competition for Capital, Ireland had low taxes for decades with nothing to show for it, with no improvement relative to EU-15 GDP per capita in 1958-87.

The Fools' Gold piece updates the data to 2013. Take a look at its Chart 1, which provides a great visualization of Irish income per capita, tax rates, and developments in the European Union.

Chart 1: Ireland’s GNP per capita, relative to European GNP per capita, 1955-2013. 
GNP per capita, as a share of the European average

In addition, the chart shows the significance of EU funds flowing into the country, though it only covers the Common Agricultural Policy (CAP) monies. It does not include the Structural Funds, which Frank Barry (via Shaxson) puts at almost 3% of gross domestic product from 1989 to 1999, or about the same as the CAP. The importance of the European Union, in terms of both trade access and transfers, is hard to understate.

Unfortunately, as Shaxson writes, true believers in the low tax myth, and the architects of its tax haven policies, are still in control of Irish policy. So we have scores of billions of dollars of profits hidden in Ireland and continuing pressure to lower tax rates in the rest of the European Union, and the United States, too, despite the fact that low taxes didn't cause Irish economic success at all.

Don't forget to follow Fools' Gold!

Cross-posted at Angry Bear.

Saturday, February 28, 2015

EU goes to WTO over Boeing subsidies

Just as I predicted, the European Union has filed a World Trade Organization complaint against Boeing's new round of subsidies from Washington state totaling $8.7 billion from 2025 to 2040 (h/t @ThomasCafcas). I'll go out on a limb and predict that the EU will win this case.

Okay, that's not really out on a limb: The WTO found that Boeing's last round of state and local subsidies violates its Agreement on Subsidies and Countervailing Measures, and the facts are exactly the same -- except for the fact that the subsidies have grown from $160 million a year to $543 million a year, more than three times as much. This case is a slam-dunk.

Of course, after it loses, it's not like Washington state will comply with the ruling. It's not complying with the last ruling. But it gives us an opportunity to remember that Boeing embodies everything that's wrong with corporate America. According to Citizens for Tax Justice, from 2003 to 2012 Boeing made $35 billion in pre-tax profit, an average of $3.5 billion a year. It made this much despite the fact that its competitor Airbus is also subsidized. Its post-tax profit was $36.9 billion, which is to say that it received a net refund of $96 million from Washington state and $1.8 billion from the IRS over that 10-year period. In other words, it paid no state or federal income tax at all!

Not only that: Boeing demanded, and ultimately won, a concession from the Machinists' union to end its defined-contribution pension and replace it with a 401(k) plan. So one of the last remaining true pensions in the private sector bites the dust, contributing to our coming retirement crisis.

Finally, Boeing used the availability of huge relocation subsidies in other states as a bludgeon against both Washington state and the union. Ultimately, the states need federal rules to end this madness.

Tuesday, February 17, 2015

Shocking incentive failure rate in North Carolina

@sandymaxey points me to a new report from the North Carolina Justice Center that is making my head spin. Picking Losers shows that the state's flagship development program, the Job Development Investment Grant (JDIG), has seen 62 of its 102 projects fail in the period from its inception in 2002 until 2013. That is, 60% of the projects failed to meet either their job, investment, or wage goals, and had to have their awards canceled.

60%! This isn't baseball, where a .400 batting average is outstanding, a feat that hasn't been accomplished since Ted Williams in 1941. Let me tell you about a different failure rate: Investment Quebec takes equity stakes in a number of tech start-ups and other new companies. When I interviewed the director in Montreal in 2007, their failure rate was only 20%, a figure he considered needed to be reduced. In North Carolina, we are talking about a failure rate three times as high, despite giving the awards to firms that should not be nearly so risky.

One such firm was Dell Computers. In 2004, the company conducted a bidding war for a new computer manufacturing plant between Virginia and North Carolina. But North Carolina's analysis of the project was so out of whack that in nominal dollars it offered almost $300 million ($174 million present value) compared to Virginia's offer of $37 million. The plant shut down completely in 2010.

Here's the paradox: North Carolina has some of the best taxpayer protections in the country; indeed, state and local governments lost only a few million dollars when Dell failed. The state is rigorous about canceling awards and clawing back monies already paid out. But the problem is that the state's economic analysis of potential projects is simply atrocious. The 60% failure rate is one sign of this. The Dell fiasco, analyzed by the NC Justice Center and the Corporation for Enterprise Development in 2007, shows another aspect of fanciful economic modeling.

What can be done? I've written before about the weakness of economic development cost-benefit analysis. Even by that low standard, North Carolina's performance is breathtaking. Report author Alan M. Freyer suggests that the Legislature needs to resist calls to expand JDIG or create another fund with the same purpose, maintain its jobs standards, focus on expanding industries, vastly improve its evaluation of potential projects, and focus help on rural counties. I would add that the state should reverse its cuts to education, one of North Carolina's economic development crown jewels to date, and restrict its subsidies only to those types shown to have a positive national impact, primarily customized training for companies and generalized training for individual workers. Improving skills increases workers' income, and it also strengthens the U.S. economy as a whole, as opposed to simply building up a company's bottom line.

Cross-posted at Angry Bear.