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Tuesday, January 10, 2012

You Can't Fire Your Insurance Company When You're Sick

Aaron Carroll (h/t Brad DeLong and Mark Thoma) takes down Mitt Romney on what he really meant by his "I like to fire people" quote. In context, Romney was talking about firing your insurance company (though as commenter "Tom" on Paul Krugman's blog points out, this is a telling way of talking about your relationship to your insurance company). Carroll:
The real issue, unfortunately, is that very, very few people have the luxury that Gov. Romney is endorsing. Let’s say that you are self-employed, and lucky enough to have found a company to provide you with health insurance. Then, let’s say you develop cancer. You suddenly find out that your insurance company stinks. So you fire them, right?
Of course not. You’re screwed. Now you have a pre-existing condition. There’s not an insurance company out there that wants to cover you. So you don’t fire them. You scream, and curse, and cry, but you’re stuck. Only healthy people have the luxury of picking and choosing.
 Moreover, most people are insured through their employer and only have whatever limited choice of insurance their employer gives them. The possibility of "firing" your insurance company and having a large choice of companies seeking your business exists only, as Carroll points out -- in Massachusetts, under Romneycare.. And it will be true in the U.S. under the Affordable Care Act. But of course Romney has pledged to repeal that.

As Krugman says, "It's as if Romney doesn’t understand his own health reform, which was in large part about ensuring not that you can fire your insurance company, but rather about ensuring that your insurance company can’t fire YOU." That's exactly right: the problem for too many Americans in the private (non-group) health insurance market isn't the lack of a wide choice, it's the unavailability of any choice, especially if they have a pre-existing condition. And until the recission provisions of the Affordable Care Act kicked in, people in the private market could indeed be fired by their insurance company. Now they can't, and in a few years individuals in the private market will not be getting denied insurance due to pre-existing conditions.

So Romney wasn't really talking about firing workers, though it seems like he does like to that. But Romney's vow to repeal the Affordable Care Act, even though it provides people the rights he signed into law in Massachusetts, is, as Krugman says, even worse.

Monday, January 9, 2012

IRS finds U.S. tax evasion $385 billion per year, suggesting Tax Justice Network numbers are right

On Friday, the IRS released a new report on tax evasion in the U.S. (via Demos' Policy Shop and h/t to @BlogWood). Using data for 2006 (its previous tax gap report used 2001 data), it found a gross tax gap (income tax due but not paid on time) of $450 billion and a net tax gap (factoring in tax paid late) of $385 billion for 2006, versus $345 billion gross and $290 billion net in 2001. This was due almost entirely to higher income and tax liability, not an increased percentage of cheating. As Policy Shop points out, over 10 years, this will get us to well over $3 trillion in lost taxes.

As I reported last month, the Tax Justice Network estimated that global tax evasion was over $3 trillion annually. TJN's estimate for the U.S. was $337 billion for 2010, less than the IRS figure of $385 billion for 2006 even though GDP was higher in 2010 than 2006. Thus, the IRS figures confirm the validity of the TJN estimates. Indeed, it is quite possible that Richard Murphy's estimate in the TJN report actually understates the amount of tax evasion globally.

There are a number of eye-popping numbers in the IRS report, beyond simply the magnitude of tax evasion. Most evasion takes the form of underreporting and underpayment, not non-filing. The amount of dollars lost to underreporting rose by 32% between 2001 and 2006; one-third of that increase came in the corporate income tax.As another sign of growing inequality in the U.S., between 2001 and 2006 corporate income tax due doubled (meaning that profits approximately doubled), while individual income only rose by 15%.

Not surprising, but still striking, is what the report says about who cheats on their taxes. People subject to both information and withholding requirements only underreport 1% of their income; people or businesses subject to information reporting  but not withholding misreport 8%, but entities subject to neither information or reporting requirement, "such as business income" [on the individual, not corporate, income tax] has a 56% misreporting ratio. Since middle class taxpayers mainly fall in the first group, it is obvious that most of the opportunities for cheating belong to the wealthy.

To put this in dollar terms, of the $450 billion gross tax gap, $376 billion of it comes from underreporting income. $235 billion is on individual income tax, of which $122 billion is business income (in addition, there is another $57 billion in self-employment tax that is underreported). Finally, $67 billion of corporate income tax due was underreported. (And this is only illegal tax evasion. Abusive corporate tax avoidance, some of which will be declared illegal retroactively, would add many billions more.)

What rich individuals and corporations don't pay in taxes, shows up as higher taxes on the middle class, bigger budget deficits, program cuts, or some combination of the three. 2006's $385 billion in net evasion of federal taxes would cover about 1/4 of the FY 2011 budget deficit (and, as Policy Shop notes, it exceeded the $248 billion budget deficit of 2006). As Policy Shop says, the case for giving the IRS further resources for enforcement is a strong one, but Republicans in Congress are actually trying to reduce enforcement resources.

That opposition needs to be overcome.