Conservatives Refute Butler/Heritage Revisionism

@gregvarner points me to a new article at Forbes where Avik Roy tries in vain to find a reference to the individual mandate before the Heritage Foundation, specifically Stuart Butler, started publishing research on it in 1989. Citing the same 1989 lecture I did (and Krugman before me) in my last post, Roy concludes:

Based on my research, I see no contravening evidence to the claim that Stuart Butler and Heritage were the first people to advocate the individual mandate, in the context of a private-sector health-care system.

Roy is at pains to say that Heritage and Butler are now right to oppose the individual mandate, but nowhere does he give any evidence that they changed their minds on it prior to President Obama's election. Unless he (or Butler) give such evidence, it will be hard to take seriously the claim that the "change of heart" isn't merely political opportunism.

As I mentioned in my last post, you can't give a lecture on something without previously researching it, and Roy gives an update linking to James Taranto at the Wall Street Journal, who also isn't buying "Butler's claim of unoriginality," and who finds the research piece that preceded the lecture. "A National Health System for America," edited by Butler and Edmund Haislmaier, is a major 140-page research document. Although it is dated on the Heritage website as January 2, 1989, as Taranto says the Washington Post news story about the book states it was released June 1 of that year (which I verified using the Nexis subscription service). What Taranto does not notice is that this document is clearly labeled on its cover "Revised Edition." This could well push the original version and the original research back into 1988 or earlier.

Not only that, Taranto finds multiple elements of the Affordable Care Act in the research monograph, including its enforcement mechanism.

To Heritage's credit, it has not scrubbed its website of either the lecture or the research document, but the fact remains that these documents appear to be the ultimate source of the individual mandate. Butler has yet to cite another source or acknowledge that he was working on it in the 1980s, not just the 1990s. As Taranto concludes in Butler's case, "Acknowledging error is a sign of integrity, but you have to be truthful about it." Amen to that.

Heritage Doubles Down on Individual Mandate Denialism

As I reported in July, the Heritage Foundation has been bellowing against the Affordable Care Act despite the fact that the critical elements (individual mandate, community rating, and subsidies so everyone can afford insurance) were first proposed by -- the Heritage Foundation!

In USA Today (via Don Taylor) Stuart Butler, author of the Heritage lecture linked above, says "Don't Blame Heritage for ObamaCare Mandate." He writes:

The confusion arises from the fact that 20 years ago, I held the view that as a technical matter, some form of requirement to purchase insurance was needed in a near-universal insurance market to avoid massive instability through "adverse selection" (insurers avoiding bad risks and healthy people declining coverage). At that time, President Clinton was proposing a universal health care plan, and Heritage and I devised a viable alternative.

My view was shared at the time by many conservative experts, including American Enterprise Institute (AEI) scholars, as well as most non-conservative analysts. Even libertarian-conservative icon Milton Friedman, in a 1991 Wall Street Journal article, advocated replacing Medicare and Medicaid "with a requirement that every U.S. family unit have a major medical insurance policy."

My idea was hardly new. Heritage did not invent the individual mandate.

  What this self-serving narrative omits, as Taylor points out, is any mention of Butler's original proposal, linked above, from October 1989. This is more than three years prior to the Clinton health care legislation he claimed to be opposing. Butler's entire article puts his support of the mandate in "the 1990s," despite the fact that he had to have been conducting research on it prior to lecturing on it in 1989. Indeed, he cites no publication prior to his own where an individual mandate was proposed. That doesn't mean one isn't out there, but he gives us no reason to think there is.

He continues:

Additionally, the meaning of the individual mandate we are said to have "invented" has changed over time. Today it means the government makes people buy comprehensive benefits for their own good, rather than our original emphasis on protecting society from the heavy medical costs of free riders.

 This is a very strained distinction. I'm not aware of the President or any other supporter of the mandate (I myself would prefer single payer) claiming people are to be forced to buy insurance "for their own good." Just as with Governor Romney's health care reform in Massachusetts, the idea behind the individual mandate remains preventing free riders from not getting insurance until they are sick. That is crucial in making it possible to require insurance companies to insure anyone regardless of pre-existing conditions.

Taylor's colleague at The Incidental Economist, Aaron Carroll, is even more skeptical than Taylor. Carroll argues that nothing in Butler's article supports the view that the mandate in unconstitutional, least of all the claim that the mandate is "for their own good." He also rejects Butler's claim that the Heritage mandate used carrots while the ACA's uses sticks as "just semantics." Whether you raise taxes and give a credit to those who buy insurance, or don't raise taxes and penalize those who don't buy insurance, the bottom line, Carroll points out, is the same.

While I guess it is in some way intellectually appealing to see Butler try to explicitly defend his changed position, the fact of the matter is that his defense is entirely bogus. You don't craft a policy in 1989 to defend against a proposal in 1993 by a President who hasn't been elected yet. No, the truth of the matter is that the individual mandate was the conservative approach to expanding health care access right up until the time President Obama advanced it as his own. Then it became both bad policy and unconstitutional, to boot.

And at night all cats are gray.

California, Birthplace of TIF, Axes It

One of the many innovations California has given the country is that it was the first to adopt tax increment financing, or TIF. TIF is an extremely popular local subsidy tool that is funded through the anticipated increase in tax revenues (the "tax increment") resulting from a development project. TIF projects sometimes issue revenue bonds against this expected revenue to finance the project, and in some cases projects are financed on a pay-as-you-go basis as the anticipated revenue materialize over the life of a project.

On February 1, however, TIF came to an end in California, 60 years after its introduction there, as legislation abolishing the redevelopment agencies that used TIF came into effect. By 2010, there were approximately 425 redevelopment agencies statewide overseeing about $8 billion of tax increment per year. As far as I know, this exceeds TIF in the rest of the country put together.

How did this happen? When Governor Jerry Brown was elected in 2010, he inherited a state budget deficit of over $20 billion. He decided, as I had recommended for Missouri in 2009, that the huge amount of money going to subsidies and debt service should be returned to state and local governments instead, as a way of paring down the state's deficit. As KABC reported, over $1 billion a year would be returned to school districts, and $500 million annually to local governments.

The abolition of redevelopment agencies was passed primarily with Democratic votes (Contra Costa Times 3/16/11, via Nexis subscription service), but it had the support of Republican assemblyman Chris Norby of Fullerton, who had been an early critic of the agencies in the 1990s (the 2006 version of his publication, "Redevelopment:  The Unknown Government" is here).

While other states have been spurred by the budget crisis to cut some of their subsidies to business, California has gone the farthest by eliminating tax increment financing. I have argued before that subsidy cuts could offset a large part of state and local budget deficits, and it's heartening to see it happen in the birthplace of TIF. Let's hope we see more of this before the year is out.

Tax Justice Network Inaugurates Podcast Series, TaxCast

The Tax Justice Network has just begun making podcasts on issues of tax havens, tax evasion, and so forth. Called TaxCast, the first podcast contains the following:

In our inaugural TaxCast, we discuss the implications of the Vodafone vs India landmark tax case, compare Bill Gates and Mitt Romney’s attitudes to taxation and visit the Occupy camp outside St Paul’s Cathedral in London.

 You can subscribe to the TaxCast RSS feed at http://taxcast.libsyn.com/rss 

Expensive Subsidies Help State and Local Governments Drag Down Recovery

The release of gross domestic product data on Friday highlighted how the contraction of state and local governments has been a drag on economic recovery since the end of the official recession. As Nicholas Johnson of the Center on Budget and Policy Priorities explains, 2011 was the third straight year that state and local government output has fallen, reaching -2.3% in 2011, the worst since 1944, as shown in the chart below.




Paul Krugman amplifies this point, noting that investment in physical capital by state and local governments has fallen from over $290 billion (constant 2005 dollars) in 2008 to a little over $250 billion today, well over 13%. He further emphasizes that a lot of the cuts on current spending by governments has fallen on education. State and local governments, constrained by balanced budget requirements, are not doing their part to "win the future." This is precisely what Krugman predicted in December 2008 when he said that "50 state governors who are slashing spending in a time of recession" would counteract the stimulus that would be enacted at the federal level in 2009.

As readers of this blog know, a big chunk of state and local deficits could be offset by cutting corporate subsidies rather than cutting programs. My estimate of these subsidies comes to as much as $70 billion per year, more than enough to pay for the 656,000 state and local jobs Johnson reports have been lost since their peak employment in 2008.

It's important to emphasize that from a national point of view, this spending actually creates very few new jobs. While a multi-hundred-million incentive may appear to attract a new automobile assembly plant in one state, this will be offset by reduced sales from existing plants, which eventually leads to one closing (James Rubenstein, in 1992, indeed found a one-to-one relationship of auto plants opening and closing in North America). Similarly, local governments in the St. Louis metropolitan area poured over $2 billion in subsidies to retail between 1990 and 2007, with the net increase in jobs, 5400 ($370,370 per job!) not exceeding the percentage increase in local income, according to a report by the regional planning organization, the East-West Gateway Council of Governments. In other words, no jobs were actually created by these incentives, as the growth in retail would have occurred anyway due to income growth.

While it would not offset the entire state/local budget deficit, cutting subsidies would go a long way toward that goal, allowing the "Fifty Herbert Hoovers" to rehire workers and cut less from their budgets. Moreover, it would reduce income inequality slightly by ending these transfers from average taxpayers to subsidy recipients who are richer on average.

Basics: America's Relative Decline in Health in One Table

I've reported before on how the U.S. has seen less life expectancy growth than other rich countries, while at the same time increasing health care spending at a more rapid rate. Another way to see America's relative decline in health outcomes is through the evolution of life expectancy compared to all rich countries over a longer period of time. The World Bank's World Development Indicators database goes back to 1960 and its most recent figures are for 2009. We can see, then, what has happened over a 49-year period.

The table below includes all members of the Organization for Economic Cooperation and Development, excluding former Communist countries (most of which were not independent in 1960) and Israel (for which World Bank data does not go back to 1960). Of the 27 OECD members included, only four (Denmark, Iceland, Netherlands, and Norway) have seen less growth in life expectancy since 1960, and Sweden's growth has been the same at 8.3 years. Only two OECD members today have a lower life expectancy than the U.S., and both (Mexico and Turkey) are much poorer than the U.S. South Korea and Chile, both developing countries in 1960, have now surpassed the U.S. in life expectancy.

While health outcomes have certainly improved over the last 50 years, we can see from the table just how small those gains are relative to what other countries have been able to achieve. And remember, these gains have come at much greater economic cost.

Country Name		2009	1960	Increase
Australia		81.5	70.8	10.7
Austria		80.1	68.6	11.5
Belgium		79.7	70.1	9.7
Canada		80.7	71.1	9.5
Chile		78.8	57.0	21.7
Denmark		78.6	72.2	6.4
Finland		79.7	68.8	10.9
France		81.1	69.9	11.2
Germany		79.8	69.6	10.2
Greece		80.2	68.7	11.5
Iceland		81.5	73.4	8.0
Ireland		79.5	69.7	9.8
Italy		81.4	69.1	12.3
Japan		82.9	67.7	15.3
Korea, Rep.		80.3	53.0	27.3
Luxembourg		80.1	68.3	11.8
Mexico		76.5	57.0	19.4
Netherlands		80.5	73.4	7.2
New Zealand		80.3	71.2	9.1
Norway		80.8	73.5	7.2
Portugal		78.7	63.0	15.7
Spain		81.5	69.1	12.4
Sweden		81.4	73.0	8.3
Switzerland		82.0	71.3	10.7
Turkey		73.4	48.3	25.2
United Kingdom		80.1	71.1	8.9
United States		78.1	69.8	8.3

Jon Stewart Delivers the Goods on Mitt Romney's Taxes

Mitt Romney claims to simply have been following the law in how he paid his taxes for 2010 and 2011. As we have seen, he was able to use the carried interest loophole (taxing hedge fund managers' fees as if they were profits and therefore subject to the 15% capital gains rate rather than being ordinary income) to reduce his tax rate below 14%. But how is that loophole still in existence, despite a bipartisan effort to kill it in 2007?

Building on a recent New York Times story*, Jon Stewart spilled the beans on Romney tonight. On "The Daily Show" (via Mediate, h/t @Phostir), Stewart poses and answers that question. Starting at 3:27 into the clip, Stewart notes Romney's claim to be simply following the tax laws as written. He hows a 2007 video of co-sponsor Sen. Charles Grassley (R-Iowa) talking about how heavily lobbied it was. At 4:51, Stewart answers the question of who was fighting repeal: The Private Equity Council, started in 2007 by, among other firms, Bain Capital. He then plays a clip of Romney himself telling a TV reporter he "doesn't think it's a good idea to raise taxes" in response to a question about this bill.

What Stewart has laid bare for all to see, of course, is exactly how much influence Romney had on the laws that today he claims simply to be following. I'm shocked, shocked... Occupy Wall Street proven right once again.


* "As Romney Campaign Advances, Private Equity Becomes Part of the Debate," NYT, Jan. 11, 2012, p. A17, via Lexis-Nexis Academic.