As I reported on December 9, London's Legatum Institute issued the 2011 edition of its Prosperity Index, in which the United States scored #1 in health in the world. As Aaron Carroll said, "color me dubious." Yet despite the seeming incongruity of this result, the Legatum Institute is a well-funded think tank that will not be going away any time in the near future. Moreover, one of the key ideas behind the Index is a good one, that we shouldn't measure countries purely on economic outcomes alone -- and it executes this concept with a strong set of outside advisers including the guy who literally "wrote the book" on social capital, Robert Putnam.
The reason that the health sub-index gas the U.S. #1 is, as Carroll pointed out, due to the fact that health care spending per capita is part of the calculation, and the U.S. outspends the next highest spender, Norway, by 66%. In fact, not only is the U.S. #1, it has an index score that is 16% higher than #2 ranked Switzerland. As I discussed December 23, this is backward, because we should be looking at actual health outcomes, not inputs. In that post, I showed how France exceeded the U.S. on almost all objective outcome measures, was about equal on subjective measures like having natural beauty to appreciate, but of course was far behind on health spending per capita. But the Legatum methodology is backward in another critical way.
The variables that are included in calculating the health care sub-index, and the weights given to them, are chosen by how well they perform in regressions for 1) income per capita (natural log) and 2) answers to a Gallup Poll survey on life satisfaction. (See Methodology here.) This is completely backward on the income side: certainly if a population is healthy, it will earn more per capita, but income is a much more important driver of differences in health outcomes by far. For example, if you look at the CIA World Factbook's table of life expectancy at birth, rich countries are at the top and poor countries are at the bottom. Income aids health both directly and indirectly (through a country's ability to afford clean water and sanitation, for example). In terms of several of the variables in the health index for the income regression, income in fact reduces malnourishment and enables countries to spend more on health and for components such as inoculations.
Because of the use of a methodology that chooses health variables to consider based on whether they are correlated with income or subjective well-being, Legatum included health care spending, on which the U.S. is a gigantic outlier, and followed the results to their extreme conclusion that the U.S. ranks #1 in health despite lagging behind numerous countries in terms of health status outcomes like life expectancy. This undermines our confidence in their other results despite the laudable goal to get beyond a purely economic metric.
Sunday, January 15, 2012
Mitt Romney's Steel Dynamics Took Subsidies Not Once, But Twice, Under Bain's Ownership
Mitt Romney touts the virtues of free markets and the dangers of government intervention, yet when Bain Capital became the largest owner of Steel Dynamics in 1994, the company was already looking for state and local incentives for its first plant in DeKalb County, Indiana, according to the Los Angeles Times (h/t Jed Lewison). The same month Bain invested $18.2 million in the company, June 1994, state and local governments in Indiana approved a $77.84 million incentive package after months of negotiations with the company (Fort Wayne Journal Gazette June 23, 1994, via Nexis, h/t Phil Mattera).
The Steel Dynamics subsidy story doesn't end there, however. Four years later, while still owned by Bain Capital, the company got $18 million in local tax incentives for a structural steel mill in Whitley County, Indiana (AP State & Local Wire, October 21, 1998, via Nexis).
Even after Bain cashed out with an $85 million profit, the company continued its subsidy seeking ways, getting state tax incentives and training grants for an expansion in Indiana in 2005 (M2 EquityBites, December 1, 2005, via Nexis), a $52,886 property tax break in Continental, Ohio, in 2007 (Toledo Business Journal, February 2007, via Nexis), and other deals.
The Bain Capital subsidy saga does not end with Steel Dynamics. Phil Mattera of Good Jobs First has the best rundown, covering a total of nine companies Bain owned, including Sealy Mattress, which received $600,000 to move from Ohio to North Carolina.
As Jed Lewison points out, when Romney talks about "crony capitalism," he ought to be talking about himself. Steel Dynamics has from its outset been a subsidy-generating machine, and Bain dove right into it.
The Steel Dynamics subsidy story doesn't end there, however. Four years later, while still owned by Bain Capital, the company got $18 million in local tax incentives for a structural steel mill in Whitley County, Indiana (AP State & Local Wire, October 21, 1998, via Nexis).
Even after Bain cashed out with an $85 million profit, the company continued its subsidy seeking ways, getting state tax incentives and training grants for an expansion in Indiana in 2005 (M2 EquityBites, December 1, 2005, via Nexis), a $52,886 property tax break in Continental, Ohio, in 2007 (Toledo Business Journal, February 2007, via Nexis), and other deals.
The Bain Capital subsidy saga does not end with Steel Dynamics. Phil Mattera of Good Jobs First has the best rundown, covering a total of nine companies Bain owned, including Sealy Mattress, which received $600,000 to move from Ohio to North Carolina.
As Jed Lewison points out, when Romney talks about "crony capitalism," he ought to be talking about himself. Steel Dynamics has from its outset been a subsidy-generating machine, and Bain dove right into it.
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:
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.
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.
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.
Friday, January 6, 2012
Job Flight from Canada Highlights U.S. Inequality and Low Wages
The fact that middle class living standards have been falling for decades is no secret. One way to put this in sharp relief, however, is through international comparisons. Alexander Eichler at the Huffington Post reports today that Caterpillar Inc. is demanding that its locomotive manufacturing workers in Canada take a 50% pay cut to bring them more in line with what its workers in Illinois make.
How is it that the Canadian Caterpillar workers get more than twice as much in wages and benefits as their Illinois counterparts when income per capita is lower in Canada than in the U.S.? According to the 2009 UN Human Development Report (Table M, p. 195), gross domestic product per capita in the U.S. in 2007 was $45,592 but only $40,329* in Canada. The first part of the answer is inequality. The same table shows that the U.S. has a Gini coefficient (an inequality measure in which 0 equals complete equality, and 100 when one person has all the income) of 40.8, compared with Canada's 32.6. The richest 10% of Americans make 15.9 times as much as the poorest 10%, while the figure in Canada is only 9.4 times as much.
The second part of the answer is unionization and union strength. As I noted in September, the U.S. has the fifth-lowest unionization rate of the 34 industrialized democracies in the Organization for Economic Cooperation and Development. Only 11.4% of the American workforce is organized, compared with 27.5% in Canada.
As Eichler points out, a third reason wages are often higher in Canada is that its unemployment rate is lower than the U.S. rate, 7.5% vs. 8.5%. Higher unemployment means lower bargaining power for workers.
Caterpillar is not an isolated example. As I discussed in September, Electrolux actually moved from the Montreal suburbs to Memphis, saving over $4 per hour by ditching its unionized workforce for right-to-work Tennessee, and getting a free factory in the bargain.
This comparison with Canada helps us see, from another angle, just how much pressure the middle class is under in this country. The fact that Canada is very similar to the U.S. economically suggests that it is not impossible to strengthen the union movement and hence, the middle class, here.
* Technical note: The comparison of GDP per capita is not adjusted for purchasing power parity. Companies have to pay their workers in actual U.S. dollars or Canadian dollars, so the adjustment is not appropriate for this comparison.
How is it that the Canadian Caterpillar workers get more than twice as much in wages and benefits as their Illinois counterparts when income per capita is lower in Canada than in the U.S.? According to the 2009 UN Human Development Report (Table M, p. 195), gross domestic product per capita in the U.S. in 2007 was $45,592 but only $40,329* in Canada. The first part of the answer is inequality. The same table shows that the U.S. has a Gini coefficient (an inequality measure in which 0 equals complete equality, and 100 when one person has all the income) of 40.8, compared with Canada's 32.6. The richest 10% of Americans make 15.9 times as much as the poorest 10%, while the figure in Canada is only 9.4 times as much.
The second part of the answer is unionization and union strength. As I noted in September, the U.S. has the fifth-lowest unionization rate of the 34 industrialized democracies in the Organization for Economic Cooperation and Development. Only 11.4% of the American workforce is organized, compared with 27.5% in Canada.
As Eichler points out, a third reason wages are often higher in Canada is that its unemployment rate is lower than the U.S. rate, 7.5% vs. 8.5%. Higher unemployment means lower bargaining power for workers.
Caterpillar is not an isolated example. As I discussed in September, Electrolux actually moved from the Montreal suburbs to Memphis, saving over $4 per hour by ditching its unionized workforce for right-to-work Tennessee, and getting a free factory in the bargain.
This comparison with Canada helps us see, from another angle, just how much pressure the middle class is under in this country. The fact that Canada is very similar to the U.S. economically suggests that it is not impossible to strengthen the union movement and hence, the middle class, here.
* Technical note: The comparison of GDP per capita is not adjusted for purchasing power parity. Companies have to pay their workers in actual U.S. dollars or Canadian dollars, so the adjustment is not appropriate for this comparison.
Thursday, January 5, 2012
Show Me an Emergency Room that Provides Chemotherapy
I don't usually post stuff I receive in fundraising emails, but the one I received from former Rep. Alan Grayson arrived at just the right time, emotionally, for me this afternoon. I had watched former Senator Rick Santorum's speech after the Iowa Caucus and was put out by his comparison of social welfare programs with Benito Mussolini's fascism. Indeed, Santorum specifically included Medicaid among the programs he said are making people more dependent, one element of how more government is fascism. (Yes, I know that makes no sense. He apparently doesn't.)
Grayson's email, which he also posted to Daily Kos, went after Santorum on health care. The best part, to me, was his takedown of the argument that people can always go to the emergency room if they need health care. Maybe it's an obvious retort, but it had never occurred to me before, and I try to follow this issue because it is close to my heart. Grayson said:
Grayson's email, which he also posted to Daily Kos, went after Santorum on health care. The best part, to me, was his takedown of the argument that people can always go to the emergency room if they need health care. Maybe it's an obvious retort, but it had never occurred to me before, and I try to follow this issue because it is close to my heart. Grayson said:
I remember the same response from right-wingers then as we hear from Santorum today – anyone can go to an emergency room. I ask them to show me an emergency room that will provide chemotherapy to a cancer victim. There isn’t one.If you need chemotherapy, your cancer is life-threatening, and the treatment is grossly expensive. According to the American Cancer Society, over 577,000 Americans will die of cancer this year. And as Grayson says, you can't go to the ER for treatment. So the view that all Americans can receive health care, and that lack of health insurance isn't bad for your health, is cruelly false.
Monday, January 2, 2012
Investment Incentives and the Global Competition for Capital
The Vale Columbia Center on Sustainable International Investment has just published my new article in its "FDI [foreign direct investment] Perspectives" series, "Investment Incentives and the Global Competition for Capital." This piece summarizes my book of the same name, and makes the following main points:
- Investment incentives (subsidies designed to attract investment) are widely used around the world at all levels of government.
- Incentives are expensive. As I have discussed before, the cost to U.S. state and local governments is $50-70 billion per year. In the Philippines, the cost has been estimated to equal 1% of gross domestic product.
- Investment subsidies tend to be both economically inefficient and inegalitarian (average taxpayers pay subsidies to richer owners of capital), while some incentives subsidize environmentally harmful projects.
- Companies have more information about governments than governments do about the companies with which they are bargaining ("information asymmetry"), leading to a tendency for governments to pay more for an investment than they need to.
- Developing countries sometimes pay far more in incentives than developing countries do for a similar investment. Goias state in Brazil gave Usina Canada $125 million in tax breaks for a $25 million ethanol facility, for example.
- The best control mechanism for controlling investment incentives exists in the European Union, where the "state aid" rules require advance notification of all subsidy programs and all large individual subsidies (which also provides the best transparency in the world), advance approval by the European Commission, aid limits no higher than 50% of the investment tied to specific regions' income per capita, and sharp reductions in the maximum aid available to projects over 50 million euro. As a result, large projects receive considerably less in the EU than they do in the United States.
- Outside the European Union, transparency is the first important reform needed in most of the world.
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