Sunday, March 9, 2014

ACA/Obamacare: Where Serving Up Delays is Job One! Now Serving Number 37.

A supposedly temporary “fix” that President Obama announced in November to address the problem of the millions of Americans who lost coverage as a result of his health care law has now been extended through Oct. 1, 2016, the Department of Health and Human Services announced Wednesday.

In an attempt to limit the disruption to the insurance industry that would be caused by the move, HHS also announced that the “risk corridor” program (which has been described as a “bailout” to insurers) would be further modified to funnel more money to insurers in states affected by the change.” - HHS extends 'fix' for plans cancelled due to Obamacare through October 2016, alters bailout to insurers, Washington, 03/05/2016

Mr. Obama has delayed, modified and/or removed thirty seven ACA/Obamacare legislative regulations during the very brief history of ACA. Upon normal occasion and in the main, the legislative regulations being tinkered with represent a tinkering related to tax increases to many households and many firms. Stated alternatively, the tinkering merely delays an inevitable tax increase of one sort or the other associated with ACA.

Given the tax delay theme, one might be well served to examine Andrew Mellon and Art Laffer and their proposition of the reverse phenomena: tax cuts. Supply-side economics stresses that tax cuts need to be either permanent or with a long tax time horizon e.g. ten years. How so? (1)

Temporary tax cuts of short duration, as argued by supply-side advocates, merely become saved as the individual or firm realizes the tax is soon to return hence they save their money for the inevitable tax increase. Stated alternatively, temporary tax cuts of short duration create a behavior completely different than tax cuts of either a permanent nature or with a long tax time horizon nature.

Supply-side’s proposition is that the individual or firm faced with a tax decrease of a permanent or long tax time horizon will exhibit behavior differently as uncertainty is reduced or removed [permanent or long-term tax decrease] and the additional resources available will be spent, saved or invested in a longer term fashion.

Also, supply-side tax cuts are generally put forth as an across-the-board tax reduction. That all income strata receives tax relief. That each income strata is a player and interacts in ways with other income strata and hence an equal across-the-board tax reduction interacts in that it aids the role of the income strata in question i.e. particular strata acting the part of consumption, saving and investing. Hence particular income strata aid private capital formation while others are more attune to consumption yet the two interact.

Conversely, Obamacare tax increases are a hodgepodge of differing taxes impacting different income strata in differing fashions. Will differing income strata impacted differently cause a cascade of unintended consequences e.g. private capital formation declines while consumption declines too? Will the two declines interact creating cascading unintended consequences?

The short-term nature of the delayed tax increase likely causes many to merely save resources in order to meet the new higher price related to the rising tax tide which has merely been delayed.

Returning to the thirty seven Obamacare delays with the delays merely extending short-term relief from the inevitable tax increase, then what sort of behavior would households and firms exhibit given the supply-side discussion above? Households and firms would be predicted to save their resources for the inevitable tax increase.

Moreover the amount of tinkering and variety of tinkering raises a question of uncertainty. The thirty seven delayed, modified and/or removed items leaves households and firms very uncertain about “what’s next”. Will all thirty seven be reinstituted tomorrow? Next week? Delays are further modified? Modifications are further modified? Taxes are changed upward or downward? Does the environment of uncertainty fostered delay, terminate or otherwise effect consumer and investor behavior? Further, the uncertainty is dictated by the whims of one individual, Mr. Obama. (2)

Link to the Washington Examiner article appears below:



(1) Taxation, the People’s Business, Andrew W. Mellon, 1924


(2) Risk, Uncertainty and Profit, Frank H. Knight, 1921

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