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 examiner.com, 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:

http://washingtonexaminer.com/hhs-extends-fix-for-plans-cancelled-due-to-obamacare-through-october-2016-alters-bailout-to-insurers/article/2545141


　

Notes:

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

http://www.amazon.com/Taxation-Business-Andrew-W-Mellon/dp/1483975894/ref=sr_1_1?s=books&ie=UTF8&qid=1394371135&sr=1-1&keywords=taxation+the+people%27s+business


　

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

http://www.amazon.com/Uncertainty-Profit-History-Political-Science/dp/0486447758/ref=sr_1_2?s=books&ie=UTF8&qid=1394371364&sr=1-2&keywords=risk+and+uncertainty

BLS Jobs Situation Report 08/04/2012: Economic Gloaming

The Bureau of Labor Statistics [BLS] jobs situation report of 08/04/2012 showed 163,000 increase in non-farm payrolls in June. Yet the unemployment rate as measured by u3 rose to 8.3% and the u6 measurement rose to 15%. Further, the labor participation rate fell [again] hence the unemployment rate did not rise due to discouraged workers being attracted back to the labor force and hence flooding the denominator of the calculation. Conversely the labor force shrunk [again] by 150,000. Then why the twin reports of more jobs yet more unemployment? (1) (2)

The increased employment and the increased unemployment come from two reports that occasional differ yet generally trend together. The 163,000 comes from a survey of business whereas the 195,000 unemployed comes from the household survey. (3)

However, one report, a snapshot as it were, does not tell the story. It’s not one BLS report or any one report in particular, it’s a series of reports, combining the reports and the synthesis of the over-time reports resulting in a trend. Regarding the BLS of 08/04/2012 and considering the BLS six month trend and for that matter the three year trend, adding in the ongoing Euro zone woes and ECB reports, adding in ongoing Federal Reserve Open Market Committee [FOMC] statements and notes, and finally looking at the trends in ISM manufacturing and ISM services indexes (the former below 50 and the latter hovering around 50 with below 50 an indicator of recession) …..the totality of reports produces a trend or pattern, that Don Luskin CIO of Trend Marco likes to refer to as: The Not So Great Expansion.

This Not So Great Expansion and the continuation thereof is discussed by Dr. Art Laffer in the Wall Street Journal 08/05/2012 as an Op-ed entitled The Real 'Stimulus' Record . Dr. Laffer is channeling Hayek. He is discussing and reporting statistical data that suggests a "V" shaped recession was turned into an elongated "U" shaped recession aka bathtub shaped recession by the deployment of Keynesian policy. That is, Hayek's proposition that Keynesian policy merely extends recessions. (4) (5)

Regarding the economies reported on by Laffer in his statistical table, one needs to note that these economies can't climb the right side of the elongated "U". They can't climb the right side of the "U" due in part to [or mostly due to] the deployment of Keynesian policy.

Hence one merely ends up bumping along the bathtub bottom. One might call it "economic gloaming". Its a twilight were the sun never quite sets nor does the sun ever quite rise above the horizon.

Notes:

(1) BLS jobs situation report 08/04/2012

http://www.bls.gov/news.release/pdf/empsit.pdf

(2) The Jobs Report Bad News by Larry Kudlow

http://www.creators.com/opinion/lawrence-kudlow/the-jobs-report-bad-news.html

(3) Why Did Unemployment Rate Increase - Phil Izzo, WSJ

http://blogs.wsj.com/economics/2012/08/03/why-did-unemployment-rate-increase/

(4) The Real Stimulus Record, Art Laffer

http://online.wsj.com/article/SB10000872396390444873204577537244225685010.html?mod=hp_opinion#articleTabs%3Darticle

(5) Hayek: His Contributions to the Political and Economic Thought of out Time, Butler and Riggenbach

　

Considering the Fiscal Cliff: the Laffer Curve, Hauser’s Law, Recession Spending, Additional Spending Through Stimulus and Additional Other Spending

Within the fiscal cliff is the tax component and its associated tax level. The tax component’s tax level is related to levels of tax avoidance which in turn is related to taxable transactions.

Given the tax component and its associated tax level, the economic contraction phase of a business cycle, with known social welfare state programs existing, generally causes additional spending on these programs e.g. increased spending regarding unemployment insurance benefits. The additional spending occurs while simultaneously the economic contraction phase of a business cycle erodes tax revenue. The spend more/less tax revenue is nothing new regarding the economic contraction phase and should be common place and planned for by politicos through the mechanism of government (a known-known). Keep this in mind for a moment.

　

Hauser’s Law states:

Over the past six decades, tax revenues as a percentage of GDP have averaged just under 19% regardless of the top marginal personal income tax rate. The top marginal rate has been as high as 92% (1952-53) and as low as 28% (1988-90).

Over this period there have been more than 30 major changes in the tax code including personal income tax rates, corporate tax rates, capital gains taxes, dividend taxes, investment tax credits, depreciation schedules, Social Security taxes, and the number of tax brackets among others. Yet during this period, federal government tax collections as a share of GDP have moved within a narrow band of just under 19% of GDP.

Hauser’s Law and the Laffer Curve may well be related, in that, an optimal tax exists [Laffer] that yields the just under 19% [Hauser]? Stated alternatively, if 19% is the average yield from a varying array of taxes and tax rates over the last six decades, then one would assume an “optimal” exists given a varying array of taxes and tax rates that generated (generates) 19%. 

What if the current taxes and tax rates are close to optimal? For a moment let us assume current tax and tax rates are close to optimal. Then the tax revenue currently collected, which is currently/temporarily under the historical average of 19%, is due to reasons other than the tax and tax rate. The major reason pointed to, if the above assumption is considered, is that the number of transactions that are taxable transactions are very low, historically speaking. Hence the culprit may well be the amount of transactions throwing off tax revenue [the very low current velocity of money makes the case] not the tax or associated tax level, all other things remaining equal.

Returning to the economic contraction phase of a business cycle, if one is generally faced with lower revenue and higher social welfare plan costs, what if one adds a Keynesian stimulus plan based on social engineering? Beyond the cost of the stimulus [even with deficit spending there is a “cost“], and beyond this cost being initiated during a period of reduced tax revenue [timing]; how does a Keynesian stimulus plan based on social engineering “jump start” the private sector? That is, the theory behind a Keynesian stimulus plan is that the stimulus is not suppose to solve the economy’s ills, it’s suppose to “jump start” the private sector which then expands causing economic prosperity. This now-expanding economy creates increased transactions and associates tax revenue.

Keynesian deficit spending stimulus plans have never been successful, however they have been unsuccessful to various degrees. If one recalls, Keynesian stimulus theory is based on raising taxes after the supposed jump start causes the economy to expand. That the deficit spending is now repaid through increased tax.


The most successful-unsuccessful Keynesian stimulus plans have been infrastructure related. However, the most recent Keynesian stimulus attempt, which is merely transferring money in hopes of increased demand, also includes transferring money with political constituency building as a clear aim, transferring money based on social engineering and infrastructure as a complete after thought. One sees the most unsuccessful of the unsuccessful Keynesian deficit spending stimulus plans ever deployed and results duly recorded.

Not only are the politicos associated with the recent stimulus plan associated with the most unsuccessful stimulus plan ever recorded, they paid no heed to the known-known of additional spending occurring while simultaneously the economic contraction phase of a business cycle erodes tax revenue. Plus the same group added additional spending too boot. Now we need more revenue? The tax and tax rate is politically framed as the culprit when in fact it’s the folly of certain associated politicos. The folly is deflected as class warfare taxation argument when in fact it’s political folly to the first degree.


In summary, we end this politico spending spree exercise with the exact same politicos framing the spending as necessary, needed and required. Hence the spending needs paid for by the taxpayer as the new level of spending and the cummulative spending is "necessary, needed and required". One is to set aside the abysmal results of spending based on necessary, needed and required. tion was good but the result was poor and hence one is politicdirected to intention not result. And about the increased tax? Using the oldest play in the polictical playbook: class warfare argument, the politico splits the taxpayer into two classes and dupes one class on the concept that they will benefit from the other class being taxed.


Frédéric Bastiat explained such political dupery in the mid 1800's: Government is the great fiction through which everybody endeavors to live at the expense of everybody else.

-Or-

“Social science has pursued many blind alleys - and ignored many promising ones -- out of the misguided insistence that every model be a ‘story without fools’ even in areas like politics where folly is central” - Bryan Caplan , The Myth of the Rational Voter

　

Temporary Payroll Tax Holiday Extension Debate‏

Milton Friedman’s permanent income hypothesis basically states that consumer consumption is based more on long term expected income patterns than current income. That a determining factor of the pattern is real wealth (capital and human capital) and much less real current income. Friedman’s permanent income hypothesis blows a major hole in the Keynesian consumption function proposition. (1)


Art Laffer and other supply-siders have evidence that “tax time horizon” has influence on consumption patterns. That is, a short term tax cut is saved as the consumer knows the tax is returning in short order. Long term tax reductions cause consumption expectations to move in a positive direction as the tax reduction is long lasting/durable (long term permanent tax increases cause the reverse effect) . Hence we end with the tax time horizon proposition being to one degree or another related to Friedman’s permanent income hypothesis. (2) (3) (4)


Given the above, the current debate over the temporary payroll tax holiday extension misses the mark completely in regards to Friedman’s points of: (a) long term expected income patterns, (b) real wealth determinant. Further, payroll tax holiday extension dismisses Laffer and other supply-siders tax time horizon proposition.

Which begs the question: is the temporary payroll tax holiday extension merely politicos exercising poor economics?


Notes:

(1) Theory of the Consumption Function, Milton Friedman, 1957, Princeton University Press

(2) Dr. Art Laffer, http://www.cnbc.com/id/24732335

(3) Fact vs. Fiction: Temporary Tax Cuts, Norbert Michel, Ph.D.
http://www.heritage.org/Research/Reports/2003/01/Fact-vs-Fiction-Temporary-Tax-Cuts

(4) Why Permanent Tax Cuts Are the Best Stimulus, John B. Taylor, WSJ, 11/25/2008
http://online.wsj.com/article/SB122757149157954723.html

Unemployment Part 4: Federal Tax Revenue, Unemployment and the Laffer Curve

Below are two links to stories regarding the unprecedented drop in Federal Tax Revenue (down 18%). Be prepared to see a second story soon regarding the same decline in State Tax Revenues.


http://news.yahoo.com/s/ap/us_plummeting_taxes


http://www.nola.com/newsflash/index.ssf?/base/business-28/1249318885149790.xml&storylist=business#continue


Here are some observations:

(1) the published unemployment rate is 9.5%. The 9.5% rate is highly suspect. The published rate of 9.5% does not count the Self Employed or Contract Labor beyond the other suspect assumptions made within the 9.5% published unemployment rate,

(2) many economists say the real unemployment rate is north of 15%,

(3) An 18% drop in tax revenues correlates with a 15% unemployment rate not a 9.5% unemployment rate.

Upon further review, take a look at the graph in the first link above. Click the graph for a larger view. Look closely at 1984-1989. Note the tax revenue increase. Then think about Art Laffer and Ronald Reagan tax cuts.

To review the Laffer Curve please see the following links for information:

http://en.wikipedia.org/wiki/Laffer_curve

http://spectator.org/archives/2009/07/29/a-laffer-curve-breakthrough


Here is the question you need to ask yourself: Is the Federal Government's proposals to raise taxes going to further reduce revenue? Further increase unemployment?

Consider these points:

(1) the Laffer Curve clearly exists (taxation/revenue equilibrium). Reduced tax rates in the Reagan administration, counter intuitively, increased tax revenues as the "economic effect" of lower taxes trumps the "mathematics" of lower taxes. In other words, the tax reductions were actually a movement toward tax/revenue equilibrium,

(2) with the Federal Government currently experiencing an 18% reduction in tax revenues while chalking up record spending leading to record deficits, the reaction of Government will be to raise taxes,

(3) the increased taxes will create movement on the Laffer Curve,

(4) the prediction of the Laffer Curve, given increasing taxes in the current environment, would be to create a tax rate completely out of equilibrium. Meaning the tax revenue will decrease further (the economic effect will trump the mathematics of a higher tax rate).

(5) higher tax rates reduce consumption by businesses and consumers (less disposable income) leading to further unemployment,

(6) higher tax rates are a disincentive to Private Capital Formation which leads to the creation of Private Sector Jobs.