Category Archives: Politics

Health Insurance Hacks

As Obamacare becomes prohibitively expensive, here are some ideas of ways to at least partially insure yourself against catastrophic healthcare costs.  From Patrick Watson, via John Mauldin:

Insurance Hacks

I suggested looking for short-term medical coverage if Obamacare becomes unavailable in your area. Reader Mike E., a Colorado insurance broker, added some details.

Temporary insurance will probably continue to be available since it’s not under the ACA restrictions. But there are several caveats:

Not only will it not cover preexisting conditions, many of the temp insurance carriers will deny any coverage if you show preexisting conditions on your application form, even common things like moderate hypertension. Leaving such details off the application is a risky prospect, because the carrier can deny all claims if they find you’ve falsified information. And if they’re receiving major claims, they’ll probably look for a reason to deny them.

The biggest downside is the total benefit limit. As far as I know, there are no plans available with a limit above $2 million. Nonetheless, temp insurance is a good option if you can qualify.

Some readers may be in a position to change their permanent residence (e.g., to a second home). Traditionally, the choice of which to use has been based on state tax rates, but now access (and cost) of health insurance may be a bigger factor.

We have been selling quite a few “microgroup” plans, partly because group insurance is the only way to get a PPO plan in Colorado for 2017. Generally, the carriers require at least two participants, one of whom has no ownership stake. (Some carriers apply other rules, including whether 1099 employees are eligible and count.) Apparently, the working population is overall considerably healthier than the non-working population, and thus the group health insurance market hasn’t seen the turmoil that the individual market has.

On small-group insurance, Ray H. said to consider using a PEO, Professional Employer Organization—what was once called employee leasing. I’ve been such an employee before (of John Mauldin, actually, many years ago) and we had big-company-style benefits. It’s worth investigating if you are self-employed.

Another idea: Go (or go back) to school. Some community colleges have student group health plans open to part-time students of any age. The rates are low because the group is mostly young—but you have to be a legitimate, enrolled student and pay tuition. That might outweigh the lower premiums.

Healthcare Cost-Sharing

From Richard J.:

Many thanks, Patrick for your letter this morning; it’s right on. And thank you for finally mentioning the religious healthcare alternative, which is getting little to no mention at all. I am relatively healthy and have been with an alternative care for 2 years now.

The savings are huge, bigger than all my investing profits during the same time, and if you’re healthy and following the suggestions in your letter, it is smart, it feels good to help others, and it’s good to know some program that really works is behind you. Keep on doing the good work.

Richard refers to the handful of religious cost-sharing cooperatives that received a special exemption in the Affordable Care Act. Participating in one satisfies the Obamacare individual mandate even though they are not “insurance” per se.

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I was wrong about Mark Perry

I thought Mark Perry was a sexist; see my 2015 post:  http://wp.me/p3RzvV-gK

Actually, he just hates women.  Here’s his latest, on the impossibility of a pay gap between men and women in the US.  It’s called

Evidence of employers paying women 20% less than men for the exact same work is as elusive as Bigfoot sightings

He lists a whole bunch of reasons why men’s pay *can’t* be higher than women’s, most ending with the words “not likely.”  As in, he is presenting no evidence.  That’s elusive.

Just as he can make up rationalizations for his case, anyone could  make rationalizations the other way as well.  So tempting.

Instead, how about some data.  Here’s an example, Mr. Perry:  JAMA article on nursing pay gap.  It even includes all those controls you long for.

It’s a shame about Professor Perry.  I agree with him on so much.  Just don’t get the hate.  Go Blue!

Edit 3/30/17:  Ivanka Trump just took a position at the white house paying $0.  Also, not sure if people consider Melania Trump a feminist but I’m kind of glad to see her turn down the unpaid full time first lady gig.

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Andrew Sullivan on Terrorism

Andrew Sullivan is 100% correct.  How do terrorists win?  By terrifying us.  I, for one, refuse to be terrified.

Here’s the link to the full piece.

Here’s the bit on terrorism:

“We are not afraid,” declared Prime Minister Theresa May after the latest Islamist horror on Westminster Bridge. She went on about the importance of being “normal.” It’s a very British response to terrorism. It’s called stoicism — a quality unknown, it appears, in the home of the “brave.” Perhaps its highest moment of sangfroid was when the IRA bombed the very hotel in Brighton where the prime minister and much of her cabinet were staying while attending their annual party conference in 1981. Thatcher herself would have been killed if she had been in a different room in her hotel suite. A leading cabinet member had to be hauled out of rubble. Nonetheless, the next day, Thatcher, utterly undaunted, got up and gave her speech — almost as if nothing had happened. A few days later, she insisted: “We suffered a tragedy not one of us could have thought would happen in our country. And we picked ourselves up and sorted ourselves out as all good British people do.” Keep calm and carry on, and all that.

Compare this with, say, the reaction to the Boston marathon bombing. An entire city was brought to a standstill and locked down, while the pursuit of a deranged, unarmed teenager continued. You can understand that, I suppose, given that the suspect was still at large. But to subsequently celebrate the event with the slogan “Boston Strong” was perverse. The truth was: “Boston Shit-Scared.”

The response of Americans to terror is to be terrified — 9/11’s trauma has never been fully exorcised. Until we get over that, until we manage to stiffen our upper lips like the Brits, jihadist terrorists will exercise control over the American psyche like no one else. We can do better, can’t we? If we want the Constitution to survive both Islamism’s threat and the potential response of a beleaguered Trump, we’ll have to.

 

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Politics and #MAGA

Catherine Austin Fitts has a lovely post today about individual responsibility and how it is related to our world.

“Our task is to look at the world and see it whole.”
— E. F. Schumacher

“An entrepreneur who grew up on a small island once explained why small islands produced a much higher percentage of people who were good at starting and building successful businesses. He said it was because when a person grows up on a small island, you see how everything is connected. It is much easier to learn how to take responsibility for the whole — to see how all time and energy is precious and never to waste anything. People who grow up on small islands, he said, understand that “a penny saved is a penny earned.”

He had been taught from the time he was a small child to connect the behavior of individual people with how everything works around him. He said that he had learned to adjust his behavior so that it contributed to the system working in the way he hoped it would. His family, his school and his church all encouraged him to take responsibility for the whole in practical concrete ways. People who grow up on small islands, he said, understand that “what goes around comes around.”

My friend said that America is just a very big island, but most Americans do not know this — nor do they understand that the planet is also just an even bigger island. They cannot connect how the system works — particularly the aspects of the system they do not like — with their individual actions. They do not have even simple maps of how things connect. They do not understand their own power to vote with their thoughts, their choice of friends and spouse, their actions and how they spend their money every day. People who grow up on small islands, he said, “see the world whole.”

Most Americans look at our situation from their own individual points of view. From every degree of the circle, there is a different definition of what ails us, of why our system isn’t working, and what the solutions are. Often, what we perceive as our own individual problems are really just the symptoms each person experiences of the deeper problems that we all share. Too many times, the solution is to blame or attack someone, or to propose that more government or private capital be spent in a futile attempt to keep the wolf from the door. Without a simple map of where we are and how to get to a better place together, we have forgotten that we are in this together and at the simplest level, you simply can’t eat what you don’t grow.”

On a related note, Jason Brennan examines political behavior from a behavioral science standpoint.

Two Hypotheses about Political Participation

February 2017 – In Considerations on Representative Government, the great nineteenth century economist, philosopher, and early feminist John Stuart Mill advocated experimenting with more widespread political participation (Mill 1975). Mill hoped that participation would make citizens more concerned about the common good, and would entice them to educate themselves. He hoped getting factory workers to think about politics would be like getting fish to discover there is a world outside the ocean. As he said, “Among the foremost benefits of free government is that education of the intelligence and of the sentiments which is carried down to the very lowest ranks of the people when they are called to take a part in acts which directly affect the great interests of their country.” (Mill 1975, 304.)

20th century sociologist and economist Joseph Schumpeter tendered a grimmer hypothesis about how political involvement affects us: “The typical citizen drops down to a lower level of mental performance as soon as he enters the political field. He argues and analyzes in away which he would readily recognize as infantile within the sphere of his real interests. He becomes a primitive again.” (Schumpeter 1996, 262.)

Both Mill and Schumpeter were scientific thinkers, but neither quite had the data needed to test their hypotheses. However, we now possess over sixty years’ worth of detailed, varied, and rigorous empirical research in political science and political psychology. The test results are in. Overall, Schumpeter was largely right and Mill largely wrong. In general, political participation makes us mean and dumb. Emotion has a large role in explaining why.

Why It Matters 

There are two major sets of reasons why bias-driven politics is dangerous.

First, it contributes to the growing political polarization in the United States. Americans have become more distrustful of each other on the basis of political differences. Legal theorist Cass Sunstein (2014) notes that in 1960, only about 4-5% of Republicans and Democrats said they would “displeased” if their children married members of the opposite party. Now about 49% of Republicans and 33% of Democrats admit they would be displeased (Sustein 2014, citing Iyengar, Sood, and Lelkes 2012). Sunstein says that explicit “partyism”—prejudice against people from a different political party—is now more common than explicit racism. In fact, it appears that “implicit” partyism is stronger than implicit racism too (cf. Iyengar and Westwood 2014).

For instance, political scientists Shanto Iyengar and Sean Westwood (2014) find that people are much more likely to discriminate against job candidates with different political viewpoints than they are to discriminate on the basis of racial differences. At least in some cases, for democracy to work, we need people to reach across the aisle, compromise, and work together. What the various biases discussed above tells us is that this is unlikely to happen.

Second, in a democracy, what we as a collective electorate believe about politics matters, even if what any individual voter beliefs does not. Individual voters do not matter at all, but voters as a whole matter a great deal. While many things—special interest lobbying, party politics, legislature preferences, bureaucratic autonomy, luck—influence and determine political outcomes, how voters vote makes a difference. Voters elect candidates with certain policy slants, and electing such candidates makes it more likely such policies will be enacted. Further, who makes it on the ballot in the first place is largely depends on what voters want.

But what voters want depends on what they know. Most citizens and voters have low levels of information; they are generally ignorant or misinformed (Somin 2013). But, it turns out, better informed voters have systematically different political beliefs from badly informed voters, and these differences in policy preferences are not explained by demographic factors, such as race, income, or gender (Althaus 2013). But, as this article has discussed, what voters know (or do not know) is not primarily guided by a dispassionate, reason-driven search for truth. Instead, our beliefs are largely determined by emotion-based biases.

In short, emotion-driven politics does not just make us biased. Rather, it makes us dislike each other and mistreat each other. It causes mutual distrust and diffidence. Further, it leads to us voting in ways that we would not vote if only we were better informed or if we processed political information in rational ways. Emotion-driven politics means we get worse political culture and worse government.

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Defining Fake News

Charles Hugh Smith at oftwominds.com has posted a pointed counter-argument to the “fake news” issue:

I was amused to find my site listed on the now-infamous list of purportedly Russian-controlled propaganda sites cited by The Washington Post. I find it amusing because I invite anyone to search my 3,600-page archive of published material over the past decade (which includes some guest posts and poems) and identify a single pro-Russia or pro-Russian foreign policy entry.

If anything, my perspective is pro-US dollar, pro-liberty, pro-open markets, pro-local control, pro-free-press, pro-innovation, and pro-opportunities to rebuild America’s abandoned, decaying localized economies: in other words, the exact opposite of Russian propaganda.

My “crime” is a simple one: challenging the ruling elite’s narrative. Labeling all dissent “enemy propaganda” is of course the classic first phase of state-sponsored propaganda and the favorite tool of well-paid illiberal apologists for an illiberal regime.

Labeling everyone who dissents or questions the ruling elite’s narrative as tools of an enemy power is classic McCarthy-era witch-hunting, i.e. a broad-brush way of marginalizing and silencing critics with an accusation that is easy to fabricate but difficult to prove.

Such unsupported slander is a classic propaganda technique. It has more in common with Nazi propaganda than with real journalism.

Try to dig through the hyperbolic language to the meaning behind it.  He’s right.  He doesn’t support the same goals or policies as many, or most, elected officials, and he uses the kind of wording you see above to make his points.  This absolutely does not make him a tool of Russian propaganda, even inadvertently.  Not agreeing with the mainstream cannot be the definition of being a Russian information shill.

IMHO, the biggest issue here is that many, many news sources, including mainstream media, alt-right, and others, present opinion pieces as news.  It is left for the reader to distinguish between reporting of fact and opining.  Additionally, what could legitimately be labeled fake news does exist;  that is, the presentation of “facts” that are not true at all, but are at best misrepresentations of facts and at worst outright lies.  This is the price we pay for a free press.  We must all be cognizant that regardless of the source, we must fact check information for ourselves, as well as determine what is fact and what is opinion.

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Taxes

Jared Dillian wrote a great piece about taxes in the US.  He did not touch on corporate taxes or on tax avoidance, which are also very important, but those issues do not diminish the points he makes:

The US Is Not a Low-Tax Jurisdiction

Trump has been going around running his mouth about how the US is one of the highest-tax countries in the world. This really makes the journalists upset. They say that it’s false. Every time he says this, they have a conniption.

How can it be true? How can we have higher taxes than Sweden1, where taxes are so high that everything is free, there are ponies everywhere, and everyone is happy2?

It depends on how you measure it.

The Wall Street Journal posted a piece about this Monday, offering the statistic (that most journalists have offered) that the US collects about 26% of GDP in taxes, compared to an average of 34.4% for other industrialized countries.

First of all, the fact that we collect 26% percent of GDP in taxes is crazy—for years, even decades, the total take would end up around 20% of GDP, no matter how high or how low the tax rates went. Tax collection has become much more effective in the last 10 years, and a lot of what the IRS would call the “tax gap” has been closed.

But yes, the amount we pay in taxes collectively is lower than most industrialized countries.

But there is another way to look at it.

What about tax rates? Who has the highest tax rates in the world?

The US is close to the top.

The top marginal income tax rate at the federal level is 39.6%.

Now, a lot of economists stop there, and say US taxes are 39.6%, Sweden’s are 59.7%, so the US is a low-tax jurisdiction.

But you have to take into account state income taxes, too. California is the highest, at 13.3%. Some municipalities and counties also have income taxes. When you take into account New York state and city income taxes, it’s also about 13.3%.

So 39.6 + 13.3 = 52.9%.

Catching up to Sweden!

We’re not done yet. We now pay a 3.8% surtax on investment income, which was intended to fund Obamacare. That makes it 56.7%.

Only four countries in the world are higher3. Sweden, Finland, Canada, and Belgium4.

We’re not done yet!

We also pay payroll taxes of 6.2% for the employee and 6.2% for the employer on the first $118,500 of income, plus Medicare taxes of 2.9%, 1.45% for the employee and 1.45% for the employer. Economically speaking, the employee pays both. So add 2.9% to the total, and then you get to 59.6%.

We’re not done yet!

In some localities (like New York), there is something called an “unincorporated business tax,” or UBT, so if you have an LLC or sole proprietorship, you pay another 4% on your net business income.

63.6%.

Not done yet!

We haven’t yet discussed property taxes. In high-tax jurisdictions like New York, New Jersey, Connecticut, or Illinois, you can easily have a tax burden of $20,000 annually on a middle-class home. I have heard that property tax bills of $50,000 to $70,000 are pretty common. Nobody takes this into account in the global comparisons.

Even where I’m from, in the impoverished eastern part of Connecticut, it’s not uncommon to see $4,000 property tax bills on houses that are worth about $130,000.

Now we’re done.

So is the US a high-tax jurisdiction or a low-tax jurisdiction? Or a better question might be: How can we pay so little compared to other countries if our tax rates are so high?

Glad you asked.

The Most Progressive Tax Code in the World

I think if I were an economics PhD student, the topic I would pick for my thesis would be to measure the progressivity of income taxes around the world. Like, how much people in low brackets pay compared to people in high brackets. This is an important question.

A lot of people spout off about taxes without really knowing what they are talking about. So let’s pull up the latest tax table from the IRS:

tax
Source: Tax Foundation

So you might recall the Mitt Romney biff from the last election when he said that half the country pays no income taxes, and people thought this was a very tone-deaf thing to say. If you look at the table above, you can see that everyone pays at least some tax. So what gives?

Two points:

  1. Generally, people in the lower brackets get a lot of deductions and credits (like the EITC) that completely eliminate their tax liability, or even create a negative one. That’s right—not only do a lot of these folks pay no income taxes, they actually receive money from the government.5
  1. People still pay payroll tax, to fund Social Security and Medicare.

Our tax code is very progressive—the effective tax rate for millions of people is zero or negative, while the effective tax rate for rich filers is in the thirties (or much higher when you add in state income taxes and other items that we discussed before).

What about Sweden?

Here are Sweden’s tax brackets, in USD (from Wikipedia):

0%      $0 to $2,690
31%    $2,690 to $62,140
51%    $62,140 to $88,180
56%    $88,180+

So as you can see in Sweden, everyone pays a decent amount of tax. The rates are high, but the tax code is not all that progressive.

And this is how the OECD reports Sweden has a much higher tax burden than the US: the tax code is flatter, and everyone pays. Lower class, middle class, upper class—everyone.

Progressive tax codes are the worst things in the world.

Why?

With a progressive tax code, you can divide people into groups and turn them against each other. The rich aren’t paying their fair share. The poor aren’t either. There is a lot of hate and discontent.

A flat tax (or nearly so) solves these problems: everyone has skin in the game, and also, a flat tax is progressive anyway. If there is a flat tax of 20%, if you earn $100,000, you pay $20,000, and if I earn $1 million, I pay $200,000—10 times as much.

But really, it all comes down to incentives. High marginal tax rates create a disincentive to working hard and producing cool stuff.

If Joe Shlabotnik makes $25,000 a year and his marginal tax rate is 15%, he has no disincentive to go to work. He gets to keep 85 cents of every dollar.

But you don’t care about that guy. Actually, you do, but you don’t care about Joe Shlabotnik as much as about Elon Musk.

Elon Musk lives in California, so he pays that 13.3% state income tax, and very likely he faces the 59.6% marginal rate that we discussed earlier. So is the 59.6% marginal rate keeping him from going to work? No.

What if it were 70%, like under Jimmy Carter?

What if it were over 90%, like Bernie Sanders wanted? Would he still go to work then? He might not.

You want guys like Elon Musk to keep going to work6.

Nowhere in this essay have I said that these tax rates are unfair. They may very well be fair. I am not getting into a political discussion here, nor am I complaining about my taxes.

I am saying two things:

  1. That the US is not a low-tax jurisdiction, at least in the way that it counts.
  1. The top marginal rate is the one factor that is most (inversely) correlated to economic success.

I am no fan of Trump. And I’m not sure why he was complaining about high taxes, with all those NOL carryforwards. But as you travel around the world, taxes here are not especially low. The US has this reputation as this Wild West capitalist fantasyland, but nothing could be further from the truth.
___________________

1 We don’t, but it’s close.
2 Ranked 58th in suicides.
3 Not counting Aruba.
4 France got rid of their 75% top rate, for reasons you might expect.
5 In other words, a lot of people think they are taxpayers, but they aren’t. They have tax withheld over the course of the year, then get it all back (and then some) as a refund.
6 Musk would probably go to work if his tax rate was 100%, because that’s who he is, but most people aren’t wired like that. Certainly not me.

 

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US Homegrown Terrorism

Very sensible commentary by George Friedman, via John Mauldin.  First he gives detailed explanations for why neither banning guns nor Muslims can work as a strategy to defeat terrorism in the US, then gives us this opinion:

I would propose that the US can prevent terrorist attacks by crushing radical Islamist organizations and intimidating others who might follow. However, the cost in lives, wealth, and time would be staggering.

There are 1.7 billion Muslims. Islam’s jihadist strand is organized into groups like the Islamic State. These groups are capable and sophisticated in both the covert arts and more conventional warfare. They are ruthlessly pursuing their goals. IS is not being defeated, as the White House has claimed. The head of the CIA conceded this last week.

The jihadists are fanatical in their commitment and, therefore, can be defeated only by measures such as those that broke the Germans and the Japanese fanatics. That means accepting a massive increase in American force and possibly even a draft. It also requires the acceptance of many innocent civilian deaths. Believing it can be otherwise is, in my opinion, wishful thinking.

Banning guns and blocking borders is psychologically satisfying but an illusion—a victory of the imagination, not reality. Defeating Islamist terrorism involves defeating the organizations that encourage and enable it.

That will require a mammoth effort. If we are not prepared to make the effort, we must consider leaving the region and perhaps accepting the idea of the caliphate.

We are now in, what is most charitably described as, a “holding action.” One we cannot win. At best, we can maintain a stalemate until we tire… and then we’ll be defeated.

We can commit to all-out war or abandon the field.

I’m not sure I agree with this conclusion, but he is right that the proposed bans would be neither enforceable nor effective.

 

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