Free Markets, Free People

Daily Archives: March 2, 2012


ObamaCare–why you should care and work for its repeal

We’ve talked a lot about the dependency culture and how the left continues to try to grow it.  And perhaps one of the most outrageous examples of that is The Patient Protection and Affordable Care Act (PPACA) law commonly called ObamaCare.

The Heritage Foundation does a great job of outlining 13 reasons why ObamaCare needs to go down the circular drain (and that’s regardless of whether or not the Supreme Court invalidates the individual mandate, although that mandate is among their 13 reasons).

Each of the 13 reasons to repeal the law has its own link that takes you to another page which explains the Heritage Foundation’s argument.

Let’s take one of those reasons and look at it.  How about:

Health Care Subsidies: Obamacare spends more than $400 billion in the first 10 years to subsidize health insurance offered through government-designed exchanges. The design of these subsidies reinforces the current inequities in the tax code and creates new ones that will discourage work and encourage employers to discontinue offering health insurance.

When you go to the link you find out that:

These subsidies are the most expensive component of the overhaul, costing over $460 billion by 2019. Perhaps even more problematic, they will cause significant and harmful disruptions far outside the health care system by discouraging work and further complicating the tax treatment of health insurance. The subsidies reinforce current tax code inequities and create new ones.

Other than the cost, how that all works is hard to wrap your head around.  And to the Heritage Foundation’s credit, they attempt to explain it.  For instance, how does it discourage work?

The subsidies will discourage work by individuals eligible for the subsidy and for other taxpayers who will likely be forced to pay higher taxes in order to finance the subsidies.[14]There is an enormous “cliff effect” at 400 percent of the FPL, where earning additional income results in a total loss of the subsidy. A family of four headed by a 60-year-old would lose more than $15,000 worth of tax credits as household income passes 400 percent of the FPL.[15] The subsidy will also encourage individuals to retire early and to change the way they report income. This subsidy structure also penalizes upward income mobility and marriage.[16]

FPL is the “Federal Poverty Level”.  And 400% of the FPL for a family of four is $89,400 in 2011.  That’s right … if you make $90,000 dollars as the head of a family of 4, you’re eligible for a health care subsidy.  If you go beyond that, as the Heritage Foundation points out, it could cost you more than $15,000 dollars.

But that’s not the only impact.

How will it effect business, specifically small business?  Remember, you have to have over 50 employees before this kicks in.  But if you do have that many, you’ve got some real problems ahead of you (and, perhaps, an incentive to stay or get below 50).  The National Federation of Independent Businesses lays it out for you:

Which Businesses Face Potential Penalties?

Businesses with 50 or more full-time employees or full-time equivalents (FTEs) face potential employer mandate penalties. In this context, a full-time employee is one who works 120 hours per month or more – roughly 30 hours per week. In counting toward 50, each 120 hours per month of part-time labor comprises one FTE.

If an owner has several different businesses, they may or may not be treated as a consolidated group  under the Tax Code. If they are treated as consolidated, then the full-timers and FTEs in the multiple  businesses will be added together and treated as one business in determining whether the employee count is 50 or more.

So, first we redefine full-time employee.  From as long as I can remember, 40 hours a week has been a full time employee.  Anything under that was part-time.  Now we have 30 hour a week employees considered full-time.

Anyone, can you guess what may happen to those who are working part-time hours (30 a week, 120 a month) now when 2014 rolls around and these rules go into effect?  Yes, no more than 29 hours week and 116 hours a month.  So immediately it has an effect on productivity and hours worked and part-time employees hours and pay.

And if a business had plans to expand to 50 workers and beyond, given the complexity and cost concerning health care of doing so, why would it?  Or if it did,  why wouldn’t it drop health insurance and tell employees to join government exchanges?   In the first case there is no incentive for expanding to 50 or beyond and in the second there is every incentive to drop health care insurance if they do.

Because providing insurance could lead to this:

How Much Are The Penalties?

If a business does not provide insurance and if at least one employee receives federal insurance subsidies in the exchange, the business will pay $2,000 per employee (minus the first 30). Example: a business with 50 employees, two of whom are subsidized, would pay $40,000 = $2,000 x (50 – 30). To qualify for subsidies, an employee must meet two criteria, described below.

If a business does provide insurance, and if at least one employee receives insurance subsidies, the business will pay $3,000 per subsidized employee OR $2,000 per employee (minus the first 30) – whichever is less. So a providing business with two subsidized employees would be fined $6,000.   With 14 or more subsidized employees (above the tipping point for the formula), the penalty for a 50-employee firm would be $40,000.

So you’re a small business which has been providing health insurance for your employees and suddenly the government decides it is going to subsidize some of them (even those well paid and making 400% of FPL).  But if they subsidize them, without you or the employee asking them too, you, the employer have to pay a fine?

Why would you continue to provide health insurance?  Especially when this could happen as the law is written today:

For some firms, the employer mandate will result in large fines when circumstances change in their employees’ households. For example, an employee’s spouse losing a job or an employee’s spouse’s elderly relative moving into their house could trigger thousands of dollars in annual employer penalties. Employers will not be entitled to know the details of what triggered their penalties – unless they challenge the employee’s honesty before a government agency. The IRS is trying to fix this
sticky situation.

The absurdities abound.  But the intent is clear. 

The intent of this draconian nonsense is to drive employees to government exchanges.  And we know where it goes from there.

This is only one of 13 reasons why this travesty of a law must be repealed.  It is a disaster, it won’t drive cost down, and, given the penalties it imposes, we, the consumer will be picking up the tab for these penalties in the price of our goods.

This law alone is reason enough to get the current occupant out of the White House and planning an early retirement.  ObamaCare must not stand.

~McQ

Twitter: @McQandO


Fannie Mae and Freddy Mac continue to suck down taxpayer money

Two of the the institutions most responsible for the housing crisis, despite Barney Frank’s claims to the contrary, are still in crisis themselves (a third is the very institution Frank called home – Congress).

Fannie Mae said Wednesday it lost $2.4 billion during the fourth quarter of 2011 and $16.9 billion for the full year.

It has had worse years, remarkably. Fannie lost about $60 billion in 2008 and $72 billion the following year–two of the 10 largest corporate losses ever. Sibling Freddie Mac is responsible for a third, a $51 billion loss in 2008.

These two institutions, both set up by and working at the behest of the federal government, have a very checkered history. 

For those who have always wondered what “Fannie Mae” stands for, it is the Federal National Mortgage Association, begun in freddie_mac_and_fannie_mae1938 during the Great Depression as a part of New Deal.  So those who argue that it is a “private corporation” are simply uninformed.

Both organizations have a single purpose: “to expand the secondary mortgage market by securitizing mortgages in the form of mortgage-backed securities (MBS), allowing lenders to reinvest their assets into more lending and in effect increasing the number of lenders in the mortgage market by reducing the reliance on thrifts.”

As it turns out, they got way out on a limb with their purpose, driven by government policy and crony capitalism.

What set off the debacle through which we suffered?  Here’s the short story:

In 1992, President George H.W. Bush signed the Housing and Community Development Act of 1992. The Act amended the charter of Fannie Mae and Freddie Mac to reflect Congress’ view that the GSEs "… have an affirmative obligation to facilitate the financing of affordable housing for low- and moderate-income families in a manner consistent with their overall public purposes, while maintaining a strong financial condition and a reasonable economic return;"  For the first time, the GSEs were required to meet "affordable housing goals" set annually by the Department of Housing and Urban Development (HUD) and approved by Congress. The initial annual goal for low-income and moderate-income mortgage purchases for each GSE was 30% of the total number of dwelling units financed by mortgage purchases and increased to 55% by 2007.

In 1999, Fannie Mae came under pressure from the Clinton administration to expand mortgage loans to low and moderate income borrowers by increasing the ratios of their loan portfolios in distressed inner city areas designated in the CRA of 1977.  Additionally, institutions in the primary mortgage market pressed Fannie Mae to ease credit requirements on the mortgages it was willing to purchase, enabling them to make loans to subprime borrowers at interest rates higher than conventional loans.

George H.W. Bush began the slide and Bill Clinton lit the afterburners.  And while the industry attempted to take advantage of the situation it also needed an easing of credit requirements to meet the policy goals of the CRA.  And anyway, the Federal government was guaranteeing this mess.  Crony capitalism at its finest.

The warning signs about the eventual end were everywhere.  And any number of people issued those warnings:

In 1999, The New York Times reported that with the corporation’s move towards the subprime market "Fannie Mae is taking on significantly more risk, which may not pose any difficulties during flush economic times. But the government-subsidized corporation may run into trouble in an economic downturn, prompting a government rescue similar to that of the savings and loan industry in the 1980s."

Also in the New York Times, Alex Berenson reported in 2003 that Fannie Mae’s risk was much larger than is commonly held.

The eventual end to such nonsense was almost precisely foretold:

In his 2006 book, America’s Financial Apocalypse, Mike Stathis also warned about the risk of Fannie Mae helping to trigger the financial crisis: “With close to $2 trillion in debt between Freddie Mac and Fannie Mae alone, as well as several trillion held by commercial banks, failure of just one GSE or related entity could create a huge disaster that would easily eclipse the Savings & Loan Crisis of the late 1980s. This would certainly devastate the stock, bond and real estate markets. Most likely, there would also be an even bigger mess in the derivatives market, leading to a global sell-off in the capital markets. Not only would investors get crushed, but taxpayers would have to bail them out since the GSEs are backed by the government. Everyone would feel the effects. At its bottom, I would estimate a 30 to 35 percent correction for the average home. And in ‘hot spots’ such as Las Vegas, selected areas of Northern and Southern California and Florida, home prices could plummet by 55 to 60 percent from peak values.”

Bingo.

And here we are.

The cost to you for this the mess created and driven by government policy and taken advantage of by lenders?  A lot.

Both Freddie and Fannie are supposedly “for profit” corporations. Profits, however, have been in short supply (but bonuses to top cronies haven’t):

During the three years leading up to the house price peak, Fannie reported annual profits of between $4.1 billion and $6.3 billion, and Freddie, $2.1 billion to $2.9 billion. During the five years since, Fannie lost a cumulative $163 billion, and Freddie, which hasn’t yet reported fourth quarter results for 2011, $91 billion.

Both Fannie and Freddie pay dividends to the Treasury Department as a condition of their government sponsorship, but both have regularly requested larger sums than they have paid. For example, Fannie said Wednesday that it paid $2.6 billion in dividends to the Treasury during its fourth quarter, but that it would soon submit a request for $4.6 billion to offset losses.

Fannie says it requested a total of $116 billion from the Treasury since the fourth quarter of 2008 and paid about $20 billion in dividends. Fannie requested $72 billion and paid $15 billion.

Or, as the article breaks it out in the nation of 309 million, the cost is $1,300 for each American household – owner or renter.

This is what happens when government’s decide they know better than markets.  When they let unsound political policies that create perverse financial incentives rule the day.   When they put financial prudence behind political gain. 

Hopefully we’ll learn something out of this.  But we won’t if each side continues to deny its role in this mess.   It was government who set the perverse policy and industry to took advantage of it. However, what should be clear to anyone is that if there had been no policy, there’d have been nothing of which to take advantage.

As usual, the tax payers is left holding the multi-trillion dollar bag for this monumental screw-up.

~McQ

Twitter: @McQandO


Gallup again points out for all the Republicans out there — It’s the economy, stupid!

I’m not sure how much more plainly it has to be said.  Here, let Gallup try:

More than 9 in 10 U.S. registered voters say the economy is extremely (45%) or very important (47%) to their vote in this year’s presidential election. Unemployment, the federal budget deficit, and the 2010 healthcare law also rank near the top of the list of nine issues tested in a Feb. 16-19 USA Today/Gallup poll. Voters rate social issues such as abortion and gay marriage as the least important.

If making the point graphically will help, here it is:

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The top 5 or 6 are your winners.  Any questions?

And in case that didn’t quite sink in and you still want to argue about it, try this one:

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Are we getting through yet?  Is it starting to get clearer?   Any talk about anything other than the top 5 or 6 topics, and preferably the top 3 or 4, is a distraction, waste of time and will see voters, especially those in the middle column critical to any electoral win, tune you out.

It is the economy, stupid.  That’s what the people are concerned with, what they’re most likely to base their vote on and what they expect you to be talking about.

Take a hint.

~McQ

Twitter: @McQandO