The Lighthouse^®

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The Lighthouse^® is the weekly email newsletter of the Independent Institute.
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Volume 16, Issue 5: February 4, 2014

1. Healthcare Reform: The Wrong Way and the Right Way
2. President Obama and the Debt Burden
3. The Social-Security Ponzi Scheme
4. Turning a New Corner in the Drug War?
5. New Blog Posts
6. Selected News Alerts

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Last week, three Senate Republicans (Richard Burr of North Carolina, Tom Coburn of Oklahoma, and Orrin Hatch of Utah) unveiled a replacement for Obamacare: the Patient Choice, Affordability, Responsibility, and Empowerment Act—a/k/a the Patient CARE Act. If their goal was to propose a reform that would provide extensive healthcare coverage while significantly scaling back federal intervention, including burdensome taxes, the senators failed. The bill would raise income taxes by about $47 billion, according to Independent Institute Senior Fellow John R. Graham.

“Although a big tax hike, $47 billion does not go very far if used to extend health coverage,” Graham writes in The Beacon. If, for example, that revenue were used to fund a $2,500 tax credit for those who purchase qualifying health insurance, he estimates that it would cover fewer than 19 million people. Moreover, although the Patient CARE Act would provide tax credits for the purchase of private insurance, Graham notes that only a limited number of taxpayers would be eligible for the tax credits. This is not the path for genuine reform.

What should Congress do? Graham urges lawmakers to change the tax code so that health insurance obtained through one’s employer has no tax advantages over plans purchased on the individual market. How best to do that? The tax exemption for employer-based health benefits should be eliminated, and the new tax revenue should be recycled into tax credits for anyone who purchases health insurance. “For the average family with employer-based benefits, a tax credit would be worth more than the current tax exclusion,” Graham writes at PJ Media. “Such a reform, based on turning the tax exclusion into a tax credit, would benefit most Americans. Now that Obamacare has shown its flaws, the time is right to advance such reform.”

Make Employer-Based Insurance Taxable? Surprisingly, the Right Solution (PJ Media, 1/31/14)

Health Reform: Senate Republicans’ Proposal Is a $47 Billion Tax Hike with Few Beneficiaries, by John R. Graham (The Beacon, 2/3/14)

Health Reform: Senate Republicans’ Continuous Coverage Consumer Protection Needs Improvement, by John R. Graham (The Beacon, 1/29/14)

Priceless: Curing the Healthcare Crisis, by John C. Goodman

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In his State of the Union address last week, President Obama boasted that he has cut the annual budget deficit in half. A year earlier, he boasted that “we are more than halfway towards the goal of $4 trillion in deficit reduction that economists say we need to stabilize our finances.” Those words might sound like something coming from a deficit hawk, but keep in mind that any progress in deficit reduction must be weighed against the president’s complete fiscal record, including the massive yearly budget deficits he racked up during his first four years in the Oval Office.

Even with President Obama’s recent “success” in deficit reduction, obtained through a mix of minor spending cuts and large tax increases, the national debt has risen to more than $17 trillion—and continues to grow—saddling Americans with larger increases in national debt per household than under George W. Bush, Bill Clinton, George H.W. Bush, Ronald Reagan, Jimmy Carter, Gerald Ford, or Richard Nixon, according to Independent Institute Research Fellow Craig Eyermann, developer of the Government Cost Calculator at MyGovCost.org.

Based on a preliminary projection that there were 123,700,000 households in the United States last year, Eyermann estimates that during his tenure in office the president has increased the national debt per household by $8,426, compared to increases of $2,664 under his predecessor and $117 under President Clinton (all in 2013 dollars). See Eyermann’s eye-opening chart via the link below. President Obama may see himself as a great leader. In terms of the national debt burden, he is a leader without peer.

President Obama’s Deficit Reduction Achievement in Perspective, by Craig Eyermann (MyGovCost News & Blog, 1/29/14)

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Will Americans celebrate when Social Security turns 80 years old next year? Supporters credit the retirement program for reducing poverty in old age. Critics such as economist Martin Feldstein, however, point out that Social Security has reduced personal savings by as much as 60 percent; and by reducing personal savings, Social Security has hampered private investment and wealth creation. And there are additional reasons for lamenting the program, according to Independent Institute Senior Fellow Burton A. Abrams, author of The Terrible 10: A Century of Economic Folly.

To fund the rise in Social Security payouts needed to keep pace with the growing population of retirees, payroll taxes will likely be increased. There is precedent, Abrams notes: Long before the first baby boomers are scheduled to begin collecting Social Security, the tax rate has risen from 2 percent (on the first $3,000 of earnings) to 12.4 percent (for the first $117,000).

Although Social Security’s deepest problems stem from its pay-as-you-go nature, some of its problems involve its role in wealth redistribution—from young workers to old retirees and from men to women (who live longer than men and therefore collect more), etcetera. But here is one flaw (or is it a feature?) that you may not have heard of before, what Abrams calls the “trophy bride rule”: “An older man who earned $100,000 in his last working year could retire, marry a younger woman, adopt her child, and add more than $1,000 a month to his $2,000 a month in Social Security benefits.”

Social Security Shock Coming?, by Burton A. Abrams (Orange County Register, 1/31/13)

The Terrible 10: A Century of Economic Folly, by Burton A. Abrams

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With the turn of the new year, marijuana is now legal for adults in Colorado and Washington (although some restrictions apply). Should other states follow their leads? Independent Institute Research Fellow Art Carden answers in the affirmative. Moreover, the federal government would do Americans a world of good if it called an end to the War on Drugs, the economist argues.

“Entire neighborhoods are war zones because of drug prohibition, and we are filling America’s prisons with non-violent drug offenders,” Carden writes in Forbes. Our prisons are filled with violent drug offenders, too, but again, almost all of the violence surrounding the drug trade is due to the fact that drugs are illegal and not due to the drugs per se.”

Carden cites research on prohibition and criminality conducted by Independent Institute Research Fellow Jeffrey A. Miron, author of Drug War Crimes: The Consequences of Prohibition. “In the early twentieth century, we learned from the disaster that was alcohol prohibition,” Carden continues. “Shouldn’t we also learn from the disaster that has been prohibition of other drugs in the late twentieth and early twenty-first centuries?”

Colorado and Washington Blazed a Marijuana Legalization Trail: Should Others Follow?, by Art Carden (Forbes, 1/20/14)

Drug War Crimes: The Consequences of Prohibition, by Jeffrey A. Miron

The Terrible 10: A Century of Economic Folly, by Burton A. Abrams

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From The Beacon:

From MyGovCost News & Blog:

You can find the Independent Institute’s Spanish-language website here and blog here.

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