- The Washington Times - Wednesday, January 29, 2003

WASHINGTON, Jan. 29 (UPI) — The UPI think tank wrap-up is a daily digest covering opinion pieces, reactions to recent news events and position statements released by various think tanks. This is the third of three wrap-ups for Jan. 29.

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The Center for Economic and Policy Research

(CEPR's goal is to ensure that citizens have the information and analysis that allow them to act effectively in the public democratic debate on important economic and social issues that affect their lives, by informing them about the problems and choices they face in an accurate and understandable manner, so they are better prepared to choose among various policy options.)

WASHINGTON — Lower capital gains taxes raise deficit projections

By Dean Baker

The Congressional Budget Office acknowledged that the deflation of the stock market bubble will seriously depress capital gains revenue in its new economic and budget projections.

Prior to this year, CBO had continued to project that capital gains tax revenue would be larger than its historic share of gross domestic product over its 10-year projection period. It clung to these projections in spite of the fact that its own profit projections implied that the stock market was hugely over-valued and was virtually certain to collapse within its projection period.

The downward adjustment in the projections for capital gains tax revenue has a serious impact on the future budget projections. The new projections show that revenue from capital gains taxes will be $428 billion less than was indicated in the January 2001 projections (for the overlapping years), which were the most recent projections at the time President George W. Bush's tax cut was approved.

Including the effect of interest, the 10-year surplus projections would have been $516 billion lower in 2001, if the current capital gains projections had been used.

The current economic projections include two other aspects which may lead to errors in the projections. The projections assume that the dollar will decline only modestly in coming years, leaving the current account balances slightly higher than current levels.

This path implies a large increase in the negative net asset position of the United States. It implies that the net asset position of United States will be negative $4.5 trillion by the end of 2005, a shortfall that exceeds the projection for publicly held debt at that point. By the end of the projection period in 2013, this assumption implies that United States will have a net foreign debt of more than $10 trillion, or more than $30,000 for every person in the country.

This assumption seems implausible. If true, it implies that the United States will be selling off much of its wealth, even as the baby boom generation is preparing for its retirement. More likely,

the dollar will fall sharply within the projection period — raising the inflation rate, but bringing the current account closer to balance. It is not clear how the Federal Reserve Board might respond to inflation induced by a falling dollar, so it is difficult to determine its impact on the budget.

The other likely source of error is the failure to account for the impact of a serious correction in the housing market. The rise in home prices has exceeded the overall inflation by more than 30 percentage points over the last seven years. If home prices fell back in line with the overall rate of inflation (they generally had risen at the same pace in prior years), it would destroy $3 trillion in wealth.

This amount is considerably less than the $8 trillion destroyed by the collapse of the stock market bubble. However, housing wealth is far more evenly distributed than stock ownership,

so the effects on consumption and the economy could be comparable. A collapse of housing prices could lead to a sharp reduction in consumption, throwing the economy back into recession.

One important assumption which may prove overly pessimistic is the long-term unemployment rate projection. The CBO projects that the unemployment rate will average 5.25 percent, after it has recovered from the current recession. While this is lower than the 6 percent unemployment rate conventionally assumed prior to the late 1990s, it ignores the fact that inflation remained stable even as the unemployment rate fell to 4 percent in 2000.

If the projection instead assumed that 4.5 percent unemployment was a sustainable level, it would increase annual revenue projections by approximately $40 billion. Including the savings on interest, this change would raise the projected surplus by more than $500 billion over the projection period.

Whether the unemployment rate if allowed to fall toward the 4 percent level reached in 2000 will ultimately be a policy decision made by the Fed.

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The Acton Institute

(The Acton Institute works to promote a free and virtuous society characterized by individual liberty and sustained by religious principles. Its goal is to help build prosperity and progress on a foundation of religious liberty, economic freedom and personal moral responsibility.)

GRAND RAPIDS, Mich. — Health Care Reform: Government Subsidy or Restoring Subsidiarity?

by Phillip W. De Vous

Often absent from many of the policy debates in Washington is a reference to the first principles that animate, or should animate, the discussions surrounding important issues. No contemporary issue illustrates this more clearly than the looming debate over health care reform in the United States.

While policy wonks debate the merits of various proposals making their way through Congress, a fundamental question looms: Will the attitude of government subsidy, or the restoration of communal subsidiarity, ultimately form the foundation of this debate?

Christian social teaching, as articulated in the Catholic theological tradition, holds that the principle of subsidiarity should be applied in evaluating proposals relevant to the common good of society. Within the Protestant theological tradition, there exists a similar principle, termed sphere sovereignty.

These principles demand that decisions be made, if possible, at the level most competent to make them, in other words, at the level closest to those affected by the decision. Decision-making authority should not be assumed by or relegated to higher levels of authority when lower levels are competent to decide.

This principle embodies and recognizes a reverence for the institutions of civil society, the obligations of personal responsibility, and the demands of the common good. When this principle is correctly understood and appropriately applied to the evaluation of the vagaries of public policy, it should result in a healthy skepticism of big government programs administered by unelected, unaccountable bureaucrats.

This is especially true as the nation moves to the very important debate of reforming our nation's health care system. No one denies that our health care system is in crisis. Costs are rising at rates far outstripping consumers' ability to meet their health care obligations.

Even conservative estimates show that health care costs are rising by double-digit percentages (14 percent last year alone) with no relief in sight. The sad fact is that 42 million Americans are uninsured, with more sure to come as costs rise and economic growth remains timid.

Disproportionately, single mothers and children bear the burden of the substandard health that results from inadequate or no health insurance coverage. It is important to note, however, that with costs rising, an increasing number of middle-class Americans find themselves without health insurance as small businesses find they cannot bear the costs of health benefits.

While there is no policy panacea for the health care woes of our current system, the time has come to reorient national health care policy. The current system is heavily regulated by state and federal regulatory mandates.

This command and control approach, pitched in the past as a way to extend coverage to those unable to afford adequate health care, has had the effect of putting those with and without health care in rigid boxes, such as Medicare for the elderly, Medicaid for the poor or disabled, CHIP for children, Veteran's Administration for veterans, or employer-sponsored insurance plans for most workers.

These boxes are quickly getting too small.

In order to expand these boxes and to increase the number of those receiving adequate health coverage, it will be important to return health care-related decisions to the lowest level of capable of making them — consumers. In that regard, a few sensible and innovative changes in health policy could go along way in spurring reform in the financing of health care in the United States:

— Extend the Health Reimbursement Arrangements already within the tax code. This provision allows employers to set up a medical savings account for their employees and still preserve the tax break given to businesses under the current system.

This would allow businesses to purchase high-deductible policies and use premium savings for employee savings accounts. Employees would be able to use the accounts to cover out-of-pocket health expenses, allowing any remainder to be rolled over into the next year. The effect of this would be to match more closely health care costs with consumption, incentivizing accountability and choice.

For low-income workers, enacting a refundable, advanceable tax credit in order to put money directly in the hands of those in need of health care. This would allow consumers to purchase healthcare wherever they choose, giving many low-income workers the ability to opt out of various state-sponsored programs that fail to meet their needs. With a more realistic assessment of the actual costs of health care, this too would encourage choice and discourage frivolous consumption.

— Enact a tax credit for those doctors, dentists and other essential health care workers who set aside meaningful blocks of time for the pro-bono treatment of those without insurance, with a special emphasis on the treatment of children, the mentally ill, those suffering from addiction, and the homeless.

— Remove the tort premium placed on those in the medical profession through meaningful tort reform. Enacting caps on non-economic damages and eliminating highly subjective punitive and hedonic damages are reasonable steps in this regard.

For many years, health care decisions have been moving farther and farther away from those who should be directly responsible for making them. Removing command and control regulations, restoring individual accountability for health care consumption, giving consumers more of their own money, and expanding choice are sound steps toward fixing the current health insurance crisis.

Subsidiarity, not government subsidy, is where the future of sound health care policy lies.

(Phillip W. De Vous is the public policy manager of the Acton Institute.)

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The Mackinac Center for Public Policy

(MCPP is a non-partisan research and educational organization devoted to improving the quality of life for all Michigan citizens by promoting sound solutions to state and local policy questions through the objective analysis of issues. MCPP seeks to broaden the policy past the belief that government intervention should be the standard solution for various issues, and offers a comprehensive approach encompassing voluntary associations, business, community and family, as well as government.)

MIDLAND, Mich. — Health Care: Let's put people first, not government

By Lawrence W. Reed and Kevin C. Waycaster

In times of crisis, Americans are sometimes more inclined to trust in government solutions to their problems than in private or self-reliant solutions. Most politicians are more than willing to empower themselves. But as most citizens understand, what government gives it can also take away. And when the crisis subsides, government almost never retreats fully to its role before the problem occurred.

When government creates a new program or adds to its responsibilities, it is important to remember that its actions — being the result of the endless tug-of-war that defines the nature of special interest competition in an era of BIG government — often tend to breed unintended, negative consequences.

In the case of health care, which many people say shows some signs of crisis, the worst-case scenario would be a British or Canadian-style single-payer system in which politics dominates and dictates who gets what care and at what public cost. A former cabinet secretary under the first President Bush put it well when he said a national health care system run from Washington would combine "the efficiency of the post office with the compassion of the IRS."

Indeed, when government is in charge, even routine matters can become political hot potatoes. A February, 2000 Mackinac Center commentary pointed out that this precise phenomenon was in evidence recently when hospital food became an election issue in Canada.

Nonetheless, some people still favor a government-run health care system. These people contend that this approach would be a positive step toward eliminating America's burgeoning number of uninsured, which currently stands at over 40 million.

Examples of this approach be found in recent and past public policy proposals and ballot initiatives throughout the nation. Ballot Measure 23 was placed before Oregon voters in November 2002. It would have created a state-run universal health care program but was defeated as nearly 80 percent of those going to the polls decided they didn't want politicians and bureaucrats in charge of things like life support machines, when they can't seem to get classroom education right.

In spite of the failure of Hillary Clinton's 1993 proposal for nationalized health care, the idea just doesn't go away. Al Gore recently called for it. Speaking to the Harvard School of Public Health in November 2002, Sen. Edward M. Kennedy (D.-Mass. said: "I intend to introduce a proposal for universal coverage for all Americans in the new Congress."

What makes such talk seem all the more absurd is that we already have a government-run health care system that is itself an unmitigated disaster. It's the Veteran's Hospital program, and a 1994 Cato institute study showed that the great majority of those eligible for free or low-cost care in it shun it like the plague.

Why is it that such profound failure is so totally ignored by people like Gore and Kennedy? Are they really interested in helping people, or just growing government?

Incidentally, in case you still think after reading the Cato study that there's nothing wrong with VA hospitals that Gore and Kennedy can't fix with a little more federal compassion and somebody else's money, take a look at this story from the Kansas City Star: www.kansascity.com/mld/kansascitystar/news/opinion2939672.htm.

Universal, government-provided health care appears to some to offer a possible solution to the double-digit health care cost increases that businesses and individuals have recently faced, though one is hard-put to think of anything government has ever taken over that subsequently became cheaper.

Indeed, governments have done much to boost health care costs and thereby price some people out of the market for both insurance and care. For example, states have passed more than 1,500 mandated benefit laws. Attempting to comply with such laws, in addition to the plethora of other state laws and regulations adopted to regulate the insurance industry, is an arduous, costly task.

The National Center for Policy Analysis has shown that at least 20 percent of uninsured Americans are uninsured because the cost of complying with state mandated health benefits from acupuncture to hair transplants has priced them out of the marketplace. John Sheils of the Lewin Group, a national health and human services consulting firm, estimates that every 1 percent increase in health care premiums causes 300,000 people to drop their insurance coverage nationwide.

Tort and malpractice liability problems plague health care and, as President George W. Bush so eloquently stated in a speech earlier this month in Scranton, Pa., are a huge reason for runaway health care costs. The tort system is an essential government function, yet as it applies at least to health care, it's broken and politicians like Gore and Kennedy are dead-set against fixing it. Before government takes over health, is it too much to ask of these guys that they get the government to make even a modest attempt at cleaning up its own act?

Meantime, the promising option of Medical Savings Accounts, or MSAs, is vastly underutilized. MSAs represent a key ingredient in curtailing health care costs because they would help solve the "third-party" payment problem and also allow Americans to fix their health care system without the heavy hand of Washington.

Organizations like the Cato Institute, the Heritage Foundation, and the National Center for Policy Analysis have championed MSAs for years and have produced a wealth of supporting documentation, all available for even Washington politicians to see on these organization's Web sites. Over the past decade, the Mackinac Center for Public Policy has also produced some insightful pieces, accessible on this site.

(If you're interested in knowing more about how the "universal," single-payer, problem-plagued Canadian health care system really works, see the Web sites of three leading Canadian research organizations: the Frontier Center for Public Policy in Manitoba, www.fcpp.org, the Fraser Institute in British Columbia, www.fraserinstitute.ca and the Atlantic Institute for Market Studies in Nova Scotia, www.aims.ca).

While the 107th Congress adjourned with no action on MSAs beyond passing a one-year extension of a very limited project, prospects for action on MSAs in the 108th Congress may be good. Bush has announced that permanent enactment of MSAs occupies a major role in his legislative agenda.

With a Republican-controlled House and Senate willing to follow his direction, Bush should be able to capitalize on his leadership role and accomplish the goal of obtaining permanent enactment of the statute creating MSAs.

In any event, the evidence is monumentally huge with regard to government in health care. It leaves so much to be desired that private alternatives like Medical Savings Accounts surely deserve far more consideration than they are currently getting.

(Kevin C. Waycaster is a Compliance Analyst at American Republic Insurance Company in Des Moines, Iowa. Lawrence W. Reed is president of the Mackinac Center for Public Policy.)

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