Thursday, March 1, 2012

Words and Their Plain Meaning ... Fair Share, Rights, Privileges, Regressivity and Subsidies

Abraham Lincoln once asked an audience how many legs a dog would have if in addition to the four obvious ones, he counted the dog's tail as a leg, too. The crowd answered five.

Not so, replied Lincoln. Calling a tail a leg doesn't make it a leg. The correct answer was four.

Since it's the political season, there has much misuse and carelessness about the meaning of words lately. Fair share, rights, privileges, regressivity and subsidies are a few that come to mind.

Let's review all this and call a tail a tail along the way.

The Dependency Crisis is subtitled 'More Americans live off government, and the Obama administration is encouraging the trend.' It contains the following excerpt:

"The continual push of the Obama administration toward government-centric policies and large spending increases has compounded the lack of control of federal spending during the Bush administration. As a result, more and more Americans are dependent on the federal government. But what may be even more surprising is the historic magnitude of this increase in dependency on government. . . .

In 2009 the top 1% of Americans paid a higher share of income taxes (36.7%) than the bottom 90% (29.5%). . . .

• In the late 1960s, 12% of Americans paid no income taxes. By 2000 it was 34%, and in 2009 it had reached 49.5%. . . .

• Social Security needs 2.9 workers to pay taxes for each retiree receiving benefits. The current ratio is 3.3 workers per retiree, but it will reach 2.9 in 2015 and drop to 2.0 in the 2030s.

• One in 5 Americans (not including government employees) depend on government aid. . . . In 1962, 33.6 million Americans (including government employees)—about 18% of the population— depended on government; in 2010 it was 91.2 million—29.5% of the population."

Now let's look at former Federal Reserve governor and economist Lawrence Lindsey's stinging but accurate criticism of current Treasury Secretary Timothy Geithner's argument about the "privilege" of American citizenship. Geithner and the 'Privilege' of Being American says this:

"Last week Treasury Secretary Tim Geithner said that the "most fortunate Americans" should pay more in taxes for the "privilege of being an American." One can debate different ways of balancing the budget. But Mr. Geithner's argument highlights an unfortunate and very destructive instinct that seems to permeate the Obama administration about the respective roles of citizens and their government. His position has three problems: one philosophical, one empirical, and one logical.

Philosophically, the concept that being an American is a "privilege" upends the whole basis on which America was founded. Privileges are things granted to one individual by another, higher-ranking, individual. For example, in my house my children's use of the family car is a privilege. One presumes Mr. Geithner believes that the "privilege" of being an American is granted by the presumably higher-ranking, governing powers that be.

This is an age-old view that our Founding Fathers rejected. First, they argued that the basic rights of life, liberty and the pursuit of happiness (i.e., economic liberty) were natural rights, endowed by our Creator, not by government. Second, the governing powers do not out-rank the citizens. . . .

{T}he relative tax burden of the top 5% of American earners compared with the remaining 95% has grown from roughly three-to-one prior to 1980 to almost six-to-one today.

One can always argue that this ratio should be 10-to-1, that the "privilege" of being governed is worth 10 times as much per dollar of income to someone who is rich than to someone who is middle-class. Once we give up our moral compass of government deriving its powers from the people, we must also give up any empirical compass of how much we must surrender to government. . . .

This brings us to the third problem with Mr. Geithner's argument, a fundamental logical inconsistency. If being governed, or over-governed, is a privilege for America's citizens, shouldn't everyone pay for the privilege? Why are more than half of all American workers paying nothing at all in income taxes? And if the issue is the need to "pay more" for our privilege, why should only those making over $250,000 be the ones who pay more? If being an American really is a privilege, then certainly all who are thus privileged should pay something.

Still, the real problem with this whole privilege argument goes back to what the Founding Fathers were thinking. Being an American is a right, not a privilege. The privilege belongs to those who are temporarily allowed to serve this great nation in a decision-making capacity."

For one more example of purported "government knows best" fairness, let's look at the U.S. health-care system.

Conservatives and the Mandate discusses the five legs of ObamaCare and the highly regressive nature of our overall American health-care policy:

"Context is everything. Barack Obama says his mandate is about extending health care to the uninsured. But look closely. It's also partly about forcing the young, healthy and otherwise uninclined to overpay for health insurance so the money can be used to pay for heavy users of the health-care system.

To put a round guess-estimate on it, people who might consume $900 worth of health care in a year will be asked to buy $5,000 policies so the money can be used for somebody else. . . .

Let's step back. ObamaCare is a specific instance of a broader truth about America's health-care policy: It's grossly regressive. The giant tax subsidy for employer-provided health insurance is most rewarding to those in the highest brackets. Medicare is regressive: It transfers money from working people, with few assets, to the elderly, who own most of America's wealth. Even Medicaid, the program for the poor, is morphing into a program for helping the middle class shield its assets from long-term care bills.

The cumulative impact of these interventions has given us the health-care system we have. Because it subsidizes third-party payership, it destroys any hope of price-value comparisons by consumers. Because it commits the cardinal economic impossibility of trying to subsidize everybody, the end result is not better health but higher costs in the form of rising prices and the provision of services of questionable value. . . .

But suppose the policy bias in favor of third-party payership were corrected. Suppose insurance became insurance again, i.e., protection against large, unpredictable costs. Suppose patients began paying for a bigger share of health care out of their own pockets. Suppose providers responded by putting price-tags back on medical services and competing to offer value-for-money.

A young, healthy person might still choose to skip insurance and rely on the emergency room. But the problem would be a small one, because many fewer people would be voluntarily uninsured, because insurance would no longer be an overpriced luxury to anybody not benefiting from a direct subsidy. . . .

The solution can be summarized as "stop subsidizing the unneedy" (and a well-conceived tax reform would go a long way toward doing just that). . . .

Why politicians like to shovel benefits at the capable, self-sustaining majority is not a mystery—that's where the votes are."

Summing Up

A subsidy is a grant or contribution of money made by one to another. In our examples today, the subsidies are granted by government to those chosen as beneficiaries of the subsidies. In other words, subsidies arise when government "helps" some groups or citizens at the expense of others. Such as when the young pay to subsidize the old. Simply put, if we're not paying our own way, we're being subsidized by someone else.

Calling our U.S. health-care system regressive (regressive means taking a larger percentage of earnings from low income people than from high income people) merely acknowledges the harmful effect of requiring the young to buy insurance in order to allow old people to pay less for oldster health benefits. This regressivity is heightened further as the actual costs of health care are dramatically higher for the oldsters than for the youngster working group. And the oldsters are generally better able to pay as well. Hence, it's upside down, or regressive in nature.

The same regressivity factor applies when the working "asset-poor" young are forced to pay for the often asset-rich oldsters' Social Security and Medicare benefits. And much of the Medicaid provided nursing home care as well.

You see, subsidies are omnipresent when "government knows best" policies prevail and interfere with the free market. And the big subsidies frequently benefit the elderly. That's because most of the old folks take the time to vote.

And when government laws require otherwise unwilling factory workers to pay union dues to union officials in non-right-to-work states, it subsidizes those labor union leaders and indirectly the Democratic Party as well.

Of course, there are countless other cases of subsidization when government policies do a little harm to many while "helping" the favored few a lot. But we don't need to go into more detail herein. By now you've gotten the main idea, I'm sure.

To recap, to subsidize is simply to take from one and give to another. Politicians and those directly benefiting from the government subsidy will both enjoy its effects. Meanwhile, the "public servants" hope that the subsidizing taxpayers don't notice what's really happening. And too often we don't.

So the next time you hear about a politician fighting on behalf of the middle class, the elderly, union workers, the underinsured, public school teachers or countless other "public servants," think about two things--(1) it's your money they're spending, and (2) it's not really a five legged dog.

I've never seen such an animal. Neither had Honest Abe.

Thanks. Bob.

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