The Independent Institute


Why Pro-Soda-Tax Ad in Bay Area Is Misleading, Part II

The November ballot in Oakland and San Francisco will feature proposals for a soda tax in each city, known as Measure HH and Proposition V, respectively, which would charge soda distributors an additional one cent per ounce of soda they sell in each city (or $2.88 per case). The tax would also apply to the distribution of other sugar-sweetened drinks.

In September, I showed that soda-tax advocates, including Michael Bloomberg, are lying to the public when they say in their television ads and political flyers that “it’s not a grocery tax, it’s a soda tax.” In fact, Oakland and San Francisco grocery buyers will face higher grocery bills as a result of the soda tax. But the lies of tax proponents don’t stop here.

The pro-tax ad below says that voters should take the court’s word, “which just ruled that the soda tax is in fact only a tax on soda.” But this isn’t what the court said.

The court case referenced in the ad is Coffey v. Simmons, and here’s what the presiding official, the Honorable Thomas A. Rasch, commissioner of the Superior Court of Alameda County, actually said:

To state the issue [that the proposed tax would be imposed on local grocers because the distributors would pass the tax through to the local grocers who would then pass the tax on to the consumers] is to recognize the obvious that local grocers and other retailers will likely pass the tax through the chain of distribution to the ultimate consumer.

Commissioner Rasch says it’s obvious that grocery consumers will pay for the tax. As I explain in my earlier commentary, the tax is imposed on soda distributors (the tax’s imposition), but the burden of the tax (the tax’s incidence) will fall on grocery buyers because distributors will pass the soda tax on to grocers who, in turn, will pass the tax on to their retail customers by increasing the retail price of any product or products they choose in their store. Commissioner Rasch, to his considerable credit, understands this.

The soda tax is also a regressive tax, meaning it would harm lower-income families more than higher-income families because poorer households already spend a greater portion of their budgets on groceries. Bernie Sanders understands this and thus opposes soda taxes (see “A Soda Tax Would Hurt Philly’s Low-Income Families,” Philadelphia Magazine, April 24, 2016).

Despite lies by soda-tax advocates, the truth is that the soda tax is a discriminatory tax that unjustly harms lower-income and minority families most by increasing grocery bills. The soda tax is socially unjust and discriminatory.

Bill Clinton Is Right: Obamacare Is Crazy. Here’s a Sane Reform

34778261 - lisbon - january 14, 2014: photo of homepage on a monitor screen through a magnifying glass.

Bill Clinton’s criticism of Obamacare reflected a good understanding of labor economics. Last Monday, he explained:

So you’ve got this crazy system where all of a sudden 25 million more people have health care and then the people who are out there busting it, sometimes 60 hours a week, wind up with their premiums doubled and their coverage cut in half. It’s the craziest thing in the world.

Clinton is referring to high marginal income tax rates that Obamacare imposes on people through the design of its tax credits, which get clawed back in a very unfair way.

For example, if a four-person household’s 2015 income were $23,850, the family’s maximum annual premium would be $479, so it would benefit from a tax credit paid to its health insurer of $9,146. If the family’s income rose to $31,720, its maximum annual premium would be $638, so its tax credit would go down to $8,987. The household income has increased by $7,870, and its tax credit has dropped by $159. Effectively, the household has experienced an income tax rate of 2.01 percent ($159 divided by $7,870).

What Trump’s Taxes Really Tell Us about Politicians

55272640_MLA few days ago, it was revealed that in 1995 Donald Trump declared a $916 million loss on his tax returns. According to The New York Times, Trump’s losses under the U.S. tax code would have allowed him to write off or avoid paying any federal income tax for a period of 18 years.

In light of these revelations, Hillary Clinton took the opportunity to sharply rebuke him, saying that, while he pretends to help working Americans, Trump benefits from “the same rigged system he claims he will change.” She continued, “He abuses his power, games the system, puts his own interests ahead of the country’s.... It’s always Trump first, and everyone else last.”

I think Mrs. Clinton is likely correct in her statements. Trump probably almost always puts himself first. But at the same time I’m reminded of a Biblical suggestion. That is, don’t make a fuss over the speck of dirt in your brother’s eye when there is a plank in your own. Indeed, given the number of scandals in which she is involved, it seems like this is a case of the pot calling the kettle black.

Trump looks out for Trump, but Clinton looks out for Clinton.

A Sandy Beach and Constitutional Political Economy

34759653 - person walking the dog on the beach at sunsetI normally walk my dogs twice each day along the beach, which gives me an opportunity to ponder, among other things, issues in constitutional political economy. My late friend James Buchanan, one of the deepest thinkers in political economy during the past century, led the development of this field of study in his time. Jim maintained that both for understanding how the political world works and for constructing better institutions to foster freedom and prosperity, one ought to distinguish between the establishment and maintenance of the constitution, on the one hand, and normal politics, on the other. The idea is that the constitution has more durability and sets more binding constraints, whereas normal political action takes place within these bounds, dealing with less fundamental matters and doing so in a more volatile way.

I never found this way of thinking about politics very compelling. My study of political economy, political history, in general, and constitutional history, in particular, convinced me that the separation Buchanan urged has little to recommend it analytically. From the very outset, those who framed constitutions have sought to twist and game them along lines that seem closely connected to so-called normal, day-to-day politics. It is true, of course, that certain procedural stipulations in the U.S. Constitution, such as the conduct of a presidential election every four years or the age requirements for various public offices, have been seemingly set in stone. Yet these kinds of constraints have little or nothing to do with the substance of the constitution as an architecture of power and restraint of power.

Krugman’s Bite on Dentistry Lacks Teeth

43397789 - woman dentist working at her patients teeth .In July 2015, former Enron board member, New York Times columnist, and champion of ever more government control of health care, Professor Paul Krugman, wrote a disturbing blog entry:

Wonkblog has a post inspired by the dentist who paid a lot of money to shoot Cecil the lion, asking why he—and dentists in general — make so much money. Interesting stuff; I’ve never really thought about the economics of dental care.

But once you do focus on that issue, it turns out to have an important implication—namely, that the ruling theory behind conservative notions of health reform is completely wrong.

For many years conservatives have insisted that the problem with health costs is that we don’t treat health care like an ordinary consumer good; people have insurance, which means that they don’t have “skin in the game” that gives them an incentive to watch costs. So what we need is “consumer-driven” health care, in which insurers no longer pay for routine expenses like visits to the doctor’s office, and in which everyone shops around for the best deals.

Krugman goes on to insist that dentistry is a consumer-driven market: Insurance is far less prevalent in dentistry than in medicine, and most dental care is routine and preventive. Yet, he points out, costs of dental care have risen at the same rate as costs of other health care, not at the rate of other consumer goods and services.

How Marxism Corrupts The Magnificent Seven

Magnificent7Capitalism doesn’t survive ten minutes in director Antoine Fuqua’s new remake of The Magnificent Seven. Mining baron Bartholomew Bogue (Peter Sarsgaard) stands before the residents of the western mining town of Rose Creek and proclaims that, because America has accepted capitalism, they have little choice but to submit to his economic predation on their livelihoods as small claims miners. When one of the townspeople stands up to him, Bogue shoots him at point blank range, killing him, while his henchmen attack and kill others to dash away any further thoughts of resistance.

The anti-capitalist backstory is clearly intentional, although its integration into the film’s narrative is awkward at best. Capitalismis not well defined in the film’s implied glossary, but the general meaning is clear. The opening scenes show abnormally thin men working Bogue’s mines as dynamite blasts through mining shafts under the hills. Men fall from wagons in their rush to collect meager earnings at day’s end. In the town-hall type meeting that Bogue crashes, the small-time miners are lamenting the grim reality that Bogue has bought out their friends, and they will have little choice but to follow suit. The implication is that power is concentrated in the hands of the few—the industrialist Bogue, in this case—while the many toil under the guns of the henchmen.

Workers—err, miners—of the world unite!

But The Magnificent Seven’s backstory is not without merit, although it follows a populist storyline rather than one embraced by economic historians. (See historian Burton Folsom, Jr., here, on the Myth of the Robber Barons.) The 2016 remake is set in 1879, squarely in the Gilded Age of America’s industrial revolution and five years after the Panic of 1873. The Panic ushered in a deep, five-year economic depression, and was triggered by the collapse of railroad stocks after a decade of overbuilding (heavily subsidized by the federal government) and the collapse in global demand for silver. Arrested economic development, falling wages in the railroads, and high unemployment triggered social unrest, including the Great Railroad Strike of 1877 (also called the Great Upheaval).

In the new film, Bogue is specifically referred to as a Robber Baron, even though his industrial background is murky and only visually implied through a glimpse at his vast mansion in Sacramento, California. Bogue nevertheless appears to have a historical analogue in copper-mining tycoon William A. Clark. After starting out as a miner during the Montana gold rush, Clark switched to banking and grew his business by repossessing properties held by miners who had defaulted on their loans. He also seemed prone to the Gilded Age excess that likely rankled the sensibilities of those less fortunate. Historically, however, the vast majority of the so-called Robber Barons (a derogatory term coined by the popular press, not economists) were railroad tycoons.

All these historical subtexts and tensions unfold in one way or another on screen, although they seem more a distraction than elements that propel plot. Bogue’s particularly psychotic ruthlessness never plays out as anything more than a uniquely villainous personality. When he criticizes John D. Rockefeller (oil) and Cornelius Vanderbilt (shipping and railroads) for building their success through political connections and government, Bogue claims in his next breath that he will ground his success in the real capitalist way of simply taking it. (I would have laughed, but this is a serious drama.)

This rich backstory, although one-sided and inconsistent with mainstream interpretations of America’s industrial revolution, seems squandered. The film’s lead characters are a motley bunch of vigilantes, not too dissimilar from characters in the 1960s film. They aren’t really motivated by political economy or a political philosophy. In fact, their motivations are strangely obtuse and unclear. The gambler (Josh Faraday, played by Chris Platt) seems mostly concerned about getting back his horse. An outcast Comanche warrior (Red Harvest, played by Martin Sensmeier) might be looking for some form of redemption, but the viewer has to fill in the blanks to make that leap. Ethan Hawke’s sharpshooter-turned-vigilante, Goodnight Robicheaux, is one of the few characters with a genuine arc, as he wrestles with nightmares and demons from killing too many people during the Civil War. He is trying to resurrect his own sense of honor and redeem himself after falling from past glories. The leader of the Magnificent Seven is a bounty-hunter named Sam Chisholm (played by Denzel Washington, in his first Western movie role) is more purpose-driven, although his motivations are never really clear until the end of the film.

Fortunately, The Magnificent Seven is saved by its outstanding cast. Denzel Washington shows again why he can open big films. Vincent D’Onofrio plays an aging tracker, named Jack Horne, with enough quirks and innate sense of justice to keep audiences rooting for the vigilantes. The film also mixes it up with new characters who are more than just nods to diversity, including Red Harvest, an ambiguously Asian assassin (Billy Rocks, played by Byung-hun Lee), and a Mexican outlaw (Vasquez, played by Manuel Garcia-Rulfo).

Thus, The Magnificent Seven does, in the end, become an engaging modern Western, particularly when it features lots of guns blazing that take out villains, cool stunts on horses, and a kill ratio worthy of a video game. The seven gunslingers dispatch 20 of Bogue’s top henchman while the tycoon is away in Sacramento, giving the townspeople of Red Rock a feeble glimpse of hope. But Brogue returns with an army of 140 fighters, raising the stakes for everyone involved. Since this film is a remake, it’s probably not much of a spoiler to observe that Bogue is unsuccessful in retaking the town. None of Bogue’s army survives, thanks in part to the ultimate sacrifices of several noble townspeople and just four of the Magnificent Seven.

Film buffs hoping for a faithful adaptation of Akira Kurosawa’s Seven Samurai, the pioneering 1954 Japanese film that prompted the 1960 Western, will likely be disappointed by the new film because it strays even further from the original in both substance and form. In Kurosawa’s film, masterless samurai (ronin) are outcasts in a very structured social hierarchy, and they seek to restore their noble names by protecting the disenfranchised. They adhered to a very strict code of honor, obligations, and responsibilities. Killing to avenge dishonorable acts was justified as a way to bring balance to Japan’s feudal social order. Each of Kurosawa’s seven samurai was on a quest for personal salvation, and the protection of the village was a means to achieve redemption.

The 1960 remake (directed by John Sturges) used similarly redemptive motives for most of the gunslingers enlisted to protect a Mexican village from a pillaging gang of bandits. This nobility is absent from the 2016 remake, however, in part due to a poorly executed attempt to shift the story’s theme from one of personal salvation or redemption to one of political economy. Sam Chisholm’s pursuit of Bogue hinges on revenge—a staple of every vigilante film—for an earlier slaughter, righting a personal wrong rather than rectifying a social injustice. No noble motivations, sense of honor, or paean to social justice unifies the 2016 remake. Ultimately, it will go down in film history as just another entertaining box-office success once it breaks the $100 million revenue mark.

Consumer-Driven Health Plans Reduce Health Spending One-Eighth

33919068 - doctor typing on a computer keyboard at officeThe Health Care Cost Institute has released its analysis of claims data for the years 2010 through 2014, comparing consumer-driven health plans (CDHPs, which HCCI defines as High-Deductible Health Plans coupled with Health Savings Accounts or Health Reimbursement Arrangements). HCCI examines a database of claims submitted by Aetna, Humana, Kaiser Permanente, and UnitedHealthcare for their employer-sponsored group plans.

CDHPs shift payment from third-party bureaucracies (that is, insurers) back to patients directly. The results continue to impress:

  • In every year studied, the non-CDHP population had total per capita spending higher than the CDHP population.
  • The CDHP population had rates of utilization nine percent to 13 percent lower than the non -CDHP population for all categories of health services outside of brand prescriptions, which was 21 percent lower.
  • The CDHP population spent an average annual $343 per capita more out of pocket than did the non-CDHP population.
  • The non-CDHP population was responsible for an average of 14% of their medical costs out of pocket, whereas the CDHP population paid for 24% of their medical costs.

In 2014, per capita spending for the non-CDHP population was $659 greater than that for the CDHP population: $5,140 and $4,481, a reduction of one-eighth.

Who Benefits from “Right to Try” Laws?

37468903 - iv dripThe Goldwater Institute has had great success getting states to pass “Right to Try” laws. Right to Try allows a desperately sick patient to take an experimental new medicine before the FDA has approved it.

Since I last wrote about this in May 2014, 31 states have passed Right to Try. Further, U.S. Senator Ron Johnson (R-WI) has tried to get a federal Right to Try law through the U.S. Senate.

However, there has been pushback. According to Allison Bateman-House of NYU Langone Medical Center, “there is no confirmed instance of anyone getting a drug through Right to Try.” In addition, Jonathan Friedlaender, a survivor of advanced metastatic melanoma, has written a compelling essay in Health Affairs, which concludes Johnson’s proposed federal law would not improve access to experimental medicines.

The problem has two parts. First, research-based drug companies do not distribute drugs under Right to Try because the drugs are usually appropriate for small populations of patients. Every patient who receives an experimental dose outside a randomized-control trial (RCT) is a patient who cannot be enrolled in an RCT. RCTs are very expensive and it is very hard to recruit enough patients. The smaller the pool, the more loathe the drug company is to shrink it by distributing drug early.

Premiums for Employer-Based Family Health Insurance Up One-Fifth Since Obamacare

The Kaiser Family Foundation/Health Research Educational Trust has released its 2016 Employer Health Benefits Survey. The survey covers almost 1,900 private and public (non-federal) employers. The results show Obamacare has not reduced premiums, which have increased by one-fifth for family plans since 2011.

The good news is that the proportion of beneficiaries with “High-Deductible Health Plans with a Savings Option” (HDHP/SOs) has increased from 20 percent to 29 percent in two years. Only four percent of covered workers were in such plans in 2006, and 17 percent in 2011. (In 2015, a HDHP had to have a minimum deductible of $1,300 for single coverage and $2,600 for family. The “Savings Option” would be a Health Savings Account or Health Reimbursement Arrangement.)

These plans were first available in 2005, and their increased adoption over the years corresponds with an immediate slowdown in the growth rate of employer-based benefits. In real terms (adjusted for changes in the Consumer Price Index), annual premium increases dropped from double digits in the early 2000s to single digits after 2005 and bottoming out at an increase in premium of just two percent in 2009. There was an immediate jump of 11 percent in 2011, Obamacare’s first year. Since then, both High Deductible Health Plans and the burden of Obamacare have continued to grow. This struggle has resulted in mid-single digit premium growth (Figure I).

20160922 KFF-HRET

Source: Author’s calculations from 2016 Employer Benefits Survey (Kaiser Family Foundation, 2016). Adjusted by Consumer Price Index (2016=100).

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For the pivotal alternative to Obamacare, please see the Independent Institute’s widely acclaimed book: Priceless: Curing the Healthcare Crisis, by John C. Goodman.

Colombia Voters ‘Just Say No’ to Peace Pact with Narco-Terrorists

17653435 - cartagena de indias at night, colombiaThe result of Colombia’s plebiscite on the peace accord signed by the government and the FARC, the narco-terrorist organization, was a stunning surprise. More than 60 percent of the country abstained from Sunday’s referendum and, in a major blow to the polls, 50.2 percent of those who voted rejected the deal.

Two major aspects of the deal disturbed many Colombians. One was the high level of impunity granted to those who committed crimes during the fifty-year internal war. The other is the fact that the government guaranteed the drug-funded FARC leaders broad political participation, perhaps putting them on the path to victory in future elections.

There is no denying the immorality of the amnesty that would have been granted to thousands of guerrillas and of the very limited sanctions, which would have excluded prison terms, for the worst offenders who admitted their crimes. This concession was the result of the fact that the authorities were not able to defeat the FARC militarily. More than 200,000 deaths and several million displaced people are a horrific toll. The FARC would have continued to inflict horrendous punishment on Colombians were it not for the severe setbacks they suffered under President Alvaro Uribe (a critic of the current deal). Uribe’s successor, current President Juan Manuel Santos, would never have brought the FARC to the table if the terrorist organization had not felt compelled to negotiate.