Washington Policy Blog

Will small businesses see an extra tax for national health care reform?

August 3, 2009 in Blog

Newspapers the past few weeks have been carrying op-eds from small business owners on both sides of the national health care reform fight. Some small business owners want to see a public option because they believe it will help their bottom line without compromising their employees' health insurance plans. That is a noble goal even if it is misguided -- as I point out here.

But one of the reasons for concern, besides quality and quantity of health care, is the cost of the program. This is important because if small business owners are trying to ditch the cost of health care on the back end, how will higher costs on the front end affect their business? Essentially, what happens if small businesses are no longer burdened with the cost of health care at $X cost, but then the national plan requires either a pay or play option or a surtax? That cost cou!
ld easily be $X + $Y, and the business owners who were concerned about the skyrocketing cost of health care for their employees would then have to worry about the skyrocketing taxes to pay for the program.

Case-in-point: The Heritage Foundation's WebMemo on how the House bill would hit small businesses with a surtax. According to the paper, about 2 million tax filers would be hit by the potential surtax of 1% for joint filers over $350,000, 1.5% over $500,000 and 5.4% over $1 million. About sixty percent of the 2 million tax filers affected receive at least some of their income from small businesses, and over 400,000 of them report that a majority of their income comes from a small business. And considering Congress is, at this point, expected to let the Bush tax cuts expire, the surtax could lift the marginal tax rates on small businesses to over 50 percent in the states when combine!
d with state and local taxes.

From the paper:

quote>

"Small business is the backbone of the American economy. Half of all private workers in the U.S. are employed in firms with fewer than 500 workers. These small firms have also created 60-80 percent of all new jobs in the last decade. Higher tax rates discourage investment in small business by increasing the hurdle rate for investors...Higher hurdle rates mean that fewer small businesses will be created and fewer existing businesses will expand."

Update: I should have also linked to this week-old Puget Sound Business Journal article which also talks about the possible health insurance surtax and it's effect on small businesses. They quote the National Federation of Independent Business as saying,

"[NFIB] estimates that one-third of small business owners with 20 to 250
employees make more than $280,000. Taxable income at small and
medium-size manufacturers averages $570,000, according to the National
Association of Manufacturers."

Who are entrepreneurs and what makes them tick?

July 31, 2009 in Blog

The Kauffman Foundation released a new study entitled, "The Anatomy of an Entrepreneur: Family Background and Motivation." The purpose of the study is to delve into the backgrounds of some of America's successful entrepreneurs, to see what makes them tick, and if there are ways to spread their knowledge of what it takes to be a successful entrepreneur to the thousands of new businesses founded each year by intrepid entrepreneurs.

A few of the report's findings include:

  • Company founders tend to be middle-aged and well-educated, and did better in high school than in college
  • These entrepreneurs tend to come from middle-class or upper-class backgrounds, and were better educated and more entrepreneurial than their parents
  • Most entrepreneurs are married and have children
  • Most had early interest in becoming an entrepreneur
  • The most popular motivations for becoming an entrepreneur included building wealth, owning a company, participating in the startup culture and capitalizing on a business idea
  • Most entrepreneurs had significant industry experience when starting their companies

It is always fascinating to other entrepreneurs, or those like myself who study them and ways to make them more successful from the policy-oriented side of things, to see how the successful ones made it. A lot of the success can be traced directly to the space between an entrepreneur's ears -- the mindset it takes to overcome the long odds of starting and maintaining a successful business is key.

But providing an environment that is conducive to these entrepreneurs is important as well. Policymakers oftentimes need to be reminded that tax and regulatory policies have real-world implications and can provide unnecessary burdens to entry for entrepreneurs. And in this day and age, we should make sure the barriers to entrepreneurship are as low as possible.

Come learn more about what makes entrepreneurs tick and make your own suggestions on how Washington could be a better place for small businesses at WPC's 2009 Statewide Small Business Conference on November 10th in SeaTac.

The Public Option Insurance Company of the United States (POICUS): getting Congress to target your competitors

July 31, 2009 in Blog

The plan for the federal government to enter the health insurance market got a boost yesterday after members of the powerful House Energy and Commerce Committee expressed concern that an earlier version of the bill did not do enough to harm their future competitors.

“Private insurers were coming off unscathed,” said committee member Peter Welch, a Vermont Democrat.  He worried that people working in private insurance “...do quite well – too well, frankly.”

Liberal members of the committee stoutly opposed a provision that would have allowed doctors to negotiate with the government over how much they would be paid for their work.

To make sure private citizens would not succeed too much in the same business government officials themselves plan to enter, the bill was modified to enhance the market power of the proposed public option insurance company.

Liberal members succeeded in altering the bill so that government officials would unilaterally determine payments to doctors for treating people covered by public option insurance, as officials currently do in the Medicare program.

If backers of government-run health care say private insurers have too much influence in Congress, imagine the political clout of an insurance company that is run by Members of Congress.  As private companies go out of business and employers transfer workers to the government plan, the only recourse for public option patients who are denied medical care will be to write a letter to Congress.

A good name for the government plan might be Public Option Insurance Company of the United States (POICUS), managed by the Social Commission for Reform, Equality and Wellness of the United States (SCREWUS).

West Virginia's Privatized Workers Comp System Turns One

July 31, 2009 in Blog

While the state labor council points to Washington state as a supposed model for workers comp systems, West Virginia's newly-privatized system turned one year old recently. And guess what, the sky did not fall.

Quite the opposite as a matter of fact, as the Insurance Journal reports:

"West Virginia Insurance Commissioner Jane L. Cline says her state's one-year old privatized workers' compensation system is offering better claims administration, lower costs for employers and better treatment of injured workers."

West Virginians experienced a number of improvements since the switch a year ago:

  • claim protests have fallen 68 percent
  • the overall appeals process has been streamlined resulting in claims disputes being resolved in a shorter period of time
  • claimants have received better claim management by claims adjusters having fewer claims to manage, and
  • the unfunded liability no "old fraud" claims has dropped from $3.1 billion to $1.5 billion

West Virginia's open market for workers comp has also resulted in:

  • overall premiums have dropped 30 percent, or more than $150 million
  • 198 different workers' compensation insurance companies have filed rates and forms
  • There are 120 policies in the residual market representing premiums of about $1.9 million
  • More than 90 percent of all claims are ruled upon within 30 days

And then there's this assessment from earlier in the year from Workers' Comp Insider:

"Thus far, West Virginia's transition to a competitive market seems to
be going smoothly. The pain has been distributed across the board: to a
population of workers that had long viewed comp as an entitlement, to
employers in favored industries who long benefitted from suppressed
rates for coverage and to some of the former state employees who ran
the old, rather bloated system. No one would describe the new approach
to workers comp as perfect, but the competitive market appears to offer
a reasonable balance between the often conflicting interests of workers
and employers. The creation of an assigned risk pool for poorly
performing employers is simply one more necessary step in the eternal
search for an effective and equitable system."

I'm sure that the folks defending our status quo will point to West Virginia's workforce (761K compared to 2.9 million) and average weekly earnings ($785 compared to $892) as evidence to keep the state monopoly system intact. But, if the goal is to assist injured workers in the best way possible while maintaining a competitive business environment, shouldn't we look at examples where both are apparently taking place?

Highways and bridges: "more scenic or more safe?"

July 30, 2009 in Blog

The United States Senate just passed the bailout of the Highway Trust Fund. The bill now heads to the President.

Meanwhile, 'Senators
Tom Coburn, M.D. and John McCain released a report today revealing that
$78 billion from the soon-to-be-bankrupt Highway Trust Fund is not even being spent on bridges or roads.'

 Included in Highway Trust Fund Spending:

  • Over $2 billion on 5,547 bike paths and pedestrian
    walkways, including $878,000 for a
    pedestrian and
    bicycle bridge for a Minnesota town
    of 847.  An additional $2 million in federal
    stimulus funds for a
    bike lane along
    a deteriorating road in Pennsylvania
    , where exasperated local officials say the road is so
    bad they may be forced to drive on the bike path instead. 
  • $850 million for 2,772 “scenic beautification” and landscaping
    projects around the country;

  • $121 million for 63 ferry projects and ferry terminal
    facilities, including $1.6 million for a ferry boat program in Oklahoma
    that features Saturday
    morning cartoon cruises
    with Bugs Bunny and Wile E. Coyote on the
    ferry’s flat screen T.V.; 
     
  • $84 million for 398 pedestrian and bicyclist safety
    projects, including a
    brochure that encourages bicyclists to “Make eye contact,
    smile, or wave to communicate with motorists. Courtesy and predictability
    are a key to safe cycling”;
  • $3.1 million in federal stimulus funds to make a historic canal
    boat
    a permanent
    floating museum in New York,

    in addition to the $28 million already obligated for transportation
    museums from FY2004-2008;
  • $18 million for motorcyclist safety grants; which
    helped fund a “cruisin’ without bruisin’”
    brochure reminding bikers to “Obey traffic lights, signs, speed
    limits, and lane markings … and always check behind you and signal before
    you change lanes”; and 

  • $3.4 million in
    federal stimulus funds

    for a
    road-kill reduction project in Florida, which will help turtles and other wildlife
    pass under a highway.

To read the full report, click here. 

Light rail ridership not as "strong" as ST suggests

July 30, 2009 in Blog

Sound Transit just released its ridership figures for its first full week of operation. See press release below.

ST estimates its light rail segment carried 12,000 riders per weekday.This figure however, represents the number of trips, not riders, served by Sound Transit. And trips do not equal riders.

For example, a rider who makes a round trip commute to and from work
counts as two trips. If that same rider took a bus to lunch and back,
he counts as making four total trips during the day.

Because daily trips can double, triple and sometimes quadruple count
the same individual, trips should be adjusted to estimate unique
riders. The standard assumption is that single riders will equal 45
percent of trips. To look at it another way, 45 percent assumes less
than half of total trips in a day will be the same person making a
round trip. This does not capture all of the double counting of a
single rider, but it is closer to accurately estimating how many
different individuals will ride a transit system.

This means Sound Transit's light rail segment is only carrying about 6,600 individual people per day. Sound Transit also estimates that two-thirds of these people come from the existing bus service. So in reality, light rail is only carrying the equivalent of 2,200 new transit riders per day.

The cost to provide this service: $2.3 billion. I'll let you do the math.

gtype>

FOR IMMEDIATE RELEASE — July 30, 2009

Strong
ridership during first week of Link light rail service

Link
proves popular option for special events

During its first week of
regular service Central Link light rail carried an estimated average of 12,000
riders each weekday. Another estimated 16,900 riders took Link on Saturday and
15,100 on Sunday.

“We're
encouraged by the large numbers of people who boarded light rail on opening
weekend and have started using it every day," said Sound Transit Board
Chair and Seattle Mayor Greg Nickels.  "This is a new way to think
about getting around our region and we know ridership will continue to increase
as more people try the system and we expand the line to more communities."

Nationally, ridership on new
light rail systems ramps up over time as more and more people find out about
the service and give it a try. Weekday ridership during the first week was
already more than halfway to the level Sound Transit projections show for the
end of 2009.

Sound Transit projects that
by the end of 2009 an average of 21,000 riders will climb aboard on weekdays.
Average weekday ridership is forecasted to rise to 26,600 in 2010 following the
December 2009 opening of light rail service directly to Sea-Tac International Airport.

An average of
1,300 riders a day rode the Link Airport Connector bus shuttle between the
airport and Tukwila / International Boulevard Station during the first week of
light rail service.

Last weekend’s Sounders FC
and Seattle Mariners games, the Seattle Seafair Torchlight Parade and people
turning out to try Link for the first time contributed to last weekend’s strong
ridership. More than 11,000 tickets or ORCA cards were sold from Link ticket
vending machines on Saturday and station agents sold another 1,400 paper
tickets to overflow crowds at Tukwila. Sound Transit has doubled the number of
ticket vending machines in Tukwila and reminds riders that buying an ORCA smart
card is a great way to bypass lines.

Coming up, Sound Transit is
preparing for another busy weekend with Seafair running free shuttles from the
Othello light rail station to the hydroplane course and air show on Lake Washington on Friday, Saturday and Sunday.

Sound Transit estimates its
light rail ridership using automatic passenger counting technology installed on
some of the vehicles. Infrared sensors in the trains’ doorways detect boardings
and alightings, generating data that is used to develop estimates consistent
with Federal Transit Administration-approved methods.

Link light rail opened 14
miles of new service between downtown Seattle and Tukwila on July 18th, generating more than 92,000 boardings on
the opening weekend. Paid service running 20 hours a day Monday – Saturday and
18 hours a day on Sundays began July 20th.

CONTACT:
      Bruce Gray—(206) 398-5069 or bruce [dot] gray [at] soundtransit [dot] org

Linda Robson—(206) 398-5149
or linda [dot] robson [at] soundtransit [dot] org

Geoff Patrick—(206)
398-5313 or geoff [dot] patrick [at] soundtransit [dot] org

 

Sound Transit plans, builds and
operates regional transit systems and services to improve mobility for Central Puget Sound.

Undercutting the user-fee funding system in transportation

July 30, 2009 in Blog

Last year I covered how the federal Highway Trust Fund (HTF) was running out of money. At that time, the feds transferred about $8 billion to keep it solvent.

In June of this year, we learned the HTF was again heading for bankruptcy. Yesterday, the House voted to transfer another $7 billion from the General Fund to keep the highway budget in the black through September. The Senate is expected to take up the matter next week.

Using General Fund dollars to subsidize the HTF is remarkable because historically the highway system has always been funded through a system of user fees (mostly gas t!
ax collections). Its also important to understand how policies aiming to reduce how much people drive will continue to erode revenues. Whether through tolls or gas taxes, paying for highways through user fees is based on the obvious principle that the more people drive, the more revenue is created. Likewise, the less people drive the less revenue is created. So federal or state policies that reduce Vehicle Miles Traveled will undermine the user-fee funding system that most Americans agree is the most equitable.

For more information on the unintended consequences of reducing how much people drive, read: State's Mandate to Reduce Driver Mobility Threatens Revenue for Transportation Projects.

Time to shoot for the moon for real education reform

July 28, 2009 in Blog

40 years ago this month the brave crew of Apollo 11 landed on the moon with Neil Armstrong famously saying, “That’s one small step for a man, one giant leap for mankind.” With this feat America won the race to the moon. Now President Obama is hoping states will shoot for the moon again, this time in a “Race to the Top” for education excellence.

At stake for states is access to $4.35 billion in federal education funds. The catch, however, is that access to these funds is dependent on states demonstrating that they have several education reforms in place.

While some states are in a position to take advantage of these funds and take one giant leap for education performance, Washington unfortunately, is closer to the experience of the failed Apollo 1 mission than the success of Apollo 11.

Confirming this fact, Go!
vernor Chris Gregoire has indicated that Washington is unlikely to satisfy the eligibility requirements for the federal funds.

According to the federal Secretary of Education Arne Duncan:

“Under Race to the Top guidelines, states seeking funds will be pressed to implement four core interconnected reforms.
  • To reverse the pervasive dumbing-down of academic standards and assessments by states, Race to the Top winners need to work toward adopting common, internationally benchmarked K-12 standards that prepare students for success in college and careers.
  • To close the data gap — which now handcuffs districts from tracking growth in student learning and improving classroom instruction — states will need to monitor advances in student achievement and identify effective instructional practices.
  • To boost the quality of teachers and principals, especially in high-poverty schools and hard-to-staff subjects, states and districts should be able to identify effective teachers and principals — and have strategies for rewarding and retaining more top-notch teachers and improving or replacing ones who aren’t up to the job.
  • Finally, to turn around the lowest-performing schools, states and districts must be ready to institute far-reaching reforms, from replacing staff and leadership to changing the school culture.”

Washington’s grade for each of these criteria sadly is failing because powerful leaders of the teachers’ union have consistently opposed bringing constructive change to public schools.

Washington will likely miss out on the first round of “Race to the Top” funds but, like Apollo 11, we can achieve success if state leaders shoot for the moon through real education reform, instead of holding our state back and shooting for just keeping the teachers’ union satisfied.

Michigan Department of Education reimagines education with help from Washington Policy Center

July 28, 2009 in Blog

Under Race to the Top guidelines, states seeking part of the $4.35 billion in funding will be pressed to undertake four interconnected reforms, as outlined by the Tacoma News Tribune this morning. 

The Michigan Department of Education is clearly engaged in this Race to the Top.  Over the next nine months it will be developing a plan to Reimagine Michigan's educational system to meet the needs of this 21st century global knowledge economy. 

How are Michigan's schools to be Reimagined? 

By posting on line a list of  Reimagined Resources, the Michigan Department of Education has compiled a list of reform ideas for reimagining public schools.  Included in this list is the Washington Policy Center's "Eight Practical Ways to Reverse the Decline of Public Schools," (December 2008). 

These eight practical ways are:

Put the principal in charge of this budget and staff
    Give parents choice among public schools
    Let teachers teach
    Double teacher pay
    Replace the WASL with a better state test
    Create no-excuses schools
    Transparency--put school budgets and teacher qualifications online
    Make the Superintendent of Public Instruction an appointed office.

Are Washington's public education officials engaged in the Race to the Top, or not?

The Popular Proposals in Federal Health Care Reform

July 27, 2009 in Blog

Although neither the House nor the Senate health care reform bills are out of committee and haven't reached their respective floors, some consistent proposals are being discussed in both legislative bodies. The House bill under consideration runs to 1018 pages and the Kennedy-Dodd bill from the Senate Health Committee contains almost 800 pages. Consequently, it is nearly impossible to outline all of the similarities, yet some consequential proposals are found in both bills.

The good:

1.  Both bills talk about putting more transparency into the health care system. This gives patients more information about pricing and benefits and makes them better consumers of health care.

The bad:

1. Individual mandates forcing everyone to buy health insurance. 

2. Employer mandates to either purchase health insurance for employees or pay a fine (of up to 8% of payroll) to the federal government.

3. Probable guaranteed issue and community ratings which will force insurance rates higher.

4. "Best practices" or evidence based medicine which will force providers to practice cook-book medicine and treat every patient the same.

5. Government dictated "preventive care" which can potentially result in laws dictating our life styles - what we eat, what we do, whether we can smoke, etc.

6. There is no language dealing with meaningful tort reform. Legal fees and more importantly defensive medicine practices account for up to 10% of our health care costs.

The ugly:

1. A government "option" insurance plan that will destroy the private market in health insurance.

2. An insurance exchange or connector or co-op so that bureaucrats would be able to dictate the price and the benefits included in each insurance policy.

3. No significant Medicare reform. This government-run health insurance plan for seniors is on track to bankrupt the country.

As the debate in and between the House and Senate unfold, these conjoint proposals may change, but for now the two houses seem to have very similar plans.

And, oh, there is no agreed upon funding mechanism that even comes close to paying for all of this.

More Talk on a Second Stimulus Package

July 24, 2009 in Blog

Stateline.org today carries a Q&A session with state legislators from both parties around the nation asking "What would make you push for a second stimulus?"

The answers vary from "anything" to "hell no". Interesting stuff.

Congress' Health-Care Reform is a Trojan Horse

July 23, 2009 in Blog

Trojan HorseGovernor Bobby Jindal of Louisiana had an interesting article in The Wall Street Journal on July 22nd about the manner in which health care refo

Canada Waits for Health Care

July 23, 2009 in Blog

As part of the on going health care debate in this country, we are seeing more testimonials in letters-to-the-editor and blog posts about the lack of waiting lists for health care in Canada. People are describing timely consultations with primary care givers and prompt treatments from specialists. What is the reality?

A recently published chart  from the Frazier Institute shows "clinically reasonable" and "actual" median waits for various specialties in Canada for 2008. The median clinically reasonable for all specialties is 6.0 weeks with the actual median being 17.3 weeks - almost three times the reasonable. From a low wait for heart surgery of 7.3 weeks compared to a reasonable of 5.0 weeks, the high waits are in multiple areas of specialty care - 5.6 weeks vs actual of 16.1 weeks for gynecologic care; 5.8 weeks vs an actual of 31.7 weeks for neurosurgery; and 11.0 weeks vs an actual of 36.7 weeks for orthopedic treatment. Even internal medicine which is one of the primary care specialties has actual waits of 12.5 weeks vs a reasonable wait of 3.3 weeks.

So although a minority of Canadians find prompt and timely care, the majority are faced with long and what would be considered unacceptable waits in this country. Access to a waiting list is not the same as access to health care.

Everything Old is New Again for Greens

July 22, 2009 in Blog

Syndicated columnist Froma Harrop has an opinion piece in the Seattle Times today called "The Logic of a Locavore" in which she explains why we should eat local food. Many environmentalists embrace the buy local mantra in the mistaken belief it is better for the environment.

Harrop is, accidentally I think, very honest about the pedigree of this concept. Responding to the critique that eating local is passe, she writes:

Local is so 2008? Yes, and it is also so 1908, 1608 and 508 B.C. Until the last 100 years or so, the "alternative food crowd" encompassed nearly all of humanity.

I'm not sure why this is an argument in favor of eating local. Lots of things are 1608, including lifespans of 30 years, cholera, poverty, spoiled food and the like. Environmental icon Jared Diamond wishes we could go back even further.

A second stimulus? Consider the ramifications first.

July 22, 2009 in Blog

Some policymakers in D.C. and syndicated columnists/economists have already begun talking about the need for a second stimulus package to bolster the $787 billion passed by Congress in February.

But before they move to quickly to spend even more taxpayer dollars on various government projects, a little reading should be in order; namely, this report from Wells Fargo.

In a "Decision-Makers' Guide to Stimulus Part Deux," the authors of the paper first take Vice President Biden to task for saying, "the truth is, we and everyone else misread the economy." The authors point out that, "Everyone did not misread the ec!
onomy. Contrary to political rhetoric, economic analysis outside the beltway clearly anticipated a nine percent plus unemployment rate even with the stimulus package."

One of the major concerns over the last several months as government spending ramps up, is inflation. Again, the authors of the paper address this:

"Unfortunately, a second stimulus could add too much to the growth momentum to be consistent with stability in the long-run inflation interest rates and currency expectations. Inflation/debt concerns, which are already rising, would accelerate quickly and thereby prompt negative interest rate/dollar reactions that would create a boom/bust cycle..."

The stimulus/bailout mentality goes back to the reality that politicians don't always make the most sound economic decisions because they are influenced by the immediate short-term political gains and do not take into account, or minimize, the long-term costs!
. But this type of thinking has immediate economic ramificatio!