A Reader Email Re: Gaming ObamaCare
I am not endorsing the following, but a reader sent it and I thought I should at least pass it along to all of you (he gave me permission to reprint):
Here’s a thought for you or an Austrian colleague I’ve never seen printed that you may consider. “ACA will cause more startup companies and independent contractors”. For 15 years I’ve flipflopped between being an employee and an IC with an LLC and S Corp tax election. My wife is a homemaker and I am fat, meaning that prior to ACA I either needed to have employer-paid healthcare or cobra, otherwise I would have no insurance. No insurance company would give me coverage at any cost. So basically I could only milk the independent consulting cow for 18 mos at a time before going back to FTE.
As of November I went to permanent IC because I now had ACA to provide me with cheap healthcare forever.
And the rest of the taxpayers are footing the bill. Let me explain. My ACA policy is less than half the price of cobra and the policy is better. Ah, but it gets better due to tax laws and S Corp arrangements. VERY quick summary…as an employee your employer-paid healthcare premiums are added to your wages but are free of FICA. Pretty basic math. As an S Corp “employee” the same applies, but an S Corp employee must only have a salary that is about 1/2 of total consulting net income from the S Corp…and healthcare premiums apply to the “reasonable salary” test. So, without divulging what I make, as a contractor my salary, when including premiums is less than one THIRD of what it would be if I were an employee making a comparable salary. For ACA, the difference in premiums for someone making say 70K vs 100K in wages is staggering. Who’s subsidizing that? The taxpayer is subsidizing the “wealthy” since it is the wealthy that are the IC’s and not the poor who tend to b e employees.
In my case my hourly rate is about 1/2000th of what my salary was. My employer and I worked this out (50 weeksx40 hours). Yet they no longer have to pay 401K match, various premiums, employer FICA and unemployment, and various incidentals. And yet I’ll still “take home” more money. When I ran the numbers for my employer we came to this agreement. They were so thrilled they did bump my hourly rate as a courtesy.
Ah, but it gets better. If instead of getting “individual” ACA I had my S Corp get SHOP healthcare via healthcare.gov I would’ve gotten an additional 25% discount since I am a small business. The only reason I didn’t do it is because, well, I only realized that was an option after I already signed up for individual. And I swear there was a healthcare.gov “glitch” (I of course never heard of any other bugs with that site) where I could not cancel one and apply for the other.
Ah, but it gets better. There is debate right now as to whether this is still valid/legal under ACA, but I know LOTS of people doing it regardless, until informed by the IRS to cease. And that is your S Corp creates an HRA for you. With an unlimited HRA (costs about $170/yr to setup/administer) your business can fully deduct any and all medical-related out-of-pocket expenses with no cap. Anything from band-aids to out-of-pocket ACA deductibles. How many employees have this option at their company? This makes ANY healthcare expense a top line expense vs a bottom line deduction subject to 1040 itemization rules.
My points in all this…a)ACA will clearly benefit the “wealthy”/smart that can manipulate the system to their benefit. It’s insane that I can do this. b)more people like me (experienced, advance IT architect) will opt for independent consulting vs FTE. I was not the only person who moved to IC in November. Lots of people where I work did too. And companies often prefer ICs over FTEs because it makes their labor force more elastic. This could eventually lead to so many people converting to ICs that the entire withholding tax system comes tumbling down.
In case you aren’t familiar with the effective tax savings of an IC with an S Corp arrangement…my effective tax rate will likely be LOWER this year than Mitt Romney’s when he got into all kinds of trouble for his “carried interest” arrangements a few years back. And I don’t even use my show horse as a business expense.
I have NEVER seen a non-Austrian state that ACA was really a way for the crony capitalists to further bilk the system. I beg to differ with those who state the wealthy are subsidizing the poor. It’s more like the middle class is subsidizing everyone else.
(Edited) Murphy Remarks to TN-NORML Meeting
We were crammed into a side room at a restaurant (because the normal venue apparently double-booked) but I gave a 15-minute talk to the TN chapter of NORML (National Organization for the Reform of Marijuana Laws).
ObamaCare Going to Crash the System Sooner Than Most Think
Naturally in my circle of colleagues and acquaintances, there are a lot of critics of ObamaCare who object to it not just on principled grounds, but also predict that it will “wreck” U.S. health care delivery. However, what I realized just the other day is that when I consider the people who actually work in the health care sector–including medical doctors but also researchers, lawyers, and administrative assistants–they tell me it’s going to blow up pretty quickly.
Specifically, nobody sees how doctors and hospitals can continue to operate in the coming years, with the amount of regulations and pay structure that are being foisted on them. My point is that the actual people in the trenches are far more pessimistic than the academic economists (like me) who don’t work day to day in the health care sector and who consequently are looking at the issue in terms of big-picture ideas rather than specific dollar amounts.
As Joe Salerno explains here, the federal government might hide the true nightmare by just forcing the taxpayers to eat the losses. But how long will that work? To reiterate, the reports I’m hearing (completely anecdotally of course) from actual doctors and people who are familiar with hospital billing are that this thing is going to be a bloodbath.
Last thing, check out this discussion from one of the leading ObamaCare wonks, MIT’s Jonathan Gruber: “The advocates who say [ObamaCare] is working great are saying too much. And the opponents who say it’s working terribly are saying too much. We simply do not know how its working yet,” Gruber said, adding that details would start to emerge over the next several months…”We just need to be patient and let it work out. And you know what, if it turns out to be bad, I have every faith in the American system that they’ll get rid of it.”
The only adequate response to Gruber’s claim:
IER Comment on the “Social Cost of Carbon”
If you are a true nerd about the global warming stuff, you should definitely get a cup of coffee some morning and spend a half hour carefully reading the Institute for Energy Research (IER) formal “comment” (submitted to the government) on the Social Cost of Carbon. However, if you have a shorter attention span, in two blog posts at IER I will summarize our key arguments.
Here’s the first post. An excerpt:
On the theoretical front, our main theme is that the “social cost of carbon” is not an objective fact of the world, analogous to the charge on an electron or the boiling point of water. Many analysts and policymakers refer to the “science being settled” and so forth, giving the impression that the SCC is a number that is “out there” in Nature, waiting to be measured by guys in white lab coats.
On the contrary, by its very nature the SCC is an arbitrary number, which is completely malleable in the hands of an analyst who can make it very high, very low, or even negative, simply by adjusting parameters. Precisely because the SCC even at a conceptual level is so vulnerable to manipulation in this fashion, the analysts giving wildly different estimates are not “lying.” As we will see, the estimates of the SCC in the peer-reviewed literature are all over the map, demonstrating that this is hardly a feature of the “outside world.”
More on Slavery and the Free Market
Since I got the sense that not many of you appreciated the full brilliance of my original post, I have returned to my claim that slavery could not exist in an otherwise free market. An excerpt:
First, let’s switch contexts away from the emotional one of slavery. Instead, think about tools. Suppose in the middle of the night, gnomes sneak into carpenters’ toolboxes across the country, and sneak thousands of handheld electric drills out of their starting places and deposit them into the desks of secretaries. For whatever reason, the next morning the law recognizes the secretaries as the legitimate owners of the electric drills. The secretaries find the tools quite useful as paperweights and doorstops.
Now: In this silly example, does anyone think that it would take a massive war, with hundreds of thousands of deaths, to return the electric drills to use in carpentry? Of course it wouldn’t. Even though the secretaries can use their new property in the office setting, the electric drills are far more productive when in the hands of carpenters (and electricians, handymen, etc.). Even though the secretaries are the legal owners, they wouldn’t retain the drills in their desks, for use as paperweights and doorstops. Instead, they would realize they could sell the drills for their market price, and (if they wanted) use the proceeds to buy “real” paperweights and doorstops for a fraction of the money raised.
A Question for the Hard-Money Bitcoin Skeptics
“Guest” in the comments of my last Bitcoin post perfectly summed up the hard-money angst over Bitcoin. He (?) wrote:
This misses the point. There is a distinction to be made between inherent value (nothing has inherent value) and arbitrary value, where people make claims about the utility of some thing even if that thing cannot provide said utility in the real world. Yes, it is possible to make arbitrary trades, but the function of MONEY is to enable a double-coincidence of wants for goods from which people derive real utility.
What logically follows from your argument is that ANYTHING can be money merely because people BELIEVE it is worth X.
So here’s the setup to my question: Suppose governments around the world see the light, and totally get out of money and banking, treating them as lightly as the pizza industry. In such a world, I predict that gold and silver would quickly become the world’s monies once again, with competing, private-sector mints issuing coins, and competing, private-sector commercial banks issuing notes and electronic claims against their gold and silver reserves (let’s not argue about whether those claims would be backed 100%). People would walk around with actual gold and silver coins in their pockets, and merchants might even start pricing goods and services directly in weights of metal, rather than national currencies.
Now for my question: Suppose in this world, people over time found better items that replaced the actual industrial and consumption uses for gold and silver. Thus over time, an ever rising fraction of the demand to hold gold and silver is purely for monetary purposes. So at some point in this process, would all of the hard money people declare, “Shucks, at this point gold and silver are like Bitcoin was during that fad from 2009 – 2015. People are now only accepting gold today in trade because they think others will accept it tomorrow, not because they know there is a backstop where they can trade the gold and silver coins to dentists. We need to find a new money commodity, that is currently being used in production” ?
(If it matters, I am almost positive that I have read one of the Austrian giants say that it’s not necessary for a commodity money to remain a commodity, merely that there is the historical link to satisfy the regression theorem. But unfortunately I can’t find such a quote, so maybe I’m hallucinating.)
Krugman on Levels vs. Growth
I am a cheeky little imp and lecture the Nobel laureate on first derivatives. Excerpt:
So to sum up: Before posting the actual data, Krugman made his hypothetical opponent argue in terms of actual wages, with Krugman then responding in terms of actual wages. But when he posted the data–which show that wages have been rising steadily all along, with year/year growth only dipping below 1.5% on two occasions–he was forced to switch the argument to one about wage growth accelerating.
On Bitcoin and Ludwig von Mises’ Regression Theorem
My talk at the Texas Bitcoin conference revolved around the Austrian approach to money, and why some Austrians (quite understandably) were uncomfortable with Bitcoin. (Apparently you have to pay $50 if you want access to all of the videos, which is worth doing if you want to learn a lot about Bitcoin. But the content of my particular talk can be cobbled together from other things I’ve written previously.) I concluded that even though there is a superficial tension, Mises’ regression theorem really has no bearing today on whether Bitcoin has the ability to become money.
In this post I’m going to dive into the details, but if you want a more thorough grounding, (A) read either my short article on Austrians and money, or the longer Chapter 8 in my Study Guide to Mises’ Theory of Money and Credit, and then (B) read my EconLib article on the economics of Bitcoin. Assuming now that everyone has this background, let’s hopefully dispose of this particular objection once and for all. (There may be other problems with Bitcoin.)
It was necessary for Mises to come up with his regression theorem–which traced the purchasing power of money back to the time at which it was valued as a mere commodity in direct barter–in order to ensure that his application of subjective value theory didn’t set up an infinite regress. Since Mises was ultimately explaining today’s purchasing power of money by reference to observations of its purchasing power yesterday, it seemed that he was merely pushing back the problem one step, but not really explaining the value of money in a logically complete way. Yet Mises pointed out that it was not an infinite regress; once we reached the historical point at which the money good was used in direct exchange, then standard price theory took over and the regress stopped.
So, what relevance does this have to Bitcoin? The short answer: none whatsoever. There is no question that people today have a way of estimating the purchasing power of Bitcoin; they can look up the spot price online. If we object that the current price is largely dependent on yesterday’s price, then we start back with the regress. And where do we stop? In early 2009 when the first Bitcoin transactions were negotiated, including a pizza that sold for 10,000 BTC.
If Austrian economists want to say, “But those people had no basis for saying whether that pizza should have been 100 BTC or 1 million BTC!!” OK fair enough. But they did decide, somehow; those initial transactions provided a frame of reference that guided subsequent transactions involving bitcoins. If you want to argue that this odd origin means that subjective value theory can’t be applied to Bitcoin, OK, then so much the worse for subjective value theory.
People right now are exchanging bitcoins against “real” goods and services, and the sellers intend to use at least some of the acquired bitcoins to obtain other “real” goods and services down the road. There is no question that Bitcoin is currently a medium of exchange, though I would not christen it a money yet.
Some people concede that Bitcoin could exist temporarily, but that it would by its very nature be in a bubble with a fundamental value of zero. OK, but by the same token then, the US dollar has been in the same situation for 43 years, and the only reason this is in peril is that the authorities have been printing more dollars with reckless abandon (something that can’t happen under Bitcoin). So when people say, “Bitcoin will never last as money,” are they conceding that yes it might be the world’s reserve currency for a half century?
In conclusion, Ludwig von Mises’ regression theorem has nothing to say about the empirical question of whether Bitcoin will move beyond a medium of exchange and become a true money. If you think that subjective value theory somehow “proves” that a digital currency can never get off the ground because nobody would have any experience with which to evaluate it, then you are simply wrong; it happened in 2009.
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