Daily Policy Digest

Provided courtesy of: http://www.ncpa.org/

Daily Policy Digest

Measuring Income Tax Evasion in the United States

03 Feb 2012 07:00:58 CDT -

A new study by two professors of economics, Richard Cebula, of Jacksonville University, and Edgar L. Feige, of the University of Wisconsin, seeks to determine the amount of annual tax evasion and the factors that are relevant in encouraging it.

• The last IRS attempt to measure the amount of taxes that the IRS does not receive due to tax evasion was conducted in 2001; it arrived at a total of $345 billion.
• These researchers, however, estimate it has grown in recent years and found that some $2 trillion in individual income is unreported to the IRS, constituting between 18 and 19 percent of total taxable income.
• This total would result in an additional $450 billion to $500 billion in income tax revenue for the federal government.

Tax evasion is not a new phenomenon: taxpayers and market participants respond to incentives.  So long as they find money desirable, they will resist efforts (even legal ones) to take it from them.  For this reason, the researchers also conducted an in-depth study of factors they considered relevant to tax evasion in order to find out their respective degrees of impact.  Each of the following variables was found to be significant to a 95 percent level of confidence:

• The average effective federal income tax rate.
• The unemployment rate in the civilian labor force.
• Public dissatisfaction with government.

The first variable is perhaps the most significant as politicians debate the merits of additional tax increases.  The study found that taxpayers respond in a number of ways in order to avoid the burden of higher taxes, including working less, exploiting tax loopholes and illegal forms of tax evasion.

The Left's solution to this problem is that, in tandem with tax increases, the IRS should have its auditing capacity augmented.  However, the study also found that the impact of an empowered IRS is insignificant in reducing tax evasion.

Source: Richard Cebula and Edgar L. Feige, "America's Underground Economy: Measuring the Size, Growth and Determinants of Income Tax Evasion in the U.S.," University of Wisconsin, 2011.

For text:

http://www.ssc.wisc.edu/econ/archive/wp2011-1.pdf

For more on Tax and Spending Issues:

http://www.ncpa.org/sub/dpd/?Article_Category=25

The Innovation Nation vs. the Warfare-Welfare State

03 Feb 2012 07:00:57 CDT -

We think of ourselves as an innovation nation, but our government is a warfare/welfare state.  To build an economy for the 21st century we need to increase the rate of innovation and value research into new goods.  However, this lofty goal is a far reach from the status quo, as the lion's share of the federal budget is allocated to defense and safety net programs to the exclusion of research and development, says Alex Tabarrok, an associate professor of economics at George Mason University and research director for the Independent Institute.

• Nearly two-thirds of the U.S. federal budget, $2.2 trillion annually, is spent on the four biggest warfare and welfare programs, Medicaid, Medicare, Defense and Social Security.
• Meanwhile, the National Institutes of Health, which funds medical research, and the National Science Foundation spend $31 billion and $7 billion, respectively.
• All federal research and development spending together amounts to just $150 billion -- a mere 4 percent of the budget.

The distinction between a thriving, innovation-centered nation and a regulation-choked, stagnant economy can be seen in three separate areas: health care, building and energy.  The recent dialogue over the constitutionality and efficacy of the Affordable Care Act crowds out important policies promoting greater research and experimentation in the field of health care.

• The increases in life expectancy from fewer deaths brought on by cardiovascular disease over the 1970 to 1990 period, for example, were worth over $30 trillion.
• If medical research could reduce cancer mortality by just 10 percent, that would be worth $5 trillion to U.S. citizens.

Furthermore, extensive government regulations make simple market actions such as construction and energy development impossibly onerous.

• The United States has seen the construction of only one new airport since 1978, causing crowding and delays at current sites.
• Meanwhile, China will construct between 50 and 100 airports in the next 10 years.
• Energy production has also been strangled: 97 percent of hydroelectric dams produce no electricity because the regulatory climate makes it too risky.

Source: Alex Tabarrok, "The Innovation Nation vs. the Warfare-Welfare State," The Atlantic, January 26, 2012.

For text:

http://www.theatlantic.com/business/archive/2012/01/the-innovation-nation-vs-the-warfare-welfare-state/251984/

For more on Economic Issues:

http://www.ncpa.org/sub/dpd/?Article_Category=17

Government's Proper Role in Creating Jobs

03 Feb 2012 07:00:56 CDT -

As the economy began its notorious downturn in 2008, politicians from the left called on the economic policies prescribed by John Maynard Keynes as a means to recovery.  Advocating high government spending in order to artificially boost aggregate demand, Keynesians created enormous stimulus packages that rapidly boosted government debt levels.  However, the results are at best lackluster several years later, says David S. Addington, vice president of domestic and economic policy at the Heritage Foundation.

• In February 2009, when the American Recovery and Reinvestment Act (ARRA) became law, 12.5 million Americans (8.1 percent of the work force) lacked jobs.
• In December 2011, with 80 percent of the ARRA's government "stimulus" money spent, 13.1 million Americans (8.5 percent of the work force) lacked jobs.

The disappointing impacts of the Keynesian policies and their inability to spend the country out of economic recession have caused many to look to other solutions to the United States' economic woes.  Thus, the Heritage Foundation has establish five general principles for creating a thriving economy that can grow its way out of recession while avoiding enormous government deficits.

• Eliminate the individual income tax, payroll tax, capital gains tax, dividends tax, estate tax and corporate income tax and instead impose a simplified, single-rate flat tax on expenditures of individuals and businesses, thereby creating strong incentives to save.
• Remove red tape for the exploration and exploitation of domestic energy resources, including Environmental Protection Agency regulations and administrative approvals, and support necessary supportive infrastructure such as the XL Keystone Oil Pipeline.
• Grant the president greater, fast-track authority to negotiate trade agreements with other countries, thereby allowing for domestic businesses to more easily tap broader markets and giving American consumers access to cheaper, more efficient goods.
• Cut overregulation of the economy by requiring that major agency rules be approved by Congress before they can be implemented.
• Repeal the Davis-Bacon Act, which drives up labor costs on major federal projects by mandating wages that are, on average, 22 percent above the market level.

Source: David S. Addington, "Government's Proper Role in Creating Jobs: Top Five Actions to Take," Heritage Foundation, January 23, 2012.

For text:

http://www.heritage.org/research/reports/2012/01/governments-proper-role-in-creating-jobs-top-five-actions-to-take

For more on Economic Issues:

http://www.ncpa.org/sub/dpd/?Article_Category=17

Gulf Deep Water Drilling Ban's Hidden Victims

03 Feb 2012 07:00:55 CDT -

A study released by economic development agency Greater New Orleans Inc., or GNO, details the dire results to the federal deep water drilling moratorium and its regulatory aftermath, says Investor's Business Daily.

• The study says that despite the relatively limited employment losses reflected in public employment data, businesses are indeed laying off workers, reducing hours and salaries and limiting new hires as a result of the permit slowdown and insecurity about the future of the Gulf of Mexico.
• Forty-nine companies in the survey have laid off employees as a result of the moratoria.
• Fifty-two businesses (52.5 percent) surveyed have not hired new employees since the moratoria.
• Of the 47 companies that have hired, the majority have done so in small numbers and often just to replace departing staff.
• The 39 percent that have retained workers have reduced salaries and/or hours.

In addition:

• Some 41 percent of the companies surveyed are not making a profit, a statistic that does not bode well.
• About 76 percent of the businesses have lost cash reserves with 27 percent losing more than half.
• Eighty-two percent of business owners reported losing personal savings as a result of the permit slowdown with 13 percent exhausting them entirely.

Although the moratorium has been lifted, permit issuance has been slower than in the years before the spill.  In the past three months, two deep water permits were issued per month on average, according to the Gulf Permit Index, released each month by GNO Inc.  That is a 66 percent decrease from the monthly average in the year before the spill, and a 71 percent drop from the historical monthly average of seven new permits per month, according to GNO Inc. data.

Shallow water permits are similarly restricted.  Over the past three months, an average of 2.3 permits have been issued representing a 68 percent decrease in the monthly average in the year prior to the oil spill and an 84 percent drop from the historical average.

Source: "Gulf Deepwater Drilling Ban's Hidden Victims," Investor's Business Daily, January 31, 2012. "The Impact of Decreased and Delayed Drilling Permit Approvals on Gulf of Mexico Business," Greater New Orleans Inc., January 30, 2012.

For text:

http://news.investors.com/Article/599612/201201311903/gulf-drilling-moratorium-killing-small-medium-business.htm

For study:

http://gnoinc.org/uploads/GNO_Inc_Permit_Slowdown_Impact_Survey_Results.pdf

For more on Environment Issues:

http://www.ncpa.org/sub/dpd/?Article_Category=31

Searching for Side Effects

03 Feb 2012 07:00:54 CDT -

Two startup companies are attempting to revolutionize the reporting of side effects by the U.S. Food and Drug Administration (FDA).  AdverseEvents Inc., and Clarimed LLC are organizing hundreds of thousands of incident reports for drugs and medical equipment, respectively, and attempting to improve transparency for consumers.  Previously, these reports were held in disorganized and indecipherable databases of the FDA, where a number of clerical errors made them impossible to use.  These two companies are seeking to reverse that trend, says the Wall Street Journal.

• AdverseEvents has streamlined the FDA's "AERS" database for drug incidents, allowing for searches and in depth reporting on 4,500 different drugs.
• Clarimed LLC has undergone a similar process for the "Maude" database of medical equipment, allowing for greater transparency for some 130,000 medical devices.
• Both companies offer some free services, but will rely on payments for more in-depth information as their primary sources of revenue.

The FDA's databases have been accepting reports of adverse events for years.  AERS alone has received 6.4 million drug reports over its lifetime, with volume increasing gradually over time.  It received 759,000 reports in 2010 alone, while Maude received 238,000 reports for medical equipment.  However, as the companies' spokespeople were quick to point out, the databases were impossibly disorganized and plagued with clerical errors.

• The databases did not account for spelling errors in the name of the drug when reports were filed, creating multiple data bins for the same drug -- AdverseEvents arrived at a final number of 4,500 drugs from a starting figure of around 200,000.
• Furthermore, attempts to glean specific information about a certain drug and its side effect risks usually returned outrageously voluminous amounts of data that was impossible to use due to its sheer size.
• Additionally, because the FDA does not present comprehensive information about drug sales, users could not compare the frequency of incidents between drugs.

By compiling the information in easy-to-use databases that are searchable and comprehensive, the two startups hope to create greater transparency in the market for pharmaceutical drugs.  Their operations will augment users' understanding of the risks associated with certain treatment options.  Additionally, they can also have the aggregate benefit of allowing administrators to more quickly identify troubling trends for specific drugs that necessitate further investigation or having them pulled from the market.

Source: Melinda Beck, "Searching for Side Effects," Wall Street Journal, January 31, 2012.

For text:

http://online.wsj.com/article/SB10001424052970203920204577193052426275904.html?KEYWORDS=Searching+for+Side+Effects

For more on Health Issues:

http://www.ncpa.org/sub/dpd/?Article_Category=16

Minimum Wage Myths

02 Feb 2012 07:00:53 CDT -

The federal minimum wage is currently $7.25 an hour, but some states and cities have minimum wages that are significantly higher.  Furthermore, eight states raised their minimum wage, effective January 1, 2012, says Pamela Villarreal, a senior fellow with the National Center for Policy Analysis.

• Vermont raised its minimum wage from $8.15 an hour to $8.46 an hour.
• Oregon bumped its minimum wage from $8.50 an hour to $8.80.
• Washington state raised its minimum wage from $8.67 to $9.04 -- the highest of any state.
• San Francisco, which imposed a city-level minimum wage a few years ago, increased its minimum from $9.92 to $10.24.

Some people argue the minimum wage is not enough and have proposed more generous "living" wages, which aim to provide a minimum standard of living.  Proponents also argue that a higher minimum wage will help lift people out of poverty by offsetting the higher cost of living in some areas.  After adjusting for the cost of living:

• New York City's minimum wage has the buying power of a paltry $3.24 an hour in Manhattan -- the lowest effective wage of any metropolitan area.
• San Francisco's $10.24-an-hour minimum wage buys only $6.35 worth of goods and services.
• On the other hand, the federal minimum wage in low-cost Harlingen, Texas, will buy $8.87 worth of goods and services.

A higher minimum wage raises labor costs to employers.  But this does not mean that the minimum wage is solely to blame for the cost of living in New York City or San Francisco.  After all, desirable location raises costs.

Proponents also claim that higher pay means low-wage workers will have more to spend on goods and services, thus boosting the economy.  But if employers cannot absorb an increase in the cost of labor, they will hire fewer workers, hire more productive (educated) workers, lay off workers, or pass the costs on to consumers.  Thus, the stimulative effect on demand may be offset by reduced employment among potential consumers. 

Source: Pamela Villarreal, "Minimum Wage Myths," National Center for Policy Analysis, February 1, 2012.

For text:

http://www.ncpa.org/pub/ib105

For more on Economic Issues:

http://www.ncpa.org/sub/dpd/?Article_Category=17

Health Policy Digest

Provided courtesy of: http://www.ncpa.org/

Consumer Driven Health Care

Health Care Reform Tax Will Hurt Franchisees

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REAL CLEAR MARKETS

Saving Jobs from Health Reform's Harmful Regulations

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GALEN INSTITUTE

Does Health Insurance and Seeing the Doctor Keep You Out of the Hospital?

04 Oct 2011 12:43:58 GMT - Gaining health insurance and using more primary care services leads to more hospitalizations as a result of physicians' discretionary decisions regarding aggressive and intensive treatment...

AMERICAN ENTERPRISE INSTITUTE

The Case for Competition in Medicare

04 Oct 2011 12:43:58 GMT - A well-functioning marketplace would set in motion the forces needed to transform American medical care into a model of efficient patient-centered care...

HERITAGE FOUNDATION

Potential Effect of Health Care Reform on Emergency Department Utilization Not Clear

04 Oct 2011 12:43:58 GMT - In 2010, 71 percent of emergency physicians said that they expected emergency department visits to increase due to the implementation of the Affordable Care Act...

NEW ENGLAND JOURNAL OF MEDICINE