More Data On The Republican Health Care Proposal

Today's WSJ had an Opinion piece from Robert Carroll, vice president for economic policy at the Tax Foundation, and an executive-in-residence with American University's School of Public Affairs. In it he makes the case that even for a family that has to purchase a $14,000 health care policy, the tax credit proposal would save the family money (I used $10,000 in the example I posted yesterday). Click here for the link.


Here is the chart they used:

Also you can read Mr Carroll's full Tax Foundation review by clicking here. I think you will find that the Tax Foundation does a good job of pointing out how both parties try to spin their policies.

The Health Care Debate - Interesting Articles This Weekend

I was surprised over the last year that when the Republicans suggested taxing excess health care benefits that it was not embraced as a good economic policy. I thought it made all the sense in the world

When the current Republican health care proposal was outlined giving individuals a tax credits for their health care coverage and eliminating the deduction at the corporate level I was intrigued. If a company paid $12,000 in health care benefits and the employee replaced that with a personal policy for say $10,000 two things would happen. The employer over time would pay such worker higher wages. So if wages went up $12,000, assuming a 20% tax rate. The employees would be ahead $9,600. Add in the $5,000 tax credit for a family and they would have $14,600 in their pocket to purchase their own $10,000 policy. Seems like its a better system than a national plan

Funny thing, in today's NY Times there was an article where businesses are afraid the Democratic health care proposal could increase employer payroll costs by as much as 6 or 7%. Click here for link.

But the best thing I read on this was a WSJ editorial on October 25 that pointed out that several of the Democratic economic advisers have been big proponents of eliminating the tax subsidy that is only granted corporations, generally supporting a plan such as the Republicans have proposed. Click here for link

Simple Charts to Understand Federal Reciepts and Expenses

In an effort to help explain the current challenges facing the United States the Heritage Foundation has prepared "The 2008 Federal Revenue and Spending Book of Charts". This compilation of information provides a very effective primer on the issues that our government officials need to address - problem is they just seem to ignore the real issues. Click here to access the charts.

Unfortunately, the chart below points out one of the more glaring issues.

The Lending Crisis - Funny What We Don't Listen To....

As we try to understand the carnage we have recently experienced in the stock market and look at the housing bubble and related lending crisis, we need to remember that this was not created by either political party alone, but rather a lot of people who in retrospect didn't really want to listen.

BusinessWeek published a very good article this week discussing how in 2003 Attorney Generals from North Carolina and Iowa met with John D. Hawke, Jr., the then head of the Comptroller of the Currency (he was appointed by the Clinton administration in 1998 and returned to private legal practice with Arnold & Porter in 2004) to voice their strong concerns about lending practices in their states. Click here for the link.

My favorite quote regarding our out-of-control lending system was made by Peter Wallison of The American Enterprise Institute in 1999 in regards to Fannie Mae easing of credit requirements on loans it purchases. He said ''From the perspective of many people, including me, this is another thrift industry growing up around us, if they fail, the government will have to step up and bail them out the way it stepped up and bailed out the thrift industry.'' Click here for the link.

Following this action, in November 1999 President Clinton signed the Financial Services Modernization Act of 1999, which overhauled U.S. Banking regulation (picture above). This legislation repealed certain parts of the 1933 Glass-Steagal Act and the 1956 Bank Holding Company Act, paving the the way for many of the abuses that contributed to the economic situation we find ourselves in today.

This legislation was passed with substantial support from both parties, passing the House in a vote of 362 - 57 and the Senate 90-8. So I think both Democrats and Republicans through this legislation were contributors to our current mess. I like when each tries to blame the other.

Politicians and Fiscal Responsibility

As the country awaits the verdict on the Democratics primaries and watches the positioning taking place between the two political parties, it struck me as very interesting that no presidential candidate seems to speak about fiscal responsibility. The recent senate vote to ban "earmark" spending for one year was very dissappointing losing by a vote of 79 - 21. I should note that all three presential candidates voted for the measure. But that being said they all seem to have great plans to help everyone - but no real plan to pay for it. The public should be up in arms that our elected officials have no interest in trying to show some fiscal reponsibility.

Sad to see that the Democrats could not keep their hands out of the cookie jar - they missed a big chance to differentiate themselves from the Republicans - but they are politicians and as such should not be trusted to spend the money we entrust to them.....

On that topic, David M. Walker, who has headed up the Government Accountability Office ("GAO") since 1998 stepped down this month to join The Peter G. Peterson Foundation to continue his efforts to address the lack of fiscal reponsibility in our government. Walker has tirelessly warned the public and our politicians of their need to face the facts and address our run-away entitlement spending. For one of his recent presentations click here .

Subprime Mortgage Crisis

Robert Cox published an interesting opinion piece on this topic

This was published in the February 11th Washington Examiner

As the housing market continues to sag and foreclosures increase, there has been a rush by politicians, most especially Democrats, to point fingers. Foremost among them has been Sen. Hillary Clinton, D-NY, who has fed into the "predatory lending" rhetoric emanating from Congress, as well as self-appointed black leaders like Jesse Jackson.

It makes it no less painful for a homeowner, even a recent one who was, in a sense, speculating on the market, to lose their home but for politicians to twist that outcome into the self-serving notion that insolvent borrowers are "victims" because they made and lost a large bet is not only wrong but hypocritical.

One of the major unheralded (at the time) initiatives of President Bill Clinton's first term was a significant increase in the homeownership rate, which measures the percentage of occupied housing units being occupied by the unit's owner.

In 1992, the homeownership rate stood at 64.1% according to the U.S. Census Bureau. By 2000, Clinton's last full year in office, the rate stood at 67.8% and peaked at 69% in 2004. Many factors contributed to that increase but policies introduced by Fannie Mae and Freddie Mac in the mid-19990 played a major role. Fannie and Freddie, the two government-sponsored entities (GSEs) authorized by Congress to make loan guarantees in order to make it easier for Americans to get mortgages, largely dictate the terms on which commercial lenders operate.

In response to political pressure at the time, the GSEs took steps to make homeownership more affordable for lower-income Americans and those with a poor credit history. Particular emphasis was placed on the needs of African-American borrowers as a way to address the effects of past "red-lining" – the practice of refusing mortgages in areas where blacks lived.

Red-lining denied millions of black families the opportunity to create wealth through home ownership, develop experience with managing credit and, most importantly, passing accumulated real estate wealth on to children, thereby giving them the funds needed to make down payments on their own homes.

The GSEs did three things: First, they created new ways for those with little or no credit history to qualify for "conforming" loans by presenting utility bills, a particular boon to many low-income African-American borrowers; second, they loosened restrictions on debt-to-equity ratios to decrease down payments from the traditional 20% to as little as five percent or even zero down; (3) sought to lower initial payments by encouraging commercial lenders to offer various forms of back-end loaded mortgages including floating rate loans with low-interest "teaser" rates.

The new policies worked and homeownership rates rose steadily, especially among African-Americans. Many first-time homeowners began accumulating equity in their home as housing prices soared. So long as housing prices rose, and equity-levels increased, all was well. Lenders were more than happy to take fees to flip borrowers from floating to fixed rate loans because they were no longer securing the loans against the borrowers credit history but rather the equity value of the house.

When home prices began to decline, home equity began to evaporate and, in some cases, disappear altogether. What happened next was entirely predictable ? a two-step price decline followed by a dramatic increase in foreclosures.

The first step was the normal cooling off of what had been an overheated housing market. The second step, currently underway, has been driven primarily by the inability of new homeowners to swap from floating to fixed rate loans as teaser rates expired and homes were, in many cases, worth less than the amount of the mortgage.

The response of politicians has been equally predictable. Rather than consider the role of Congress and the Executive Branch in encouraging lenders to extend credit to borrowers with little or no credit history to purchase homes with little or no money down at artificially low interest rates they've run to the nearest microphone to denounce predatory lenders."

Are there such lenders out there? Sure but history has always shown that any overheated market invariably brings out vultures looking to exploit inexperienced investors. The fact is, however, that people who invested in the real estate market with little of their own money were less "homeowners" and more "speculators" and when a financial bubble bursts speculators take the hit.

Likewise, history has shown that when politicians cause a mess like the so-called "mortgage crisis," they are the first to point the finger in any direction except their own.

Robert Cox is president of the Media Bloggers Association.

Link

Why Common Sense Data?

This blog is for information I find interesting regarding economic and social issues.

The education sector is one of the areas that fascinate me. I believe that the U.S. education system is in a state of limbo, while much of the rest of the world is progressing beyond where we are as a country, primarily by studying the U.S. education system and improving upon it. I have posted a lot of education industry information at my firm's website, http://www.arcadybay.com/.

Click here to go to the page with the postings.

On the economic side it is sad to say that the american public would rather hear "happy talk" from politicians and blame anyone else (i.e., immigrants, nasty corporations, rich people, the "other " political party. etc.) but themselves regarding issues that impact them.

It seems tha the media and our politicians prefer misleading the general public rather than presenting facts to help everyone make informed decisions.

So this blog will have information and data that I hope presents facts and reality (at least from my viewpoint) that may be interesting.