Ryan Ellis

Taxpayer Bailout of Puerto Rico Can Be Avoided with Bankruptcy Solution

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Posted by Ryan Ellis on Tuesday, May 19th, 2015, 5:02 PM PERMALINK


If there's one thing the financial crisis taught taxpayers, it's that a bailout is one of the easiest ways to grow government and increase the corruption of crony capitalism in our system.

One such bailout may be brewing in Puerto Rico unless Congress acts soon.

Puerto Rico's insular electric company is out of money. In fact, its bonds have fallen to junk status. For any state municipality outside Puerto Rico (which is a territory, not a state), the next step would be obvious--apply for a structured bankruptcy settlement under Title IX of the federal bankruptcy code. That would be the best way for an ailing government entity to hit the reset button, pay debts equitably, and avoid a taxpayer bailout to keep it going. Investors would take a hit, but then life would go on without the need for extraordinary government measures.

Unfortunately, Puerto Rico does not have that option. Municipalities there were not included in the federal bankruptcy law, and the courts have said that the island cannot establish its own bankruptcy laws, either. That means Puerto Rico is stuck with a municipal power company with no money, a ton of debt, and no way out.

Why should taxpayers in the rest of the United States care?

The most likely outcome of this no-win scenario is a Congressional bailout of Puerto Rico and her ailing government-sponsored enterprises, starting with the power system. With no way to pay bills, and no bankruptcy option to get out of its insurmountable debt, the power company would be forced to shut down operations. This would immediately transform Puerto Rico into something less than a developing nation, a fate that is unimaginable in a territory owned and protected by the United States, and where 3.5 million U.S. citizens live and work.

Before this plunge into the dark ages, Congress would no doubt rush through emergency resources to prevent Puerto Rico from falling into a humanitarian calamity. This expenditure of funds--reasonable conservatives would call this a bailout--only has to happen because a structured bankruptcy is not an option.

This bailout scenario has been actively pushed for by Big Labor (the SEIU, UAW, and AFSCME), who has been lobbying the Obama Treasury Department to buy or guarantee Puerto Rican bonds. Some Puerto Rican Democrats would love to see a taxpayer bailout check from the Beltway. 

Another option very much on the table is for Puerto Rico to raise taxes, including the creation of a value-added tax, or VAT. That, too, would be a disaster for U.S. taxpayers as bad fiscal solutions on the island could easily spread north.

Thankfully, there is another way. H.R. 870, the "Puerto Rico Chapter 9 Uniformity Act of 2015," would allow Puerto Rican municipalities to do what the thousands of municipalities in the upper 50 states can already do--declare bankruptcy. Doing so would allow for a structured wind-down of this crisis under the administration of bankruptcy courts.

Clearly, that's a far better alternative than another bailout coming from Washington. Congress should pass H.R. 870 for the sake of avoiding a bailout of Puerto Rico.

Top Comments

jeffinMadison

or maybe utility rates should be raised to levels comparable to other island utilities.

stiffarm

that is entirely too simple for the simpletons that run the US government

bdc

The power company is a corporation. The corporation sells its assets in a bulk sale to a third party. The third party is an entity that believes it can run the utility at a profit. The corporation has the sales proceeds and also has its obligations that it will not/cannot pay. It simply lets the creditors sue and collect what they might. You don't need a bankruptcy proceeding to accomplish that result.


"Currency Manipulation" Is a Red Herring in Trade Debate


Posted by Ryan Ellis on Tuesday, May 19th, 2015, 12:03 PM PERMALINK


The U.S. Senate this week is considering Trade Promotion Authority (TPA), a measure to guarantee that Congress votes up-or-down on free trade agreements negotiated by the executive branch.

One amendment which has been offered to TPA is on the subject of so-called "currency manipulation." Offered by Senator Rob Portman (R-Ohio), the amendment further defines the negotiation objectives on currency issues in any trade agreement. It does so in a way that goes beyond the strong protections already written into the TPA under consideration.

This amendment is not needed in this version of TPA. For the first time ever, currency manipulation is a mandated principle negotiating objective for the executive in a TPA. The TPA currency language has strong standards and enforceable rules. If all else fails, Congress can subject a currency-faulty trade agreement to a disapproval resolution.

Going beyond this with the Portman amendment is not necessary. Sufficient protections already exist in the TPA as drafted. Going any further upsets a negotiated agreement and could hamstring the executive in trade negotiations down the line.

ATR urges opposition to the currency manipulation amendment.

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Advertising Deductions for Businesses Are Not Tax Loopholes

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Posted by Ryan Ellis on Thursday, April 23rd, 2015, 11:22 AM PERMALINK


Some ideas in Washington never seem to die, no matter the lack of merits. One of these ideas is to eliminate (or, more commonly, to limit) the deduction for advertising expenses for businesses.

In our tax system, we tax profits. A profit is the difference between revenue generated and costs incurred. This is common sense. Companies can't pay taxes on what they don't have. A "cash flow" profits tax system is the ideal model, and one which tax policy should be moving toward (most notably by moving from depreciation to full expensing on business fixed investment).

Advertising is just one of many costs of doing business that firms are properly allowed to deduct. Other costs might include wages and other forms of compensation, travel, rent, etc. None of this is particularly exotic.

Yet there is a continued push to see advertising deductions curtailed in some strange and arbitrary way. The latest and most concerning iteration we've seen of this is from H.R. 1, the "Tax Reform Act of 2014." It proposed "amortizing" (deducting over several years) advertising costs. This raised a whopping $169 billion in taxes over a decade.

This is simply bad tax policy. Why would a cost not be deducted the year it is incurred? Why not have similar treatments for wages paid, rents paid, or the costs of staples and paperclips? The reason is simple--those are current costs, and current costs are deducted against current revenues to arrive at taxable profits.

Neither the Office and Management and Budget (OMB) nor the Joint Committee on Taxation (JCT) consider the advertising deduction a loophole, or in their parlance a "tax expenditure." Nor should they--it would be absurd to do so.

Congressional tax policy makers would be well advised to steer clear of such gimmicky tax policy as they struggle to construct pro-growth and pro-family tax reform.

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ATR Supports Health Insurance Freedom Act


Posted by Ryan Ellis on Monday, April 20th, 2015, 3:32 PM PERMALINK


Congressman John Culberson (R-Texas) recently introduced H.R. 1664, the “Health Insurance Freedom Act of 2015.” This legislation authorizes state insurance commissioners to give their residents the option of enrolling in group and individual health insurance plans that existed prior to the implementation of Obamacare. ATR endorses this legislation and urges all members of Congress to vote for and otherwise support this bill.

President Obama famously misled the American people with his comment, “If you like your health care plan, you can keep it”. The Health Insurance Freedom Act will hold the President to his word and restore the rights of states to regulate their health insurance marketplace.

Specifically, H.R. 1664 allows health insurers to continue offering plans that were in effect in a group or individual market during 2013. These plans would be treated as grandfathered health plans for purposes of an individual meeting the requirement to maintain minimum essential health coverage, and would be offered outside of Obamacare exchanges.

Five years into Obamacare, Americans have been burdened by rising premiums, cancelled plans, and failed exchange websites. This legislation will help undo the damage caused by Obamacare and provide Americans with greater healthcare choice. ATR urges members of Congress to fully support this legislation. 

Top Comments

JD

H.R. 1664 allows health insurers to continue to fleece Americans....LOL typical Grover B.S.

M. N.

I'm going to back you up on that, as long as Obama care exists people are now stuck with inflated rates/fees/etc - doesn't matter if they try and remove a few benefits, they will still find a way to stiff us in order to pay for everyone else.


Congress Should Enact Trade Promotion Authority (TPA)

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Posted by Ryan Ellis on Friday, April 17th, 2015, 9:00 PM PERMALINK


The House Committee on Ways and Means and the Senate Finance Committee have reached agreement on a very important building block to make progress on the free trade front. It is known as "Trade Promotion Authority," and Americans for Tax Reform urges all Members and Senators to support the initiative.

What is Trade Promotion Authority (TPA)? Put simply, TPA is an act of delegation from the Congress to the Executive. It is the Congress telling the Executive "go and negotiate free trade agreements for our country. We're going to give you limitations and rules that respect the rights and prerogatives of the Congress, but otherwise go negotiate. When you have a deal, Congress will vote it up or down."

​Why is TPA needed? TPA is extremely important to have if any further progress is going to be made on free trade. The executive branch must have the ability to tell negotiators from other countries that what is hammered out at the table is not going to be endangered by legislative shenanigans back home. Without TPA, other countries will be hesitant to concede anything since the executive is really only speaking for itself.

Why is free trade a good thing? Tariffs are taxes on imported goods. We pay these taxes when we buy something made abroad (increasing the cost of what we buy here), and we suffer the impact of those taxes when we sell something to another country (decreasing the profitability of our exports). There's a basic principle that if you want more of something, tax it less. If we want more trade among nations (which results in markets opening up abroad and better value for goods and services here at home), we have to lower tariffs. The way we lower tariffs (taxes on trade) is by enacting free trade agreements. The way to enact free trade agreements is to enact TPA.

Why should conservatives trust President Obama to negotiate? TPA is not about President Obama. If enacted, this TPA deal would last for three years, with an option for the Congress to continue it another three years.

That's 72 months of TPA.  President Obama will be out of office in 20 months. This TPA bill is about moving on from the disastrous free trade desert that the Obama administration has been.

For these reasons and others, ATR is a supporter of TPA and urges all free market conservatives on and off Capitol Hill to be as well.

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All Capital Gains Should Work the Same as Like Kind Exchanges

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Posted by Ryan Ellis on Friday, April 17th, 2015, 8:32 PM PERMALINK


Congress is always on the hunt for "pay-fors"--tax increases and spending cuts which can be used to offset other tax increases or spending cuts.

Unfortunately, there's a treasure trove of tax increase "pay fors" in H.R. 1, the "Tax Reform Act of 2014," which was introduced last Congress by former Congressman and Ways and Means Chairman Dave Camp (R-Mich.) One of these tax hike pay-fors is an elimination of so-called "like-kind exchanges."

This was the wrong idea, since like-kind exchanges are actually a good model of capital gains tax reform, not a loophole to be closed.

What is a like-kind exchange?

Suppose you are a business owner.  You bought a bunch of widgets (business assets, not inventory) a few years back for $1000. You now want to sell these widgets, and have a buyer for $1500.  In the normal course of events, when you sell the widgets you would have a capital gain of $500 (the sales price of $1500 minus the purchase price of $1000), and you would pay tax on that capital gain.

But you, the business owner, don't want to cash out. You want to buy a fresh set of widgets with your $1500. The tax code has a way for you to do that and defer paying the capital gains tax from that first sale. It's called a "like-kind" exchange. You set up an intermediary trust, which receives the $1500 you get when you sell those widgets. You then have 180 days to purchase a fresh $1500 set of widgets with the money. Your basis in the second set of widgets is the same as your basis was in the first set of widgets.

You can do this as many times as you want, provided the set of widgets you are buying are of a like kind to the widgets you are selling, and provided that you're using all the proceeds every time to buy more widgets.

Only when you decide to sell out of the widget business and cash out do you actually have a capital gain.  The gain is the difference between the final sale amount and the original tranche of widget purchases. The capital gain is embedded over the years in the business, and it becomes due when the business activity effectively ends.

A model for capital gains

All capital gains should work this way. If you buy a stock for $100 and sell it for $150, you should be able to plow that $150 into new stock purchases without having to pay tax along the way. Ditto for any type of capital gain you might have.

You know who agreed with this concept? None other than current Ways and Means Chairman Congressman Paul Ryan (R-Wisc.) Back in 2007, he introduced H.R. 2796, the "Generate Retirement Ownership Through Long Term Holding (GROWTH) Act." It would have allowed something very much resembling a like kind exchange by default for capital gains generated within mutual funds.

When H.R. 1 decided to take away like kind exchanges (which would be a tax increase of over $40 billion over a decade), it implicitly labeled these sales as "tax loopholes." Nothing could be further from the truth. All capital gains should work this way, in fact. Imagine investors not having to report each and every stock and mutual fund transaction on their taxes every year, and instead having a deferred capital gain until sale, a kind of brokerage account version of an IRA.

That would not only simplify tax filing for millions of Americans, it also would make all capital markets--for everything--more efficient. Every time the government takes money out of the pool of capital investment, capital grows more slowly and we're all poorer than we otherwise would be. The key to wealth creation is to leave capital--unmolested by government--free to grow for as long as possible.

Congress should not be looking to restrict like kind exchange plans--they should be looking to do tax reform with them as a model.

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ATR Supports Small Business Taxpayer Bill of Rights


Posted by Ryan Ellis on Thursday, April 16th, 2015, 2:21 PM PERMALINK


The “Small Business Taxpayer Bill of Rights Act of 2015” was introduced yesterday by Senator John Cornyn (R-Texas) and Congressman Mac Thornberry (R-Texas). This legislation will reduce the burden placed on small business owners and strengthen taxpayer protections. ATR supports this legislation and urges all members of Congress to vote for, and otherwise support this legislation.

The Small Business Taxpayer Bill of Rights Act, S. 949 and H.R. 1828 in the Senate and House respectively, makes a number of important improvements to the complex and inefficient federal tax system. Specifically, this legislation lowers compliance burdens placed on taxpayers, provides compensation for taxpayers that experience IRS abuse, improves taxpayer’s access to the U.S. tax court system, and strengthens taxpayer protections. 

Small businesses are the backbone of the American economy, a key driver of economic growth, and a pillar of the American Dream. This legislation will provide important protections to small businesses and help reduce the burden that the federal government places on hard-working Americans. ATR fully supports this legislation and urges all members of the House and Senate to support this bill. 

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Top Ten Reasons the House Will Kill the Death Tax

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Posted by Ryan Ellis on Tuesday, April 14th, 2015, 5:50 PM PERMALINK


Update: The U.S. House of Representatives recently passed The Death Tax Repeal Act of 2015! Now the fight begins in the U.S. Senate. Want to abolish the Death Tax? Take action now!

For the first time in ten years, the U.S. House of Representatives this week will vote on a bill to kill the death tax once and for all. H.R. 1105, the “Death Tax Repeal Act of 2015″ is sponsored by Congressman Kevin Brady (R-Texas.) and notably features the co-sponsorship of Congressman Sanford Bishop (D-Ga.), a member of the Congressional Black Caucus. Earlier iterations of this bill have enjoyed the co-sponsorship of a majority of the chamber, so passage is not in doubt. Maybe that’s why 81 business and citizen grassroots organizations have signed a joint letter under the auspices of the Family Business Coalition urging Congress to kill the death tax.

With the fate of the bill a sure thing, let’s reflect on the top ten reasons the death tax deserves to die:

1. The death tax is not fair.  At a basic level, Americans know that the death tax is not fair. It’s not fair that you earn income all your life and pay heavy taxes on it. It’s not fair that you save your hard-earned money and pay taxes on what you make. It’s not fair that you build a small business and face exorbitantly high tax rates. But all of these unfairness taxes pale in comparison to the death tax. The death tax is a tax you pay on savings you have already paid taxes on at least once, and potentially more than once. It results in the liquidation of first and second generation farms and businesses just to pay the tax. Why should a business have to pay taxes again just because an owner has died?

2. The death tax is not popular with the American people.  In a 2009 Tax Foundation poll, the death tax was considered the “least fair” by the American people, even more unfair than the income tax. In poll after poll for decades now, the death tax has consistently been opposed by 60 to 70 percent of adults, registered voters, and likely voters. The results are in, and the intense opposition to the death tax is unquestionable.

3. The death tax collects almost no tax revenue.  According to both the Congressional Budget Office and the Office of Management and Budget, the death tax is expected to bring in about $20 billion in tax revenue this year. Now, in the real world that’s a lot of money. It’s not a lot of money by Beltway tax collection standards, though.

The federal government is anticipated to collect $3.2 trillion in tax revenue this year, according to CBO.  Do the math, and it will take about 55 hours–out of the whole year–to collect all the revenue from the death tax.  That’s 2 days out of 365 days in the year.

To put it another way, suppose all the revenue the federal government was going to collect this year was represented as $100.  In that case, the death tax would be about $0.63 out of that $100.

You get the picture.  

4. The death tax is a declining source of federal revenue.  As recently as 2000, the death tax wasn’t the joke of a revenue source it is today.  Back then, it raised a respectable 1.5 percent of all federal revenues. But today it’s less than half that. As time goes by, we should expect the death tax to continue to wither on the vine as a real revenue source, as it has for years. The true reason for collecting it is not to raise tax revenue, but it’s out of a misguided sense of class warfare ideology.

5. The truly rich don’t pay the death tax.  As our liberal friends at the Center for Budget and Policy Priorities have recently reminded us, “many wealthy estates employ teams of lawyers and accountants to develop and exploit loopholes in the estate tax that allow them to pass on large portions of their estates tax-free.  These strategies don’t benefit the broader economy; they only allow the wealthiest estates to avoid taxes.” I couldn’t have said it better myself. The uber-rich can afford these “teams of lawyers and accountants” to “develop and exploit loopholes” for their clients. First and second generation business owners and family farmers cannot.  As a result, Paris Hilton will be death tax free her whole life (and beyond), but startup business owners will either have to pay the death tax or funnel scarce capital into their own little army of tax nerds and lawyers.

6. Chances are, you don’t live in a state with a death tax. While Congress has been sitting on their hands for ten years not repealing the death tax, states have been doing their “laboratories of democracy” thing.  Non-death tax states now outnumber death tax states about 30-20, and those dwindling number of states which still have a death tax are either looking to scrap it or are greatly increasing their state death tax’s “standard deduction.” It’s not a good revenue source, and states know it.

7. Most countries have a death tax rate far lower than our own, and many have no death tax at all.  The United States, with its gut-punching 40 percent federal death tax rate plus the various state rates, has the fourth-highest death tax rate in the world.  We’re only ahead of Japan, South Korea, and France.  Many familiar countries–Australia, Canada, Israel, and even Sweden–have no death tax at all. In a world where capital is mobile and global, this matters a lot. People don’t have to die in the United States.

8. The death tax is bad for jobs and killing it would give you a raise. Again according to the Tax Foundation (they’ve done some great work in this field) the death tax is an economy killer. They have a macroeconomic “dynamic” model to see what killing the death tax would do to the job market. It projects that killing the death tax would create 139,000 jobs, increase private business hours by 0.1 percent, and increase wages by 0.7 percent.

9. The death tax is bad for economic growth and repeal literally pays for itself. The same Tax Foundation report says that the death tax would increase the economy by 0.8 percent (or $137 billion in today’s dollars).

Because this additional economic growth would be subject to taxation all its own, it would more than make up for the revenue lost by repealing the death tax–it would make up the $20 billion per year, plus yield an extra $8 billion per year on top of that.  You heard that right–we’d actually collect more tax revenue if we stopped collecting the death tax.

10. The death tax is even bad for the environment. A recent study by Brian Seasholes at Reason shows that the death tax leads to the subdivision of many large, privately owned land tracts.  That’s because heirs–land rich but cash poor and in need of money to pay the death tax–sell off parcels of land in order to satisfy Uncle Sam. This leads to development of land which would never have been developed except for the death tax.

Do you agree with Ryan that the Death Tax should be repealed? Urge your senators to kill the death tax right now! 

Photo Credit: 
Keeva999 https://www.flickr.com/people/54159370@N08/

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Doctor Evil

Yup. True story. I recall because the left had a fit about George Steinbrenner's estate paying zero tax. From Forbes...

What’s also ridiculous is that the timing of Steinbrenner’s death makes such a difference to his heirs. I’m sure if you asked any of them, they’d give anything for one more hour of light. But I’m also sure that they won’t complain that their inheritances will be much larger because Steinbrenner died this year and not a year earlier or later. You see, 2010 is that magical year when, for one year only, the estate tax disappears. Had Steinbrenner died in 2009 when the estate tax was 45 percent on wealth over $3.5 million, the New York Times estimates his heirs would’ve lost about $500 million to federal taxes on an estate estimated by Forbes to be worth $1.1 billion.

So much blood shot out of Communist's eyes that day.

Doctor Evil

He skillfully spewed out a lot baloney disguised as food for thought as well as any politician. I think he scored lots of debate points. He's a good little statist.

Steve-O

Nick: We'll give you the benefit of the doubt.......you forgot to take your meds this morning. You're not thinking clearly your spelling is off, your typing co-ordination is off. You're the one who needs a major "reality alert". And how about you respond to ANY of the article's points ? Too difficult for you?


ATR Supports Legislation to Repeal the Death Tax


Posted by Ryan Ellis on Thursday, April 9th, 2015, 3:07 PM PERMALINK


Next Thursday, the US House of Representatives will vote on H.R. 1105, the “Death Tax Repeal Act of 2015,” sponsored by Congressman Kevin Brady (R-Tex.). This legislation will put an end to the immoral practice of the federal government demanding hard-earned taxpayer money after a family loses a loved one. ATR supports this bill and urges all Members of Congress to vote for it.

 

H.R. 1105 will kill the Death Tax once and for all. The Death Tax has a top federal rate of 40 percent on estates and the tax is a major reason that Americans are unable to pass along farms and small businesses to the next generation.

The Death Tax makes up a miniscule sliver of federal revenue and so repealing the tax will have an almost unnoticeable effect on the federal budget. In addition, a study by the Joint Economic Committee found that the Death Tax hurts economic growth and discourages savings and small business growth. 


The Death Tax places an unfair and unnecessary burden on American families in the event of a tragedy.  H.R. 1105 will repeal this ridiculous tax and help provide families peace of mind in a difficult time.

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JD

With Thomas Jefferson taking the lead in the Virginia legislature in 1777, every Revolutionary state government abolished the laws of primogeniture and entail that had served to perpetuate the concentration of inherited property. Jefferson cited Adam Smith, the hero of free market capitalists everywhere, as the source of his conviction that (as Smith wrote, and Jefferson closely echoed in his own words), "A power to dispose of estates for ever is manifestly absurd. The earth and the fulness of it belongs to every generation, and the preceding one can have no right to bind it up from posterity. Such extension of
property is quite unnatural." Smith said: "There is no point more
difficult to account for than the right we conceive men to have to dispose of their goods after death.

The states left no doubt that in taking this step they were
giving expression to a basic and widely shared philosophical belief that
equality of citizenship was impossible in a nation where inequality of wealth remained the rule. North Carolina's 1784 statute explained that by keeping large estates together for succeeding generations, the old system had served "only to raise the wealth and importance of particular families and individuals, giving them an unequal and undue influence in a republic" and promoting "contention and injustice." Abolishing aristocratic forms of inheritance would by contrast "tend to promote that equality of
property which is of the spirit and principle of a genuine republic.

Others wanted to go much further; Thomas Paine, like Smith and
Jefferson, made much of the idea that landed property itself was an affront to the natural right of each generation to the usufruct of the earth, and proposed a "ground rent" — in fact an inheritance tax — on property at the time it is conveyed at death, with the money so collected to be distributed to all citizens at age 21, "as a compensation in part, for the loss of his or her natural inheritance, by the introduction of the system of landed property.

Even stalwart members of the latter-day Republican Party, the
representatives of business and inherited wealth, often emphatically embraced these tenets of economic equality in a democracy. I've mentioned Herbert Hoover's disdain for the "idle rich" and his strong support for breaking up large fortunes. Theodore Roosevelt, who was the first president to propose a steeply graduated tax on inheritances, was another: he declared that the transmission of large wealth to young men "does not do them any real service and is of great and genuine detriment to the community at large.


Senate Should Pass H.R. 2, Medicare Reform Bill

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Posted by Ryan Ellis on Tuesday, April 7th, 2015, 9:01 PM PERMALINK


Why does an entry about a Medicare reform bill feature two preschoolers in the photo?  Because H.R. 2, the bill the Senate will vote on next week, is about these kids' Medicare benefit, and their share of the national debt.

Before the Easter recess, the U.S. House passed H.R. 2, a bill that combines the end of the annual "doc fix" charade with real, structural reforms to the Medicare system.  With nearly 400 "aye" votes out of a possible 435, H.R. 2 was a rare example of a legislative juggernaut.  

The Senate will take up the bill early next week, and ATR urges the upper chamber to pass this bill quickly and proudly, with lots of conservative support.

If you want to learn more about this bill, I would urge you to read my op-ed in National Review Online, or one by Grace-Marie Turner in Forbes, or a post by former CBO Director Doug Holtz-Eakin.  They all explain in detail why H.R. 2 is good, conservative policy.  They aren't alone among conservatives (even the godfather of "Cut, Cap, and Balance" has endorsed it), though there are others who have their doubts.

Some in the Senate are concerned that the bill doesn't save enough money with the structural reforms in order to justify ending the impending spending cut called "SGR."  

They lament that the wrong baseline was used (in fact, it's the baseline everyone uses for Medicare reform, or did before a month ago).

They say that the structural reforms don't create savings fast enough, too. It's this latter point I want to address.

The most important structural reform in the bill is to increase means testing in Medicare.  Already, Medicare has means testing in Parts B (doctor visits) and D (prescription drugs).  H.R. 2 makes those means tests stronger.  That means that, over time, more and more seniors of the future will be paying more and more of their own money for their own Medicare benefit.

We won't know for sure until next spring when the Medicare Actuaries report is released, but this deeper means test should reduce the unfunded liabilities of the program by a lot.  You see, the means test is indexed for inflation, but seniors' income grows faster than that.  If inflation grows at 2 percent per year, and your income grows by 5 percent per year, your income even after inflation will double every 25 years.  It's simple math.

The same will apply to this means test.  

Social Security initial benefits are wage-indexed, meaning they grow faster than prices (about 3 percent per year after inflation).  Social Security initial benefits will outpace the growth of inflation greatly over this century.

Pensions and other retirement savings grow far faster than inflation (most pension actuaries use 5 percent annual after-inflation growth as a solid predictor). Dividends tend to grow at the same rate as other retirement savings.  That means all the money piling up in 401(k)s and IRAs will eventually push up the real income of seniors of the future.

These key components of income for the "seniors" you see in the picture will grow far faster than inflation over the course of this century.  It's a very reasonable expectation that the little girl getting her tonsils examined by her sister will pay for most of her own Medicare benefit, when she's ready to retire in 60 or so years.  So will her friends, and they will think of that as perfectly normal and fair.

By then, H.R. 2 will be an historical footnote of ancient memory.  But the structural reforms H.R. 2 brought about will pay dividends for taxpayers long after we're gone.

Is there more to be done?  Absolutely.  Does H.R. 2 solve the Medicare crisis?  Of course not.  But it's a very solid down payment on doing so, it points the way forward for even further reforms, and it continues the process of shifting the Medicare program to the fully-funded, debt-free, and free market system we all want to move toward.

The Senate should pass H.R. 2 without delay.

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John R. Graham

Thank you, but the means testing is only funding $34 billion of the cost of the bill, leaving $141 billion added to the debt over ten years. It violates a clearly stated Republican commitment, rendering the budget resolutions meaningless.


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