Month: February 2013

Employer Mandate a Recipe for Unemployment

By Sally C. Pipes

Walmart recently announced that it will not offer health insurance to new employees who work less than 30 hours a week. It’s reserved the right to do the same for existing workers. For these new policies, Walmart’s employees can thank ObamaCare.

The federal health reform law’s “employer mandate” requires companies with over 50 employees to provide insurance for anyone working 30 or more hours a week or face fines. That creates a strong incentive for companies to push their workers into a workweek fewer than 30 hours—and thereby avoid the additional costs ObamaCare intends to saddle them with.

Walmart isn’t alone. The employer mandate will make it harder for many businesses to operate efficiently, to hire new employees—or to ensure that existing employees can stay on full time.

Papa John’s CEO John Schnatter recently came under fire for stating that the employer mandate will take a bite out of his company’s pie. He said that his pizza chain’s franchisees would likely cut back employee hours—and that ObamaCare would add up to 14 cents to the cost of each pizza.

The owner of several Denny’s franchises in Florida has contemplated slapping a 5-percent ObamaCare surcharge on every meal, and a New York Applebee’s franchisee has said he may stop hiring because of the additional costs borne by the law.

ObamaCare’s defenders suggest that these businessmen are just greedy. But it’s been widely known that the employer mandate would deliver a hefty blow to businesses since President Obama’s health care reform law was merely a bill.

In early 2010, the Congressional Budget Office (CBO) estimated that the employer mandate would force businesses to pay $52 billion in tax penalties from 2014 to 2019. That money will have to come from somewhere—whether higher prices for consumers or reduced wages for workers.

Further, the CBO recently cautioned that the employer mandate would cause a 0.5-percent reduction of the American labor force. That may not sound like much—but it’s equivalent to eliminating about 700,000 American jobs.

These job cuts will hurt the working poor most. According to a paper by Harvard economist Katherine Baicker and University of Michigan economist Helen Levy, those who earn within three dollars of the minimum wage are at the greatest risk of losing their jobs thanks to an employer mandate. Baicker and Levy concluded that “1.4 percent of uninsured full-time workers would lose their jobs” under the mandate.

In some cases, the employer mandate may backfire—and actually encourage businesses not to provide health insurance.

Businesses that do not furnish coverage must pay $2,000 per employee, excepting the first 30, if at least one of their workers receives subsidized coverage through the new insurance exchanges. Folks with incomes of up to four times the poverty level, or nearly $90,000, could qualify for subsidies. So a firm with 50 employees could be looking at a fine of $40,000.

But health insurance is expensive—far costlier than the fine. Average premiums for single coverage were north of $5,600 in 2012 and above $15,700 for family policies, according to the Kaiser Family Foundation. Many employers may find it more economical to pay the fine and turn their workers loose in the exchanges.

Indeed, former CBO Director Douglas Holtz-Eakin estimates that as many as 35 million Americans out of about 160 million could lose their existing employer-provided insurance thanks to—ironically enough—the employer mandate.

Taxpayers will pay the price. Richard Burkhauser and Sean Lyons of Cornell and Kosali Simon of Indiana University estimate that the feds could have to spend an additional $48 billion a year if employers dump their workers into the exchanges.

For now, though, the employer mandate’s impact will largely be felt in the business community, at firms as big as Walmart and as small as the local diner. “I don’t know what secret [the politicians] know, where they just assume we can write them a check,” Sam Facchini, owner of Metro Pizza in Las Vegas, recently told a Nevada newspaper. “We can’t pay for this. Most of us operate on a thin margin and trying to stay in compliance [with the law] will make things much tighter.”

Sally C. Pipes is President, CEO, and Taube Fellow in Health Care Studies at the Pacific Research Institute in San Francisco. She is a guest contributor for Cascade Policy Institute. Her latest book is The Pipes Plan: The Top Ten Ways to Dismantle and Replace ObamaCare.

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The Wages of Sin Taxes

In a misguided attempt to save us from ourselves, Oregon legislators have become addicted to the so-called sin taxes they place on booze, drugs, and gambling. If we don’t break their addiction, it will expand into areas such as sugary soft drinks and fatty foods.

Now, a provocative new study challenges the whole concept of sin taxes, finding that they “not only do little to limit the use of ‘bad’ products, they do nothing to reduce societal costs.” Most remarkably, the study “demonstrates that those shockingly large estimates of the costs that the consumption of alcohol, tobacco, sugar, and fat supposedly impose on society have little basis in reality.”
Sin taxes also hit the poor harder than the rich. That’s because products like tobacco and state lotteries are disproportionately purchased by lower income people.

 

Sin taxes also give governments “a financial incentive to foster the very vices they profess to despise.” This may explain why, out of the more than one billion dollars Oregon has received to date from the Tobacco Master Settlement Agreement between 46 states and the tobacco companies, “not one penny has gone to tobacco prevention.” Prevention would cut into the state’s lucrative tobacco tax revenue, just as it would cut into state monopoly liquor revenue. The same goes for the state lottery that supposedly does good things at the expense of addicted gamblers.

It’s time that Oregon break its addiction to sin taxes.

Steve Buckstein is founder and Senior Policy Analyst at Cascade Policy Institute, Oregon’s free market public policy research organization.

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Mandatory Sick Leave Hurts the Working Poor

By Marc Kilmer

On March 6 the Portland City Council may vote on whether to require virtually all businesses that employ six or more people to provide them with at least five paid sick days per year. While this sounds well intentioned − who doesn’t support helping out a sick person? – it will actually end up hurting low-wage and less-skilled employees. For the sake of the working poor, this proposal should be rejected.

Let’s establish some basic facts about the employee/employer relationship. Employers provide compensation for an employee based on how much value that employee’s labor has for the employer. Employees with skills that are in higher demand get paid more, both because these skills help an employer’s business more and because there are fewer people with those skills. Any kid off the street can wash dishes, so a dishwasher is likely to make far less money than an electrician, someone who has a specialized set of skills.

Compensation is not just the wages paid to an employee. An employee costs a business much more than just salary. There are unemployment, Medicare, and Social Security taxes that must be paid. And if the company offers any benefits, then that is also a cost to the employer. An employee may make $40,000 a year, but it may cost the employer $60,000 a year to employ that person. The total cost of compensation, not just the salary, is what’s important to the employer.

Some people hold the view that an employer should provide a variety of benefits to workers, from paid sick leave to health care to disability insurance to retirement benefits. Any amount of money paid by employers for these benefits raises the cost of hiring that employee.

Mandatory sick leave increases the cost to an employer for hiring an employee. For more-skilled workers, that means that more money is going to the benefits side of the compensation equation and less to the wage side. So better sick leave means lower wages. Some employees may like that, some may not. But if the government mandates it, the employee has no choice.

For lower-skilled employees, the situation is more damaging. Since there are a federal and a state minimum wage, there is a floor below which an employer may not pay an employee. If the government raises the cost of compensation through mandatory sick leave, an employer cannot simply pay a lower wage to someone making minimum wage or close to it. In that case, the employee will have to be let go.

Some may say that the employer should simply absorb the cost of the higher compensation. What they ignore is that an employee’s compensation is based on the value that employee brings to the company. If an employer pays an employee more than his labor is worth, then that employer will soon go out of business.

Mandatory sick leave sounds like a good idea, but it will end up hurting the most vulnerable workers in our society. The more the government mandates benefits for workers, the fewer low-skilled workers will be hired. We need to encourage getting these low-skilled workers in the workforce, not discourage them. For the sake of the working poor, the City of Portland should not mandate sick leave.

Marc Kilmer is a Maryland Public Policy Institute senior fellow specializing in health care issues and a guest contributor to Cascade Policy Institute, Oregon’s free market public policy research center.

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Cascade in the Capitol: Testimony in favor of a School Choice Tax Credit

Testimony before the Senate Committee on
Education and Workforce Development
in Favor of SB 500 and SJR 23

Good afternoon, Chair Hass and members of the Committee. My name is Steve Buckstein. I’m Senior Policy Analyst and founder of Cascade Policy Institute, a non-profit, non-partisan public policy research center based in Portland.

I support SB 500 and SJR 23 for several reasons.

First, in 1922 Oregon voters approved a Ku Klux Klan supported measure that would have outlawed all private and religious schools. It was a blatantly anti-Catholic effort. The measure never took effect because the U.S. Supreme Court struck it down in 1925, and uttered these famous words:

“The child is not the mere creature of the state; those who nurture him and direct his destiny have the right, coupled with the high duty, to recognize and prepare him for additional obligations.”

In 2009, a survey of 1,200 likely Oregon voters asked a series of questions about K-12 education and school choice. 83 percent of those polled had children in school. The key finding was that while 91 percent of Oregon families sent their children to a regular public school – only thirteen percent would do so if the choice where fully theirs. The rest, 87 percent, would choose private, charter or online schools, or educate their children at home.

Please don’t be fooled by the small percentage of parents who actually exercise school choice today.

Why would 91 percent of children be in regular public schools if only 13 percent of their parents want them there? Because most people can’t afford to pay taxes for public schools and tuition for private schools at the same time.  Even though more than $5 billion tax dollars a year go toward educating Oregon’s school-age children, virtually all of that money goes to public school districts, not parents or students. Send your children where the state wants you to send them and their education is “free.”  Make another choice, and you foot the bill yourself.  The tax money stays in the public system, even if your child is being educated somewhere else.

So, ask yourselves, are we spending those $5 billion a year to support brick school buildings and the adults who work in them, or are we spending that money to educate children, wherever they can learn best?

Allowing a $1,000 tax credit is a small, but significant step you can take now to help parents exercise what the Supreme Court said was their right, and high duty — to prepare their children for additional obligations.

Oregonians clearly want to be able to choose where their children go to school. It’s about time that our lawmakers give them that choice by letting the money follow the child.

I urge you to support both SB 500 and SJR 23.

Thank you.

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Life, Liberty, and Obama’s Pursuit of Free Birth Control

The U.S. Department of Health and Human Services has released the long-awaited “accommodation” on the so-called “contraceptive services mandate.” The mandate requires nearly all employers to provide birth control, “morning-after” and “week-after” pills, and sterilization without copayments in their employee health care plans. According to the Obama Administration, the revised HHS rule requires employees of objecting religious organizations to be offered “no-cost contraceptive coverage through separate individual health insurance policies” issued through insurance companies or a third-party administrator.

Jim Towey, president of Ave Maria University, which has brought a lawsuit against the mandate, called the rule a “bizarre, new bureaucracy to obscure who exactly is paying for the abortion-inducing drugs and other services covered by the mandate.”

This is an important point for civil libertarians. Pharmaceutical companies will not provide a lifetime supply of free contraceptives to every American woman over the age of twelve out of the goodness of their hearts. The costs will be borne by individual policyholders, for-profit businesses, nonreligious nonprofits, and taxpayers―any of whom may object, and none of whom qualify for exemption.

President Obama pays lip service to the First Amendment and champions freedom of choice, but if he truly respected either, he would stop trying to create a universal entitlement to free birth control. The American way is a thriving marketplace where people can choose health care providers and coverage consistent with their beliefs. It looks as if we’ll get court battles instead.

Kathryn Hickok is Publications Director at Cascade Policy Institute, Oregon’s free market public policy research organization, and a graduate of the University of Portland.

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Cascade in the Capitol: Testimony in Opposition to More Subsidies of Student Higher Education Costs

State Treasurer Ted Wheeler has proposed that the state obligate its citizens to repay hundreds of millions of dollars in General Obligation bonds to subsidize student higher education costs. Below is the prepared testimony that I gave to a House committee last week and will give to a Senate committee tomorrow, setting out my objections to the plan:

I oppose HJR 6SB 11 and SJR 1 for several reasons.

First, as Professor Richard Vedder, author of the book “Going Broke By Degree: Why College Costs Too Much,” says, higher education prices are rising rapidly because of the predominant role of third-party payments, including federal and state support for institutions and students. “When some else is paying a lot of the bills, students are less sensitive to the price, thus allowing the colleges to care less about keeping prices under control.”

So, rather than help keep college costs and student debt levels down, Treasurer Wheeler’s proposal will likely do just the opposite.

That would be bad enough, but it will be worse because even if the investment assumptions for his proposal work out, taxpayers will be on the hook to repay hundreds of millions of dollars of bond principal, plus interest decades into the future.

Worse yet, there is evidence that more government funding of higher education actually translates to slower state economic growth. That’s likely because individuals know their needs better than politicians do, so leaving the money in private hands produces better economic results.

Further, academics such as Charles Murray and Carl Bankstron join Dr. Vedder in arguing that four-year degrees aren’t what they used to be, and that state funding may simply waste precious financial and human resources.

All that said, if increasing the percentage of Oregonians who earn two- and four-year degrees is a good goal, you should step back and look at efforts in other states to significantly reduce the cost of those degrees. Arthur Brooks recently noted in the New York Times that one idea gaining traction is the $10,000 college degree, which public universities in several states are moving toward right now. That’s $10,000 total direct costs for four years. According to Brooks, this “is exactly the kind of innovation we would expect in an industry that is showing every indication of a bubble that is about to burst.”

In conclusion, whatever the value of a college degree to an individual, it’s becoming clear that state funding of those degrees is likely to cost taxpayers more than they gain. I urge you to reject HJR 6, SB 11 and SJR 1.

Thank you.

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Cascade in the Capitol: Light Rail to Vancouver vs. CTRAN Express Buses – Testimony on HB 2800

Cascade President John Charles testified today before the Joint Committee on Interstate-5 Bridge Replacement Project regarding HB 2800. His testimony follows.

The CRC Plan for Light Rail:

A Step Backwards for Transit Customers

 John A. Charles, Jr.

Cascade Policy Institute

February 2013

Metric

TriMet Yellow MAX Line to North Portland

CTRAN Express Buses Serving Downtown Portland

Capital cost of expanding  light rail to Vancouver

$932 million

$0

2011 annual operating cost

$10.2 million

$5.04 million

Operating cost/hour

$270

$110

Annual hours of service

40,492

45,996

Farebox recovery ratio for operations cost

47%

67%

Cost/new vehicle

$4,200,000

$458,333

Peak-hour frequency

Every 15 minutes

Every 10.3-15.5 minutes

Peak-hour travel speed

15 MPH

31-45 MPH

Travel time, Vancouver to Portland

36-38 minutes

16 -18 minutes

% of passenger seating capacity actually used at the peak period

34%

38%

Promises of Frequent Transit Services: Hope Over Experience

According to the most recent finance plan for this project, “Light rail in the new guideway and in the existing Yellow line alignment would be planned to operate with 7.5 minute headways during the “peak of the peak” and with 15-minute headways at all other times. This compares to 12-minute headways in “peak of the peak” and 15-minute headways at all other times for the existing Yellow line.”[1]

In fact, the Yellow Line runs at 15 minute headways all day, with even less service at night.  Yet according to the FTA Full Funding Grant Agreement for the Yellow Line, service is supposed to be operating at 10-minute headways at the peak, improving to 7.5 minute headways by 2020. TriMet is violating its FFGA contract, which could lead to a denial of funding for the $850 million grant request that the CRC project plans to make.

The Green MAX line is also operating at service levels of at least 33% below those promised in the FFGA. 

The legislature should not be expanding TriMet’s territory at this time – especially into another state that already has a transit district – because TriMet cannot afford to operate the system it already has. Despite a steady influx of general fund dollars, TriMet has been cutting service ever since the legislature approved a payroll tax rate increase in 2003, as shown below.

TriMet Financial Resources, 2004-2013 (000s)

 

FY 04/05

FY 08/09

FY 10/11

FY 11/12 (est)

FY 12/13 (budget)

% Change 04/05-12/13

Passenger fares

$   59,487

$   90,016

$   96,889

$   104,032

$117,166

+97%

Payroll tax revenue

$171,227

$209,089

$224,858

$232,832

244,457

+43%

Total operating resources

$308,766

397,240

$399,641

$476,364

$465,056

+51%

Total Resources

$493,722

$888,346

$920,044

$971,613

$1,111,384

+125%

Note: Pursuant to legislation adopted in 2003, the TriMet payroll tax rate was increased on January 1, 2005, will rise by .0001% annually until it reaches a rate of .007218% on January 1, 2014.

 

  Annual Fixed Route Service Trends, 2004-2012

FY 04

FY 06

FY 08

FY 10

FY 12

% Change

Veh. revenue hours

1,698,492

1,653,180

1,712,724

1,682,180

1,561,242

-8.1%

Vehicle revenue miles

27,548,927

26,830,124

26,448,873

25,781,480

23,625,960

-14.2

Average veh. speed – bus

15.8

15.8

14.9

14.7

14.6

-7.6%

Average veh. speed – L. Rail

20.1

19.4

19.3

19.4

18.4

-11.5%

Source: TriMet annual service and ridership report; TriMet budget documents and audited financial statements, various years.



[1] C-TRAN, High Capacity Transit System and Finance Plan, July 20, 2012, p. 4.

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Charity’s Unseen Benefit: Protecting Civil Society from the State

By Benjamin Zycher

Charities and other nonprofit institutions perform a vast array of altruistic works yielding benefits for both the direct beneficiaries and for society writ large.

Most such activities are obvious: medical services for the indigent, educational services for the disadvantaged, support for the arts, and the like. But such organizations serve a deeper function as well: They act as an important buffer between the citizenry and the state.

Government by its very nature is coercive: Tax, spending and regulatory policies inexorably generate wealth transfers among groups, thus creating winners and losers. These effects induce individuals and groups to find routes around the constraints created by government policies, increasing the incentives of government to impose further rules, and so on.

Private organizations, on the other hand, by definition are voluntary; and as they compete with government agencies in the provision of various services, they have powerful incentives to protect their activities and freedoms from efforts by government to expand its powers.

The current efforts by the Catholic Church and other religious organizations to challenge the contraception/abortifacient mandate in the Patient Protection and Affordable Care Act—an obvious attempt by federal policymakers to transform important institutions of civil society into agents of the government—is a prominent example of this phenomenon.

Accordingly, public financial support for private giving can be viewed not only as a way to engender additional charitable activity passing a market test, but also as a tool with which to constrain government power by creating a corrective for the incentives of individuals acting alone to offer too little resistance to the expansion of the state.

The institutions of civil society receiving such support help to protect freedoms from government coercion in ways that individual citizens might find far more difficult to undertake.

This public support is provided primarily through the tax deduction for charitable donations. Tax reform as part of a broad reform of fiscal policy is back in the news, and with it are various proposals to limit or change this tax treatment. Most such proposed changes would increase the after-tax “cost” of giving for many taxpayers by reducing the incremental subsidies created by the current structure of income tax rates. The scholarly literature suggests, roughly, that each 1% change in the after-tax cost of giving reduces giving by the affected taxpayers by about 1%.

One prominent proposal is for a cap of 28% on the marginal tax rate applied to charitable contributions by taxpayers above a given income level. That would raise the perceived cost of giving by, roughly, 18% for the taxpayers affected, leading to a reduction in total giving by all taxpayers of about 2%, or roughly $5 billion annually. In a world of trillion-dollar deficits, that may sound small; but it is 40% greater than the operating budget of the American Red Cross.

Another proposal would convert the current deduction into a 15% tax credit for all taxpayers, but impose a floor of 2% of adjusted gross income for eligibility.

That combination would reduce contributions by an estimated $10 billion or more, an amount equal to about half the operating budget of Catholic Charities. A similar proposal for the conversion to the 15% credit, but without the floor, would reduce giving by about $8 billion.

There are other proposals with varying effects. Perhaps a tax reform that results in substantially greater economic growth in the aggregate would compensate for these impacts.

Or, perhaps, tax reform may be sufficiently important to justify them. But the public discussion of changes in the tax treatment of charitable giving should consider not only the narrow effects on contributions, but also the more subtle but larger implications for the substantial benefits that the institutions of civil society yield in terms of the protection of our freedoms from the coercive and confiscatory power of the state.

Benjamin Zycher is a senior fellow at the Pacific Research Institute in San Francisco, a visiting scholar at the American Enterprise Institute, and a guest contributor for Cascade Policy Institute, Oregon’s free market public policy research organization.

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Press Release: Whistleblower Lawsuit Claims Oregon DHS Falsely Inflated "Healthy Kids Connect" Enrollment

February 8, 2013

FOR IMMEDIATE RELEASE

Contact: Steve Buckstein
               503/242-0900

Whistleblower Lawsuit Claims Oregon Department of Human Services Falsely Inflated “Healthy Kids Connect” Enrollment

…Cascade Policy Institute first reported inflated enrollment in its 2010 publication, “Facing Reality”

Portland, Ore. ― A former state employee has filed a $6.7 million whistleblower lawsuit against the Oregon Department of Human Services (DHS), saying she lost her job after pointing out financial irregularities and inflated enrollment projects for the state’s Healthy Kids Connect program.

Enrollment problems in the Healthy Kids Connect program were highlighted in “Facing Reality,” a report published by Cascade Policy Institute and Americans for Prosperity – Oregon in October 2010:

“Proponents of the program and DHS projected that the additional tax revenues would provide health insurance coverage to 80,000 Oregon children by the end of the 2009-11 biennium. However, with only a few months remaining in the biennium, the program has yet to enroll 26,000 more children to reach its projections.”

The complaint filed with the Marion County circuit court shows that as early as November 2009, there was evidence that the DHS projections were inflated:

“The press release draft stated Healthy Kids had a target enrollment of 80,000 kids. Plaintiff relied on three internal sources and the data revealed there were not 80,000 uninsured kids in the state.”

The complaint also alleges that DHS director, Bruce Goldberg, issued a directive regarding the method for counting the number of children enrolled in Healthy Kids. The method appears to be designed to inflate the number of children enrolled:

“In response to a question Plaintiff asked, [Healthy Kids staff member Melissa] Hanks provided Plaintiff with a document which outlined Goldberg’s directive on how the agency would calculate the number of enrollees. The document read, ‘For monthly caseload reporting on Healthy Kids Plan, we propose attributing any children’s caseload changes after June 30, 2009 to the HKP. This would generate the largest child count attributable to the HKP. That number will represent changes in caseload once Healthy Kids begins, and “Healthy Kids” become indistinguishable from all children.’ Plaintiff understood that any child enrolled in any state program was counted as ‘Healthy Kid’ for purposes of reporting enrollment. Enrollment was all children new to the program and all returning clients who have a gap in enrollment, which could be as short as one month. Plaintiff believed Healthy Kids took credit for the enrollment which predated the start of the program.”

In “Facing Reality,” Cascade Policy Institute called for ending the Healthy Kids Connect program. With the program sunsetting this year, the Legislature should make sure this troubled program ends with the sunset.

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