Kevin Drum - September 2013

Obamacare Subsidies Act Like an Effective Marginal Tax of About 15 Percent as Your Income Goes Up

| Wed Sep. 25, 2013 8:12 PM EDT

Atrios:

Something I'm looking for and not finding is an estimate of the effective marginal tax rates on people in the exchanges who are eligible for subsidies. A problem with means-testing programs is that as you earn more income, your benefits go away, meaning that effectively you're paying a pretty high tax on each additional dollar earned. Your company giveth, and Uncle Sam taketh away.

That got me curious. The subsidies are calculated so that you never have to pay more than a certain percentage of your income in health premiums. That percentage rises with income according to a formula, so it's pretty easy to figure out the subsidy at different income levels and then calculate the effective marginal tax rate caused by the fact that the subsidy level goes down.

I used the Kaiser subsidy calculator to get the subsidy for a family of three at various income levels. (The exact subsidy level varies depending on family size, but this provides a pretty good estimate for an average family.) As you can see, as you gain more income, you get less subsidy, which produces an effective marginal tax rate of 12-16 percent at most income levels. When your income gets high enough, the subsidies are so low that there isn't much left to lose, so the effective marginal rate goes down. At 400 percent of the poverty level, the subsidies decline to zero.

The moral of this story, of course, is that you should avoid means testing if you can, since it provides a negative incentive to earn more money. Unfortunately, means testing is often the only practical way of providing benefits to the poor, so we put up with it even though everyone agrees it's suboptimal. However, in the case of health care we could solve this problem easily by simply adopting a national health care plan that provided coverage for everyone at no charge. Since it's a flat benefit, it wouldn't distort work incentives. Taxes would have to go up to pay for this, of course, but those taxes would almost certainly produce less distortion at low income levels than Obamacare does.

Someday we might have a sensible system like that. Someday.

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The Way We Live Today: From Tweet to Meme in 14 Hours

| Wed Sep. 25, 2013 4:31 PM EDT

The political branch of the intertubes today has been consumed by the question of whether the media is hopelessly biased because it treated Wendy Davis' abortion filibuster more sympathetically than Ted Cruz's kinda-buster on Obamacare. The whole fuss is so mind-crushingly inane that it's enough to make one fear for the future of the human race, but still I'm curious: where did this meme get its start?

It apparently went mainstream in a Dylan Byers column posted today at 10:00 am. Dave Weigel says the meme was "codified" in a Tim Carney column posted a few minutes earlier at 9:44 am. Tom Kludt of TPM noted the invention of the meme an hour before that, at 8:57 am. He's got tweets from Erick Erickson and Byron York from even earlier in the morning, and one from Richard Grenell late last night. But the earliest mention is from Laura Ingraham, who tweeted about this an hour before Grenell, at 8:20 pm last night.

But wait! Ingraham was retweeting Chad Seiter, who was responding to a dismissive tweet from Jennifer Rubin. Seiter's tweet went up at 8:10 pm:

So as near as I can tell, that's where it came from. A guy in Kentucky with 187 followers on Twitter got retweeted by Laura Ingraham, and by the next morning his tweet had morphed into a media bias meme that went viral. Congratulations, Chad! You won the internet today. Isn't social media remarkable?

Our Score So Far: Kids 1, Adults 0

| Wed Sep. 25, 2013 1:47 PM EDT

Los Angeles has a $1 billion plan to distribute iPads to all its students, but it ran into a snag this week:

Following news that students at a Los Angeles high school had hacked district-issued iPads and were using them for personal use, district officials have halted home use of the Apple tablets until further notice.

It took exactly one week for nearly 300 students at Theodore Roosevelt High School to hack through security so they could surf the Web on their new school-issued iPads, raising new concerns about a plan to distribute the devices to all students in the district.

That's no surprise. There are some pretty bright high school kids out there, and it was inevitable that one of them would figure out how to do this. So how did our young scholars do it?

Students began to tinker with the security lock on the tablets because "they took them home and they can't do anything with them," said Roosevelt senior Alfredo Garcia.

Roosevelt students matter-of-factly explained their technique Tuesday outside school. The trick, they said, was to delete their personal profile information. With the profile deleted, a student was free to surf. Soon they were sending tweets, socializing on Facebook and streaming music through Pandora, they said.

Seriously? That's it? The geniuses at LAUSD hadn't even tested something as simple as this? Hoo boy. I predict that this particular war between the adults and the kids is not going to end well for the adults.

Let's Compromise Over Obamacare!

| Wed Sep. 25, 2013 12:22 PM EDT

Among other things, Ted Cruz's long-but-not-actually-a-filibuster-speech happened to hit on an actual problem with Obamacare: the employer mandate. Basically, it requires employers to pay the subsidy costs for low-income workers who end up getting health insurance through the exchanges. It's designed to be an incentive for employers to continue providing health coverage of their own, but it also provides an incentive not to hire workers from low-income families and not to hire workers for more than 30 hours a week. That's bad. As it happens, there's not much evidence in the data that it's actually having a substantial effect, but it's still a bit of a mess. Ezra Klein comments:

If Republicans are really worried about these businesses and these workers, they could help them. Unlike defunding or delaying Obamacare, or even delaying the individual mandate, this is a concession Republicans really might be able to get the Obama administration to agree to. They'd be on the right side of both the policy and the public. The question is whether they actually want to help these workers or just grandstand against the law.

Well, I think we all know the answer to that question. Republicans want Obamacare to fail, and they want it to be unpopular, so they're actively opposed to doing anything that would make it work more smoothly. Reforming or repealing the employer mandate doesn't fit that strategy.

But this suggests an interesting exercise: What aspects of Obamacare could be genuine targets for compromise between Democrats and Republicans who were operating in a semblance of good faith? Democrats already agreed to jettison the CLASS Act, for example, after it became clear that it was unworkable. They'd probably be willing to do something about the employer mandate, and the business community would certainly support that. Democrats would probably also agree to fix a glitch that excludes church health plans from eligibility for the exchanges.

What else? The big ticket stuff, like the individual mandate and the subsidy levels, is off the table, but there must be plenty of smaller items that could be horsetraded over. Somebody should make a list and see if any Republicans are willing to engage in actual conversation about it. I'm not in much doubt about the outcome, but all the opinion in the world isn't as good as actually checking to find out.

Is Larry Ellison's America's Cup Team Now a Plucky Underdog?

| Wed Sep. 25, 2013 11:21 AM EDT

I'm in quite a quandary. A few days ago I noted with glee that Larry Ellison's America's Cup team was losing by the score of 4 to minus-1 against Team New Zealand. Given Ellison's, ahem, contributions to the sport, I was rooting for him to get a historic pounding.

But now Team USA has come back! The score is tied 8-8, with the final race scheduled for later today. (Weather permitting.) This is actually exciting enough that I can hardly help but root for the now-plucky underdogs who came back from the dead. And yet....Larry Ellison. Decisions, decisions.

One Last Fundraising Pitch for the End of Summer

| Wed Sep. 25, 2013 10:29 AM EDT

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If We Reach the Debt Limit, Obama Will Probably Just Break Through It Anyway

| Wed Sep. 25, 2013 10:06 AM EDT

We have various laws that require the federal government to disburse money. However, if we reach our statutory debt limit without Congress raising it, we'll have another law that says the government can't borrow any more money. Matt Yglesias comments:

So we're headed straight for a legal and constitutional crisis that could also become a financial crisis.

What laws does the executive branch follow and which does it break? What litigation will result from any decision, and who will prevail? I think the conventional wisdom actually somewhat overstates the odds of this leading to a total financial meltdown. Worst comes to worst, you pay people with IOUs for a week and then organize an "illegal" debt auction where bonds will sell at a modest premium to currently prevailing rates and ultimately the courts legitimize the option. But that will definitely be a kind of constitutional meltdown that will permanently shake confidence in the American financial and political system.

I don't know if this is exactly how things will unfold, but it's in the right ballpark. I realize that a lot of people are still pushing the platinum coin thing, but keep in mind that even if you don't buy any of the arguments for why it's illegal, it only works if you can deposit the coin at the Fed. And the Fed has already said it wouldn't accept it. So it's not a live option no matter how passionately you believe it's legal.

But if the debt ceiling showdown lasts more than a couple of weeks, it's likely that President Obama will simply order the Treasury to start auctioning bonds regardless. Maybe under the authority of the 14th Amendment, maybe under his authority as commander-in-chief. Maybe he'll declare a state of emergency of some kind. Who knows? But eventually this is how things will work out, with Obama acting because he has to, and because he knows that courts will be loathe to intervene in a political dispute between the executive and legislative branches.

In any case, it would be a helluva mess. Republicans really need to grow up and stop treating the livelihoods of millions of workers and the good faith of the United States as mere partisan chew toys. It's long past time for the business community to stage an intervention.

Government Releases Obamacare Premium Levels for 36 More States

| Wed Sep. 25, 2013 12:21 AM EDT

With the start of open enrollment in Obamacare a week away, HHS today released a report summarizing the cost of premiums in states where the exchanges will be run by the federal government. In general, the news was pretty good. As with most of the state exchanges, the premiums are coming in below the predictions of the Congressional Budget Office:

Individuals will have an average of 53 qualified health plan choices in states where HHS will fully or partially run the Marketplace.

Premiums before tax credits will be more than 16 percent lower than projected. The weighted average second lowest cost silver plan for 48 states (including DC) is 16 percent below projections based on the ASPE-derived Congressional Budget Office premiums.

Tax credits will make premiums even more affordable for individuals and families. For example, in Texas, an average 27-year-old with income of $25,000 could pay $145 per month for the second lowest cost silver plan, $133 for the lowest cost silver plan, and $83 for the lowest cost bronze plan after tax credits. For a family of four in Texas with income of $50,000, they could pay $282 per month for the second lowest cost silver plan, $239 for the lowest silver plan, and $57 per month for the lowest bronze plan after tax credits.

I don't suppose Ted Cruz will be mentioning any of this in his speechifying on the Senate floor tonight. But it's worth taking a look at those numbers. After tax credits, that family of four in Texas will pay $3,384 per year for the second-lowest-cost silver plan. According to the Kaiser Family Foundation, the average family with employer health coverage pays $4,565 per year in contributions. Those aren't directly comparable, but they're close. What it means is that although Obamacare is hardly free, it does allow individuals to buy coverage for roughly the same amount they'd have to pay with an employer plan. No one is shut out of the market any longer.

The entire report is here. An excerpt of one of the tables is below, showing how much coverage will cost for individuals and families in various states.

Investors Probably Aren't Very Worried That America Will Default on its Bonds

| Tue Sep. 24, 2013 5:33 PM EDT

Have you noticed that I'm desperately trying today not to write about the idiotic budget theater currently playing an unlimited engagement at the Capitol Hill Vaudeville Palace? You haven't? Well, I am. It's just too childish and depressing and monotonous to bear.

I'm sure I'll buckle under the strain eventually and write about it again. But not today. I. Will. Be. Strong. In the meantime, Jim Tankersley draws our attention to the chart on the right. I used to hate blog posts called "_____ in One Chart," but ever since " _____ in 13 Charts" became the new normal, I actively look forward to posts with only a single chart in them. This one shows the trajectory of the US sovereign CDS spread, which is theoretically a measure of how likely it is that treasury bonds will default. On Monday, it shot up from about 22 basis points to 32 bps.

So what does it mean? Probably nothing. For a variety of reasons, the US sovereign CDS market is very thin, which means this spike could have been the result of just two or three trades. And historically, even 32 bps is pretty low. We've seen spikes well above 50 bps several times in the past few years.

Beyond that, of course, it just doesn't make sense. Even if we have a debt limit crisis, there's zero chance that holders of treasurys will miss any payments. So what this spike really tells us is probably two things. First, a few people have decided to take out a bet that some other people will panic, allowing them to make some money selling their positions for a quick profit. Second, the CDS markets often don't tell us much of anything useful. After all, nothing happened on Monday that we didn't already know on Friday.

Somebody Stole 7 Milliseconds From the Federal Reserve

| Tue Sep. 24, 2013 2:20 PM EDT

Last Wednesday, the Fed announced that it would not be tapering its bond buying program. This news was released at precisely 2 p.m. in Washington "as measured by the national atomic clock." It takes seven milliseconds for this information to get to Chicago. However, several huge orders that were based on the Fed's decision were placed on Chicago exchanges two to three milliseconds after 2 p.m. How did this happen?

CNBC has the story here, and the answer is: We don't know. Reporters get the Fed release early, but they get it in a secure room and aren't permitted to communicate with the outside world until precisely 2 p.m. Still, maybe someone figured out a way to game the embargo. It would certainly be worth a ton of money. Investigations are ongoing, but Neil Irwin has this to say:

In the meantime, there's another useful lesson out of the whole episode. It is the reality of how much trading activity, particularly of the ultra-high-frequency variety is really a dead weight loss for society.

…There is a role in [capital] markets for traders whose work is more speculative…But when taken to its logical extremes, such as computers exploiting five millisecond advantages in the transfer of market-moving information, it's much less clear that society gains anything…In the high-frequency trading business, billions of dollars are spent on high-speed lines, programming talent, and advanced computers by funds looking to capitalize on the smallest and most fleeting of mispricings. Those are computing resources and insanely intelligent people who could instead be put to work making the Internet run faster for everyone, or figuring out how to distribute electricity more efficiently, or really anything other than trying to figure out how to trade gold futures on the latest Fed announcement faster than the speed of light.

Yep. I'm not sure what to do about it, though. A tiny transaction tax still seems like a workable solution, although there are several real-world issues with it. Worth a look, though.

In a related vein, let's talk a bit more about this seven millisecond figure. That might very well be how long it takes a signal to travel from Washington, DC, to Chicago via a fiber-optic cable, but in fact the two cities are only 960 kilometers apart. At the speed of light, that's 3.2 milliseconds. A straight line path would be a bit less, perhaps 3 milliseconds. So maybe someone has managed to set up a neutrino communications network that transmits directly through the earth. It couldn't transfer very much information, but if all you needed was a few dozen bits (taper/no taper, interest rates up/down, etc.) it might work a treat. Did anyone happen to notice an extra neutrino flux in the upper Midwest corridor at 2 p.m. last Wednesday? Perhaps Wall Street has now co-opted not just the math geek community, and not just the physics geek community, but the experimental physics geek community. Wouldn't that be great?