by the Night Writer

A few years ago when home values were soaring my wife and I refinanced our house, taking out some equity to remodel part of our main floor while locking in a sub-5% fixed rate, 15-year mortgage (we hate paying interest). This was back in the day when you could finance 125 percent of your equity. The amount we needed was substantially less than this, and our loan officer kept trying to interest us in borrowing more. My wife wasn’t having any of it (I think this might have been the same loan officer who gushed that our credit score “walks on water”). Frankly, it kind of creeped us out to think about taking on all this extra debt simply because we could, especially for intangibles such as travel or ephemerals that depreciate quickly, such as new cars (both of which were examples of things the loan officer suggested we could spend the extra cash on). Fortunately for us, our instincts were correct.

I think most people have an built-in sense, or skepticism, for those “too good to be true” deals, even if we eventually decide that the deal is “too good to pass up.” Then, like the prize trout being reeled in we say, “I knew there was a catch!” It’s hard to resist, though, when the rest of the school is jumping in the boat on their own. Most of us have the scars on our lips to show for it.

I think that’s why so many people are feeling more than a little queasy about the direction of the economy and the proposed borrowing our way to prosperity budget offered by President Obama. How does it make sense that, if we’re in a crisis caused by unchecked borrowing, even more borrowing will get us out? And who are we borrowing from, and what’s the vig? Having learned a few things the hard way we tend to push back a little when the salesman says “you’ve got act by midnight tonight!” At the same time we really want to believe that things aren’t really so bad, and it will all work out in the long-run, because to believe otherwise calls into questions all those nice little assumptions that allow us to sleep at night. So when the salesman tries to allay our concerns with testimonials “Four out of five socialists prefer…” or say that this the “new and improved deficit, now with less rich people” we kind of say, “What the heck, and, you know, I think my next diet will be the one that works, too!”

“Besides,” the salesman says, “It’s really not my deficit…I inherited it!” So then we think, “Well, yeah, we’ve always had deficits, Winston, so what’s a little more?” If the Bush administration left us with the equivalent of a budget hangover, perhaps a little hair of the dog makes sense. A picture, as they say, is worth a thousand words — and likely a few trillion dollars as well.

As the Washington Post illustrated the other day:

SOURCE: CBO, White House Office of Management and Budget | The Washington Post – March 21, 2009

That’s not the Republicans providing that chart, or The Center for the American Experiment, or even Joe the Plumber; it’s the Washington Post, using numbers from both the President’s office and the ostensibly non-partisan Congressional Budget Office. As sickening as the Bush fiscal record is (and yes, the numbers above do include money spent on Iraq and Afghanistan), the current administration plans to take a case of the swine flu and turn it into Ebola.

As the Heritage Foundation’s Brian Riedl points out:

• President Bush expanded the federal budget by a historic $700 billion through 2008. President Obama would add another $1 trillion.
• President Bush began a string of expensive finan­cial bailouts. President Obama is accelerating that course.
• President Bush created a Medicare drug entitle­ment that will cost an estimated $800 billion in its first decade. President Obama has proposed a $634 billion down payment on a new govern­ment health care fund.
• President Bush increased federal education spending 58 percent faster than inflation. Presi­dent Obama would double it.
• President Bush became the first President to spend 3 percent of GDP on federal antipoverty programs. President Obama has already in­creased this spending by 20 percent.
• President Bush tilted the income tax burden more toward upper-income taxpayers. President Obama would continue that trend.
• President Bush presided over a $2.5 trillion increase in the public debt through 2008. Setting aside 2009 (for which Presidents Bush and Obama share responsibility for an additional $2.6 trillion in public debt), President Obama’s budget would add $4.9 trillion in public debt from the beginning of 2010 through 2016.

Perhaps someone can graph this for me: now that it’s been established that when America sneezes, the rest of the world catches cold, how long before the UN decides that our economy is too important to be left in the hands of Americans and requires global oversight?

HT: Bogus Gold.

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by the Night Writer

Are you one of the “95 percent” of Americans promised a tax-cut by President Obama? By all means, keep your fingers crossed and “hope” you get a little taste before pending “changes” in other tax laws and regulations swipe it right back out of your pocket.

A couple of weeks ago I highlighted a move by Congressional Democrats to tax your employer-sponsored health benefits. Today I have a couple more stories that suggest more back-door tax increases on your insurance are in the works.

One of the major features of life insurance and annuities has long been the ability to “build-up” cash values tax-free inside certain types of life polices and within annuities, with income taxes being taken when the funds were withdrawn, presumably in retirement when your income tax bracket is (hopefully) lower. It’s a similar mechanism to how a 401k works. Additionally, life insurance death benefits paid to your survivors have also been tax-free. All these tax deferrals act as incentives for consumers to take individual responsibility in planning for retirement and the financial security of one’s family.

This is not an strategy reserved only for the wealthy; cash value life insurance policies and annuities are mainstays of middle-class financial planning, while the more affordable term life plans (with no cash build-up) provide an important and accessible safety net for families with common sense but modest means. There are those, however, who love raising taxes every bit as much as they hate the thought of the individual doing anything for himself when the government could be doing it less efficiently. An example on the radar screen is out west where the Oregon State Revenue Committee is claiming that exempting these private funds imposes too much of a burden on the state which currently can’t get its hands on that money:

The federal government exempts life and annuity benefits from taxation, but Rep. Chuck Riley, D-Hillsboro, Ore., the sponsor of the Oregon bill, H.B. 2854, has argued that conformity with federal income tax rules is too costly, and that Oregon should tax some kinds of income now excluded from federal taxable income.

If passed as written, the bill would take effect on or after Jan. 1, 2010.

H.B. 2854 was first read March 2. To pass, the bill would need approval by a three-fifths majority.

The National Association for Life Brokerage Agencies, Fairfax, Va., has put out a statement opposing the bill, noting it would tax both the death benefits and earnings on the inside build-up of life insurance and annuities.

This “unfairly targets individuals and families who have taken responsibility for their financial future by preparing for retirement and planning for unforeseen circumstances,” NAILBA says in the statement. “Any changes to the tax system must not limit or disadvantage protection and security products, but rather strengthen them.”

It should be pointed out that “conforming” with the federal regulations doesn’t “cost” Oregon anything; it merely keeps money away from them, which really galls those inclined to think that your money (and children) belong to the State. It is also part and parcel of the mindset that, as with the earlier health insurance article, portrays having life insurance as a lucky break and unfair advantage and therefore worthy of confiscation and redistribution. While this particular article refers to Oregon only, if it passes it’s not much of a stretch to see other states trying the same thing.

On a related note, there is a recurring movement afoot in the federal government to repeal the McCarran-Ferguson Act which provides a limited anti-trust exemption to the insurance industry. This arises periodically, but now they are using the AIG imbroglio to justify this latest grab (though the connection is tenuous):

Two House Democrats have introduced a bill that would repeal the McCarran-Ferguson Act insurance industry antitrust exemption.

The bill, H.R. 1583, the Insurance Industry Competition Act, would give the U.S. Department of Justice and the Federal Trade Commission the authority to apply antitrust laws to anticompetitive behavior by insurance companies.

The bill would keep the McCarran-Ferguson provision that puts jurisdiction over insurance regulation in the hands of the states.

The bill was introduced by Reps. Gene Taylor, D-Miss., and Peter DeFazio D-Ore.

Taylor and DeFazio have introduced similar bills in earlier Congresses. They say the controversy over bonuses paid to American International Group Inc., New York, employees highlights the need for action on the antitrust issue.

The current insurance industry antitrust exemption gave AIG a free pass to become “too big to fail,” and “now the U.S taxpayers are on the hook to bail them out or risk even further turmoil in an already fragile economy,” Taylor and DeFazio say in a statement. “This legislation would close that exemption.”

Admittedly, McCarran-Ferguson is a rather esoteric issue in a complex environment, and “anti-trust” always sounds like it’s in the best interests of the public. What the Act does, however, is allow states to regulate insurance companies operating within their jurisdiction rather than bringing it all under federal oversight. The result, however, is to make the insurance products — both life & health and property & casualty — more affordable. Federalizing insurance regulation would, like the initial efforts at “health-care reform” would strengthen the biggest players while harming or even eliminating the smaller companies, and would result in higher costs for consumers, not lower.

As someone who’s worked in marketing and advertising in this industry for a long time I know that I have complained on many occasions about the challenges of working with 50 different state insurance commissions in order to get products and even certain advertising approved. While I’ve often thought it would be simpler to deal with just one entity I also see how state control benefits consumers.

Politicians have long been masters of saying one thing and doing another; of staging a distraction in the park while the pickpocket goes through the crowd. When you hear the music playing, be sure to look over your shoulder.

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by the Night Writer

The EckerNet reminds us, in a long, documented list of Democrat corruption, that former Louisiana Congressman William Jefferson was videotaped receiving a $100,000 bribe from an FBI informant, and a search later turned up $90,000 hidden in his freezer.

I’d almost forgotten about William Jefferson’s “cool” $90,000; I guess I’ve just tuned out all the media talk about it.

Wait a minute — if he took that money from an FBI informant, wouldn’t that be federal funds? Isn’t it time for Congress to get together and vote to tax Jefferson’s greed and arrogance?

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by the Night Writer

I’ve read emails that tell how the US government once took over the infamous Mustang Ranch brothel in Nevada because of unpaid taxes…and subsequently managed the business into the ground. The moral of the story was if the government can’t even make a go of selling sex and whiskey, how does it expect to be the de facto, nationalized owner of banks and insurance companies?

I don’t think about brothels much, but the story keeps coming to me as the AIG saga staggers through the never-ending news cycle as the company’s executives and new congressional overseers compete to kill the company in the most Darwin-award winning manner. The current bonus brouhaha may merely be the arsenic icing on a cake made with too many cooks. First, it is incredibly dunder-headed to pay bonuses for behavior that put your company — and the economy — into a tailspin. I work in this industry and regardless of what the contracts say, I’ve not heard of bonuses being paid for screwing up. I do know that the financial services industry is as brand-conscious (if not more-so) as any industry out there and this kind of publicity is like shooting both of your feet off. You could even speculate whether the company would come out ahead in the long run by refusing to pay the bonuses and fighting it out in court even if the eventually had to fulfill the contracts. The perception that they were trying to do the right thing could have been worth hundreds of millions alone — and avoided a congressional coup-de-grace.

Now Congress is shocked — shocked — that gambling is going on, even though it wrote the rules years ago that led AIG into this thicket, then steadfastly refused to do anything to provide oversight, and finally wrote the specific codicil in the bail-out (thank you, Sen. Dodd) that requires companies that take bail-out money to pay scheduled bonuses. Now, to divert the possibility that any blame might come back on them, they’re stomping about, beating their paper-thin chests about the evil and greedy company misusing a small fraction of the billion-dollar suppository of tax-payer dollars Congress shoved up you-know-where — apparently forgetting that the U.S. taxpayer now owns that company and this grandstanding is driving the stock-price down to penny-stock status.

What Congress is also forgetting, as it threatens ever-more-onerous regulations, is that the market — thank you very much — has already exacted its sanctions. (Not only in terms of stock-price and public perception; my company has already benefited by AIG’s stumbles as both customers and top producers have come over to us).

On top of that, what message does it send to the investor community when the government starts threatening confiscatory taxes based on feelings rather than the rule of law? AIG operated on the assumption that it was “too big to fail” but after the last week I’m beginning to think everyone connected with this circus is too stupid to live.

Update:

When I wrote “too stupid to live” up above I didn’t mean it in a “take them out and shoot them” way, but in the extinct Dodo bird way.

I wanted to be clear about that.

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by the Night Writer

In wartime it’s common to try to dehumanize the enemy, calling them derogatory names and ascribing vile and fiendish character traits to them to make it easier to hate and, I don’t know, drop bombs on them. In class warfare a similar dynamic occurs as it is simply assumed that anyone with any wealth or property could only have gotten it through pure dumb luck (such as inheritance) or by corruption and oppression, thereby justifying the redistribution of their possessions in the interests of being “fair.”

Of course, the definition of who the fortunate ones are can change according to the need at hand. The latest brainstorm of the economically illiterate, morally bankrupt yet somehow electable cotton-headed ninnymuggins in control of our government is that the lucky or evil greedos that get their health insurance through their employers (in other words, “people with jobs”) are not paying their fair share of taxes for this benefit. According to a recent article in Business Insurance magazine:

Sen. Baucus looking at taxing health benefits
March 03, 2009

WASHINGTON (Reuters)—A senior Senate Democrat said Tuesday he would consider taxing U.S. workers on their employer-sponsored health insurance to help pay for extending coverage to millions of uninsured Americans.

“I think that tax provision should be on the table,” said Senate Finance Committee Chairman Max Baucus, who will play a major role in writing the legislation to revamp the U.S. healthcare system as promised by President Barack Obama.

“It’s too aggressive. It skews the system,” he said of the tax benefit.

Most U.S. workers with health insurance get it through their employers — 160 million of them — although recent surveys have shown that number is declining as businesses try to cope with the rapidly rising cost of insurance.

As a matter of fact, 19% of employers say they plan to drop health benefits, while 38% say they are uncertain they’ll be able to provide health benefits 10 years from now. Meanwhile, in the midst of a recession, the government is talking about wanting to essentially raise taxes on people who still have jobs, regardless of what those jobs pay. By the way, let’s have a show of hands from everyone who thinks that the premiums you pay for your employer-sponsored health insurance are too low. Apparently being employed makes you one of the “rich” to be targeted by Congress and President Obama’s cabinet of tax dodgers and community organizers — the people who have also promised a tax cut to “95%” of the country. Do you get the feeling they might not be very good with numbers?

Yet in another article about “Mad Max” Baucus and his cronies, the Washington Post reports:

In recent weeks, however, Sen. Max Baucus (D-Mont.), chairman of the tax-writing Finance Committee, has repeatedly advocated changing tax laws to include employer benefits, arguing that it makes sense to fund the health-care changes by sucking cash out of the existing system. Meanwhile, 13 other senators — from both sides of the aisle — have signed on to a plan for universal coverage that includes a tax on employer-provided benefits.

“I think it’s extremely important from a credibility standpoint to show the American people that you’re making savings in the enormous sums now being spent on health care before you go out and ask them for billions of dollars more,” said Sen. Ron Wyden (D-Ore.), one of the sponsors of that proposal. “And I don’t think I’m the only senator who feels that way.”

What? How do you translate taking money out of the pockets of working Americans by making them pay more for their health insurance as “making savings”? Credibility is, indeed, a problem. Perhaps we’ll find out how big a problem that is when the Obama administration weighs in, as the Post further reports:

So far, administration officials have been careful not to endorse the idea, which Obama blasted as a major tax increase last year after Sen. John McCain (R-Ariz.) made it the centerpiece of his presidential campaign’s health plan. But the president hasn’t slammed the door on it, either.

This week, White House budget director Peter Orszag said taxing employer benefits was among several ideas that “most firmly should remain on the table.” White House economic adviser Jason Furman called for an end to the so-called “employer exclusion” before he joined the administration. Meanwhile, some congressional Democrats say the White House has signaled that Obama would accept a tax on employer benefits as long as he didn’t have to propose it himself.

Riiight. Congress passes the tax increase and President Obama merely comes in at the end and says it’s “an imperfect bill” but something he has to sign anyway. It’s almost enough to make you wonder how much of a grasp on reality our leaders have, and if they’ve ever had to enroll in a group health plan in recent years when employers are passing more and more of the costs on to employees. And then there’s this:

Many economists and tax analysts have long argued for changing current tax law on health coverage, which disproportionately benefits wealthier workers. The law encourages people to enroll in the most comprehensive health plans on offer, the so-called Cadillac plans that provide vast coverage, mask the true cost of health care and contribute to skyrocketing costs.

I don’t know about your job, but my benefit enrollment forms certainly don’t encourage me to select the most comprehensive, or “Cadillac” plans offering “vast” coverage. As a matter of fact, I’ve chosen high deductible plans with an Health Savings Account (HSA) option the past several years to save money. Further, the so-called Cadillac plans aren’t driven by consumer demand, but by state and federal government mandates that require additional coverage (and wait until you see the effects of the Mental Health Parity bill that was recently signed). If consumers were allowed to pick and choose the coverages they actually need the costs would go down. Somehow, however, once the money is on the table there’s no way to get it back in your pocket.

Many lobbyists and others involved in the health-care debate say they see few other places to go for the kind of money that will be needed to meet Obama’s demand for ambitious change. In their view, the question is not whether employer benefits will be taxed but how much of the benefit will be spared.

My personal opinion is that taxing employee benefits is not really intended to raise money for health care. It’s meant to make the current system even more dysfunctional in the hopes that employers will be even more anxious to get out of the system and the public will desperately embrace change — specifically, universal health care.

I’m actually in favor of getting employers out of the business of proving health insurance…but I want to do it by dumping the whole third-party-payer model that is the main reason health care continues to skyrocket, and universal (aka “single-payer”) health care does nothing to relieve that problem while simultaneously reducing the standard of care as I and others have pointed out before. Let’s not forget that the reason we got into this health care predicament in the first place was because of government interference via wage and price controls in World War II that led employers to offer health insurance benefits as a way of attracting a limited pool of workers. That opened the door to the wasteful and expensive third-party-payer system we currently have, the inefficiencies of which can only be outdone by a government-run system.

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