Saturday, March 23, 2013

Creating poor incentives: "The Startling Rise of Disability in America"

National Public Radio (NPR) has a terrific article (and graphs!!) on the rise in the number of people receiving Federal Disability Compensation.  It is quite eye-opening.

Seems like this program has resulted in TONS of un-intended consequences.

People have an incentive to lie and they are enabled to do so by government and other self-interested parties (read the part about the "disability-industrial complex"). 

It creates a lack of respect for a well-intentioned program and causes the rest of the population to be more cynical about government than is necessary.    
"...The federal government spends more money each year on cash payments for disabled former  workers than it spends on food stamps and welfare combined. Yet people relying on disability payments are often overlooked in discussions of the social safety net.  
People on federal disability do not work. Yet because they are not technically part of the labor force, they are not counted among the unemployed.

In other words, people on disability don't show up in any of the places we usually look to see how the economy is doing. But the story of these programs -- who goes on them, and why, and what happens after that -- is, to a large extent, the story of the U.S. economy. It's the story not only of an aging workforce, but also of a hidden, increasingly expensive safety net...."  NPR. "Unfit for Work: The startling rise in disability in America"

I encourage you to read it.  It is important for understanding the citizen-to-government relationship and how a breakdown in this relationship (mainly a lack of respect) is very harmful to the nation.

Wednesday, March 20, 2013

A little more information on why our main Federal budget issue will be Medicare, primarily, and Social Security in the coming decades. You gotta see these numbers, especially if you are under 25 years of age!!

A little more information on why our main Federal budget issue will be Medicare, primarily, and Social Security in the coming decades.

Here are the projected changes in US population from 2015 to 2030, just 17 years from now. (ATTENTION STUDENTS: this is right in the round house punch of your careers!!). 

Age 18 to 64
    Year 2015---199,150,000
    Year 2030---205,349,000

An increase in this age group of 6,199,000 or a 3.1% increase.

Age 65 and older
   Year 2015---47,695,000
   Year 2030---72,774,000

An increase in this age group of 25,070,000 or a 52.5% increase

In 2015 there will be 4.1 people between the age of 18 to 64 for every 1 over the age of 65.

In 2030 there will be 2.8 people between the age of 18 to 64 for every 1 over the age of 65.

That is a 31.7% DECREASE.

Data from US Census: Table 2. Projections of the Population by Selected Age Groups and Sex for the United States: 2015 to 2060

My short, in simple terms, take on why Medicare will continue to cost more and be a bigger part of the Federal budget for many years to come.

My short, in simple terms, take on why Medicare will continue to cost more and be a bigger part of the Federal budget for many years to come.

Let's use a very simplistic example to illustrate.
Assume there are 100 retired people receiving $100 per year in Medicare benefits.  The total cost for Medicare is $10,000 for year 1.
Assume in Year 2 we add 10% more retirees.  Now we have 110 retirees receiving $100 (assume no increases in prices) in Medicare benefits.  The total cost for Medicare is $11,000 in Year 2. 
Assume in Year 3 we add 10% more retirees BUT we cut the amount we spend on Medicare payments by 5% (arbitrary number I choose). Now we have 121 retiress receiving $95 in Medicare benefits. The total cost for Medicare is $11,495.
We cut payments ("saved" money!), but the overall cost of the program increased.

While we may be able to slow the "per person" payments (cost) for Medicare, the overall cost of Medicare is going to INCREASE because of the sheer number of recipients moving into eligibility for the program.  We may be able slow the growth in cost ("bend the cost curve") relative to projections, but we will not be able to make it less expensive overall. 

That is the reality.  That is the budget challenge, it seems to me. 

Ezra Kline (Washington Post) has a post on this topic (where I got the idea) and has this paragraph that highlights the issue for me:
"...There’s a reason that policymakers prefer to talk about health-care costs than old people. If the problem is just rising costs, then perhaps there’s some cost control “silver buller” — maybe premium support, or paying for quality rather than service — that will cut costs without hurting anyone. But if the problem is more people, then the answer, really, is higher taxes, lower benefits, more debt or some combination of the three..." (emphasis/underline mine)

Why are women obtaining college degrees at a much higher rate than men? Do the guys need a little extra help??

I saw this graphic in an article at The Atlantic illustrating the "colleg degree gap" between men and women in cities/metropolitan areas around the US.  The article is very interesting. Worth a read.

I have to admit, the disparity took me a bit by surprise.  As of 2011, as a percentage, women earned 27% more college degrees than men earned (36.1% - 28.4%/28.4% X 100). That seems statistically significant, even to a high school economics teacher.

What are the social implications, if any, of this trend? Do we need more Affirmative Action policies for men from all the groups listed below? 
Source: The Atlantic

Monday, March 18, 2013

My simple explanation of what a "Tax Expenditure" is---this is a term you WILL hear more about in the coming weeks as we approach ANOTHER budget crisis.

My take on the difference between a Tax Expenditure and a Government Expenditure.  This stuff tends to hurt most peoples brains BUT the distinction matters because it is a BIG topic of discussion with Congress and the President as they attempt to tackle our Federal budget problem(s).

(When I refer to "Government" below, I am referring to the Legislative and Executive branches because they determine taxing and spending policy)
You earn $1,000 in income.  Government taxes that income at 10%.  You pay $100 in taxes. Government then spends that $100 on a program to promote clean air.  You are taxed and the government spends it--- a straight up "Direct Government Expenditure" towards a policy goal).
Alternative scenario.
You earn $1,000 income. Government taxes that income at 10% and you owe $100 in taxes. Assume at this moment the Government has your $100.  Instead of spending it directly on a program to promote clean air, government returns it to you in the form of a $100 tax credit for buying a hybrid car to promote clean air.  You have your $100 back to spend on something specific.
This is referred to Government spending (to accomplish a goal they COULD do themselves with the tax revenue) through the Tax Code---or more simply, a "TAX EXPENDITURE" 
A Government Expenditure is when government taxes you and spends the money directly to achieve a policy goal.
A Tax Expenditure is when the government forgoes the tax revenue it WOULD HAVE collected from you and though tax credits and/or deductions allows you to spend it on a specific thing to achieve a policy goal.
Below is a list of the most expensive and popular Tax Expenditures.  The numbers to the right represent the amount of tax revenue forgone by the Federal government because of the granting of various tax deductions and tax credits to achieve various policy goals. (number is "billions of dollars")
tax expenditures deductions
Source: Business Insider

View My Stats