Susan Pendergrass is joined again by Elias Tsapelas, director of state budget and fiscal policy at the Show-Me Institute, for Part II of their conversation on the sweeping federal legislation known as the “One Big Beautiful Bill.” They unpack what the bill means for Missouri taxpayers, including changes to the standard deduction, tips and overtime, education savings accounts, and higher education policy. They also dig into the bill’s broader fiscal impact, from the growing federal deficit to the implementation challenges facing state governments.

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Timestamps

00:00 Exploring the One Big Beautiful Bill
04:58 Tax Implications for Missourians
10:20 New Savings Accounts for Children
12:07 Changes in Higher Education
18:09 Federal Deficit and Debt Concerns

Listen to Part I Here

Episode Transcript: One Big Beautiful Bill Breakdown, Part II with Elias Tsapelas 

(Download Here)

Susan Pendergrass (00:00)
So I guess it turns out that the One Big Beautiful Bill was too big for us to talk about in one podcast. Elias, thanks for coming back. I realized after we stopped recording that there’s so much in there we didn’t even discuss. We barely even really got into it. So let’s talk about more of the One Big Beautiful Bill because it’s huge—hundreds, at least hundreds of pages long. And I can’t believe the people who voted on it read it through carefully. Now, as you’re going through it and learning things, I’d love for you to explain some of it to me.

Starting with—how does the no tax on tips and overtime work? I’ve heard a lot about this. I know it was a campaign promise. So is it true that if you’re waiting tables now and you get a few hundred bucks a night in tips, you don’t have to pay tax on it now?

Elias Tsapelas (00:51)
In theory, yes. Now, it’s not clear if it’s going to be something that impacts Missouri tax liability. It sort of impacts the federal tax code a little differently than the increased standard deduction and some of the other changes. So it might change some federal tax liability, but unless Missouri’s legislature changes some stuff, it’s not going to immediately impact Missouri taxes.

Susan Pendergrass (01:16)
But why—do you have to itemize to do it?

Elias Tsapelas (01:19)
No. Basically, Missouri has rolling conformity with the federal government. Missouri takes its gross income from the federal government, and the tax on tips and overtime piece isn’t going to impact the gross income calculation. So it may or may not become an issue in Missouri.

There’s also a big open question here about how much income tip workers are actually claiming, and how much that will change if you say it’s not taxed—because if they weren’t declaring it before, we don’t really know what the change will be.

Susan Pendergrass (02:05)
Yeah, so if you walk home with a wad of cash, you’re not necessarily going to add it up and write it down and claim it.

Elias Tsapelas (02:09)
It still might not be worth declaring all of it. But if Missouri brings it into the state income tax code, it could cost quite a bit of money. There are quite a few tax provisions here—especially on corporate tax—where we really don’t know how much it’s going to cost, but it’s probably going to be significant. There’s full expensing, depreciation, all kinds of things that are going to change both federal and Missouri tax liability. And then there was the standard deduction change we mentioned last time.

Susan Pendergrass (02:47)
Okay. So one thing that does impact Missourians is our tax credit scholarship program, where you can donate to a scholarship-granting organization like the Archdiocese of St. Louis, and they give out scholarships. Right now, you can get a Missouri state income tax credit for that—up to half of how much you owe the state. And now there’s a new program where you can take a federal credit of up to $1,700 for donating to these organizations.

You can’t get credits for both on the same donation, but you could donate up to half your tax liability and get the Missouri credit, and then separately donate $1,700 and get the federal credit. I know there’s a lot of rulemaking still to come, and I also know this program doesn’t start until January 2027. So it won’t affect people’s returns until April 2028. But—how do you think that’s going to work? Do you have any idea based on what you’ve read?

Elias Tsapelas (03:54)
Well, Missouri has to opt in first, right? I think the first step is getting the rules out and seeing which states opt in. I would assume Missouri will. The hope is that this becomes something more people understand and take advantage of.

In Missouri, even though we have tons of tax credits that people do use, it takes a while to build it into tax preparation tools like TurboTax. So you kind of have to know what’s going on. Maybe once the federal piece is in place—and there are also changes to the child tax credit—that’ll help.

Susan Pendergrass (04:24)
Spread the word. How’s that changing?

Elias Tsapelas (04:51)
Some of the temporary provisions from the 2017 bill are now made permanent. One of the things the One Big Beautiful Bill does is take temporary changes and make them permanent. We’ll see in a few years how many of these stay.

Susan Pendergrass (05:10)
So the child tax credit is now permanent?

Elias Tsapelas (05:13)
Yes. The changes made in 2017 are now permanent. It’s higher now, and there’s more of it that’s refundable. There’s still an income threshold to get the maximum amount. I think there are going to be a lot of tax credit changes. The bill also got rid of a lot of renewable tax credits. So there are a lot of changes to tax policy for both businesses and individuals. I think people will need to start thinking about their Missouri taxes a little differently, at least for the next few years.

Susan Pendergrass (05:59)
Another piece is the savings accounts for children—kind of like IRAs for kids. I’ve read that anyone born after January 1, 2024, or maybe anyone currently under age 18, is eligible. The IRS has to open the accounts, and you need a Social Security number. For kids born between January 1, 2024, and 2026, the government deposits the first $1,000.

Elias Tsapelas (06:52)
Yeah. What I was trying to figure out is how these differ from 529 plans. I think these will be harder to withdraw from. They do come with tax benefits for employers and others contributing, but taxes will have to be paid when the money comes out.

Susan Pendergrass (07:25)
Yes—capital gains. With 529s, the money goes in pre-tax and comes out tax-free if used for education. These accounts are less flexible. You can take money out for education, a house, or a business, but otherwise there’s an early withdrawal penalty plus capital gains. It feels gimmicky, since the government only deposits $1,000 until 2028 when the program expires.

But for many low-income kids, this could be their only savings. It’s meant to help those who wouldn’t have a 529. They were originally going to be called “Invest in America Accounts,” but they’re now called “Trump Accounts.”

Elias Tsapelas (08:50)
I’m curious to see if the $1,000 is the only money ever deposited into these accounts for most people. It may not be worth putting in more, but even with tax obligations, it’s still free money.

Susan Pendergrass (09:27)
Right. You turn 18 and have $10,000—it’s not nothing. But some worry that a future Democratic president with control of Congress could expand the program—like depositing $500 annually for anyone under 18. It starts to look like a form of universal basic income. But I suspect it’ll go away—it feels gimmicky.

Elias Tsapelas (10:16)
I’m curious if the government will make it easier to use for college or similar expenses. There are a lot of higher education changes in the bill too. As someone with student loans, I’m getting emails every day about them.

Susan Pendergrass (10:33)
Yeah. So tell me—what are the changes to higher ed?

Elias Tsapelas (10:43)
Well…

Susan Pendergrass (10:46)
I’ve heard it might hurt community colleges, but I don’t know why. Do you?

Elias Tsapelas (10:49)
There are new caps on loan amounts and some income-based repayment plans are being eliminated. For example, the SAVE repayment plan created by the Biden administration has been tied up in court. Interest collection is resuming, but payments aren’t due yet. Borrowers need to switch plans, but the old ones are gone. The new plan tries to prevent negative amortization, but it’s still unclear how well that will work.

Grad students will be able to borrow less. The government wants loans repaid more quickly. After five years of paused payments, there’s a huge administrative burden now to unwind all of this.

Susan Pendergrass (12:11)
I know—since the pandemic.

Elias Tsapelas (12:17)
Exactly. There’s going to be a big process for certifying income and re-establishing payments. Colleges are nervous—lower borrowing limits could change students’ decisions. And I don’t know if the federal government is prepared to roll all of this out smoothly. I still need to re-set my auto-withdrawal.

Susan Pendergrass (12:56)
Yeah. It feels like we have to wait six months or a year to see what actually happens. Even the work requirements for SNAP and Medicaid were pushed out beyond the midterms. So while people are celebrating or panicking, a lot of this is still TBD.

Elias Tsapelas (13:26)
Yeah. And when people talk about “cuts,” especially to Medicaid, they’re mostly referring to ten-year projections. But a lot of the actual cuts are back-loaded. The benefits hit first—then the cuts. And some of those cuts may never happen. There’s also a big expansion of health savings accounts. People with bronze marketplace plans or direct primary care arrangements could use them, but rules still need to be written.

Susan Pendergrass (14:38)
I read there might be fewer subsidies, maybe higher premiums?

Elias Tsapelas (14:44)
Depends. There’s going to be a bill later this year to debate extending the enhanced COVID-era subsidies. But those subsidies created a kind of shadow market—shady dealers signing people up for plans they didn’t even know they had. About 2 million people were enrolled in multiple subsidized marketplace plans last year. So now there’s a push to reintroduce some “skin in the game.” But we’ll see what ends up mattering or going into effect.

Susan Pendergrass (16:04)
And our senator is already trying to undo parts of the bill he voted for.

Elias Tsapelas (16:08)
Yeah, especially the provider tax piece. That would help rein in spending, but the cuts don’t go into effect for several years—giving time for backtracking. If none of the pay-fors happen and only the expensive parts do, this bill just becomes even more costly.

Susan Pendergrass (17:08)
What does this bill, even optimistically, do to the federal deficit?

Elias Tsapelas (17:15)
I still need to see estimates, but we’re looking at adding at least $4 trillion to the deficit. Possibly more, depending on what’s made permanent.

Susan Pendergrass (17:53)
I thought Republicans cared about balanced budgets. This feels irresponsible. What do you think?

Elias Tsapelas (18:08)
It’s a lot easier to say you’re for fiscal responsibility than to actually do it. With Medicaid, people say cut waste—but cutting funding means cutting payments to hospitals, doctors, and nurses. And those tax cuts were always going to be extended. Every person taking the standard deduction is getting a bigger deduction. That costs money.

The real long-term budget problems are in Medicare, Medicaid, and Social Security—none of which were addressed. So someone will have to get back to those eventually.

Susan Pendergrass (19:48)
Yeah. Social Security’s trust fund is going to run dry soon—maybe within 10 years. The numbers are so big, it starts to feel imaginary. People can’t wrap their heads around what it would take to have a balanced budget. Both parties just keep giving stuff away, so you’d be foolish to sit on the sidelines.

Elias Tsapelas (20:24)
Yeah—it’s just different groups they’re giving to. This bill was very expensive. And I think future efforts will make it even more so by eliminating what little cost savings exist.

Susan Pendergrass (21:03)
The SALT deduction, for example—capped at $10,000 in 2017, now up to $40,000. That’s a $30,000 swing. For Californians, that’s huge.

Elias Tsapelas (21:27)
Yeah, and the benefit mostly goes to higher-income people. Even in Missouri, some homeowners might benefit—but it mostly helps the coasts. And it gives high-tax states more room to raise taxes, since the federal deduction cushions the blow.

Susan Pendergrass (22:19)
Exactly. Crazy stuff. Well, I think we’ve covered a lot. I won’t make you come back again, but there’s so much detail—it’s not really what either side thinks it is.

Elias Tsapelas (22:45)
I agree. Especially with Medicaid and SNAP. And states will carry a big burden implementing this. Some will do it well, some will fight every piece. There’s going to be a lot of news as this all rolls out.

Susan Pendergrass (23:46)
Totally. Not directly related, but recently I’ve met people surprised by the real ID requirement. It’s been around for 10–15 years, and Missouri resisted it. Some states just don’t want to jump into federal programs.

Elias Tsapelas (24:04)
Yeah—I’ve seen signs about it at TSA forever. Always “effective in 3 months,” then postponed. But it finally happened.

Susan Pendergrass (24:11)
Right. And this summer, people are finally getting real IDs. Missouri was one of the last to implement it. So I don’t expect the state to jump on many of these changes either. But there’s still plenty of time to talk about it all again.

Elias Tsapelas (24:28)
Yes.

Produced by Show-Me Opportunity

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The post Social Security, Tax Cuts, and the Future of Retirement with Andrew Biggs appeared first on Show-Me Institute.

What is the debt ceiling, and what would have happened had we not raised it?

The debt ceiling (or debt limit) is a legal limit on how much money the U.S. government is authorized to borrow. Once the country reaches this limit, the Treasury is not permitted to issue more debt.

Can we simply not raise the debt limit?

The Congressional Budget Office (CBO) projects that the federal government will run a deficit of more than $1.5 trillion in 2023 alone, with spending amounting to $6.4 trillion and revenue coming in at $4.8 trillion. Of the $6.4 trillion in spending, $4 trillion is for mandatory programs that operate without Congress needing to regularly reauthorize them (e.g., Social Security and Medicare), $1.7 trillion is discretionary spending, and $660 billion goes to interest payments. Balancing the budget and eliminating the deficit in one fell swoop would require essentially zeroing out discretionary spending or making instant, draconian cuts to mandatory programs. Given the deep fiscal hole that the federal government has put the country in, there was no real alternative to raising the debt ceiling.

If both sides agreed that the debt ceiling had to be raised, what were the negotiations about?

Historically, occasions when the government has reached the debt ceiling have produced negotiated agreements that both raise the ceiling and limit spending, as was the case with the Budget Control Act of 2011 during the Obama-Biden Administration. However, this time around, the White House insisted for months that it would not negotiate on any spending reforms as part of raising the debt ceiling.

Given the unsustainable fiscal path that the United States is on, the White House was essentially sending the message that the only way to avert a debt crisis now (by raising the debt ceiling) was to cement the current spending trajectory in place—and thereby increase the chance of a debt crisis down the road. The House of Representatives disagreed with this false choice between a debt crisis today and a debt crisis later and instead passed the Limit, Save, and Grow Act, which simultaneously raised the debt ceiling and slowed the trajectory of spending, among other reforms. Passage of this bill forced the White House to the table, abandoning its no-negotiations stance on spending reforms.

What is contained in the debt ceiling deal?

The debt ceiling deal contains a number of elements. First, it raises the debt ceiling through the end of 2024 and it establishes spending caps for fiscal years 2024 and 2025 that limit the growth of spending to 1% with tough enforcement provisions during the appropriations process, which is when Congress formally makes detailed, program-level spending decisions. In addition, the bill prescribes a 1% cap on spending growth through 2029. By way of comparison, the CBO projected an 8.1% jump in discretionary spending between 2024 and 2025, followed by average annual increases of 2.8% through 2033.

Besides affecting topline spending, the debt ceiling bill rescinds certain COVID-19 and IRS funds, expands work requirements for food stamps and welfare, and implements energy-permitting reforms to reduce delays from excessive and unresponsive bureaucracy.

What is the overall effect?

The CBO projects $1.5 trillion lower spending growth (or in Washington, DC parlance: cuts) because of the deal. Without the deal, discretionary spending would have risen from $1.7 trillion in 2023 to $2.4 trillion in 2033, whereas now the projection is for $2.2 trillion in discretionary spending in 2033.

To give further perspective, the figure below plots three different projections for the path of discretionary spending as a percentage of the country’s annual economic output. The blue dots are CBO projections made in fall 2019 under the previous administration and before COVID-19. The orange dots are CBO projections from this May, but before the debt ceiling deal. The red arrow showing the upward shift from the blue dots to the orange dots represents the persistent increase in discretionary spending under the current administration’s policy plans. The gray set of dots represent discretionary spending under the debt ceiling deal, with the green arrow showing the reduction relative to what was slated to occur before the deal.

As the figure makes clear, the debt ceiling deal essentially takes discretionary spending halfway back to the path it was set to follow before COVID-19 and the change in administration.

Figure 1: Discretionary spending as a percentage of GDP. Source: Congressional Budget Office, Show-Me Institute calculations.

How should Missourians view this deal?

The United States faces a profound and troubling fiscal situation with its unsustainable spending levels, not to mention slow economic growth, declining productivity, and inflation that remains much too high. It is important to recognize that the country has a spending problem, not a revenue problem. Federal revenues are currently above historical average, but the reason deficits are so large is that spending as a share of GDP is higher than it has ever been over the past century except during peak COVID-19 and World War II. The debt ceiling bill does not fully reverse the spending increases of the past two years, but it represents a step in the right direction, especially compared to the White House’s previous no-negotiations spending stance.

Taking a step back, whereas the debt ceiling debate focused on discretionary spending, the vast majority of federal spending goes to mandatory programs, chiefly entitlements. The CBO projects that, absent reforms, federal spending will rise from 23.7% of GDP in 2023 to over 30% by 2053, annual deficits will more than double to over 11% of GDP, and the national debt will balloon to almost 200% of GDP. In this scenario, interest payments on the debt would triple as a share of the economy and would represent the single largest spending item for the U.S. government. Even this scenario is rosy in that it assumes an infinite willingness among investors to buy U.S. debt regardless of how dire the fiscal picture becomes—a rather implausible assumption that America would be wise not to test.

Going forward, much work remains to be done to right-size government and revitalize economic growth so that Americans can enjoy a more prosperous future free from the risk of steep tax hikes, crippling inflation, debt crises, and adversarial foreign governments buying up large quantities of government debt. The debt ceiling deal is by no means a cure to the country’s current fiscal ills, but it’s one step in the right direction, and the starting point for a much-needed national conversation.

The post Debt Ceiling Deal Q&A appeared first on Show-Me Institute.

Moving from a system . . . [that has] 1000 of something to one of something sounds a lot like a monopoly, and monopolies don’t always work in consumer interests.

The sheer cost of a Medicare for All program would dwarf our current federal spending levels and require massive new taxes on Americans. The Atlantic reports:

The Urban Institute, a center-left think tank highly respected among Democrats, is projecting that a plan similar to what [two candidates] are pushing would require $34 trillion in additional federal spending over its first decade in operation. That’s more than the federal government’s total cost over the coming decade for Social Security, Medicare, and Medicaid combined, according to the most recent Congressional Budget Office projections.

In recent history, only during the height of World War II has the federal government tried to increase taxes, as a share of the economy, as fast as would be required to offset the cost of a single-payer plan, federal figures show. There are “no analogous peacetime tax increases,” says Leonard Burman, a public-administration professor at Syracuse University and a former top tax official in both the Bill Clinton administration and at the CBO. Raising that much more tax revenue “is plausible in the sense that it is theoretically possible,” Burman told me. “But the revolution that would come along with it would get in the way.”

Health care providers, health insurers and pharmaceutical companies are not always “good guys” in our health care system, but they compete with one another, which serves consumer interests. Policymakers should go much further in compelling such competition and preventing these industries from leveraging government for their own interests. But Medicare for All goes in the very opposite direction—monopolizing control of our health care system, reducing choice and trusting government to provide these services instead.

It was a bad idea last year. And it is still a bad idea this year.

The post “Medicare for All” Remains a Terrible, Terrible Idea appeared first on Show-Me Institute.

Advocates for Missouri’s current defined-benefit pension system argue that this type of system, where teachers are promised a generous and guaranteed pension once they retire, is needed because it increases teacher retention. Yet, there is little evidence that this type of system is a cost-effective method for increasing teacher retention. Rather, the example of these superintendents demonstrates how the system pushes out high-quality individuals. It does the same for teachers (teachers and superintendents are in the same pension system). When teachers hit 30 or 31 years, regardless of their quality or their desire to continue teaching, the financial incentive of the pension pushes them out.

Recently, Gov. Parson asked school superintendents to come up with a plan to increase teacher pay. One solution, which I have little hope will ever be recommended by the superintendents, is to change how we compensate teachers. A pension is basically a form of delayed compensation. We require teachers and their districts to contribute 14.5% of their salary to the pension system (the numbers are different in St. Louis City and Kanas City). That’s 29% of a teacher’s salary that is going into a pool that they may have access to if they make it to retirement.

We could give teachers in Missouri a 10% raise next year, with minimal cost to the state, if we just change this system.

Currently, teachers in the Public School Retirement System (PSRS) do not contribute to Social Security. The pension system is their only required retirement savings. In this proposed scenario, the teacher would receive a 10 percent raise on his or her salary. The teacher would begin contributing to Social Security (6.2 percent from the individual and the employer) and would be eligible for Social Security benefits. Additionally, the teacher and his or her employer could contribute a combined 5 percent of salary to a defined-contribution retirement account, such as a 401k or a cash balance plan. Of course, with a smaller raise the teacher could contribute more to retirement. 

There are numerous benefits to this proposal. First, teachers would own their retirement accounts. They would not lose any money if for some reason they do not vest at five years. They could also continue to work past 31 years and their accounts would not lose value. Teachers could also choose to invest more in their account, as many do now in 403b accounts.

The biggest benefit is that teachers would have higher salaries today. If we want to keep our best teachers and superintendents, higher salaries are a much more effective tool than outdated pension systems.

The post We Could Give Teachers a Ten Percent Raise Next Year appeared first on Show-Me Institute.

Dear Missouri teachers and all Missouri citizens:

As a Missouri public-school employee, I don’t pay into Social Security; I pay into the Public School Retirement System (PSRS) pension—to the tune of 13-15% of my salary.

The Missouri pension system for public employees REPLACES Social Security (i.e., I will never get Social Security or my spouse’s SS); that’s why the word “pension” misleads a lot of people.

We don’t get both.

Last month, a Missouri state representative from Nixa, MO, introduced a bill to change the current funding structure for teacher pensions to a defined contribution rather than a defined benefit plan, claiming that taxpayers might need to pay for any shortfalls in future years should the funds not be adequate. THIS IS NOT CORRECT.

Missouri’s PSRS has long been admired nation-wide as one of the MOST SOLVENT pension plans IN THE NATION.

We (teachers) are not the enemy; we are not the problem. Missouri’s financial problems should not be balanced on the backs of teachers who have paid into the system for their entire careers. The Missouri government set the rules. We have followed them. They have not. Now, they want to blame teachers for the State’s money woes, and steal from teachers’ retirement again!

Please call your state reps to support teacher-retirement funding and not changing it!

PLEASE.

Claim 1: “I pay into Public School Retirement System (PSRS) pension— to the tune of 13-15% of my salary.”

MOSTLY TRUE

Since 2012, Missouri teachers have paid 14.5 percent of their salary into the public school retirement system. This is matched by another 14.5 percent from the employer. It rose steeply from around 10 percent in the early 2000s in an effort to address unfunded liabilities (See Figure 3 here).

Claim 2: “The Missouri pension system for public employees REPLACES Social Security (i.e., I will never get Social Security or my spouse’s SS); that’s why the word “pension” misleads a lot of people.”

MIX OF TRUE AND FALSE

Missouri teachers do not pay into Social Security, but they may still be eligible for a benefit. According to the PSRS website, teachers “may qualify for Social Security benefits if you have 40 units (10 years) of Social Security-covered employment. You may also be eligible for benefits from Social Security through your spouse or ex-spouse (living or deceased).”

Claim 3: “Last month, a Missouri state representative from Nixa, MO, introduced a bill to change the current funding structure for teacher pensions to a defined contribution rather than a defined benefit plan…”

FALSE

House Bill 864 does not change the structure of current defined-benefit pension system for anyone in the system. In fact, it sets the current PSRS system as the default option for all incoming teachers. It would simply allow teachers the option of choosing a defined-contribution (DC) plan if they want to. Teachers who opt into the DC plan could chose to contribute between 3 and 50 percent of their salary into their own individual retirement account. The school district would be required to contribute 5 percent. If teachers wanted to stay with their traditional plan, they could. HB 864 would just give them more options.

This is a very important point that is worth repeating. The current bill, which has not even been referred to a committee and has virtually no chance of passing, would not change anything for anyone unless the individual teacher chose to opt into the DC plan. (To find out why some teachers might choose a DC plan, click here.) Florida has a DC option and roughly a quarter of teachers choose this plan.

Claim 4: “Missouri’s PSRS has long been admired nation-wide as one of the MOST SOLVENT pension plans IN THE NATION.”

MIX OF TRUE AND FALSE

Yes, it is true that PSRS is rated as one of the best funded pension systems in the nation. According to PSRS, PSRS was 84 percent funded as of June 30, 2018. This amounts to over $7.4 billion in unfunded liabilities. According to an analysis by Rebecca Sielman, an actuary at Milliman, this puts PSRS in the top quarter in terms of funded ratios among the 100 largest U.S. pension plans. This fact, however, says more about the sad state of other systems.

It should be noted that these comparisons are slightly suspect as they are based on plan reporting, and plans use very different assumptions. In determining that PSRS is 84 percent funded, the plan uses a high assumed discount rate of 7.75 percent to calculate liabilities. The median discount rate was 7.5 percent. That difference may not sound like much, but when you are talking about compound interest on billions of dollars, it adds up quickly. As Sielman writes, “A relatively small change in the discount rate can have a significant impact on the Total Pension Liability.”    

In an analysis for the Show-Me Institute, economist Andrew Biggs shows that if PSRS used a Corporate Bond Yield rate of 4.26 percent, the plan would be 52 percent funded and would have over $27.7 billion in unfunded liabilities.

It’s important to understand that not all of the money that is contributed to a teacher’s pension actually ends up funding the pension. Teachers contribute 14.5 percent of their pay into the pension, and their employer adds an equivalent amount, so the amount that goes into the pension is equal to 29 percent of the teacher’s salary. Only 17.44 percent is required, according to plan actuaries, to pay for the teacher’s retirement benefits. This means nearly two-fifths of the contributions are used to pay for unfunded liabilities (see p. 106 here).

Claim 5: “Missouri’s financial problems should not be balanced on the backs of teachers who have paid into the system for their entire careers. The Missouri government set the rules. We have followed them. They have not. Now, they want to blame teachers for the State’s money woes, and steal from teachers’ retirement again!”

COMPLETE NONSENSE

Ok there isn’t really a claim here, but there is a completely nonsensical assertion that this bill would somehow take money away. A version of this myth has been repeated numerous times—they want to take our pension money to pay for roads is a popular one. This bill (and every other pension reform bill that I have ever seen in Missouri) would not touch teacher contributions to the system. There is absolutely no mechanism for the state to take that money.

CONCLUSION

Teachers who spread viral posts with completely inaccurate information do not reflect well on their profession. Why are you trying to scare your colleagues? And have you thought of the unintended consequences?

My advice, teacher to teacher, is the next time you see a viral post like the one above and feel compelled to do something, consider this: read the actual bill, think critically, and do not blindly share hyperbolic posts filled with factual errors.

The post Viral Facebook Post about Missouri Teacher Pension Bill Is Filled with Falsehoods appeared first on Show-Me Institute.

According to a 2017 asset/liability analysis commissioned by KCPSRS, the system only has enough money in the bank to pay 64 percent of what it owes to current and future retirees. We’ve written about this problem before, but it’s worth repeating. The fund needs to earn at least 5 percent per year, every year, for the next 20 years, or they’ll be out of money. That’s right—no money left in the fund. (For reference, between 1998 and 2018 the annualized Dow-Jones Industrial Average inflation-adjusted return was 5.528 percent.) Not surprisingly, the KCPSRS has requested increases to the school contribution rate over the next few years from the state legislature. So, Kansas City Public Schools and Kansas City charter schools will have to take another chunk of their revenue out of the classroom to send to KCPSRS.

STLPSRS was also just 64 percent funded (see p. 11) in 2016 and has almost as many retirees as active teachers. An annual analysis by actuaries determines how much SLPS and the St. Louis charter schools have to contribute to the fund each year. However, difficulty keeping up with increasing costs led SLPS to request that the state legislature cap their contribution rate at 16 percent, and they did. Unfortunately, STLPSRS looked at how that cap would affect the fund and determined that it would leave them with a $192 million shortfall within 15 years, so they’re suing SLPS and the St. Louis charter schools.

Economic conditions, unaffordable benefit promises, and an unwillingness to use realistic investment return assumptions have resulted in shaky fund positions, lawsuits, and balancing the books on the back of the youngest workers. What’s worse is that in 2017, the average pension payment took about $1,200 per student out of the classroom.

Does it have to be this way? No. We’re actually seeing teacher retirement benefit innovation from within public education. In 19 states, charter schools may choose to participate in their state’s pension plans or not. A recent analysis of charter school participation in five states found that the schools most likely to opt out of the state plan are urban schools, elementary schools, and those that are managed by charter networks. And new schools in high-cost states like California are much less likely to join than they were just five years ago.

Most of the opt-out charter schools offer their teachers 401k or 403b plans in which the teachers are vested in less than one year. The reasons given for choosing this path include wanting to lower their estimated costs, giving teachers a wider range of investment options, and making their benefits more portable.

For today’s youngest teachers, this is an important point. Most of them will not meet a vesting period of ten years in one state, which means they will lose the amount that their employer contributed for them. Even if they stay, Missouri teachers have to work for 26 years before their contributions are higher than their expected benefit. When you take nearly 10 percent off the top of a teacher’s salary, plus another 6 percent for Social Security, you have to wonder why anyone would want to be a public school teacher in Kansas City or St. Louis.

The post Innovation Brings Hope for Teacher Pensions appeared first on Show-Me Institute.

As the authors of the KCPSRS analysis suggest, “long-term pension fund success is based on all three levers working together.” Those levers are contributions, benefit design, and investment design. As we’ve noted before, the plan is already shifting to riskier assets in an attempt to secure higher rates of return on investments. The system will likely keep the benefits design the same. So, what could they change in order to shore up the system? There is only one lever remaining: contributions.

Currently, teachers and their employers each pay 9 percent into the system for a total of 18 percent. An additional 12.4 percent is put into Social Security. The authors of the KCPSRS analyses suggest the system may need to increase contribution rates if they want to avoid insolvency. They project what the impact would be of increasing the contribution rate to 22 or 26 percent. Of course, increasing contributions will help the financial health of the system. It will also cost teachers.

Keep in mind that the contribution rate was set by the legislature at just 15 percent from 1999 to 2012. The legislature allowed for fluctuation in the contribution rate, but capped the maximum amount at 18%. In other words, increasing the contribution rate to the 22 or 26 percent highlighted in the KCPSRS report would not only require an act of the legislature, but possibly an act of a higher power. It is an increase that may be unprecedented in Missouri pension history.

Increasing contributions but not benefits means that employees of the future will get significantly less benefit from the pension system than their predecessors. They will, in effect, be paying for the benefits of the past.

The real question is how much are employees willing to pay for the same or a reduced benefit? Teachers today may be willing to put their 9% into the system, but would they be willing to put 11%? How about 13%? At what point do teachers decide they would rather have their contributions in a defined-contribution account, rather than an account that goes to pay for someone else’s benefits? 

The post How Much Are Kansas City Teachers Willing to Pay for their Pension? appeared first on Show-Me Institute.

Last November, the Cooperating School Districts of Greater St. Louis pitched the idea of providing high-quality teachers as instructional coaches in struggling schools. A similar idea was raised by CEE-Trust, the consulting firm that the Missouri Department of Elementary and Secondary Education hired to address problems in the Kansas City School District. The CEE-Trust proposal called on accredited school districts “to play a significant role in helping [unaccredited] systems improve.” The St. Louis Post-Dispatch heaped praise on this idea, calling it among the “more promising ideas.”

However, there is one easily overlooked obstacle standing in the way of turning this localized version of a teacher peace corps into a reality in our two biggest cities: the incompatibility of different pension systems.

The suburban districts are a part of the Public School Retirement System (PSRS), as are all other school districts throughout Missouri – with the exception of Saint Louis and Kansas City, which have autonomous pension systems. If a teacher moves from PSRS to one of the city plans, he or she will incur a significant loss in pension wealth.

This is not a new problem, but a longstanding one. Saint Louis and Kansas City have been struggling with this for years. Research by University of Missouri economists has demonstrated that the separate pension systems create a barrier to recruiting school leaders into the two urban school districts. The separate pension systems also limit the pool of teachers who are willing to work in the cities. Jeffrey Kuntze, chief operating officer of the Confluence Charter Schools in Saint Louis, says “the separate pension systems make it extremely difficult for us to recruit veteran teachers from the county. We can get them when they retire, but not mid-career.”

These pension boundaries are not a problem for Normandy and Riverview Gardens, which are in PSRS, but they would make it practically impossible for high-performing school districts to operate a program, run a school, or loan teachers within the Saint Louis or Kansas City boundaries. They simply could not move teachers or school leaders across pension boundaries without making them suffer great financial penalties.

There is no easy way to solve this problem. Some have suggested we move Saint Louis and Kansas City into PSRS. This sounds like a good idea but is practically impossible because of Social Security. City teachers pay into it while PSRS teachers do not. Schools in Saint Louis and Kansas City cannot withdraw from Social Security. In effect, we have a Hotel California problem — urban schools can check out any time they like, but they can never leave Social Security.

The only real solution is to close the current systems to new entrants and place them in a new, statewide system that participates in Social Security. Before this idea causes mass hysteria, let me stress that this would not affect current employees’ or retirees’ pensions. They would remain secure in their current system. It would, however, remove the artificial pension boundaries and allow us to create a better pension system for teachers and students.

Opponents of this idea claim that closing the current defined benefit systems would be financially unsound, as it would lead to considerable “transition costs” that would far outstrip any benefits that we may receive. This is the very issue tackled in a recent Show-Me Institute policy study by Andrew Biggs, a resident scholar at the American Enterprise Institute. Biggs examines the evidence for “transition costs” and concludes that the concerns are “largely mistaken and should not stand in the way of public employee pension reforms.”

Whether you believe busing teachers into failing schools is a viable solution or just another feel-good proposition, fixing this pension problem should be a top priority. Missouri should not have a system that puts our neediest communities at a disadvantage when it comes to recruiting talented teachers.

James V. Shuls, Ph.D., is the director of education policy at the Show-Me Institute, which promotes market solutions for Missouri public policy.

The post Want Better Teachers In High-Need Schools? Fix Pensions appeared first on Show-Me Institute.

In Missouri, students in unaccredited school districts can now choose to enroll in neighboring accredited school districts. Some students who have elected to leave their struggling school now find themselves riding a bus for more than two hours a day. This has led many to question the school transfer idea and look for alternative solutions. Some have begun to ask, “What if instead of busing students from failing school districts to accredited ones, we bused great teachers from accredited schools into the failing districts?” It is an idea that has won a fair amount of attention.

Last November, the Cooperating School Districts of Greater St. Louis pitched the idea of providing high-quality teachers as instructional coaches in struggling schools. A similar idea was raised by CEE-Trust, the consulting firm that the Missouri Department of Elementary and Secondary Education hired to address problems in the Kansas City School District. The CEE-Trust proposal called on accredited school districts “to play a significant role in helping [unaccredited] systems improve.” The St. Louis Post-Dispatch heaped praise on this idea, calling it among the “more promising ideas.”

However, there is one easily overlooked obstacle standing in the way of turning this localized version of a teacher peace corps into a reality in Missouri’s two biggest cities: the incompatibility of different pension systems.

With the exception of Saint Louis and Kansas City, which have autonomous pension systems, all of Missouri’s school districts are part of the Public School Retirement System (PSRS). If a teacher moves from PSRS to one of the city plans, he or she will incur a significant loss in pension wealth. Koedel, Ni, Podgursky, and Xiang, economists at the University of Missouri and authors of a recent report from the Ewing Marion Kauffman Foundation, put it this way:

Consider two teachers who work thirty-year careers in the profession. The first teacher works all of her thirty years in a single plan. The second teacher works fifteen years in one plan and then fifteen years in another. Because of the way pension wealth accrues in these plans, the latter teacher will have less than half the pension wealth of the former teacher at age fifty-five.

Though this may sound like a Missouri problem, it has bearing nationwide. As the Kauffman report notes, Missouri’s separate pension systems are “a microcosm of larger national issues concerning teacher pension systems—particularly the ability of teachers to move between systems.”

Just as teachers in Missouri cannot move between pension boundaries without incurring a financial penalty, teachers cannot move across state pension boundaries without incurring similar costs. Which means, a charter operator with campuses in multiple states, like KIPP, Uncommon Schools, Achievement First, or Rocketship Education, cannot freely move a teacher or school leader between their schools in various states. Indeed, these systems punish all teachers who move from one state to another.

Koedel, Ni, Podgursky, and Xiang liken the costs associated with switching between pension systems to a tariff, “Rather than promoting free trade and labor mobility, the pension plans effectively are imposing a tariff on the import or export of human capital between” the separate pension systems.

This “tariff” on labor is not a new problem, but a longstanding one that Saint Louis and Kansas City have been struggling with for years. Prior research has demonstrated that the separate pension systems create a barrier to recruiting school leaders into the two urban school districts. The separate pension systems also limit the pool of teachers who are willing to work in the cities. Jeffrey Kuntze, chief operating officer of the Confluence Charter Schools in Saint Louis, says “the separate pension systems make it extremely difficult for us to recruit veteran teachers from the county. We can get them when they retire, but not mid-career.”

Missouri’s pension boundaries would make it practically impossible for high-performing school districts to operate a program, run a school, or loan teachers within the Saint Louis or Kansas City boundaries, just as state pension boundaries would make it impossible for schools to effectively work across state lines. They simply could not move teachers or school leaders across pension boundaries without making them suffer great financial penalties.

The only real way to solve this problem is to close the current systems to new entrants and place them in a new, statewide system that participates in Social Security and has smooth wealth accrual. Before this idea causes mass hysteria, let me stress that this would not affect current employees’ or retirees’ pensions. They would remain secure in their current system. It would, however, remove the artificial pension boundaries and allow us to create a better pension system for teachers and students.

Opponents of this idea claim that closing the current defined benefit systems would be financially unsound, as it would lead to considerable “transition costs” that would far outstrip any benefits that we may receive. This is the very issue tackled in a recent Show-Me Institute policy study by Andrew Biggs, a resident scholar at the American Enterprise Institute. Biggs examines the evidence for “transition costs” and concludes that the concerns are “largely mistaken and should not stand in the way of public employee pension reforms.”

Whether you believe busing teachers into failing schools is a viable solution or just another feel-good proposition, fixing this pension problem should be a top priority for Missouri and other states throughout the country. Missouri should not have a system that puts our neediest communities at a disadvantage when it comes to recruiting talented teachers and states should not impose a tariff on attracting quality teachers and school leaders.

James V. Shuls, Ph.D., earned his bachelor’s and master’s degrees in elementary education and taught for four years in the Republic School District. Currently, he is an education policy analyst at the Show-Me Institute, which promotes market solutions for Missouri public policy. His wife is currently vested in PSRS.

The post Current Teacher Pension Systems Impose A “Tariff” On Labor appeared first on Show-Me Institute.

Opportunity cost is what a person or group gives up when they choose between two or more alternatives. This may be a strong limitation on the actions of mere mortals, but these UMKC professors imply that the government is capable of magic that can free us from the burden of trade-offs. There are enough fallacies and half-truths in the article that it would take a whole book to respond in full (a book that someone actually wrote more than 60 years ago), so I will confine myself to some of the more glaring ones.

Arguing that there is no fiscal crisis in Social Security and Medicare, UMKC Associate Professor Stephanie Kelton writes:

the government’s ability to pay benefits does not in any way depend on the balance in the Social Security or Medicare Trust Funds. Benefit checks come directly from the Treasury, and, as Alan Greenspan has admitted, “[A] government cannot become insolvent with respect to obligations in its own currency.”

There is definitely some truth here; Social Security and Medicare are both paid out of general revenues, which is going to be even more necessary now that Social Security is itself running a deficit. Kelton tries to claim that we face no “tough choices” with these programs, but if no cuts are made to Medicare or Social Security, we will have to cut spending on other government programs, raise taxes, increase the deficit, or (as Kelton alludes with the Greenspan quote) trigger substantial inflation. I admit that I don’t know exactly what Kelton means by a “tough choice,” but none of those options are politically popular, so they all seem pretty tough to me.

Next, Professor Randall Wray takes a shot at showing that current deficits won’t get passed on to the next generation because government debt is really just an accounting trick:

There are about 13 trillion dollars in Treasury securities at the Fed. Collectively, these savings accounts are known as the national debt. The national debt represents a portion of the combined savings of US residents, corporations, banks, and foreign governments. And most folks probably don’t know that when a person buys them, the Fed simply transfers the dollars from her checking account to a savings account at the Fed called a “Treasury security.”

Tens of billions of dollars of these Treasury securities come due every week. When that happens, the Fed pays off that “debt” simply by transferring the dollars, plus interest, out of these savings accounts and back to the holders’ checking accounts.

In the future, when our grandkids make payments on Treasury securities, they will simply credit accounts at the Fed-just as we do today, and as our grandparents did before us. It is a simple matter of data entry, and not a financial burden.

Again, this has some truth to it, but what Wray does not discuss is that running deficits of upwards of 10 percent of GDP will eventually cause the interest rate the government pays on those bonds to skyrocket. Take a look at the second graph in this article, which shows the Congressional Budget Office’s projection of costs for Medicare, Social Security, and interest on the debt. Unless we rein in deficits, by the early 2030s we will be paying 5 percent of our GDP just for the privilege of borrowing more, and the number only rises from there. Furthermore, government debt is not merely an accounting trick. Those dollars command real resources in the economy, and when the government spends those dollars, there are fewer resources for private use. If the debt continues to grow, we will have to devote more resources every year to paying off those loans, which again entails either higher taxes, decreased government spending on other items, inflation, or some combination thereof.

Although the first two examples are bad enough, I have saved the worst for last (there are plenty of other absurdities in the article, but this post is long enough as it is). After giving us the single most asinine sentence in the article (“Taxes, then, are what give value to money.”), doctoral candidate Yeva Nersisyan gives a full-throated defense to the government-as-magic view of the world:

Any and all financial constraints on government spending such as issuing government bonds dollar for dollar against deficit spending, debt ceilings, and restrictions on the Fed’s ability to buy treasury securities are purely political and necessarily self imposed, because they are imposed on us by our chosen institutional arrangements and not by something inherent in our economic system.

No doubt that in purely dollar terms the government can spend as much as it wants. It could print us all checks for a million-kajillion dollars if it so pleased, but it still operates within a world with real constraints. There are only so many resources available in the country at any given time, and it is impossible for the government to create more out of thin air. Any attempt by the government to raise more revenue through taxation or inflation will be met at the margin with more and greater attempts by individuals and businesses to avoid those taxes and hedge against rising prices. In short, government cannot mandate prosperity.

I’m sure it’s comforting to believe that there is some omnipotent organization that can solve all our problems for us, but that is a childish view of the world, and as adults we must put away childish things.

The post Government: No Costs, All Benefits appeared first on Show-Me Institute.

Not a week after the health care bill’s passage, the Congressional Budget Office announced that Social Security would reach an ominous milestone: This year, Social Security will pay out more in benefits than it takes in from payroll taxes. Originally predicted to occur in 2016, the economic events of the past several years have hastened the crossing of this accounting Rubicon.

What does this imply? For one, the fund’s deficit will increase faster and be much greater than earlier projections. A few years ago, the CBO projected that the fund would run a deficit of about $50 billion in 2019. The new numbers push that estimate closer to $60 billion. The bottom line is that unless revenues are increased or payments are cut, Social Security will become insolvent earlier than the 2037 projection made several years ago. And, given the demographic characteristics of the population, that day is more likely to come even sooner.

What does Social Security have to do with health care? When we see that Social Security will become a larger budget burden in the future, it presages what we can expect from the move to socialize medicine in the United States. The problems arise from the fact that those who pass such legislation do not have the time horizon required to plan for long-term consequences.

In its rush to pass the first national medical plan Medicare and its companion Medicaid Congress sought the kind of political deals that get legislation passed but may ignore long-term economic consequences. Witness the financing difficulties that these programs face today. Some have argued that it is because of these programs that the delivery of health care has become so expensive: If the government is paying for it, why not run redundant tests?

How many times in the recent health care debate was it mentioned that failure to pass the bill (and vice versa) would have dire consequences for this fall’s election? If your time horizon is two years, should we expect someone to worry about consequences that may take decades to happen?

For those who believe that increased government involvement in their lives is a good thing, look to Great Britain. The government accounts for more than 50 percent of the economy’s gross domestic product. The economic crisis of the last few years has exposed the weaknesses of its extensive welfare system. Recipients of government services and those who administer them see no reason that services should be cut or taxes raised. As reported by the New York Times, Britain’s Chancellor of the Exchequer Alistair Darling said that “cuts in [government] spending would be wrong and dangerous.” Union leaders have averred that they will accept no cuts in pay. How, then, will increased deficits and a burgeoning government debt be financed? With weak economic recovery a likely scenario, it must be through higher taxes.

The United States is not Great Britain. Unfortunately, it does not appear that we are learning from their mistakes.

The shift to increasing the government’s presence in our daily lives seems inexorable. What makes this questionable is the revealed ineptitude of those who “run the business.” In good times, politicians spend money to curry political favor without due regard to potential risks. The multiple news stories depicting the plight of local school districts and state university systems facing shortfalls in state appropriations should give pause before we eagerly assign additional duties to the state.

The United States has long enjoyed a broad-based commonality with the British. Too bad that this will now extend to a decline in our economic freedom.

Rik W. Hafer is distinguished research professor and chair of the Department of Economics and Finance at Southern Illinois University Edwardsville and a scholar at the Show-Me Institute.

The post Health Care Reform Another Step in Decline of Our Economic Freedom appeared first on Show-Me Institute.

A shorter version of this article first appeared in the St. Louis Business Journal.

Commentators in the current health care debate often look to Canada’s and Britain’s public health care systems for hints as to what our future may resemble. These countries’ experiences should provide insights into the future impact of proposed reforms with respect to rationing, queues, quality, and cost of a public health care option. Most discussions ignore the fact that these two systems are decidedly different, both philosophically and operationally.

The overarching goal in each of Canada’s provincial health plans is that every Canadian should have equal access to medically necessary physician and hospital services, “on uniform terms and conditions.” However, inefficiencies in the Canadian system are made manifest by the number of Canadian citizens who travel to the United States, willing to pay cash for immediate hip replacements, MRIs, and so forth.

The British system, in contrast, recognizes that patients with sufficient resources will find ways to pay for services beyond those offered by the public medical plan. Rather than forcing private payers seeking better medical care to travel across international borders, the British have taken a much more common-sense approach. The National Health Service coexists with an expanding private health care insurance system, which has garnered a popularity that is reflected by the vast number of health care providers — dentists, surgeons, hospitals, and health care clinics — who rarely accept National Health Service patients.

Millions of Britons have private medical insurance that allows them to access specialists and hospitals without the wait times generally associated with the National Health System. And the current swine flu scare is pushing even more people toward private insurance, given the National Health Service’s severe shortage of hospital beds should an epidemic occur. Employer-based private group medical insurance has also grown substantially during the past decade, partly because companies may deduct the full cost of premiums from their corporation tax levies. In other words, the British government has encouraged a second, higher tier of medical services to evolve, if only to reduce the financial pressure on its National Health Service.

Will future health care in the United States look more like Canada’s or Britain’s system? To answer this question, let’s consider the most prominent public health insurance option that exists today: Medicare.

Medicare has been held up as a laudatory model for health care reform. This publicly financed medical insurance plan for the elderly allows subscribers to choose their hospitals and doctors, and generally permits them to self-refer to specialists. However, Medicare offers only one benefit package at the same premium rate for all enrollees. As such, Medicare resembles the Canadian model, not the British.

Some argue that a “one-price, one-package for all” program is desirable. It isn’t. Medicare subscribers, for example, cannot opt for a bare-bones catastrophic plan and self-insure their risk of future hospitalization. A little-known feature of the Medicare plan is that it forces subscribers to accept “benefit equality.” Mirroring the Canadian system, Medicare bans “balance billing.”

To explain this prohibition, consider the following example: Your father’s cardiac surgeon wants to use a newly developed “drug eluting” coronary stent to treat your father’s angina. This new type of stent costs three times as much as the standard stent that is covered by Medicare. What if you call the surgeon and offer to pay the costs of the new stent over and above whatever Medicare’s payout would be for the standard stent? Under Medicare, this is illegal. Medicare prohibits the surgeon from “balance billing,” wherein you pay the difference between the amount Medicare covers and the price of the services you are requesting. If your loved one is covered by Medicare, that patient cannot receive more than Medicare’s dictated level of benefits, even if the patient is willing to pay the difference!

Given this predicament, suppose you tell the surgeon that you will privately contract with him to pay for your father’s care. As long as the doctor is a Medicare provider for any patient, however, he cannot let your father opt out of the Medicare system for his cardiac surgery. Either a Medicare provider accepts the Medicare payment as payment in full for all services rendered, or he must opt out of the Medicare system altogether.

A patient covered by private insurance, however, can negotiate with a doctor for add-on services that are not covered by the insurer. If your child breaks his wrist and wants a waterproof cast so he can swim, you have the option to pay, over and above what the insurer covers, the additional charge for this special cast. If the wrist is covered by Medicare, that choice simply is not available.

Is this restrictive type of coverage offered by Medicare the level of choice that we are willing to accept in exchange for giving up the private insurance system that currently exists for the non-Medicare population? This question is not hyperbole. Embedded in the current federal health insurance reform proposals are strong incentives for employers (especially small businesses) to discontinue their employee coverage and substitute the public plan for an annual fee. This substitution of public for private workplace coverage is exactly what has happened to retirees after the introduction of Medicare Part C, the public insurance program covering drugs for seniors.

Extending a plan like Medicare (or the similar Canadian model) to a vast number of additional citizens would break the bank. Political pressure has mounted lately to provide senior citizens with the benefit of new but costly technologies that can potentially improve their quality of life, such as drug-coated stents, accommodating lens implants, and new forms of chemotherapy infusion. The list of new technologies will grow as they are discovered. Because of Medicare’s balance-billing prohibition, however, physicians will never offer these more costly technologies or services unless Medicare officials first agree to include them in the plan’s covered benefits. There is no other way to recoup the costs for these services from Medicare patients — even one who is willing to pay out of pocket.

Ironically, the Canadian Supreme Court ruled only a few years ago that then-current prohibitions against private insurance and private contracting for medical services were unconstitutional. The Chief Justice wrote that “access to a waiting list is not access to health care … the prohibition on obtaining private health insurance is not constitutional where the public system fails to deliver reasonable services.”

Just as Medicare subscribers are currently unable to legally negotiate for a higher or lower level of coverage, current health care proposals would likewise not permit young people to opt for more bare-bones catastrophic coverage and use savings for minor bumps and bruises. If young people are not heavy demanders of the health care system, shouldn’t they be given the chance to opt for decreased insurance coverage?

From a government planner’s perspective, the answer is simple: No. If young people were enrolled in the same comprehensive insurance programs as the elderly, they would effectively subsidize the older generation’s growing demand for medical care. The young would be saddled with premiums that far exceed their actuarial risk. The federal government now uses a similar scheme to fund Social Security; will officials straight-facedly use the same rationale to sell a nationally mandated health insurance program? More importantly, will the voting population agree?

Reforming the current system by creating a Medicare-like program would entail adopting a plan more like Canada’s and less like Britain’s. Doing so would mean that we reduce choice among medical options for many patients. Everyone deserves a medical safety net, but isn’t choice in medical options a patient’s right?

Adopting a Canadian-style health care model would also mean that many U.S. citizens inevitably find themselves in the same quandary as those Canadians who must cross the border in order to access the latest innovative medical technologies that were not contemplated when the government last established its fee structure. If that happens, the question becomes: To which country will we go?

Susan K. Feigenbaum is a professor of economics at the University of Missouri–St. Louis. Rik W. Hafer is distinguished research professor and chair of the Department of Economics and Finance at Southern Illinois University Edwardsville and a scholar at the Show-Me Institute.

The post Will Future Health Care Look Like Canada’s or Britain’s? appeared first on Show-Me Institute.

The final link here is to an article about unemployment benefits with a number of interesting comments, some of which get me to my primary point. Many of the comments and responses I have linked to have people saying some version of the following quote, taken from the andrewsullivan.com comments to which I linked earlier, in which someone states they were stupid not to go on unemployment during an earlier period of difficulty (emphasis added):

In retrospect, that was idiotic; I had paid into the system, I was legally entitled to the benefits, and taking advantage of them would have been no more disreputable than requesting my annual income tax refund.

No, you didn’t pay into the system. Unemployment insurance in Missouri, and in the federal system (and I am pretty sure this is also true in most, if not all, other states), is not something employees pay into. It is not a payroll tax like Social Security or Medicare. Only employers pay unemployment taxes to fund the system., which are different for each employer based on the number of claims filed from that company in prior years.

So, if you are home on unemployment during these difficult times, I am not slamming you. I like to think I would never go on unemployment, but if I were unemployed and my kids didn’t have any food, I would do whatever it took to take care of them. So maybe I would take it, maybe I wouldn’t. But just don’t think when you receive your unemployment check that you had somehow put into the system, because you didn’t. Yes, perhaps a portion of the taxes paid might have gone back to employees in the form of higher salaries. But if you are trying to justify the entire situation in the way that the above commentator did, that is hardly a convincing addendum.

The post News for People on Unemployment appeared first on Show-Me Institute.

Newt Gingrich’s four major tax changes:

1. A two-year, 50-percent tax reduction for Social Security and Medicare (including employer match).

Gingrich suggested this would provide a sort of “raise” for people, by increasing their take-home pay. By eliminating the employer match, the tax burden per employee small businesses would decrease, which would encourage businesses to hire more employees. This type of temporary tax cut might not be terribly effective on its own, however, as forward-looking people recognize their tax burdens will be unchanged over most of their planning horizon.

2. Eliminating the capital gains tax — like in China.

3. A 12.5-percent corporate tax rate — like in Ireland.

Nos. 2 and 3 would promote business growth (and provide an incentive for industries to stay in the United States). Our current corporate tax rate is 35 percent, which creates an economic incentive to move operations overseas — to Ireland, for instance, which has the lowest rate. By lowering the U.S. rate, government might capture less revenue, but this policy change could easily lead to capturing more — 12.5-percent collections on a business that stayed in the United States is much higher than 0 percent for a business that departed. And this doesn’t take into account the fact that lower business tax burdens lead to spurred economic activity.

4. Abolish the death tax.

Why should taxed income be taxed a second time? At any rate, an estate tax — in which the government gets paid when somebody dies — seems like a perverse policy incentive, especially considering the larger role that government wants to play in health care.

Personally, I think all these tax cuts are great ideas. As Show-Me studies have demonstrated time and time again, lower taxes promote economic growth. Solidifying a new growth trend is crucial before we even consider increasing government’s role in health care — something that should, of course, be minimized when at all possible.

The post Crucial Tax Cuts, a la Newt appeared first on Show-Me Institute.

I did, of course — but, then again, I am about to publish a study that actually mentions it, albeit briefly. It is funded by Missouri’s only statewide property tax, and because this is not general revenue, it’s not under the control of elected officials. It constitutes a very small part of your real and personal property tax bills each year, and — thanks to the article — you all know exactly what it goes toward: The blind people of Missouri who are unemployed and receive no other aid get $609 per month from the fund.

I have to wonder what the future holds for this fund. Total counts for the blind are rising, even as rates of childhood blindness are falling. This is because people are living longer, and are therefore more apt to go blind late in life. But blindness rates among the general population seem to be dropping, based on my very brief research.

With the elderly population being recipients of Social Security and Medicare, I wonder whether we will see a substantial drop in the number of people using the state’s Blind Pension fund during the coming decades. And, if so, would — and should — that lead to large increases in per-person coverage, or cuts to the tax? The relevant tax is currently very small, set at 3 cents per $100 of assessed valuation. By my math, that equals $10.40 a year for a house worth $200,000. No sense in cutting that tax, although it is certainly more valuable in a myriad of ways to support the wonderful groups that work for the blind in their efforts to find employment, rather than just saying, “We have a fund,” and being done with it.

Even I am not mean enough to call for cuts in aid to the blind, although I admit I thought the SNL sketch was funny — so I guess I am sort of a bastard.

The post The State’s Blind Pension Fund appeared first on Show-Me Institute.

Now, first, let’s get our terms right: Are we talking about earmarking, or about pork spending? “Pork” is a result; “earmarking” is a process. Most pork spending is done via earmarking, but not all — and not all pork spending is bad. The reforms McCain and McCaskill are fighting for would force more pork spending (loosely defined as federal money that benefits local projects — some worthy, some not) to go through the full budget process rather than just being added on at the last minute to various bills, with little oversight or review.

I think these reforms are desperately needed. I wish Sen. McCaskill all the luck in the world in succeeding, and all the help I can give here in my tiny little corner of the blogosphere. As for my opinion of Sen. McCain, because I am also praising a Democrat in this post, I can probably say in the interest of full disclosure that I (on my own time, outside of work) was one of his honorary St. Louis County chairmen in the recent election — so that should tell you all you need to know.

I know that pork spending represents only a fraction of our budget issues, and I will admit that in areas of transportation and the military, not all pork spending is money poorly spent. In the big picture, it is dwarfed by the entitlement debts we face as we move toward a system in which one person with a job pays the Social Security and Medicare for 27 retired people (a slight exaggeration). But every dollar counts, and these reforms are still very important.

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I could go on for some time here about budget constraints, the individual spending decision, and future value; but, instead, I will merely say that probably everyone (especially people who do not regularly read this blog, unfortunately) could benefit from increased reading on the topic of retirement saving. On that note, I think it’s appropriate to link to our recent policy study about Missouri’s public pension programs. A bit unnerving, but I learned a lot from it.

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Outside of a book he discusses in depth, the premise of Mink’s column is that Americans are living lives, financially speaking, at greater risk than before. One of the faults of his piece is that he does not define “before.” Was there more security in the 1950s? The 1880s? When? Let’s assume he means the 1950s or so. We now have, Mink admits, more material success and financial health on average, but less security in that status than we used to. The list of concerns for American families keeps getting longer:

But it’s not just me. It turns out we have good reason to worry about the unpredictable what-ifs of day-to-day life: What if I lose my job? What if illness or injury strikes the family? What if there’s a tornado, a hurricane, a flood, a divorce? What if we can’t afford college? What if a depressed economy wipes out our savings?

These concerns are no doubt real to many Americans, albeit quite annoying to read or listen to. (Phil Gramm was right.) Mink then goes from micro to macro by placing the above concerns into a larger context (emphasis added):

The issue is not the odds of such things happening. It’s that if even one of them does, the impact is likely to be more potent and longer-lasting than ever before. And it’s that — in today’s America — there is less help available to get us through the hard times. That leaves all of us exposed to things beyond our control with little protection.

Mink then attempts to provide evidence for these statements. He cites a book by an LA Times economics writer documenting that modern Americans have larger income swings from year to year than we used to. These swings, and related uncertainties, make life planning more difficult. The result is:

People have been stripped […] of the “security of expectations.”

You should read the entire article yourself to see the evidence for this that Mink provides, in terms of health care, insurance, and pensions. I need to get to my own thoughts. The belief that the government is doing less than it used to is simply preposterous. Did I miss it when we eliminated Social Security, Medicare, Medicaid, food stamps, unemployment insurance, Aid to Families with Dependent Children, property tax rebates, earned-income tax credits, heavily subsidized public tranportation, free public education, and a thousand other government programs? Wait — they are all still there. In many cases, regrettably so.

Americans are indeed more on our own than we used to be. It has nothing to do with the government, though. We have chosen to bowl alone. We live with immediate, nuclear families, and have fewer close connections with our communities, churches, extended family, social groups, and neighbors than we used to. I think everyone will agree that this is a fact. When we have difficulties, financial or otherwise, we have fewer options of places to turn for help. This is how many of us have chosen to live, but it does not have to be that way — and, indeed, is not for everyone. Mink’s column is frustrating for its erroneous and, to my mind, offensive assumptions that government used to, and should, provide more security for people.

The column’s conclusion blames, in unnamed fashion, Republicans and market fanatics (sounds like me) who have dismantled society’s safety net, against the wishes of most Americans. First of all, the safety net has not been the least bit dismantled. (Are you enjoying your taxpayer-paid prescriptions, seniors?) But, more importantly, the items he lists as evidence were never required to be provided by government in the first place. Pensions and health insurance were offered by the private sector when it made sense to do so. Now it is making less sense for many companies to do so. There are legitimate demographic reasons for much of this, especially regarding pensions.

Mink writes that these safety nets constitute “the fabric of protections woven from the devastating experiences of the Great Depression.” Wrong. Employer-provided health insurance, as most people know, became popular as a means of luring employees during the wage restrictions of WWII. Private pensions were never required by government, either — although there are indeed laws governing them if an organization decides to implement one. Mink is longing for a day that never was by blaming the government for dismantling programs it never installed (thank God) in the first place.

I think we need more personal responsibility, and the risks that come with that — not less. Americans should react to difficult economic times by making smarter personal decisions. You don’t have to have two cars. You can live in a less-expensive house. You can pass on buying that new flat-screen if you can’t afford it. You can exercise more (running is free) to become more healthy. You can eat less fast food crap. You can do a million other things. It is not the government’s job to take care of you. It is not up to other taxpayers to make you secure in your expectations. Make your own reality.

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