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The Lighthouse is the weekly email newsletter of the Independent Institute.
Subscribe now, or browse Back Issues.

Volume 14, Issue 29: July 17, 2012

  1. Obamacare, Wages, and Taxes
  2. Two Cures for State Spending Binges?
  3. The Unintended Consequences of U.S. Military Assistance
  4. How ‘Big Box’ Retailers Help the Poor
  5. New Blog Posts



1) Obamacare, Wages, and Taxes

How will the new federal healthcare law affect wages and taxes? Dramatically—and negatively. It will exert downward pressure on wage rates, especially for workers earning below average wages. And it will lead to higher taxes on about 73 million taxpayers who earn less than $200,000 per year. Those are just two of the harmful consequences we can expect to see unless the law is repealed, Independent Institute Research Fellow John C. Goodman said in his testimony last week before the U.S. House Committee on Oversight and Government Reform.

First, let’s consider the effects on wages. The minimum benefits package of the law is expected to cost $12,000 to $12,500 for families in 2016, according to the Congressional Budget Office—an average of nearly $6 an hour for a worker. But that’s a large amount for someone earning a low hourly wage. “Ten-dollar-an-hour workers and their employers cannot afford $6-an-hour health insurance,” Goodman writes. “If they bought it, only $4 would be left for cash wages and that would violate the (cash) minimum wage law.” Unskilled workers therefore are at risk of losing their jobs.

As to the higher taxes on those earning less than $200,000 per year—that estimate, which includes taxpayers not eligible for premium subsidies, comes from calculations made in 2010 by the Joint Committee on Taxation. Participants in the new insurance exchanges will see the amount of their subsidy fall as their income rises, resulting in an increase in implicit marginal tax rates. Individual workers earning as little as $20,000 to $30,000 can expect to see those rates rise to 60 percent from their current marginal tax rate of 33 percent, Goodman argues. “As is well known by economists and policymakers alike, when people get to keep only one-third of each extra dollar they earn, they react in all kinds of ways that are harmful to the economy,” he writes. “They will choose more leisure and less work; they will substitute untaxed fringe benefits for taxable wages; they will disguise consumption as a business expense; and they will substitute unreported (and, therefore, untaxed) income for reported income.”

The Impact of the Patient Protection and Affordable Care Act on Job Creators and the Economy, by John C. Goodman (U.S. House Committee on Oversight and Government Reform, 7/10/12)

Priceless: Curing the Healthcare Crisis, by John C. Goodman

Upcoming Events:

Heartland Institute luncheon with John C. Goodman
Date: Tuesday, July 17th
Time: 11:30 a.m. to 1:30 p.m.
Location: The Heartland Institute; 1 South Wacker Drive #2740; Chicago, Illinois

Heritage Foundation luncheon with John C. Goodman
Date: Tuesday, July 24, 2012
Time: 12:30 p.m. to 1:30 p.m.
Location: The Heritage Foundation; 214 Massachusetts Ave., N.E.; Washington, D.C.

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2) Two Cures for State Spending Binges?

State governments have adopted more than a dozen types of institutions to help control their spending. Unfortunately, most reforms have yielded disappointing results. However, according to Matthew Mitchell and Nick Tuszynski, who examined state spending in the summer issue of The Independent Review, two measures have been clearly effective in helping states get their spending habits under control: the item-reduction veto and separate spending and taxing committees.

How—and how well—do they work? An item-reduction veto allows a governor to cut spending in particular program areas, enabling him or her to negotiate spending proposals more effectively. States with an item-reduction veto reduced spending per capita by $451, compared to $100 for those with a line-item veto.

Having separate spending and taxing committees is even more effective. The latest study that Mitchell and Tuszynski could find concluded that separate spending and taxing committees were associated with spending reductions amounting to $1,241 per capita. “These institutions also happen to be among the least studied, so further analysis may be warranted,” the two economists write. “Nevertheless, policymakers interested in arresting the unsustainable growth of government already have a number of tools at their disposal.”

Institutions and State Spending, by Matthew Mitchell and Nick Tuszynski (The Independent Review, Summer 2012)

The Independent Review (Summer 2012)

Subscribe now. First-timers, subscribe now and receive two extra issues free!

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3) The Unintended Consequences of U.S. Military Assistance

U.S. intervention during the Libya rebellion has been touted as a model for future American military campaigns—especially in Syria—but U.S. assistance of the Libyan opposition is producing harmful unintended consequences. “In Libya, after Gadhafi’s fall, there are armed militias galore, tribal friction and tensions between the oil-rich east and more populous west,” writes Ivan Eland, director of the Independent Institute’s Center on Peace & Liberty.

“Gadhafi had many weapons caches and many of those arms, along with fighters from Libya, have ended up in more populous neighboring Mali,” he continues. “Thus, a ‘humanitarian’ intervention in Libya to save lives may indirectly result in more lives being lost in an escalating civil war in Mali.”

This shouldn’t sound surprising, Eland explains. U.S. interventionism backfired in Iran, when it helped install the shah, whose repression paved the way for Islamic radicals, and it backfired in Afghanistan, where the former “freedom fighters” morphed into the Taliban. “As these past examples indicate,” Eland continues, “when the dogs of American intervention are unleashed, we don’t know where they’ll end up.”

Wars Have Unpredictable and Dangerous Collateral Effects, by Ivan Eland (7/12/12)

No War for Oil: U.S. Dependency and the Middle East, by Ivan Eland

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4) How ‘Big Box’ Retailers Help the Poor

Big-box retailers like Walmart often take heat for a variety of reasons, but their overall effect for poor consumers has been dramatically helpful, according to Independent Institute Research Fellow Art Carden. In an interview for the Birmingham News, he tells why.

“First, retail has been at the forefront of productivity growth over the last few decades,” says Carden, who recently joined the faculty at Samford University in Birmingham, Ala. “Second, Big Boxes generally and Walmart specifically have driven down prices, with most of the benefits going toward people at the bottom of the income distribution.

“Third, the idea that Walmart destroys the small business sector doesn't have a lot of support in the empirical literature. . . . There’s evidence that firms competing directly with Walmart, Lowe’s, or Home Depot have their days numbered, but there are new opportunities for other small business people because of Big Box–generated savings. Obama advisor Jason Furman has called Walmart ‘a progressive success story.’”

On the Record with Art Carden, Samford University Economics Professor (Birmingham News, 7/15/12)

Is Walmart Good or Bad for America? A Debate between Richard K. Vedder and Ken Jacobs (Independent Policy Forum, 5/8/07)

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5) New Blog Posts

From The Beacon:

From MyGovCost News & Blog:

You can find the Independent Institute’s Spanish-language blog here.

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