Green Room

Welcome to Subsidy Nation

posted at 12:24 am on January 15, 2010 by

As reported by the Associated Press, congressional Democrats appear to have reached an agreement with unions to get their awful health-care bill lurching forward again:

Rep. Joe Courtney, D-Conn., who led the opposition to the tax in the House, said the agreement involves several measures that would ease its impact. Among them: excluding the value of dental and vision benefits in applying the tax, as well as raising the $23,000 threshold at which it would take effect for families.

Union officials are also pushing to provide that anyone who makes $200,000 or less would be excluded from the health plan benefits tax, a concession that would benefit employees who are not unionized as well.

In a win specifically for union members, negotiators were working out a plan to delay the tax from being imposed on collectively bargained health plans for several years.

What a splendid “win” for union members! What percentage of our rapidly dwindling work force belongs to labor unions? Well, according to this article from Workforce Management, it was about 12.1 percent in 2007. This means the other 87.9% of you non-unionized working stiffs will be subsidizing the prize won by union negotiators today. As the Associated Press report explains, you won’t be alone:

The agreement with labor came as the White House sought fresh concessions from drugmakers and other health care providers as they looked for funds to sweeten subsidies the bill provides for lower-income families who cannot afford coverage.

Those “fresh concessions” from drugmakers will rapidly become very stale price increases for consumers. I suppose it’s entirely reasonable to expect non-union workers to subsidize these concessions, because our noble union comrades “sacrificed higher wages” to obtain their fabulous health benefits:

The proposed tax has been a major sticking point because early versions from the Senate would have hit union members, who have negotiated generous health benefits, sacrificing higher wages. House Democrats were strongly opposed, and did not include the tax in their bill. But Obama favored the tax, citing the consensus opinion of economists that it would help hold down costs by nudging workers into less pricey coverage.

As of 2007, the average union worker made about $629 per week, compared to $404 for non-union workers, putting union wages about $5 per hour higher on average. Of course, these figures vary widely in specific industries. In lower-level service industries, union workers earn roughly the same amount as their non-union counterparts. This means that, among the lowest-paid union members, the “sacrifice” they made for their sacred health care benefits amounted to accepting the same wage as non-union workers. That’s without counting the panoply of fringe benefits available to union members, which can be extremely valuable.

Thus, our friends in the Democrat Party expect the rest of us to subsidize the expensive health-care benefits of their union allies, who are generally paid much more than we are. Union members won’t be among the workers getting “nudged into less pricey coverage” to hold down costs, since they will be legislatively immunized against such nudging. When you get nudged into less pricey coverage, I hope you’re comforted by the knowledge that your dental benefits and vision plan will be going to a deserving union member, who earned them by faithfully voting as instructed by his union leadership.

Welcome to Subsidy Nation, the midway point between a free-market democracy and a total command economy. The middle class has grown restless over endlessly rising tax rates, so the current statist strategy of choice involves using mandates on business, regulatory burdens, and special exemptions to pay off their favored constituencies. It’s not a new idea, but it’s exploded during the first year of this administration, and if the ObamaCare monstrosity is signed into law, it will become the fundamental organizing principle of our culture and economy.

We’ve already been treated to the spectacle of the other 48 states being told they had to subsidize lavish Medicaid funding for Louisiana and Nebraska, to purchase the votes of their senators. More taxpayer loot for special interests is stuffed into every corner of the bill. Earlier in the year, taxpayers and the used-car market were raided to finance the Cash for Clunkers program. The government has poured billions into General Motors, keeping it afloat for the benefit of the labor unions feeding from its carcass. The list goes on… and there were already plenty of subsidies and mandates in place, from both Democrat and Republican administrations, before President Obama took his oath of office.

The socialist vision of Big Government plays a game of diffuse costs and focused benefits. Subsidies and mandates give politicians an extra layer of protection from the voters. The politicians can even score points by demonizing the very businesses they are using to collect revenue for their agenda. The subprime mortgage crisis was a spectacular example of this: the entire financial sector was brought to the edge of the abyss because Clinton Democrats forced banks to make politically useful, but absurdly risky, loans to targeted constituencies. When the dust from the resulting implosion settled, the guilty political party was more powerful than ever.

The proper way to look at Subsidy Nation is to understand that everyone is part of the game. If you aren’t receiving the subsidies, you’re paying for them. You paid for the gas in the Fannie Mae ice cream truck Barney Frank and Chris Dodd have been driving around. If you didn’t buy a car under Cash for Clunkers, you subsidized the rebates for those who did. If you don’t live in Nebraska or Louisiana, you chipped in to buy the votes of Ben Nelson and Mary Landrieu. It’s all very well hidden, even more than payroll check withholding hides your direct tax burden. You don’t have to write a check to Nelson or Landrieu. You’ll just notice that, over time, everything costs more and seems worth less. Your job might be pulverized in a collision of special interests. You’ll be rationed out of health care services you could have purchased in 2009. Your life will be controlled with so many strings that you can’t see the individual threads any more, just a grey tapestry that everyone complains about, but no one understands.

The long-term doom of Subsidy Nation is the entropy that comes with the evaporation of choice. Choice is the heartbeat of wealth. A $5000 health-care plan, forced on you by the government, is not worth as much as five thousand dollars in cash, any more than a ten-dollar gift certificate has the same value as a ten-dollar bill. We’ve already watched health “insurance” devolve into a clumsy voucher system for purchasing health care. By controlling the health-care portion of your compensation, the government reduces your overall wealth… and you’ll never enjoy the level of quality you would get from health-care providers competing to earn money you can spend freely. Imagine the depressing quagmire of an economy where everyone is paid in coupons the government has already designated for food, housing, or health care – doled out according to the government’s idea of your needs.

We’ve already got one foot in that quagmire. Subsidy Nation’s elaborate schemes will always fail, because they are based on considerations of politics and ideology, not efficiency and growth. Vital constituencies will respond to those failures by howling for more subsidies. That is why the Cadillac health care plans of wealthy and powerful labor unions will be exempt from punishing taxation… while the rest of us are stuffed in the trunk of that Cadillac with a couple bags of lime, watching an irrational, emotionally unstable government fiddle with its knives and mutter something ominous about shoeshine boxes.

Cross-posted at www.doczero.org.

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Comments

There are still silver bullets that can kill this thing.

For one thing, it still has the potential of collapsing under its own weight.

powerpro on January 15, 2010 at 1:07 AM

hey if i offer a cop 50 bucks to drop a traffic ticket i could do jail time .. state and local government unions bribe congress with multibillion dollar tax breaks and nuthin happens .. wtf

Wellstoned on January 15, 2010 at 2:17 AM

As an employer, I want my employees to really understand and think about the taxes they are paying. So many people cash their checks without actually looking at how much pay went away in taxes.

Starting last month I did something that takes some extra time, but I think is well worth the effort. Whenever I send my monthly payroll taxes to the government, I write one check for each employees portion. Since I have 25 employees, I write 25 smaller checks instead of one big one. Then on pay day of the week the payroll taxes go out, I have employees sign the memo field of the check for their portion of the taxes. This is about as close as I can get to having them actually write a check to the government and it sure has made them ponder what they are really getting for their money.

If you’ve ever worked for yourself you know how this feels. When I worked alone I remember sending in my quarterly estimated taxes and thinking…”I could buy a car with this.”

The government has a hard time raising taxes, so they try to hide them by not making you pay them directly. Most people don’t realize how much of the price of goods is made up to compensate for taxes on business. The one tax that people most often pay directly is property taxes and I’ve never talked to anyone who didn’t think they were paying too much.

ReaganWasRight on January 15, 2010 at 2:45 AM

Another perfect post Doc, but you may have overlooked “another Nelson” that played this subsidy game.

Senator Nelson saves Florida from cuts in their Medicare Advantage plans

Senator John McCain says it’s unfair. He said giving Medicare Advantage members in Florida (an exemption) but his constituents in Medicare Advantage won’t receive the same benefits and could loose the existing Advantage plan they already have. He estimated Florida costs at $5 billion, but according to other sources, it could go as high as $25 to $30 billion over the next 10 years.

Of course, my representatives (Boxer and Feinstein) left Arnold and California “out in the cold” so to speak.

Rovin on January 15, 2010 at 6:36 AM

Another perfect post Doc, but you may have overlooked “another Nelson” that played this subsidy game.

Senator Nelson saves Florida from cuts in their Medicare Advantage plans

Rovin on January 15, 2010 at 6:36 AM

That is another good example. I was going to compile a longer list of them, but it was too depressing. I figured people could toss in their own examples in the comments. That way, we’ll get to 10,000 comments easily.

Doctor Zero on January 15, 2010 at 7:18 AM

Can’t add a thing to your post except the sarcasm that the politician’s have inflated in me. Perhaps all taxpayers could form a union and exempt ourselves from all this madness, perhaps call ourselves Union of Non-Socialist Republics. We could subsidize the Libs for 3 years in Guantanamo, then turn it over to Cuba.

See, that kind of thinking makes me crazy. Just as crazy as this complete bum’s rush into freedomless government. What about history is so hard to understand that Americans voted for all the nonsensical leadership that has led to the current political mess? I guess I assume people actually sat through and passed some basic world history class, nevertheless, it’s foolishness on a scale not seen in America to this point.

Or just maybe “money for nothing and your chicks for free” became a philosophy? Shoulda stuck with Moon River.

Robert17 on January 15, 2010 at 7:45 AM

Doctor Zero on January 15, 2010 at 7:18 AM

Depressing indeed Doc. Even the liberal Washington Post story on Obama and the unions backroom deal has around 90% of the commenters screaming foul.

Rovin on January 15, 2010 at 8:23 AM

There should be zero doubt left that this bill violates the constitution in numerous ways. One could not possibly, more blatantly, manipulate the tax code for discriminatory purposes. He may as well start exempting people based on religious prefrences and race.

JCred on January 15, 2010 at 8:59 AM

I think this violates ‘equal protection under law’ … silly me.

Who needs a Constitution.

tarpon on January 15, 2010 at 9:37 AM

Doc Zero nails it again.

Dick Turpin on January 15, 2010 at 6:27 PM

ReaganWasRight on January 15, 2010 at 2:45 AM

The best idea eveh, bar none! What do your Emps say?
I, too am self employed (let my only employee go 6 months ago, and it ripped my heart out).

Chewy the Lab on January 15, 2010 at 6:30 PM

Doctor Zero never quite got over William Gibson. It is a dark, dark, future you have painted for us.

Blacksmith8 on January 15, 2010 at 6:40 PM

Excellent post, Dr. Zero.

AZCoyote on January 15, 2010 at 6:45 PM

Excellent post, Doc…

When do we storm the castle?

Seven Percent Solution on January 15, 2010 at 6:55 PM

I’ll say it again in case there was a misunderstanding:

F**k the UAW and other ‘Imperial’ unions, especially public-employee unions.

There should be NO public-employee unions as it is a conflict of interest. And outside of collective bargaining, private-sector unions need to be put in their place.

Don’t buy GM or Chrysler. Be a patriot and just don’t do it.

Sapwolf on January 15, 2010 at 7:29 PM

Chewy the Lab on January 15, 2010 at 6:30 PM

They don’t mind doing it. They come by my office to pick up their checks so it takes no extra time for them. I actually think it has inspired a few of them. Several went to Tea Parties over the summer and these are people that were never really interested in voting or politics.

ReaganWasRight on January 15, 2010 at 7:47 PM

I used to joke that, when I retired, I thought I might move out of California and into America, I’d heard it was a nice place to live. Now it looks like by the time I hit retirement, America will have moved to California.

God, I need a drink.

Socratease on January 15, 2010 at 8:00 PM

I’m out last night with a friend, a Harvard staunch liberal, who was spouting how the reaction to Obama has been over-the-top because “he hasn’t done anything yet”…I told him 2 things..first he hasn’t done anything because Pelosi and Reid have carried the water and second, he doesn’t really have to do anything. Small business owners like myself are frozen; there is no investment, expansion, hiring, etc. All the people who lay the golden eggs are hunkering down in anticipation of what’s to come.

DrRich on January 16, 2010 at 8:39 AM