Why New York City Is A High Tax Jurisdiction

Our mayor Mike Bloomberg likes to call New York a "luxury good" when defending our high taxes.  And progressive New Yorkers seem to take pride in paying high taxes, convincing themselves that the taxes pay for a higher and more compassionate level of services to the children and the needy.  Unfortunately, they are completely being taken in.

There are really three places where almost all of the differential in spending between New York and other jurisdictions can be found:

(1) Public employee pensions are way out of line in New York.  Current spending by the City on public employee pensions is $8.4 billion per year, 12 % of the total budget.  That's because we let City workers retire after 20 (police and fire), 25 (transit) or 30 (teachers) years of work, and spend 25 or more years of fully-paid leisure.  The $8.4 billion is about $5 billion above a reasonable amount for pension expenses.

(2) The cost of education is also way out of line in New York. City.  According to census bureau figures cited here, New York City school spending was about $19,000 per student in 2009.  That's about double the nationwide average of $10,615 per student cited here for 2010.  What do we get for double the cost per student?  Worse test scores than the national average.  The double cost has nothing to do with providing better education to the kids, and everything to do with a restrictive union contract that makes us hire twice as many people to do the same work.  With over a million school children, the extra $8000 per student is an $8 billion budget item.

(3)  In New York, we pay between double and triple the amount per Medicaid beneficiary as they pay in other large states like California and Texas.  According to statistics here (statehealthfacts.org), California's2009 Medicaid payments per enrolee were $3,527; Texas $4,884; and New York$8,960. With over two million enrolees in New York City, that's a differential of about $10 billion that we're spending above what California would spend for the same number of people. The Feds pick up about half of the $10 billion, and the state a quarter, so for the New York City budget this is about a $2.5 billion number.

These three items account for over $15 billion of excessive spending in a budget of about $70 billion.  Do the taxpayers get anything for this extra $15 billion?  For comparison, the entire take of the City income tax is about $8 billion.

How To End The Drug War

Now that Colorado and Washington have legalized recreational use of marijuana, the big question is, will the Federal government continue prosecutions against sellers of marijuana in those states -- or for that matter, in any state?

Federal prosecutions against California medical marijuana distributors have continued under a regime where the prosecutors have convinced the Federal judges not to allow the defendants to mention before the jury that their activities are legal under California law as passed by a referendum of the people.  State officials have not taken the next step.

How about this, Colorado and Washington:  assuming there are any prosecutions, assign state employees to stand outside the Federal courthouses where a prosecution takes place and hand out flyers containing information that (1) under state law passed by a referendum, marijuana is legal, and (2) jurors can vote to acquit in any case for any or no reason and there is nothing the prosecutor can do about it (sometimes known as "jury nullification").

In 2011 when activist Julien Heicklen tried handing out flyers like that in front of the Federal courthouse in New York, he was arrested by the Feds and prosecuted for "jury tampering."  Federal judge Kimba Wood threw out the indictment.  However, despite the obvious issue of suppression of free speech, she ducked the First Amendment issue, instead saying that the Federal jury tampering statute did not apply where no specific case was at issue.

Anyway, are the Feds really going to arrest the Governors of Colorado or Washington for exercising their First Amendment rights and informing the people accurately about the law?

The Big Picture

Looks like the Federal deficit for the fiscal year ended September 30, 2012, is coming in at just over $1 trillion.  That's actually a small improvement over the prior years of the Obama administration.  At the bottom of this post is a deficit chart from the Wall Street Journal in October.

But does the improvement represent something headed back toward stability?  Don't bank on it.  On the positive side, the cost of the Iraq war is way down, and the cost of the Afghanistan war is starting to come down, which hopefully will continue.   Without tax increases, revenue has recovered from a recession low of about $2.2 trillion, and is back up to around $2.7 trillion at an annual rate.

But overall spending continues at over $3.7 trillion per year.  What is filling in as the war costs decrease?  Obviously, the entitlements.  The CBO baseline projections for Medicare spending show $569.4 billion in fiscal 2012 (just ended) rising to $830.6 billion by 2019 and $1,047 billion by 2022.  Hey, that's less than a 7% compound annual growth rate -- pretty good!  Don't believe it.  For one thing, they've always been overly optimistic since day one of the program.  For another, they have assumed that all the Medicare cuts under Obamacare take effect without any problem.  Good luck with that.  How about if you assume that the Obamacare cuts will not happen or will be evaded?  Then according to the Kaiser Family Foundation the number rises to $935 billion by 2019.  That puts the CAGR back around the 8% we all know and love.

And that's just the start.  The CBO Medicaid spending baseline shows Federal spending on the program going from $275 billion in fiscal 2011 to $622 billion in fiscal 2022 - a 7+% CAGR that is also probably way optimistic absent fundamental program reform.

And then there are other exploding programs of the hand-out state, including social security disability and food stamps.  And don't forget the cost of Obamacare itself, already predicted by this site to be a Ponzi scheme in the making.

The proposals for tax increases limited to high income people cannot remotely keep up with the increases in the entitlements alone.  Advocates for ending Bush-era tax rates on income over $250,000 put forth optimistic projections that that change alone could generate almost$1 trillion in revenue over ten years. I don't believe it, but suppose it is true.  That's $100 billion per year on average.  The increase in annual Medicare and Medicaid spending during the same time period is projected at $700 billion -- and that is also optimistic.  Where is the other $600 billion per year coming from?

I'd kind of like to see some kind of a plan from the president.  I don't think we will ever see one.  I predict that in the next four years, we will see no proposal from the administration that would reform the big entitlement programs to get their growth rates down under the growth rate of the economy.  It will be, continue the Ponzi scheme and apres moi le deluge.

How To Buy An Election

New report from the Bureau of Labor Statistics on food stamp usage for July. By just some coincidence, the report would normally have come out just before the election, but was delayed to just after the election.   Here's a report from ZeroHedge.

Check out this chart of food stamp usage during the Obama administration and monthly changes.

Food stamp usage was at about 31 million in January2009 when Barack Obama assumed office.  Now its 47.1 million. The explosion has slowed some in the past year, but how about that increase of over 400,000 in July, the most recent month reported?  Can't wait to see what September and October look like. 

Do you think that the 16 million or so additional food stamp recipients during Obama's time were more or less likely to vote for him after joining the hand-out state?  Also, if the economy is improving, shouldn't the number be going down,in fact dramatically down?

What Do We Say To The 60,000 Dead?

The  Washington Post reports on the new dilemma facing Mexico: How much effort are they going to put into continuing to support the American war on drugs now that marijuana for recreational use has been legalized by referendum in Colorado and Washington?

Mexico spends billions of dollars each year confronting violent trafficking organizations that threaten the security of the country but whose main market is the United States, the largest consumer of drugs in the world.

Has it all been for  naught? The drug war has taken an unbelievable toll on Mexico over the past several years:

About 60,000 Mexicans have been killed in drug-related violence, and tens of thousands have been arrested and incarcerated. The drug violence and the state response to narcotics trafficking and organized crime have consumed the administration of outgoing President Felipe Calderon.

Of course, what we don't know is whether the Federal government in its wisdom will honor the verdict of the voters in Colorado and Washington.  We do know that the Feds have continued prosecutions even of state-licensed medical marijuana purveyors in California since medical marijuana was legalized by referendum in that state.  Here's the court decision in United States v. Stacy (S.D. Cal Mar. 2, 2010) rejecting the effort of a California-licensed medical marijuana dealer to get his Federal indictment dismissed.  Oh, by the way, if you are a medical marijuana dealer and the Feds prosecute you, you are not even allowed to mention to the jury that your conduct is legal under the law of California as passed in a referendum of the people.

Sooner or later these drug agents and prosecutors will be packed off to new jobs.  How many people have to die in the drug wars first?

As Long As It's An Entitlement It Will Be A Ponzi Scheme

In a post yesterday I gave a couple of reasons why Medicare is a mathematical Ponzi scheme.  To get a deeper understanding of how this comes about, you need to follow the constant efforts of advocates to game more money out of the system, and the futility of government attempts to push back.  Indeed, one wonders if the bureaucrats who run the program have any interest in looking out for the taxpayers, when their short term interest is in seeing the program expand, and seeing themselves move up in a bigger and bigger organization.

The legal profession now has a specialty called "Elder Law," largely consisting of people who make a living out of figuring out how to get more money out of Medicare and Medicaid.  The American Bar Association has an entire Elder Law section.

Here is a completely mind-numbing article from today's New York Law Journal on one of the hot Elder Law topics of the day, the Medicare "improvement standard."  As you may have been unaware before now, Medicare pays for home health care aids for eligible people, but under HHS's Medicare Benefits Policy Manual there is an "improvement standard" to determine what is actual medical care -- the concept being, if care doesn't have the prospect of making you better, it isn't medical care that should be covered by Medicare. 

Lawyers challenged this criterion in a nationwide class action brought in Vermont.  They found a highly sympathetic plaintiff, Glenda Jimmo, 71 years old, with severe diabetes, legally blind, and with a leg partially amputated.  Medicare denied her claim for home health care aides, saying that the claim wasn't really for medical care because it had no prospect of improving her condition.

Result:  after losing one motion, the government gave up.  The case has been settled on a nationwide basis, to be approved by one judge in Vermont, under which Medicare will revise the Benefits Policy Manual to make it clear that "skilled nursing services" are covered whether or not improvement in condition is expected or hoped for.

There is no mention in the article of any estimates of the cost to the government of this settlement.  It is easily in the tens of billions of dollars, more likely hundreds of billions over a long enough time period.  Our only gatekeeper is a judge in Vermont, undoubtedly carefully selected by the plaintiffs, who in any event probably won't even be given any information about the financial consequences of the settlement to the government.

Now you are undoubtedly thinking, why does Ms. Jimmo care about getting this payment from Medicare?  If she's really as badly off as described, wouldn't Medicaid pay for the aides?  And now we get to what this case is really about, although not discussed anywhere in the article:  If a service is covered by Medicare, it is covered even if you are a billionaire. If it's Medicaid, you must use up your assets first, or at least most of them.  Ms. Jimmo therefore has some assets that she doesn't want to use up paying for her aides.  The most common such asset would be a house, which the elderly person would much prefer see passed on to her kids at her death rather than used to save the government from paying for the aides.  Also at issue could be  money or other investments, in some cases lots of them.

These issues never get discussed in these articles or the cases, which proceed as if the immense cost is not even a consideration in the outcome. Who could be so cold-hearted as to deprive the blind and amputated Glenda Jimmo of her healthcare aide? But if the government must pay for all  healthcare costs for  even millionaires and billionaires while they pass the wealth on to the children, what is the chance that Medicare costs will not spiral away until they swamp the entire economy?  Is the government's credit card really infinite?