Tag Archives: Fortune

Krugman Has A Deflation Tattoo On His Chest?

Sewell Chan at NYT:

A subtle but significant shift appears to be occurring within the Federal Reserve over the course of monetary policy as the economic recovery is weakening.

On Thursday, James Bullard, president of the Federal Reserve Bank of St. Louis, warned that the Fed’s policies were putting the economy at risk of becoming “enmeshed in a Japanese-style deflationary outcome within the next several years.”

The warning by Mr. Bullard, who is a voting member of the Fed committee that determines interest rates, came days after Ben S. Bernanke, the Fed chairman, said the central bank was prepared to do more to stimulate the economy if needed, though it had no immediate plans to do so. On Friday, the government will release its estimate of gross domestic product for the second quarter of this year.

At the Fed, Mr. Bullard had been associated with the camp that sees inflation, the central bank’s traditional enemy, as a greater threat than deflation brought on by anemic growth. Until now he had not been an advocate for large-scale asset purchases to reinvigorate the economy.

But with inflation very low, about half of the Fed’s implicit target of 2 percent, and with the European debt crisis having roiled the markets, even self-described inflation hawks like Mr. Bullard have gotten worried about the economy’s trajectory.

With his remarks on Thursday, Mr. Bullard appeared to join other Fed officials already seen as sympathetic to the view that damage from long-term unemployment and the threat of deflation are the greatest challenges facing the economy. They include the Fed bank presidents Eric S. Rosengren of Boston and William C. Dudley of New York.

Those so-called inflation doves are likely to be joined soon by three new members of the Fed’s board of governors.


That view is not universally held, however.

Thomas M. Hoenig, president of the Kansas City Fed and an inflation hawk, said in an interview Thursday that the comparisons to Japan were overstated. He likened the debate to the situation in mid-2003, when a sluggish recovery from the 2001 recession prompted predictions of deflation that did not come to pass. “I don’t think we should find ourselves picking up every piece of short-term data and jumping to conclusions,” he said.

Two others associated with the hawkish camp, which is focused on continued vigilance on inflation, offered similar perspectives in separate interviews.

“I think the fear of deflation in and of itself is probably overblown,” Charles I. Plosser, president of the Philadelphia Fed, said last week. He said that inflation expectations were “well anchored” and noted that $1 trillion in bank reserves was sitting at the Fed. “It’s hard to imagine with that much money sitting around, you would have a prolonged period of deflation,” he said.

Neil Irwin at WaPo:

Here is the executive summary of Bullard’s paper, and the full document, with the ominous title “Seven Faces of ‘The Peril.’ ” His two main conclusions: that the Fed’s commitment to leave rates low for an extended period “may be increasing the probability of a Japanese-style outcome for the U.S.,” and that “on balance, the U.S. quantitative easing program offers the best tool to avoid such an outcome.”

Bullard’s paper comes at a crucial time, as the Fed starts to weigh whether the risk of deflation and extended weak growth is high enough to warrant new action. Chairman Ben S. Bernanke indicated openness to new policy steps to boost growth in congressional testimony last week, but made clear that they would only be undertaken if conditions worsen further.

Bullard’s analysis adds to that debate in some interesting ways. Bernanke suggested that the Fed could promise to leave its short-term interest rates low for even longer than the “extended period” it has already. Bullard is calling that strategy potentially counterproductive.

His argument: Essentially that the pledge of low rates signals that Fed leaders expect inflation to keep falling, making it more likely that the economy settles into the deflation trap in which the Japanese economy is stuck.

It’s particularly interesting to see Bullard raise the specter of deflation, because he is generally viewed as residing on the other side of Fed policy debates, on the inflation hawk side of things.

Colin Barr at Fortune:

The support for another round of asset purchases is noteworthy because Bullard has been both a supporter of Fed asset purchases and a worrier about the potential inflationary impacts. His support for more asset purchases suggests he believes the balance has swung against inflation.

Japan has endured two decades of economic stagnation after its asset price bubbles burst around 1990. It has been widely assumed this country could avoid such an outcome, but that assumption has come under fierce attack lately, with a weakening growth outlook and a sharp decline in Treasury bond yields.

The 10-year Treasury yield has dropped to around 3% from 4% this spring, and some growth skeptics now say it could tumble another percentage point or more. This decline happened even as the Fed this spring signaled it would hold rates near zero further into the future, as a response to the unrest in European debt markets.

This response appears to be “inflationary,” Bullard writes, by delaying the Fed’s exit from its two-year-old detour into the world of free money. Yet the market’s inflation expectations tumbled.

“Promising to remain at zero for a long time is a double-edged sword,” he concludes.

Bullard is the second top Fed official to part with Fed chief Ben Bernanke on the “extended period” language. Kansas City Fed chief Thomas Hoenig has called on the Fed to drop that promise and modestly raise interest rates.


My econ is a bit rusty and I was never much of a macro guy, but is there any way in which this reasoning makes any sense at all?

“I think the fear of deflation in and of itself is probably overblown, from my perspective,” Charles I. Plosser, president of the Philadelphia Fed, said last week in an interview. He said that inflation expectations were “well anchored” and noted that $1 trillion in bank reserves was sitting at the Fed. “It’s hard to imagine with that much money sitting around, you would have a prolonged period of deflation,” he said.


Paul Krugman:

Atrios asks whether this makes sense. No, it doesn’t. I mean, if we’re talking about the risk of turning Japanese, shouldn’t we, um, look at Japanese experience? Here’s Japan’s monetary base — the sum of bank reserves and currency in circulation — from 1995 to 2005:


All that money sitting there — and deflation continued apace. I remember Taka Ito telling me that the only consumer durable selling well was … safes. When you’re in a liquidity trap, the size of the base doesn’t matter.

But at least some Fed types are getting it.

Ryan Avent at Free Exchange at The Economist:

On the other hand, the only one of the sceptics listed above that’s currently a voting member of the FOMC is Mr Hoenig. The number of vocal deflation worriers is quite close to a majority. So perhaps more action will be forthcoming soon.

My colleague also noted, however:

I think Mr Bernanke himself, however, is ambivalent on the benefit of more QE. He’s not sure of the unintended consequences of printing all that money. And the next round of QE will have less impact than the first because the spread between mortgage rates and Treasury yields has collapsed since the first round of QE. So the benefits of more QE are smaller and the costs greater than they were a year ago.

So how about it? This may be true. At the same time, the risk of deflation is greater than it seemed a year ago. Below is the Cleveland Fed’s trimmed mean measure of consumer price inflation. Year-over-year, prices are up under 1%, and the trend line is clearly downward.

My colleague argues that the two powerful tools left to the Fed—explicit devaluation and a money-financed fiscal stimulus (a helicopter drop)—would take Treasury approval and are unlikely to be pursued.

John Cole:

Wouldn’t it be awesome if the Fed and other government agencies took advantage of domestic Nobel Prize winning economists? For christ sake- someone google “Krugman+lost+decade” and tell me how many hits you come up with. He’s done just about everything except tattoo it on his chest and back and then do a pay-per-view boxing match with Tonya Harding.

UPDATE: James Ledbetter at Slate

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Well, If Andrew Breitbart Had Film Of Bernanke Speaking, We Would Have All Paid Attention

The Fed:

Chairman Ben S. Bernanke

Semiannual Monetary Policy Report to the Congress

Before the Committee on Banking, Housing, and Urban Affairs, U.S. Senate, Washington, D.C.

July 21, 2010

Chairman Dodd, Senator Shelby, and members of the Committee, I am pleased to present the Federal Reserve’s semiannual Monetary Policy Report to the Congress.

Economic and Financial Developments
The economic expansion that began in the middle of last year is proceeding at a moderate pace, supported by stimulative monetary and fiscal policies. Although fiscal policy and inventory restocking will likely be providing less impetus to the recovery than they have in recent quarters, rising demand from households and businesses should help sustain growth. In particular, real consumer spending appears to have expanded at about a 2-1/2 percent annual rate in the first half of this year, with purchases of durable goods increasing especially rapidly. However, the housing market remains weak, with the overhang of vacant or foreclosed houses weighing on home prices and construction.

An important drag on household spending is the slow recovery in the labor market and the attendant uncertainty about job prospects. After two years of job losses, private payrolls expanded at an average of about 100,000 per month during the first half of this year, a pace insufficient to reduce the unemployment rate materially. In all likelihood, a significant amount of time will be required to restore the nearly 8-1/2 million jobs that were lost over 2008 and 2009. Moreover, nearly half of the unemployed have been out of work for longer than six months. Long-term unemployment not only imposes exceptional near-term hardships on workers and their families, it also erodes skills and may have long-lasting effects on workers’ employment and earnings prospects.

In the business sector, investment in equipment and software appears to have increased rapidly in the first half of the year, in part reflecting capital outlays that had been deferred during the downturn and the need of many businesses to replace aging equipment. In contrast, spending on nonresidential structures–weighed down by high vacancy rates and tight credit–has continued to contract, though some indicators suggest that the rate of decline may be slowing. Both U.S. exports and U.S. imports have been expanding, reflecting growth in the global economy and the recovery of world trade. Stronger exports have in turn helped foster growth in the U.S. manufacturing sector.

Inflation has remained low. The price index for personal consumption expenditures appears to have risen at an annual rate of less than 1 percent in the first half of the year. Although overall inflation has fluctuated, partly reflecting changes in energy prices, by a number of measures underlying inflation has trended down over the past two years. The slack in labor and product markets has damped wage and price pressures, and rapid increases in productivity have further reduced producers’ unit labor costs.

My colleagues on the Federal Open Market Committee (FOMC) and I expect continued moderate growth, a gradual decline in the unemployment rate, and subdued inflation over the next several years. In conjunction with the June FOMC meeting, Board members and Reserve Bank presidents prepared forecasts of economic growth, unemployment, and inflation for the years 2010 through 2012 and over the longer run. The forecasts are qualitatively similar to those we released in February and May, although progress in reducing unemployment is now expected to be somewhat slower than we previously projected, and near-term inflation now looks likely to be a little lower. Most FOMC participants expect real GDP growth of 3 to 3-1/2 percent in 2010, and roughly 3-1/2 to 4-1/2 percent in 2011 and 2012. The unemployment rate is expected to decline to between 7 and 7-1/2 percent by the end of 2012. Most participants viewed uncertainty about the outlook for growth and unemployment as greater than normal, and the majority saw the risks to growth as weighted to the downside. Most participants projected that inflation will average only about 1 percent in 2010 and that it will remain low during 2011 and 2012, with the risks to the inflation outlook roughly balanced.

Colin Barr at Fortune:

Asked if he feared being out of bullets should the downturn intensify, Bernanke answered no, then rattled off the Fed’s three options for adding liquidity. He added that the Fed “needs to continue to evaluate those options.”

Bernanke’s choice of words suggests he isn’t eager to look dovish in front of a Congress that under pressure to take action on the massive U.S. budget deficit – even though the yield on the 10-year Treasury note has tumbled by more than a percentage point since April, easing fears of an investor flight.

Bernanke’s stance seems to preclude the oft-rumored cut in reserve interest rates — unless the bottom absolutely falls out of the recovery.

“To our minds, it would require a considerable further deterioration in the incoming data before the FOMC would realistically consider adding more stimulus to the mix,” Capital Economics analyst Paul Ashworth wrote in a note to clients Wednesday.

Even in that instance, Ashworth believes, the Fed’s first step would be to return to the policy it wound up this spring of purchasing long-dated U.S. government and agency bonds.

Annie Lowrey at The Washington Independent

Mike Shedlock at Favstocks:

Be prepared for Quantitative Easing Round 2 (QE2) and/or other misguided Fed policy decisions because Bernanke Says Fed Ready to Take Action.

Larry Kudlow at NRO:

Ben Bernanke threw a curveball today in his midterm report to Congress. The Fed view of the economy has been downgraded since its last report in February. This is not totally new news, since the June FOMC minutes reported this downgrade. However, “the majority saw the risks to growth as weighted to the downside.”

But here’s the disconnect. With no inflation and weaker growth, including stubbornly high unemployment, Bernanke mostly talked about an exit strategy that would shrink the Fed’s balance sheet by removing liquidity. This was the Fed’s bias last winter when the recovery looked stronger. Now that the recovery looks weaker, the stock market was hoping to hear Bernanke hint of an easier policy that would increase liquidity if necessary. Didn’t happen.

At one point today stocks were down 165 points, though they finished better, falling only 109 points. Gold fell $7 to $1,184, and the greenback rallied a bit. Bond rates continued to slide lower.

But I have a different view of this story. The Fed has injected $1.4 trillion of new money into the economy, of which about $1 trillion of excess reserves are unused and on deposit at the central bank. So, in other words, the economy has more liquidity than it knows what to do with. What’s the problem? All that excess money is not being used. This, I believe, is a fiscal problem, not a Fed problem.

Ryan Avent at Free Exchange at The Economist:

YESTERDAY evening, the Washington Post‘s Neil Irwin discussed the market’s reaction to expectations about Ben Bernanke’s Congressional testimony (taking place today and tomorrow):

For those of us who follow the Federal Reserve closely, it is sometimes shocking how poorly Wall Street seems to understand the central bank. The rumor Tuesday was that Ben Bernanke would, at his monetary policy testimony Wednesday, announce that the Fed is cutting its interest rate on excess bank reserves, now at a quarter percentage point, to zero.

This speculation, apparently, drove the stock market up in late trading. Yet it’s completely blinkered.

As Mr Irwin goes on to point out, Fed officials never announce policy moves in testimony, are extremely reluctant to shift policy between meetings, and have generally laid out conditions that might lead to a policy move—conditions that haven’t yet been met. And sure enough, Mr Bernanke’s prepared testimony for the Senate Banking Committee did little more than recycle the points he had previously made following the June FOMC meeting, including this bland guidance:

Of course, even as the Federal Reserve continues prudent planning for the ultimate withdrawal of extraordinary monetary policy accommodation, we also recognize that the economic outlook remains unusually uncertain. We will continue to carefully assess ongoing financial and economic developments, and we remain prepared to take further policy actions as needed to foster a return to full utilization of our nation’s productive potential in a context of price stability.

Naturally, markets flipped out, falling over 1% in the hour after the testimony was released. Beyond that, there is little to report. The Fed remains ready to act when things are worse, as things are currently not quite bad enough.

Daniel Indiviglio at The Atlantic:

Headlines are proclaiming that the stock market is down today due to Federal Reserve Chairman Ben Bernanke’s sobering Congressional testimony on the sluggish recovery. Even though headlines claiming that the stocks are down for ‘x’ reason are usually oversimplified and always annoying, Bernanke’s words likely had something to do with the market’s downward move this afternoon. Yet, anyone who follows the Fed and watched his testimony might find the market’s reaction surprising. Bernanke didn’t actually say anything that the Fed hadn’t expressed before. Had the market been ignoring Bernanke recently?

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China’s Going All Bendy On Us

Robert Flint at Wall Street Journal:

With a brief announcement Saturday of more flexibility for the yuan, China sent a powerful message about its confidence in the health of the world’s economy and financial system.

The resumption of the yuan’s crawling peg to a basket of currencies, with a daily fluctuation range of 0.5% on either side of a central parity rate, in no way implies a large one-off revaluation of the yuan.

In fact, the People’s Bank of China doused any such expectations by stating, “the basis for large-scale appreciation of the RMB exchange rate does not exist. “Instead, the PBOC will “maintain the RMB exchange rate basically stable at an adaptive and equilibrium level, and achieve the macroeconomic and financial stability in China.”

Basically, the PBOC has decided the recovery inside and outside China has reached the point that an appreciating yuan won’t put the country at a disadvantage. That’s been China’s stance since 1994. The goal has always been more flexibility for the yuan, with the ultimate goal of hard currency status at some unspecified point in the future.

The statement released Saturday says nothing about the pace of yuan appreciation. Using history as a guide, the yuan gained about 21% in the three years following the abandonment of the defacto peg to the dollar on July 21, 2005.

Derek Scissors at Heritage Foundation:

Beijing finally made a move on exchange rates, probably. Assuming there is some action to go with the People’s Bank of China’s stilted language, two critical errors are being made in the international response.

The first concerns the nature of the change. The one-line summary, in China and elsewhere, is that the PRC has broken the peg of the yuan to the U.S. dollar. Or re-broken it, since the peg is said to have been broken in July 2005, then reestablished in July 2008.

This view is badly mistaken. The yuan peg to the dollar was not ended in July 2005, it was simply loosened. There is no evidence in the yuan’s movement against other currencies that the peg was broken, or even dented.

From mid-2005 to mid-2008, the yuan tracked the dollar against the euro, just as it always had. It tracked the dollar against the yen. The yuan did not fall as much as the dollar over this period because a tight peg was replaced by a “crawling peg,” where the yuan rose 20% against the dollar. The yuan was not, however, allowed to move independently of the dollar against any other currency.

What little the People’s Bank has said suggests there will be even less of a shift now. The limits on daily movement in the yuan are unchanged. The announcement notes “further reform” – if there used to be a peg and now it’s broken, that isn’t “further” anything. Moreover, the present weakness of the euro will make the PRC even more reluctant than in 2005 to move off the dollar.

Why does this matter? Because genuinely breaking the peg would be a boon for the global economy. Resuming the crawling peg is just a bone for the U.S. Congress, and one the Congress and everyone else could choke on.

The Economist:

The statement was “vague and limited”, according to Charles Schumer, a Democratic senator from New York who is sponsoring a bill to slap duties on Chinese imports. It was followed by another statement on June 20th (in Chinese only) reassuring everyone that basic stability would be safeguarded.

The PBOC was clearer about what it intends not to do. It pointed out that China’s controversial current-account surplus has narrowed over recent years, from 11% of GDP in 2007 to 6.1% of GDP last year. There was therefore no justification for a “large-scale appreciation” of the exchange rate, it said. Most likely, the central bank will first allow the yuan to wobble by up to 0.5% each day. When it is confident that China’s economic momentum can survive the euro-area’s woes, it will let the yuan strengthen at about the same pace as before the crisis, ie about 5% a year, on a trade-weighted, inflation-adjusted basis.

The PBOC said it will be guided by a “basket” of currencies, not the dollar alone. If the euro resumes its slide in the next few weeks or months, the yuan might even be nudged down a bit against the dollar, to keep its trade-weighted value stable. America’s Congressmen, don’t much care for nice debates about the equilibrium, trade-weighted value of a currency. They do care about how many yuan you can buy for a dollar. Tao Wang of UBS has ventured an answer to that question. She forecasts that by the end of 2011, you will be able to get 6.2 yuan for the dollar, compared with 6.83 now.

That in itself is not a momentous change. But it is best to see this weekend’s move as an institutional reform, rather than a change in price. It was a slow, deliberate step towards a more sophisticated currency regime, rather than a stronger currency per se. As China’s economy evolves over the next few years, weaning itself off investment spending and towards consumption, it now has a suppler exchange rate that can help guide and cushion that process. Presumably that is what the PBOC meant by an “adaptive” currency.

Colin Barr at Fortune:

Geithner has been calling for the Chinese to liberalize their exchange rate policies since before he took over as Treasury secretary. He has been under pressure from U.S.  legislators who contend China has been holding down the renminbi, unfairly subsidizing its export sector. They say a free-floating renminbi would rise sharply against the dollar, raising the prices of Chinese goods and bringing manufacturing jobs back to this side of the Pacific.

Saturday’s move is only a tentative first step. Still, it is clear that the move toward a free-trading renminbi, begun in 2005 and interrupted by the near collapse of the global financial system three years later, has resumed. Geithner applauded the move, which comes ahead of next weekend’s G20 summit in Toronto.

“We welcome China’s decision to increase the flexibility of its exchange rate. Vigorous implementation would make a positive contribution to strong and balanced global growth,” Geithner said. “We look forward to continuing our work with China in the G20 and bilaterally to strengthen the recovery.”

Yet the future course of the exchange rate, and of a tightrope-walking global economic recovery, is hardly clear.

Matthew Yglesias:

There’s been a long running dispute about whether it will be necessary for the United States to formally threaten sanctions on China unless they revalue their currency. The answer now seems to be “no” as China is conceding the need to allow for more flexibility on exchange rates. The precise details are somewhat unclear, and the Chinese are cautioning the world not to expect rapid appreciation, so there will doubtless continue to be conflicts around this.

One thing I note here is that RMB appreciation is in part a form of tighter monetary policy in China. Which is good, China needs tighter monetary policy. And so do India and Brazil, all of which are likewise tightening. But no country is an island. Tightening in the three largest developing countries is the correct policy, but it makes looser policy in the U.S., E.U., and Japan all the more urgent. Likewise, fiscal contraction does seem to be the right policy for some European states (though not for Germany) but this again enhances the need for looser monetary policy from the European Central Bank.

Alex Frangos and Jason Dean in WSJ:

.In a lot of ways, this weekend’s timing is similar to what happened in 2005, the first time China loosened its currency, says Mirae Asset Securities Chief Economist Bill Belchere. “In 2005, they surprised the market. The market was waiting, waiting, waiting, got bored and then left,” he said. This time, the market was long the yuan for months before concerns about property market bubbles and euro zone troubles pushed risk takers out of the trade.

Now that the cat is out of the bag, don’t expect China to let the yuan strengthen right away, says Maguire. “In the immediate period, you’ll see very little move. They aren’t going to signal the flood gates are open, and then here goes the yuan. There will be a period of time before a significant move,” he says.

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As Obama Said, “There Are, Like, Hundreds Of Them”

Shawn Tully at Fortune:

The great mystery surrounding the historic health care bill is how the corporations that provide coverage for most Americans — coverage they know and prize — will react to the new law’s radically different regime of subsidies, penalties, and taxes. Now, we’re getting a remarkable inside look at the options AT&T, Deere, and other big companies are weighing to deal with the new legislation.

Internal documents recently reviewed by Fortune, originally requested by Congress, show what the bill’s critics predicted, and what its champions dreaded: many large companies are examining a course that was heretofore unthinkable, dumping the health care coverage they provide to their workers in exchange for paying penalty fees to the government.

That would dismantle the employer-based system that has reigned since World War II. It would also seem to contradict President Obama’s statements that Americans who like their current plans could keep them. And as we’ll see, it would hugely magnify the projected costs for the bill, which controls deficits only by assuming that America’s employers would remain the backbone of the nation’s health care system.

Hence, health-care reform risks becoming a victim of unintended consequences. Amazingly, the corporate documents that prove this point became public because of a different set of unintended consequences: they told a story far different than the one the politicians who demanded them expected.

John Byrne at Raw Story:

Democrats canceled hearings after learning companies’ plans would make health insurance bill look bad

House Democrats abruptly canceled hearings into major US companies’ responses to their massive health care overhaul after receiving documents revealing that companies were considering dropping all of their employees’ health benefits in response to the healthcare bill.

Scott Johnson at Powerline:

The documents in issue had been subpoenaed by Waxman and Stupak in response to the chargeoffs taken by these companies as a result of the enactment of Obamacare. Waxman and Stupak had planned to produce a bit of political theater, scheduling a hearing on the chargeoffs at which the companies’ executives were to testify.

The production was canceled when Waxman and Stupak were apprised of the obvious consequences of the bill they and their Democratic buddies had just voted for. Waxman and Stupak had been oblivious to them when they voted on the bill. We noted a few weeks ago that Robert Pear did a good job covering this story for the New York Times.

I would not have wanted to be one of the majority committee staffers who had to advise Waxman that the elimination of a big corporate tax deduction results in a big corporate tax expense that has to be recognized under applicable accounting standards. It can’t have been pleasant duty. Indeed, majority committee staffers sugarcoated the bitter pill.

Ed Morrissey:

It’s not just the calculus of mandates and penalties that has employers considering the option of dumping health care and paying more in salaries instead.  The mandate to keep “children” on plans until the age of 26 has employers seeing a steep cost curve.  For Caterpillar alone, the 26-year-old mandate will cost over $20 million a year.  Under those conditions, the penalties look pretty good.  Add on the “Cadillac tax” on some health plans and the expected jump in medical costs from providers dealing with their own set of mandates, and health insurance looks like a very bad risk.

What will it cost the government to provide subsidies for tens of millions of Americans who used to get health insurance through their employers?  No one really knows for sure, but Fortune takes a stab at it:

What does it mean for health care reform if the employer-sponsored regime collapses? By Fortune’s reckoning, each person who’s dropped would cost the government an average of around $2,100 after deducting the extra taxes collected on their additional pay. So if 50% of people covered by company plans get dumped, federal health care costs will rise by $160 billion a year in 2016, in addition to the $93 billion in subsidies already forecast by the CBO. Of course, as we’ve seen throughout the health care reform process, it’s impossible to know for certain what the unintended consequences of these actions will be.

But some of us predicted that the numbers used by Democrats pushing ObamaCare bore little connection to reality — and that it would incentivize employers to destroy the net of employer-based health insurance.  It looks like that day is fast approaching, and that’s no myth.  It’s a reality that Henry Waxman tried hard to hide from the American public.

Reihan Salam:

This is one reason I was so surprised when PPACA advocates proved so sanguine about the prospect of firms dropping coverage. All this would mean, many argued, is that we’d have something more like the Wyden-Bennett model. And that might be true. But the long-term budgetary impact of the legislation was central to the debate. The political case for PPACA rested on the notion — the dubious notion, in the view of many critics — that the revenue-raising measures were enough to pay for the coverage expansion, and indeed that the legislation would meaningfully improve the broader fiscal picture. We now have even more reason to believe that this happy outcome will not come to pass.

Mary Katherine Ham at The Weekly Standard:

Small business owners and freelancers, meet your new administrative burden:

But under the new rules, if a freelance designer buys a new iMac from the Apple Store, they’ll have to send Apple a 1099. A laundromat that buys soap each week from a local distributor will have to send the supplier a 1099 at the end of the year tallying up their purchases.

As if the federal government didn’t already make being self-employed hard enough. So, how does the new law make this ridiculousness necessary?

The bill makes two key changes to how 1099s are used. First, it expands their scope by using them to track payments not only for services but also for tangible goods. Plus, it requires that 1099s be issued not just to individuals, but also to corporations…Eliminating the goods exemption could launch an avalanche of paperwork, he says Bill Rys, tax counsel for the National Federation of Independent Business: “If you cater a lunch for other businesses every Wednesday, say, that’s a lot of information to keep track of throughout the year.”

Why’d they go and do that? You know why:

The idea seems to be that using 1099 forms to capture unreported income will generate more government revenue and help offset the cost of the health bill.

A Democratic aide goes on to defend the move, in this article, lauding the clever way the government is extracting more money from small businesses without actually raising their taxes.

Yuval Levin at The Corner:

Consider two items that have emerged in just the past two days. First, it turns out that several major corporations are drawing up plans to end their employee health benefits once Obamacare gets up and running. They’ve done the math and figured out that the penalty they would have to pay for dropping their workers would be much lower than the costs of continuing to insure them, and now there will be a new taxpayer-subsidized option for those workers to turn to in state exchanges, so why not cut them off? Of course, as Fortune’s Shawn Tully points out, that will mean far higher costs to the public than those projected by the Congressional Budget Office and far more disruption and instability than voters were promised: Remember “if you like your plan you can keep it”? Well, not if your employer is given a strong incentive to end it.

It turns out the many critics who argued that exactly this would happen weren’t just pumping out fog after all. And in an extra bit of irony, the corporate memos outlining all this became public because Henry Waxman ordered the companies to turn over their internal health-care memos in preparation for a hearing at which he was going to berate them for reporting the added costs that Obamacare would impose on them. Once his staff actually saw the memos, the hearing was cancelled.

Second, it turns out that the massive bill contained a hidden change in the tax law that will require companies to submit IRS 1099 forms not only for contract workers (as is the case now) but also for any individual or company from which they purchase more than $600 in goods or services in a year. That’s millions of new forms to file and send to vendors and the IRS, and lots of work and expense gathering names and taxpayer ID numbers from every vendor and store a business deals with.

As the fog clears, the case for repeal gets stronger and stronger.

UPDATE: Ross Douthat

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