Category: Law

How mandate penalties will be enforced

From the Joint Committee on Taxation:

The penalty is assessed through the Code and accounted for as an additional amount of Federal tax owed. However, it is not subject to the enforcement provisions of subtitle F of the Code. The use of liens and seizures otherwise authorized for collection of taxes does not apply to the collection of this penalty. Non-compliance with the personal responsibility requirement to have health coverage is not subject to criminal or civil penalties under the Code and interest does not accrue for failure to pay such assessments in a timely manner.

There is much more discussion here and I thank Joe Kristan for the pointer.  Megan McArdle adds comment.  Maybe the legal issues here are not yet clear, but so far it is not looking good.

Ahem!

Leave your comments here.

Is the mandate penalty large enough?

Reihan offers some discussion.  He also links to the Massachusetts page on penalties, for instance:

2009 tax penalties for adults above 300% of the federal poverty level are based on 1/2 the cost of the lowest-priced Commonwealth Choice plan.  They are:

  • $52 each month or $624 for an entire year for individuals aged 18-26.
  • $89 each month or $1068 for the year for individuals 27 or older.

Those are higher penalties than for the Obama plan, which doesn't go up to $695 for a few years (update: Austin Frakt offers more numbers here).  Still, media coverage may be a bigger issue than the size of the fee.  If national media run stories about people who avoid the mandate and prosper, the practice could spread.  Massachusetts media have not had the same power or influence.  Keep in mind also that "right-wing media" may promote this point for political reasons.

Plenty of people cheat on their taxes.  Plenty of people lied on their mortgage applications.  That all said, I don't know how people will react on this one.

How about businesses?  John Cassidy offers what seems to be the clincher:

Take a medium-sized firm that employs a hundred people earning $40,000 each–a private security firm based in Atlanta, say–and currently offers them health-care insurance worth $10,000 a year, of which the employees pay $2,500. This employer’s annual health-care costs are $750,000 (a hundred times $7,500). In the reformed system, the firm’s workers, if they didn’t have insurance, would be eligible for generous subsidies to buy private insurance. For example, a married forty-year-old security guard whose wife stayed home to raise two kids could enroll in a non-group plan for less than $1,400 a year, according to the Kaiser Health Reform Subsidy Calculator. (The subsidy from the government would be $8,058.)

In a situation like this, the firm has a strong financial incentive to junk its group coverage and dump its workers onto the taxpayer-subsidized plan. Under the new law, firms with more than fifty workers that don’t offer coverage would have to pay an annual fine of $2,000 for every worker they employ, excepting the first thirty. In this case, the security firm would incur a fine of $140,000 (seventy times two), but it would save $610,000 a year on health-care costs. If you owned this firm, what would you do? Unless you are unusually public spirited, you would take advantage of the free money that the government is giving out. Since your employees would see their own health-care contributions fall by more than $1,100 a year, or almost half, they would be unlikely to complain. And even if they did, you would be saving so much money you afford to buy their agreement with a pay raise of, say, $2,000 a year, and still come out well ahead.

This implies the current version of the plan won't work without stronger penalties.  In principle, I understand that it can be advantageous to dump many more people onto the exchanges, but not if so many of them end up getting such large subsidies.  Cassidy adds:

Even if the government tried to impose additional sanctions on such firms, I doubt it would work. The dollar sums involved are so large that firms would try to game the system, by, for example, shutting down, reincorporating under a different name, and hiring back their employees without coverage. They might not even need to go to such lengths. Firms that pay modest wages have high rates of turnover. By simply refusing to offer coverage to new employees, they could pretty quickly convert most of their employees into non-covered workers.

Typepad comments are still down (sorry!), but you can leave your comments here, sorry for the extra click which is required.

Can the Canadian banking model work for the U.S.?

No, and Simon Johnson explains why.  Excerpt:

Proposing a Canadian-type model to create stability in the U.S. is, to be blunt, nonsense.  We would need to merge our banks into even fewer banking giants, and then re-inflate Fannie Mae and Freddie Mac to guarantee some of the riskiest parts of the bank’s portfolios.  With our handful of new “hyper megabanks”, we’d have to count on our political system to prevent our banks from going wild; Canada may be able to do this (in our view, the jury is still out), but what are the odds this would work in Washington?  This would require an enormous leap of faith in our regulatory system immediately after it managed to fail repeatedly and spectacularly over thirty years (see 13 Bankers, out next week, for the awful details).  Who can be confident our powerful corporate lobbies, hired politicians, and captured regulators can become so Canadian so soon?

There is much more at the link, recommended.

FCPA as embargo

It turns out Andrew Spalding has a paper on the topic.  Here is the abstract:

Although the purpose of international anti-bribery legislation, particularly the U.S. Foreign Corrupt Practices Act, is to deter bribery, empirical evidence demonstrates a more problematic effect: in countries where bribery is perceived to be relatively common, the present enforcement regime goes beyond deterring bribery and actually deters investment. Drawing on literature from political science and economics, this article argues that anti-bribery legislation, as presently enforced, functions as de facto economic sanctions. A detailed analysis of the history of FCPA enforcement shows that these sanctions have most often occurred in emerging markets, where historic opportunities for economic and social development otherwise exist and where public policy should encourage investment. This effect is contrary to the purpose of the FCPA which, as the legislative history shows, is to build economic and political alliances by promoting ethical overseas investment.

These perverse and unanticipated consequences create two policy problems. First, the sanctions literature suggests that the resulting foreign direct investment void may be filled by capital-rich countries that are not committed to effectively enforcing anti-bribery measures. This dynamic can be observed, for example, in China's aggressive investment in Africa, Latin America, and Central Asia, and creates myriad ethical, economic, and foreign policy problems. Second, by enforcing these laws without regard to their sanctioning effects, developed nations are unwittingly sacrificing poverty reduction opportunities to combat bribery. The paper concludes with various proposed reforms to the text and enforcement of international anti-bribery legislation that would further the goal of deterring bribery without deterring investment.

Here is my previous post on the FCPA and Haiti.

Law and order in the world’s newest city

Remember that tent city on the former Petitionville golf course?  Here is the latest:

…an unarmed Haitian security force, composed of about 200 volunteers wearing neon yellow vests, patrols the golf course, trying to mediate disputes.

“We get a lot of cases: men beating up women, women beating up other women, people biting off other peoples’ ears,” said Romulus Renald Black, one of the volunteers. “We bring them into our security tent, judge them, and, if it’s a big case, we call in the police.”

Another patrolman said that there had been several rapes and assaults but only one killing. As to the number of ear bitings, Mr. Black said, “You’d be surprised.”

“Given the conditions, it has been remarkably calm and brotherly here,” said Clerveau Rodrigue, who has emerged as one of the camp’s leaders.

Strategies of (unintended) precommitment

Geoff Robinson writes to me and speculates:

I was thinking that Scott Brown's election was instrumental in yesterday's passage of the health care bill, in the game theory sense.  The Senate managed to pass a bill, and then, with Brown's election, credibly declare that it would not be able to consider any changes to the bill. No health care legislation would make it through the body again. House Democrats, faced with this take it or leave it scenario, were forced to pass the Senate version without modification (or let it fail).

I wonder how things would have proceeded if Martha Coakley had won?  The House would have had (and certainly used) the option to force changes. This would have required the Senate to hold its super-majority coalition together for one more vote. Would all 60 senators have held the line? Would the use of reconciliation have been a viable political alternative? Would we have been debating health care all summer as negotiations dragged on?

My guess is the bill still would have passed, nonetheless this is an interesting exercise in the idea of unintended consequences.

How to improve the bill

I won't return to previous ground or the bigger picture questions, but this paragraph struck me:

The second part of the subsidies, estimated to cost $466 billion during the next decade, would limit out-of-pocket expenses for deductibles and co-payments. This help, for individuals with salaries of $27,000 and families with income of $55,000, would be significantly more generous than any version of the legislation Congress has considered.

Cut out or limit the second part of the subsidies, at the very least.  I found the article as a whole to be a very useful discussion of which subsidies are contained in the current bill.

Sentences to ponder

On the new Dodd proposal, Steven Pearlstein writes:

There are so many political accommodations involving carve-outs and size limits and overlapping responsibilities that it creates exactly the kind of complexity, the opportunities for regulatory arbitrage and the lack of accountability that got us into this mess in the first place. It's worth remembering that many of the credit-default swaps that contributed to the recent crisis were originally devised by banks as a way around the old Depression-era law meant to keep banks out of the securities business, and by insurance companies looking to avoid insurance regulation.

Read the whole thing.

One of the best ways to help Haiti: modify FCPA

Pass a law stating that the Foreign Corrupt Practices Act does not apply to dealings in Haiti.

As it stands right now, U.S. businesses are unwilling to take on this legal risk and the result is similar to an embargo.  You can't do business in Haiti without paying bribes.

Along these lines, I found this article of interest.  Excerpt:

An American entrepreneur who does business in the Caribbean recently explained the Haitian landscape to me this way: "We did not bother with Haiti as the Foreign Corrupt Practices Act precludes legitimate U.S. entities from entering the Haitian market. Haiti is pure pay to play. The benefit of competitive submarine cables would be transformative for the Haitians. Instead, they were stuck with Clinton cronies taxing the poor."

The Mystery of Sudden Acceleration

Here is Ted Frank on the Toyota sudden acceleration problem. 

The Los Angeles Times recently did a story detailing all of the NHTSA reports of Toyota “sudden acceleration” fatalities, and, though the Times did not mention it, the ages of the drivers involved were striking.

In the 24 cases where driver age was reported or readily inferred, the drivers included those of the ages 60, 61, 63, 66, 68, 71, 72, 72, 77, 79, 83, 85, 89–and I’m leaving out the son whose age wasn’t identified, but whose 94-year-old father died as a passenger.

These “electronic defects” apparently discriminate against the elderly, just as the sudden acceleration of Audis and GM autos did before them.

Statistical Addendum: A number of commentators are worried about selection effects (hat tip Don).  Here is background information from FARS.  In 2008 there were 50,186 drivers involved in a car accident with a
fatality. Of these 8066 were 60 years of age or over. Thus in 2008 the
probability that a driver in a car accident with a fatality was 60
years of age or over was 16%. Using the figures above the probability
that a driver in a car accident involving sudden acceleration in a Toyota was about
54%. Of course, the sample size is very small.

Problems with Haitian land rights: nowhere to call home

This article is excellent on one of the mounting problems in Port-au-Prince, namely the sudden absence of well-functioning land rights (which were hardly ideal in the first place).  The earthquake destroyed a lot of homes, stores, and plots and now many of the owners cannot be located.  So it's hard to determine what can be done with the property.  Ideally it should be razed, rebuilt, and dedicated to some new uses but as it stands a lot of activity is simply frozen.

Or maye it is known that the owner is now dead and the estate has not been settled and won't be settled anytime soon.

Here is one quotation:

“We have the stocks to shelter a lot of people. We do not have the land to put them on. I cannot invent land,' Gregg McDonald, lead coordinator for the U.N. shelter cluster said. “There are lots of discussions going on around land, and land issues. Nothing is resolved.''

Even if all the owners were identified, present, and in a position to deal, there is then the famous Grossman-Hart 1980 free-rider problem.  "Urban renewal" can bring big increases in value, but the individual incentive is to be a hold-out on the sales front and capture those value increases, rather than sell out at the earliest possible moment.

Haiti right now has a massive scarcity of land  — in the legally usable sense — and is facing a massive recalculation problem as a result.  Keep in mind that in relative terms, land is a more important part of the Haitian economy than almost anywhere else.  After food, land is arguably the most important market in the Haitian economy and that has ceased to work.

This disaster-related problem is frequently overlooked and kudos to The Miami Herald for publishing an intelligent article on it.

Addendum: Here is an update on Haitian education.

Sentences to ponder

The insurance commissioners in 11 states are elected. Under the Supreme Court’s Citizens United decision, insurers will now be able to finance the election campaigns of those who will be their regulators. Among other powers these state insurance regulators have authority over rates and policy forms.

That's a letter to The New York Times.

Addendum: See the comment by Michael Yuri.