April 2007 Archives

Today, an op-ed in the Portland Press Herald by Kay Rand suggests that the Tax Foundation's annual state and local tax burden rankings is misleading and overstates Maine's tax burden.

In the interests of full disclosure, it should be noted that I authored several years' worth of the Tax Foundation's tax rankings. However, it should also be noted that Kay Rand serves on the board of the Maine Center for Economic Policy--a well-known apologist for big government. This fact was not mentioned in the op-ed.

That being said, I never received a phone call from the author to discuss the so-called flaws in the Tax Foundation report . . . continue reading for more thoughts on this flawed op-ed.

Recently, The Maine Heritage Policy Center released report that analyzed the compensation levels for private sector jobs and state and local government jobs. The report was titled The Government Gravy Train: An Analysis of Private versus Public Sector Compensation.

The results revealed that market forces do affect how much employers can compensate individuals for services rendered.

While private employers are subject to market forces which dictate how much they can afford to pay employees, state and local governments are only limited by how much revenue they can raise through taxation and borrowing. This difference goes a long way to explaining the compensation disparity and the high level of taxation in Maine.

Last week, a New York Times story highlighted AARP's plan to sell a new Medicare Advantage plan to those over 65 and a new individual insurance plan to those 50 to 64 years old. The products will be available in 2008. The individual insurance plan will be a PPO and have a HSA-compatible option.

Interesting, AARP said that they would not be able to sell the policies to near retirees in all states, due to uncompetitive state regulations. The products will not be available to sick near retirees because "to guarantee issuance of a policy to every applicant in that age group is 'just not economically feasible,' stated Ms. [Dawn] Sweeney [president of AARP Services Inc., the tax-paying business unit of AARP]."

As someone living in one of the five states (MA, ME, NJ, NY & VT) with mandated guarantee-issuance for all individual insurance products, I think that it is too bad AARP members will not have access to these affordable policies. In addition, those in WA and OR with adjusted community rating regulations (but no guarantee issue) will likely not have access either.

Apparantly, AARP thinks near retirees would like an HSA option. I guess HSAs are not just for the young, healthy or weathly.

Who would guess just a week after Easter, AARP would find religion and start believing in the private market and competitive health insurance regulations.

In my recent report on Maine's personal income, I found that Maine's private sector share of persona income had fallen to a new all-time low of 66.1 percent. From an economic perspective, the level of income coming from the private and public sectors is an important determinant of long-run economic growth potential. In addition, from a political perspective, the number of people who rely on either the private or public sectors is an important determinant of political outcomes. If the number of people benefiting from the pubic sector exceeds 50 percent of the population, the deck will be stacked in favor of government run programs over the private sector.

On April 19, Stateline.org reported that “forty-one states figure to end this fiscal year with a total of $31 billion more than planned.� These states discovered that their coffers are plush, finishing their fiscal years with surpluses.

For seven of the remaining nine states—Delaware, Illinois, Kansas, Massachusetts, Rhode Island, Tennessee, and Wisconsin—no surpluses are expected, but the states are expecting to finish the year even, in the black.

Maine finds itself in the unenviable position of being one of only two states finishing the current fiscal year with a budget shortfall. Maine’s Legislature must address a $34 million budget shortfall, while Michigan's Legislature must fill a $360 million gap.

Maine’s budget shortfall is an anomaly. Maine policymakers must take this dubious distinction seriously and address the state’s budget ills. The folks in Augusta need to get to bottom of why Maine is one of only two states in the nation facing a budget shortfall.

Today's Wall Street Journal has yet another report about who is paying the taxes in the U.S.

The story highlights a recent CBO report that finds: "Those who made more than $87,300 in 2004, the top 10%, paid 70.8% of all income taxes, an increase from their share of 48.1% in 1979. Think about it. Ten percent pay seven out of every 10 dollars and their share of the burden is rising."

This is extraordinary. Yet if the new majority in Congress has things their way, these numbers will be even more dramatic.

Link: http://online.wsj.com/article/SB117668220910270761.html .

Thoughts? Contact me at wbecker@mainepolicy.org.

Edmund S. Muskie is credited with initiating the Democratic takeover in Maine. The change set in motion current big-government liberal policies that dominate Maine politics. The following distinctions resulted from Maine’s leftward-lurch:

1. A high tax burden—14 percent, or second-highest in the U.S., for 2007 according to the Tax Foundation.
2. A government workforce that is compensated a much greater rate than the public sector.
3. A Medicaid program that is one of the largest in the country both in enrollment levels and per recipient spending.

During an Internet search I stumbled onto an interesting tidbit of information. The Foundation of his namesake, the Edmund S. Muskie Foundation, is located in Delaware.

In choosing to locate in Delaware, did the Edmund S. Muskie Foundation consciously avoid the negative tax climate that resulted from the big-government liberal policies Mr. Muskie championed?

One can only wonder…

Morgan Quitno Press recently released its "Most Livable State" rankings. Winner, for the fourth year in a row, is our next door neighbor New Hampshire. Maine ranked 16th which is in line with where we have generally fallen in the ranking. The scale is numerically based 1 (worst) to 50 (best). Maine's score of 28.27 is 18.4 percent below New Hampshire's score of 34.66. That is quite a difference given the demographic and cultural similarities of the two states. That pretty much leaves policy variables as the obvious source of the difference. Unfortunately, the full report is not available on-line and must be purchased. However, here is the list of the 44 variables.

Information Strategies, Inc just released their projections for Health Saving Account growth for the year 2007. These projections show how popular these low-cost, comprehensive benefit health insurance plans are becoming with individuals and employers:

-- The number of Health Savings Accounts will reach 8 million.
-- Deposits in custodial accounts will total $13.6 billion at year-end
-- Average accounts will pass $1,700 mark, with those accounts being in
existence two or more years hovering at $4,400
-- 22% of employers will offer HSAs
-- More than 40% of all companies will fund 50% or more of the first
year's deductible
-- New HSA-covered lives will exceed eight million, bringing the HSA-
insured total to 18 million

To learn more about Health Saving Accounts, read my HSA paper released last year.

Four years ago Governor John E. Baldacci introduced Dirigo Health, a so-call revolutionary health reform initiative, which was supposed to answer the problem of expensive health insurance premiums in Maine. The plan called for increased regulation on the health care industry and a new tax on all health insurance premiums sold in Maine. After a four-year trial, the new taxes and regulations have yet to lower health insurance premium costs for Mainers.

Yet, even after pouring tens-of-millions of taxpayer dollars into the initiative that is proven a failure, the Governor refuses to cut loose his political pet project. Today, “Dirigo 2.0,� loaded up with more taxation and regulation, was introduced as the next savior of health insurance in Maine.

In my most recent column in the Rockland Courier Gazette, I discuss news from Augusta that Maine DOT spent $625,000 of your tax dollars on a restroom:

Flushing taxpayer dollars down the hole. Really.
Courier Gazette, April 3, 2007

So what is a reasonable price to pay for an outhouse?

I ask this because Washington County state senator Kevin Raye recently submitted a bill requesting that the state erect restroom facilities somewhere along the largely uninhabited 90 mile stretch of Route 9 between Brewer and Calais. In response, the state Department of Transportation claimed that the cost of such a facility would be $625,000, plus $100,000 a year in annual maintenance and upkeep.

$625,000.

For an outhouse.

Read the rest of the column here.

According to a recent Medical News Today article, individuals with Health Saving Account (HSA)-type high deductible plans had a 25 percent drop in emergency room use, based on a Harvard Medical School study published in Journal of the American Medical Association. "The study compared approximately 60,000 members enrolled in a traditional health insurance plan in Massachusetts with more than 8,700 members working for employers who switched to offering only a high-deductible plan. The high-deductible plans studied were not federally qualified high-deductible health plans (a.k.a. HSA plans) because office visits and prescription drugs were not subjected to the deductible. The researchers examined patients' emergency department diagnoses to determine the effect on visits for high severity conditions (like asthma or kidney stones) and low severity conditions (like headaches, nausea, or colds). There was a slight decline in first-time emergency visits for members in high deductible plans and a 25 percent reduction in repeat visits, mostly for non-severe conditions. This suggests that when members realize their responsibility for out-of-pocket expenses, they reduce future emergency department visits for less urgent conditions. Patients in the high-deductible plans were also hospitalized less as a result of both reduced emergency visits and fewer admissions once reaching the emergency department."

This is just further evidence of the effectiveness of consumer-directed plans on eliminating unnecessary and overuse of health care, in this case the emergency room. HSAs are an important tool in reducing the cost of health care and health insurance by engaging the consumer in making rational and appropriate decisions about when and how much health care to consume.

Sadly, those on Medicaid use the emergency twice as much as the uninsured or those with private insurance. Maybe if those on Medicaid paid significant copays for unnecessary emergency room use, they would react like those with high deductible private plans do and cut back on unneeded trips. In doing so, the Maine taxpayer would have a more affordable Medicaid program as well.