It was good to see CHRIS EDWARDS and ALAN REYNOLDS calling for block grants to states for Medicaid in today’s WSJ:
“We think that Congress should go beyond the administration’s limited cuts by enacting an overall federal budget cap to force trade-offs between defense, entitlements and domestic discretionary spending. And Congress needs to start moving major programs such as highway spending and the giant Medicaid back to the states. A first step would be to turn Medicaid into a block grant and slow spending to at least the inflation rate. The Bush budget includes some restraint on Medicaid spending, but block-granting the program would create savings of $55 billion annually by 2010 and $161 billion annually by 2015.”
It is time we recognized the perverse incentives that lead states to deny scarcity when it comes to Medicaid decision making.

Our legislature should recognize this(subscription required) from Mississippi. Some excerpts:
“Over the past five years state and federal spending in Mississippi on Medicaid — the health program for the poor and disabled — has doubled to $3.5 billion. Fully one-quarter of state residents are in the program. “Medicaid is a cancer on our state finances,” says Mississippi Gov. Haley Barbour…”
“Now a state-versus-federal battle over Medicaid may be looming. President Bush, faced with a swelling federal deficit, will propose Medicaid changes in the budget he sends Congress today. The administration wants to cut about $60 billion from what it projects it will spend on the program over the next decade, mostly by cracking down on techniques used by states to collect extra federal payments.
Federal officials also are pushing a broader overhaul of Medicaid financing. Currently the federal government and state governments split Medicaid costs, so if states boost benefits or costs go up, Uncle Sam has to keep pitching in. One option under discussion with governors would cap federal contributions for certain Medicaid recipients at a set amount each year. They would have to pay 100% of Medicaid costs above the cap, but they would have wider flexibility than they do now to reconfigure benefits and increase costs for the targeted populations.
As states try to slash costs under current rules, they run into many roadblocks. Federal law mandates that states must cover many types of care, such as pregnancy care for certain low-income women. Reducing the number of beneficiaries is hard because they often have nowhere else to turn. What’s more, because Medicaid is a “fee for service” program that pays doctors and hospitals every time they treat a fever or patch up a cut, it’s difficult to encourage efficiency.
Patients, too, have little incentive to ration their own care because they pay at most a small sum to see the doctor. “When something is free, people don’t care what it costs,” says Mr. Barbour in Mississippi. Advocacy groups for the poor say that even a $5 fee for a doctor visit can prevent some people from getting needed care.”
Florida is actually doing something about the problem:
“By far the most promising answer to date comes from Florida, where Governor Jeb Bush is proposing a radical restructuring of the program that serves 2.2 million low-income people at an expected cost this year of $14.7 billion. The aim is twofold — to provide incentives for better service by putting more choice in the hands of the consumer and to rein in the rate of growth in spending.”
Somewhere along the line somebody has to do something about the perverse incentives faced by state governments because of the federal Medicaid match for state spending. Because of the match there is an overwhelming incentive on the part of state politicians, bureaucrats and advocates to deny scarcity. For example, in the 2004 legislative session an absurd and harmful nursing home bed tax was passed into law. Its only purpose was to generate more revenue from the federal government for Medicaid.

Do you get tired of hearing commercials about the wonderful things NM’s lottery scholarships are doing to educate our youth? Are you ever somewhat skeptical about the claims? If so, check out an assessment of what is going on in Georgia.

Bad things are happening in Santa Fe. They prevent voluntary interaction; they coerce us into doing what we do not want to do. Why cannot the Guv and Legislature leave us alone?

Here is one that has so far escaped Big Bill’s attention. The only question: Would we stand for it? Thanks to Ralph R. Frasca at Division of Labour for the pointer.

I won’t be blogging for the next two weeks. We are off to do some birding in the Everglades. Then we will be cruising the Eastern Caribbean. Eat your hearts out.
Yes, I will miss the first 10 days of the circus.

The Tax Foundation has just issued a new tax study that compares the “business climates” of each state. The study is quite well done; and it should be a must read for tax “reformers.” As you might guess, New Mexico is in the lower quartile; but certainly not as bad as New York or Hawaii. However, given the rate at which Richardson is cranking up state spending, we may be catching down with them quickly.
A few comments on the study:
1. It does not include property taxes; New Mexico’s position in the rankings would improve if it did.
2. It weighs the components equally, so does not really catch the adverse impact of our gross receipts tax. New Mexico’s ranking would be far worse if it did.
3. It does not include severance taxes. If it did, our corporate tax ranking would be worse.
A little elaboration on point 2:
Federal and state taxes are inextricably intertwined. That being so, we can calculate the effective rate of tax on income for an entrepreneur engaged in providing a service subject to the gross receipts tax. We take into account that the GRT payment is a business expense, that state income tax is deductible on state and federal returns and that the entrepreneur’s taxable income is a certain percentage of her total receipts (say, for example, 50 percent). Give our entrepreneur a somewhat modest income: she is in the 25 percent federal tax bracket, 6 percent New Mexico tax bracket, makes “contributions” to social security and Medicare at the rate of 15.3 percent and has gross receipts that are twice her taxable income. In that case her overall rate of tax on income is 52 percent! Compare that to an equivalent entrepreneur in Texas: her effective rate of tax is 40 percent. Now you can see how the gross receipts tax destroys jobs in New Mexico. Maybe we should call our gross receipts tax the “Texas, Colorado, Arizona Economic Development Initiative.” Since the effective rate of tax on each dollar earned is much higher than is usually thought in discussions of state taxes, the adverse effects of GRT “pyramiding” for New Mexico are a much worse than is usually thought

The Council for Affordable Health Care has just issued a fine publication detailing mandates in the states.

Look here if you want to find an entertaining yet economically informative discussion of WalMart.
An excerpt:
If you liberals want to pile on a lot more welfare payments, as a matter of political choice, then okay. But don’t tell me that this is a “cost.” We make a political choice to subsidize poor people, perhaps to ensure that there will be lots of poor people who might vote Democrat, since apparently no employed person can bring themselves to pull the D lever. (Sure, that doesn’t count college profs. I meant “gainfully employed.”)

Believe it or not, some states are not as foolish as New Mexico when it comes to wishful thinking about Medicaid. Florida, New Hampshire and South Carolina are actually making some sensible, market-based reforms. Thanks to the Galen Institute for the pointer.
And they have not foolishly penalized Health Savings Accounts!

It looks like NM is poised to increase real spending by over two percent (adjusted for population growth and inflation). Real spending has already increased by over $930 million since 1992 (again, adjusted for inflation and population growth). What have we gotten for it?
Is it not time that we controlled spending and reduced taxes? That would create real prosperity, because it would increase the rewards for responsible behavior while lowering the subsidies for irresponsible behavior. How long can we continue with the kind of wishful thinking that emerges as policy from Santa Fe?

Is anybody really surprised about the report of waste by Albuquerque Public Schools? It is easy to understand why. Recall the words of economist Arnold King:
“In my view, government’s biggest weakness relative to the private sector is its inability to reward success more than failure. The biggest reason that I believe private-sector education would prove superior in the long run is that I think it would tend to weed out failing teachers and failing processes in general.”

Bill Richardson is at it again. He seems to want to emulate the TennCare disaster (thanks to NCPA).
According to todays Albuquerque Journal he wants to expand Medicaid to help the kids and the uninsured. While he is at it, he want to tax nursing home patients at the rate of $9 per bed per day. Thinking that this will improve health care in New Mexico is wishful thinking in the extreme!
If he really wants to improve health care without busting the budget, I suggest he look here or here.

Another from Chuck Muth:
SELLING A LEMON
USA Today revealed on Friday that President Bush’s Education Department paid black conservative columnist/talk show host Armstrong Williams almost 1/4 million dollars to promote Ted Kennedy’s “No Child Left Behind” law. Tribune Media Services immediately dropped Williams’ column, and Williams responded by admitting “bad judgment” and saying he understands “why some people think it’s unethical.”
Gee, why would anyone think that a conservative media personality taking $241,000 to promote a bigger role for the federal government in education was “unethical”?

Today from Chuck Muth:
“POLITICS OVER PRINCIPLE
Not long ago, when the House was considering adding the new prescription drug benefit to Medicare – the largest new entitlement since LBJ’s Great Society days – conservatives by and large were in opposition. However, former Speaker Newt Gingrich made a rather compelling case that passing the benefit would result in electoral gains for Republicans at the polls. Gingrich’s political argument ultimately won over the conservative philosophical argument.
Now the issue is Social Security reform. The president, who no longer faces re-election, is pushing for a dramatic overhaul of the nation’s Ponzi-scheme retirement program…but skittish congresscritters facing re-election again in 2006 are going “wobbly” on him. Unfortunately, as Holman Jenkins reported this week in Political Diary, Gingrich and Jack Kemp – Bob Dole’s running mate in 1996 who lost his debate with Al Gore – are siding with the Nervous Nellies, championing a “reform” package which doesn’t really reform the system.
What’s the sense of having a governing majority if you’re scared to death to govern according to the issues you supposedly believe in and got you elected?”

I wonder if anyone has given any thought to the incentive effects on landlords of this:
“Within 24 hours of the discovery of the lab, Mayor Martin Chavez on Thursday announced three new initiatives against meth labs.
The first is the immediate and strict enforcement of the ordinance that requires property owners to pay for the cleanup of drug labs.
Standing in front of the home at a news conference, Chavez pointed at it and said, ‘This property owner is the first, and he probably won’t be too happy about it.’”
Give it some thought. Specifically, how do you think this action by the mayor will affect the supply of rental housing and its price?

As if writing a coda to a musical farce, Bill Richardson now wants to provide corporate welfare for music. According to the Albuquerque Jounrnal:
“Richardson on Friday described his $100,000 proposal to establish the New Mexico Music Commission as an ‘economic development tool’ that would promote the state’s music and musicians.”
Economic development by means of corporate welfare is like a musical farce. Government does not orchestrate the creation of jobs, but it does dole out favors to interest groups at taxpayer expense. Our economy will continue to fall flat, if we are not sharp enough to take note of this nonsense. The key to prosperity is low tax rates and limited government.

The other day I mentioned that Educate New Mexico is now providing choice to poor parents having children in failing government schools. How can you help? If you are in the 28% federal tax bracket and 6% state tax bracket, a contribution of $1,000 to Educate New Mexico would only cost you $679 net of taxes (assuming, of course, that you are itemizing deductions). But it’s even better! Educate New Mexico receives a one dollar match for every two dollars donated. Using the above example, the donor would be able to get $1,500 into school choice for a cost of only $679 net-of-taxes! It’s worth pointing out that Educate New Mexico has very low overhead, so most of the $1,500 would actually reach the poor family. If you are in a lower or higher tax bracket than the example, your net-of-tax contribution would differ very little.
Another benefit to the taxpayer: not as much of your money will go to our inept government.
I recommend you help us take matters into our own hands when it comes to school choice. Donate to Educate New Mexico. Let’s go around our inept government and make it happen!

This from Craig Newmark:
A saying almost as good as Newmark’s First Law is Margolis’s Observation: “A Liberal is someone who believes a woman should be able to choose to kill her fetus, but if she carries the fetus to term, should not be able to choose where the child goes to school.”

Kudos to Micha and Sarah for their thoughtful and persuasive opinion piece in today’s Albuquerque Journal. An excerpt:
“The public schools enjoy a virtual monopoly on education. So long as there are no real penalties associated with failure, nothing will motivate our schools to improve their performance. In markets for goods and services, the best cure for monopoly is proven to be competition, a powerful force that operates to increase efficiency and improve the quality of products. This principle applies equally to the market for schooling.”
Interestingly, Arnold King also has an interesting post today on the benefits of choice and competition in education. An excerpt:
“In my view, government’s biggest weakness relative to the private sector is its inability to reward success more than failure. The biggest reason that I believe private-sector education would prove superior in the long run is that I think it would tend to weed out failing teachers and failing processes in general.”
Do you know that some help is already available for school choice in New Mexico? Educate New Mexico has some scholarships available for low income families who want their children to escape from failing government schools. Your tax deductible contributions to this self-help program may be made to Educate New Mexico. While our state government sits on its hands proclaiming the charade of “reform,” we can be going around it to promote choice and competition. We can take matters into our own hands.

Michael Munger does not think so:
“For one, the comparison defames prostitutes. Politics is the oldest profession. Second, in prostitution, it is the hooker who gets screwed. In politics, it is the customer.”
That reminds me, have you noticed that Joe Thompson has decided to lobby for UNM? I’ll bet hookers don’t get $20K. (Okay, hookers don’t have to do it for 60 days either.)
Let’s face it, politics often trumps principle.

Wow! Free money is rolling in. Some excerpts:
“The windfall has been greatest in the sparsely populated states of Alaska, Wyoming and New Mexico, where revenue from oil and natural gas has yielded large budget surpluses at a time when most states are recovering from deficits. Together, the three states are on track to pull in $4.5 billion from royalties and taxes on energy for fiscal 2004, up $900 million, or nearly 25%, from fiscal 2003 and from a mere $2.9 billion as recently as 2002.”
“A similar scenario is playing out on a much grander scale from Saudi Arabia to Russia to Venezuela, where money is pouring into oil producers’ coffers. The U.S. produces five million barrels of oil a day, behind only Saudi Arabia and Russia, and 19.15 trillion cubic feet of natural gas. When energy prices rise, as they did to $55 a barrel in October before falling back recently, so do taxes and royalties on oil and gas. Yesterday, oil traded on the Nymex was up $1.79 to $43.91 a barrel, as violence flared in oil-rich Iraq and Saudi Arabia said it is making good on a pledge to cut output.”
What is to stop NM from ending poverty now? We are well on our way to imitating utopian Venezuela.

If you have not yet checked out the blog at Division of Labour, you should do so immediately. Their posts are quite entertaining as well as informative. And they have just added three sensational bloggers: Larry White, Deirdre McCloskey and Michael Munger. This is a blog worth checking every day.

Simple Solutions and Simple Care just became more expensive in New Mexico; and complicated care just became less expensive. Of course, the growing cost of additional administrative burdens may more than offset the gross receipts tax advantage enjoyed by complicated care.
According to my calculations, a health care provider now accepting straightforward fee-for-service billing will effectively be taxed on her income at a rate that is 10 to 14 percentage points higher than for an equivalent “managed care” provider. I have created an Excel Spreadsheet that will give you more precise estimates of the difference. Let me know if you would like a copy.
To break even net of tax, a fee-for-service provider must charge roughly 25 percent more (for the same procedure) than a managed care provider.
See my previous post on how well health care turns out when we keep it simple and allow markets to function without government controls.