Austin Frakt had an interesting NYT Upshot piece noting that the US leads the world in health care spending per capita, but badly trails most other wealthy countries in life expectancy. He notes this divergence began in 1980.
While that is true in terms of life expectancy, the divergence in spending actually began in the 1970s. According to the OECD, the United States was near, but not at the top, in terms of health care spending as a share of GDP. Both Canada and Denmark devoted a larger share of their GDP to health care. While the difference with Canada was small, the difference with Denmark was more than 1.2 percentage points of GDP for 1971, the first year that data are available.
By 1980, the gap with Denmark had fallen to less than 0.2 percentage points of GDP, while US spending as a share of GDP exceeded Canada’s by 0.6 percentage points. Insofar as there is a mystery about US health care spending, as the headline asserts, it seems to have begun in the 1970s rather than the 1980s.
One other point is worth noting in reference to this piece. At the end, as one potential solution to high costs in the US, the piece suggests more competition. That would be great (starting with an end to government-granted patent monopolies in prescription drugs and medical equipment), but another even more simple route is increased medical travel.
If people facing expensive medical procedures could travel to other countries and share in the savings it would directly lower costs. Furthermore, by reducing demand in the United States it should put downward pressure on prices. However, the most important effect is that it would make more people aware of the fact that people in other countries get high-quality care for prices that are often less than half of what we pay in the United States.
Austin Frakt had an interesting NYT Upshot piece noting that the US leads the world in health care spending per capita, but badly trails most other wealthy countries in life expectancy. He notes this divergence began in 1980.
While that is true in terms of life expectancy, the divergence in spending actually began in the 1970s. According to the OECD, the United States was near, but not at the top, in terms of health care spending as a share of GDP. Both Canada and Denmark devoted a larger share of their GDP to health care. While the difference with Canada was small, the difference with Denmark was more than 1.2 percentage points of GDP for 1971, the first year that data are available.
By 1980, the gap with Denmark had fallen to less than 0.2 percentage points of GDP, while US spending as a share of GDP exceeded Canada’s by 0.6 percentage points. Insofar as there is a mystery about US health care spending, as the headline asserts, it seems to have begun in the 1970s rather than the 1980s.
One other point is worth noting in reference to this piece. At the end, as one potential solution to high costs in the US, the piece suggests more competition. That would be great (starting with an end to government-granted patent monopolies in prescription drugs and medical equipment), but another even more simple route is increased medical travel.
If people facing expensive medical procedures could travel to other countries and share in the savings it would directly lower costs. Furthermore, by reducing demand in the United States it should put downward pressure on prices. However, the most important effect is that it would make more people aware of the fact that people in other countries get high-quality care for prices that are often less than half of what we pay in the United States.
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Since I and others have raised questions about Jeff Bezos–owned paper’s boosterism of Amazon when it comes to the location of the company’s second headquarters, it is worth calling attention to this very fair piece that points out some of the downsides of having Amazon in the DC area. There are two issues that might have been worth more attention.
The piece notes that the specifics of the incentives being offered by the District of Columbia and Northern Virginia have not been made public. This certainly raises the possibility that the hit to budgets in these areas could be very large if Amazon were to choose either as a destination. While the secrecy is noted, it would have been worth making the point about this risk more explicit.
The other is that the company is openly using the threat of moving jobs to get Seattle to reduce or eliminate a payroll tax it is considering for large companies. This certainly raises the possibility that Amazon may engage in similar behavior if it locates in the DC area and one or more of the governments attempts to raise taxes to meet public needs.
Since I and others have raised questions about Jeff Bezos–owned paper’s boosterism of Amazon when it comes to the location of the company’s second headquarters, it is worth calling attention to this very fair piece that points out some of the downsides of having Amazon in the DC area. There are two issues that might have been worth more attention.
The piece notes that the specifics of the incentives being offered by the District of Columbia and Northern Virginia have not been made public. This certainly raises the possibility that the hit to budgets in these areas could be very large if Amazon were to choose either as a destination. While the secrecy is noted, it would have been worth making the point about this risk more explicit.
The other is that the company is openly using the threat of moving jobs to get Seattle to reduce or eliminate a payroll tax it is considering for large companies. This certainly raises the possibility that Amazon may engage in similar behavior if it locates in the DC area and one or more of the governments attempts to raise taxes to meet public needs.
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Donald Trump is relying on a silly myth in his latest pharmaceutical industry America First crusade. He is claiming that because other countries don’t give our drug industry unchecked patent monopolies, we are subsidizing research for them. The numbers disagree.
According to the National Science Foundation, our pharmaceutical industry spent $62.5 billion on research worldwide in 2013, the most recent year for which data are available. If we increase this by 25 percent to account for growth between 2013 and 2017, we get $78.3 billion. Worldwide sales last year were just under $1 trillion.
If just half of these sales were by U.S. companies, it would translate into just under $500 billion in sales. This would mean that the industry’s research expenditures were equal to less than 16 percent of its sales. Prices in other wealthy countries are generally in the range of 40 to 60 percent of the U.S. price. Since the cost of manufacturing and delivering the drugs is generally less than 10 percent of the U.S. sales price, and often less than 1 percent, the industry should easily be able to recover its research expenditures if the whole world paid the regulated prices in other countries rather than the U.S. government imposed monopoly prices.
In other words, there is not really a plausible story on how Trump’s efforts to force other countries to pay higher prices will lead to lower drug prices in the United States. On the other hand, insofar as Trump suceeds, it will lead to higher industry profits.
Donald Trump is relying on a silly myth in his latest pharmaceutical industry America First crusade. He is claiming that because other countries don’t give our drug industry unchecked patent monopolies, we are subsidizing research for them. The numbers disagree.
According to the National Science Foundation, our pharmaceutical industry spent $62.5 billion on research worldwide in 2013, the most recent year for which data are available. If we increase this by 25 percent to account for growth between 2013 and 2017, we get $78.3 billion. Worldwide sales last year were just under $1 trillion.
If just half of these sales were by U.S. companies, it would translate into just under $500 billion in sales. This would mean that the industry’s research expenditures were equal to less than 16 percent of its sales. Prices in other wealthy countries are generally in the range of 40 to 60 percent of the U.S. price. Since the cost of manufacturing and delivering the drugs is generally less than 10 percent of the U.S. sales price, and often less than 1 percent, the industry should easily be able to recover its research expenditures if the whole world paid the regulated prices in other countries rather than the U.S. government imposed monopoly prices.
In other words, there is not really a plausible story on how Trump’s efforts to force other countries to pay higher prices will lead to lower drug prices in the United States. On the other hand, insofar as Trump suceeds, it will lead to higher industry profits.
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The second paragraph of an article on a new requirement in California — that all new homes have solar power — told readers:
“It will add thousands of dollars to the cost of home when a shortage of affordable housing is one of California’s most pressing issues.”
It then added:
“That made the relative ease of its approval — in a unanimous vote by the five-member California Energy Commission before a standing-room crowd, with little debate — all the more remarkable.”
The piece then goes on to explain that the energy savings are likely to far exceed the additional costs of the solar installations over the life of a standard mortgage. Given this evidence, it might have been reasonable for the second paragraph to say something like:
“In spite of increasing construction costs, the savings on energy likely mean that the requirement will reduce the cost of home ownership, which is an important issue given the shortage of affordable housing in California.”
That might have left readers with a different view of the new regulation.
The second paragraph of an article on a new requirement in California — that all new homes have solar power — told readers:
“It will add thousands of dollars to the cost of home when a shortage of affordable housing is one of California’s most pressing issues.”
It then added:
“That made the relative ease of its approval — in a unanimous vote by the five-member California Energy Commission before a standing-room crowd, with little debate — all the more remarkable.”
The piece then goes on to explain that the energy savings are likely to far exceed the additional costs of the solar installations over the life of a standard mortgage. Given this evidence, it might have been reasonable for the second paragraph to say something like:
“In spite of increasing construction costs, the savings on energy likely mean that the requirement will reduce the cost of home ownership, which is an important issue given the shortage of affordable housing in California.”
That might have left readers with a different view of the new regulation.
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The NYT did some serious editorializing in a headline that told readers:
“[…]to lower drug costs at home, Trump wants higher prices abroad.”
Sorry folks, the NYT does not know what Trump wants. In fact, a reasonable first guess might be that Trump wants to increase the profits of the pharmaceutical industry, with whom he is very close. The NYT would be on sounder footing with a headline saying “To increase pharmaceutical industry profits, Trump wants foreigners to pay more for drugs.” This headline more closely corresponds to the known facts, but we know the paper doesn’t like attributing motives, except of course when it does.
It is worth noting that the headline writer is following the article which told readers in the first paragraph that Trump:
“[…]has an idea that may not be so popular abroad: Bring down costs at home by forcing higher prices in foreign countries that use their national health systems to make drugs more affordable.”
Why is it so hard for reporters to just report what politicians say and do and not try to tell us what they are thinking?
The NYT did some serious editorializing in a headline that told readers:
“[…]to lower drug costs at home, Trump wants higher prices abroad.”
Sorry folks, the NYT does not know what Trump wants. In fact, a reasonable first guess might be that Trump wants to increase the profits of the pharmaceutical industry, with whom he is very close. The NYT would be on sounder footing with a headline saying “To increase pharmaceutical industry profits, Trump wants foreigners to pay more for drugs.” This headline more closely corresponds to the known facts, but we know the paper doesn’t like attributing motives, except of course when it does.
It is worth noting that the headline writer is following the article which told readers in the first paragraph that Trump:
“[…]has an idea that may not be so popular abroad: Bring down costs at home by forcing higher prices in foreign countries that use their national health systems to make drugs more affordable.”
Why is it so hard for reporters to just report what politicians say and do and not try to tell us what they are thinking?
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I see my friend Jason Furman is jumping into the debate on efforts by states like New York to develop workarounds for the limit on the state and local tax (SALT) deduction in the Republican tax plan. Jason reminds us that the beneficiaries of the workarounds (like New York’s plan to replace a portion of the state income tax with an employer-side payroll tax) are overwhelmingly higher-income taxpayers. This doesn’t bother me.
As I’ve pointed out before, limiting the SALT deduction is not about raising income taxes on high-income people. It is about raising taxes on high-income people in progressive states.
Suppose Congress proposed to raise the income tax rate by 2.0 percentage points on income above $100k and by 4 percentage points on income over $1 million. (These are roughly the numbers we are talking about given income tax rates in New York and California.) This is a perfectly reasonable plan since these are the people who have been the big gainers in the economy over the last four decades.
But suppose this tax increase only applied to people in New York, California, Connecticut, New Jersey, and a few other states with high tax rates, which also tend to vote Democratic in presidential elections. Are we all fine with this? Of course, if we tried to undo this selective tax increase with either legislation or some clever trick, then Jason would point out how regressive this reversal would be.
His calculations would be and are right, but I don’t give a damn. Making it more difficult for states to raise the taxes they need to support progressive social spending is bad policy. And it is especially bad policy in a context where we can expect little by way of progressive measures out of Washington any time soon.
This means if we want to see headway on quality affordable child care, free college, expanded health care coverage, it will come from states like New York and California. The Republicans quite explicitly wanted to make it more difficult for states to be able to pursue progressive policies, which is why they limited the SALT deduction. So no, I have no problems trying to reverse this cheap trick.
Since Jason raised the topic of corporate taxes, we do have an easy route to radically reduce the opportunity for tax evasion/avoidance and also the waste associated with tax accounting. Just require corporations to give us a non-voting equity stake equal to the desired tax rate. (If we want to tax corporations at a 25 percent rate, then we require corporations to give us non-voting shares equal to 25 percent of the total outstanding.)
The non-voting shares are treated just like other shares. If the company pays a $2 a share dividend to its voting shares, it also pays $2 for each of the government’s shares. If it buys back 10 percent of its shares at $100 a share, it buys back 10 percent of the government’s shares at $100 a share.
It’s fun, easy, and gets us the money we want out of the corporate sector. Now if we could just get some folks in Washington thinking seriously about corporate tax reform.
I see my friend Jason Furman is jumping into the debate on efforts by states like New York to develop workarounds for the limit on the state and local tax (SALT) deduction in the Republican tax plan. Jason reminds us that the beneficiaries of the workarounds (like New York’s plan to replace a portion of the state income tax with an employer-side payroll tax) are overwhelmingly higher-income taxpayers. This doesn’t bother me.
As I’ve pointed out before, limiting the SALT deduction is not about raising income taxes on high-income people. It is about raising taxes on high-income people in progressive states.
Suppose Congress proposed to raise the income tax rate by 2.0 percentage points on income above $100k and by 4 percentage points on income over $1 million. (These are roughly the numbers we are talking about given income tax rates in New York and California.) This is a perfectly reasonable plan since these are the people who have been the big gainers in the economy over the last four decades.
But suppose this tax increase only applied to people in New York, California, Connecticut, New Jersey, and a few other states with high tax rates, which also tend to vote Democratic in presidential elections. Are we all fine with this? Of course, if we tried to undo this selective tax increase with either legislation or some clever trick, then Jason would point out how regressive this reversal would be.
His calculations would be and are right, but I don’t give a damn. Making it more difficult for states to raise the taxes they need to support progressive social spending is bad policy. And it is especially bad policy in a context where we can expect little by way of progressive measures out of Washington any time soon.
This means if we want to see headway on quality affordable child care, free college, expanded health care coverage, it will come from states like New York and California. The Republicans quite explicitly wanted to make it more difficult for states to be able to pursue progressive policies, which is why they limited the SALT deduction. So no, I have no problems trying to reverse this cheap trick.
Since Jason raised the topic of corporate taxes, we do have an easy route to radically reduce the opportunity for tax evasion/avoidance and also the waste associated with tax accounting. Just require corporations to give us a non-voting equity stake equal to the desired tax rate. (If we want to tax corporations at a 25 percent rate, then we require corporations to give us non-voting shares equal to 25 percent of the total outstanding.)
The non-voting shares are treated just like other shares. If the company pays a $2 a share dividend to its voting shares, it also pays $2 for each of the government’s shares. If it buys back 10 percent of its shares at $100 a share, it buys back 10 percent of the government’s shares at $100 a share.
It’s fun, easy, and gets us the money we want out of the corporate sector. Now if we could just get some folks in Washington thinking seriously about corporate tax reform.
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Heather Long’s piece in the Washington Post telling readers, “Trump wants a $15 billion spending cut. That’s about 1 percent of the cost of his tax bill,” badly misled readers. The $1.5 trillion cost of the tax bill is a ten-year figure. The $15 billion in spending cuts are meant to hit in a single year. Presumably, Trump and his Republican allies will look for similar cuts in future years. This means that the cuts are 10 percent of the cost of the tax bill.
Of course, being larger doesn’t make them better since the cuts are focused on programs that benefit low- and moderate-income people. But if we’re keeping score, it is worth trying to be accurate.
It is also worth noting that neither Long nor any of her deficit hawk sources in this piece say a word about the implicit debt the government is creating for people through granting patent and copyright monopolies. Granting these monopolies is an alternative way to direct spending for the government to finance things like research and creative work.
The money committed as a result of these monopolies in the form of higher market prices is enormous. In the case of prescription drugs alone, it is likely more than $380 billion a year, or almost 2.0 percent of GDP. Adding in the cost of medical equipment, software, and other areas could well push the sum to more than $1 trillion a year, more than six times the cost of the Trump tax cuts.
Anyone who is really concerned about the liabilities that the government is creating for future taxpayers has to include the cost of these government granted monopolies. If they don’t factor in patent and copyright rights into their assessment of future burdens, they are either just trying to scare people to push a political agenda or very confused.
Heather Long’s piece in the Washington Post telling readers, “Trump wants a $15 billion spending cut. That’s about 1 percent of the cost of his tax bill,” badly misled readers. The $1.5 trillion cost of the tax bill is a ten-year figure. The $15 billion in spending cuts are meant to hit in a single year. Presumably, Trump and his Republican allies will look for similar cuts in future years. This means that the cuts are 10 percent of the cost of the tax bill.
Of course, being larger doesn’t make them better since the cuts are focused on programs that benefit low- and moderate-income people. But if we’re keeping score, it is worth trying to be accurate.
It is also worth noting that neither Long nor any of her deficit hawk sources in this piece say a word about the implicit debt the government is creating for people through granting patent and copyright monopolies. Granting these monopolies is an alternative way to direct spending for the government to finance things like research and creative work.
The money committed as a result of these monopolies in the form of higher market prices is enormous. In the case of prescription drugs alone, it is likely more than $380 billion a year, or almost 2.0 percent of GDP. Adding in the cost of medical equipment, software, and other areas could well push the sum to more than $1 trillion a year, more than six times the cost of the Trump tax cuts.
Anyone who is really concerned about the liabilities that the government is creating for future taxpayers has to include the cost of these government granted monopolies. If they don’t factor in patent and copyright rights into their assessment of future burdens, they are either just trying to scare people to push a political agenda or very confused.
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I generally agree with Paul Krugman’s columns, and this is the case with his piece today on Republican efforts to kill Obamacare. However, there is one point where I have to take issue. Krugman tells readers:
“G.O.P. sabotage disproportionately discourages young and healthy people from signing up, which, as one commentator put it, ‘drives up the cost for other folks within that market.'”
The problem with Krugman’s comment is the “young” part. The exchanges need healthy people, it doesn’t matter whether or not they are young. In fact, it is much better for the economics of the exchanges if the healthy people are older, they pay much higher premiums.
The best way to understand the point is to think of the premiums as a tax. Old-timers like myself (ages 55 to 64, the oldest pre-Medicare age cohort) pay premiums or taxes, that are three times as high as young people. While people in this oldest age grouping are on average in worse health and have higher costs than younger people, a very large minority have trivial medical costs, just like most young people.
The exchanges come out much more ahead with a healthy older person than a healthy young person since they pay three times as much in premiums and cost the system no more money. There is an issue that the pricing is skewed somewhat against the young (true actuarial risk should put the premium ratio around 3.5 to 1, rather than 3.0 to 1), but this is of relatively little consequence for the finances of the exchanges.
It’s not a big deal in the scheme of things, but the inclusion of “young” in this story can be misleading. The key to keeping the exchanges working is getting healthy people to sign up, full stop.
I generally agree with Paul Krugman’s columns, and this is the case with his piece today on Republican efforts to kill Obamacare. However, there is one point where I have to take issue. Krugman tells readers:
“G.O.P. sabotage disproportionately discourages young and healthy people from signing up, which, as one commentator put it, ‘drives up the cost for other folks within that market.'”
The problem with Krugman’s comment is the “young” part. The exchanges need healthy people, it doesn’t matter whether or not they are young. In fact, it is much better for the economics of the exchanges if the healthy people are older, they pay much higher premiums.
The best way to understand the point is to think of the premiums as a tax. Old-timers like myself (ages 55 to 64, the oldest pre-Medicare age cohort) pay premiums or taxes, that are three times as high as young people. While people in this oldest age grouping are on average in worse health and have higher costs than younger people, a very large minority have trivial medical costs, just like most young people.
The exchanges come out much more ahead with a healthy older person than a healthy young person since they pay three times as much in premiums and cost the system no more money. There is an issue that the pricing is skewed somewhat against the young (true actuarial risk should put the premium ratio around 3.5 to 1, rather than 3.0 to 1), but this is of relatively little consequence for the finances of the exchanges.
It’s not a big deal in the scheme of things, but the inclusion of “young” in this story can be misleading. The key to keeping the exchanges working is getting healthy people to sign up, full stop.
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