Thursday, August 18, 2011

The Big Lie About Deficit Reduction and Taxing the Rich

Following up on my post about Health Insurance Companies and Executive pay, I thought I would take a look at another liberal meme related to “the rich” and the budget deficit. This takes one of three forms: the rich are tax dodgers who use loopholes and other “tricks” to get out of paying taxes, the rich do not pay their “fair share” and can afford to pay more, or the Bush tax cuts, especially for the rich, are what are causing our large deficits. I’ll tackle each of these in turn.

Refer to the chart below. It gives revenue data from the IRS for 2009 (the most current year available). I have broken the data up into three income classes: poor, middle, and rich. The “rich” are classified as making $200k and above in adjusted gross income (AGI). The poor are classified as making $25k or less and the middle making everything in between. (Click on the chart to see it full size.)

The first complaint about “the rich” is that they use accounting tricks, loopholes, and down right criminal actions to dodge paying their taxes. Actual IRS reporting of the taxes paid by people making over $200k AGI shows this to be completely false. Let’s look at two concrete proofs.

Look at the column under Income Tax labeled “As Percent of AGI”. This is the actual tax paid as a percent of AGI. Note that EVERY income bracket pays less in actual tax percent of AGI than the tax bracket they are in. But “the rich” pay far more than any other class overall. Moreover, when looking at the gap between actual percent of tax paid versus tax bracket, “the rich” are much less “tricky” in reducing their tax liability than any other income group. Clearly, “the rich” are not evading paying taxes.

Even more conclusive is the column under Taxable Returns labeled “As Percent of Returns in AGI Category”. This is the actual returns that had payable tax as a percent of all returns filed in the income bracket. EVERY “rich” income bracket has payable tax on greater than 99% of the tax returns filed. The percentages drop dramatically from there. Clearly, the rich are not using accounting tricks to avoid having any tax on their income.

So, it is a lie to say that “the rich” are avoiding paying their taxes. But are they paying their fair share of taxes? We turn to that charge next.

As noted above, “the rich” pay between 19 and 26% of their AIG in taxes – far more than any other income bracket. But what is their overall contribution? Just because they pay a “larger” share of income doesn’t mean it is a proportional share compared to the revenue burden carried by the other classes?

Look at the following columns. Under Total Returns, look at “As Percent of Total Returns”. Under Income Tax, look at “As Percent of Total Revenue”.

The first column shows what percent the tax filers are in a particular income bracket or class of the total tax filing population. “The rich” make up roughly 3% of all tax filers.

The second column shows what percent the taxes paid are of total revenue. “The rich” paid roughly 50% of all taxes (actually, just over 50%).

The standard way of putting this is “the rich” make up only 3% of the tax payers but pay over 50% of the taxes. Put another way, a very small minority of tax payers bear more than 50% of the tax burden. Is that fair? It is a very subjective question. But by any measure, it is very clear that “the rich” pay a significant “share” of taxes. Their “share” of the tax burden is enormous. In fact, their “share” constitutes “most” of the taxes paid.

Conversely, the poor make up 42% of tax payers but their “share” of the tax burden is only 1%. Is that fair? Again, it is a subjective question.

Moving on to those evil Bush tax cuts. Another claim is that the ballooning deficit is due primarily to these reductions in tax rates for middle and upper income tax payers. We will see in a moment exactly what that impact is, but let’s deal with the cuts first.

The tax cuts provided a 5% reduction for most low income earners, a 3% reduction for most middle income earners, and a 4.6% reduction for most upper income earners. In theory, these cuts were to be offset by increased economic activity and therefore, essentially, they would pay for themselves. This is classic supply side economics. There is no direct way to really measure if they did in fact pay for themselves, although general income tax revenues went up each year from 2003-2007. At best, we can probably say only that the impact, if negative at all, was only slightly so.

In general, it is at best unfair and at worst a complete lie to say that “the rich” are avoiding paying taxes, don’t pay their fair share of taxes, or benefited to the detriment of the country from the Bush tax cuts. Even still, our annual budget deficits are out of control. Surely if the rich (and to a lesser extent all other tax payers) were taxed more we would be able to bring our budget into balance, wouldn’t we? Let’s see. Please refer to the last three columns in the chart where I analyze the impact of two revenue increase scenarios on the budget deficit.

The column labeled “Eliminate Bush Tax Cuts” looks at the revenue increase if we adopted Presidents Obama’s approach during the budget debates of 2010 and eliminated the bush tax cuts for the middle and upper income brackets. What I have done is increased revenue in the “middle” class by 3% and the “rich” class by 4.6% to approximate the effect. The total reduction in the deficit brought about by this increase in revenue would be $400B. That is a pretty big number, until you realize the deficit in 2009 was $1.41T. So, the Presidents proposal would only cut the deficit by apx. 28%.

The next column labeled “All Pay ‘Fair Share’” takes an even more drastic approach, at least for the lower and upper classes.

For the lower class, I increased their tax rate another 1%. Considering the majority of “the poor” pay zero in taxes (only 25% percent of filers have any tax payable) and the most any of them pay of AGI is about 1%, I think this is only fair. After all, how can $0 be considered a “share” of anything, let alone a fair share.

For “the rich”, I doubled what they pay. That means that most people earning over $200k AGI would be paying just under HALF of every dollar they make to the government (and getting little to nothing in return for it). Is that fair? I certainly don’t think so, but, after all, they can afford it so why not.

What is the impact of this “fair” revenue collection? The total reduction in the deficit brought about by this increase in revenue would be $758B. Now we’re talking! Yet that still only reduces the deficit by a little more than half. In fact, in order to eliminate the deficit through revenues, you would have to increase tax rates on the rich by more than 3 times their current level to roughly 77% of AGI, a level that even socialist, nanny state Sweden would be ashamed of.

What is the moral of this story? Our deficit is NOT A REVENUE PROBLEM. The reason the deficit is out of control is we are spending way too much. Eliminating the Bush tax cuts won’t solve it. Heck, even imposing ridiculous tax rates on “the rich” and making “the poor” pay way more than they ever have won’t do it. Unless we significantly reduce our spending, we will never have a balanced budget in this country and each year we will get closer and closer to being the Greece of the Western Hemisphere.

Wednesday, August 10, 2011

The Big Lie About Health Insurance Companies and Executive Compensation

We were visited this week by my wife's brother and his wife and in the course of the many conversations we have had we were at one point subjected to the classic "health insurance companies are evil and their executives are greedy crooks who raise premiums to line their pockets" meme. My brother-in-law, of course, knows that my wife and I work for the biggest, baddest, most evil healthcare company of them all. And I know, of course, that he is just repeating what he has been told by the liberal media and elites without actually doing the math. But still, he believes it, and neither my wife nor I had a chance to offer a rebuttal. So I thought I would do it here.

Now, before I start, I want to lay some groundwork. I know that executives in healthcare companies, like many industries, make a boat load of money. Our chief executive last year earned $1.3M in salary, $3.5M in bonuses, and $6.0M in stock and option grants, for a total 2010 compensation of $10.8M. That is a LOT of money. We can debate whether or not his and other executive's compensation is deserved. (We could have the same debate about athletes, movies stars, most of the members of congress, of course the President, and, oh, btw, tv news anchors(1).) But that isn't the accusation being leveled by my BiL. The specific charge is that health insurance company greed in general, and executive compensation in particular, are a DIRECT cause of premium increases.

So, I set out to determine exactly what contribution executive compensation makes to premium cost. I looked at the top executives of our employer because, as mentioned before, we are the biggest healthcare company of them all in terms of revenue and therefore, presumably, are the biggest crooks of all when it comes to compensating our executives on the backs of the little people we insure. I also looked at the general financials of our company to see if we really are gouging our customers to pad our bottom line. Below are the results. (Click on the chart to see it full size.)

As you can see in the chart above, if we were to completely eliminate the compensation of our top 5 executives and use that savings to reduce premiums, we would be able to reduce premiums by only 4/100ths of a penny per dollar of premium or roughly 4 cents per hundred dollars.

But total compensation doesn't paint the correct picture. Stock and Option grants are not taken out of revenue and therefore have zero impact on premiums charged. The correct analysis involves only salary and cash compensation, i.e. executive "pay". If we take this metric against revenue, we see that eliminating all executive "pay" would amount to only a 1/100th of a penny reduction per dollar of premium or 1 cent per $100 dollars, or even more dramatic, just a dime per $1,000 of premium. The fact is, the money we pay to our executives is a very small fraction of a percent of premium dollars and in no way influences premium increases.

Of course, I know this to be true already. I work in finance and see exactly how premium dollars are spent. Look at the item in the chart labelled Medical Loss Ratio (MLR). This is the amount of premium dollars that goes directly out to paying members' medical bills. It is around 80%, and has remained consistently in that range year over year(2). When we do analysis to support rate renewals, this is the item that we focus on. Premium increases (or decreases) are directly proportional to the movement of MLR year over year. The fact is that any increases in premiums that we issue are A DIRECT RESULT of increases in medical costs that we must pay out.

And what of the charge that we hoard all those premium dollars to increase our profits? Well, as again can be seen in the chart, our profit margin for 2010 was 5.4%. I think anyone would agree that this is a very modest profit. In fact, profit margins in the 4-6% range are the norm across the entire health insurance industry. The fact is that the health insurance industry is one of the most competitive, least profitable industries(3) in this country. We simply can't raise premiums to pad our profits for if we did, we would get outbid for business.

The liberal media love to throw out whole dollar amounts to shock people into thinking that health insurance companies and their executives are robber barons. I'm sure if ALL you ever heard was that United collected $85 BILLION in premiums or made $4.6 BILLION in profit, or that its chief executive made $10.8 MILLION in compensation, you would be shocked. And without being told what those dollar amounts were as a percent of revenue, you would be inclined to think that my employer is indeed the epitome of evil "big business" greed. But I implore you, before you jump to conclusions based on the slanted stories you read and see: "do the math". Yes, those are large dollar amounts. But are they a result of gouging our customers? Absolutely not.

(1) Bill O'Reilly and Keith Olbermann made apx the same amount in 2010 as Steve Hemsley, President and CEO of UnitedHealth Group. The next time one of these "news" anchors goes on a rant about evil greedy corporate executives, ask yourself who has earned their salary more: some bloviating tv talking head or the head of a multi billion dollar international company responsible not only for helping manage and deliver care to 75 million Americans but also watching over and guiding the 80,000+ employees who serve those Americans.

(2) The federally mandated MLR in ObamaCare is 85% for large group insurance, and 80% for small group and individual insurance, and we are currently restructuring our products to meet that guideline. Still, this increased MLR over the 80% "norm" in the industry will cause many, many people to actually LOSE their insurance coverage because, frankly, companies can't remain profitable at an 85% MLR. We are big enough to survive and absorb the increased hit to our finances. But this change will cause some health insurance companies to go out of business (it has begun already) and others to terminate some plans and members.

(3) In the most recent data available, the Accident and Health Insurance industrial group ranked 96th , and the Health Care Plans group ranked 144th, out of 216 Industries on the Yahoo Business ranking of profitability.

Tuesday, April 12, 2011

Sharks and Jets on Swing Night at Famous Dave’s

No, there were no star crossed lovers or gang rumbles on the dance floor last night at Famous Dave’s in the Uptown area of Minneapolis. But there was a clash of cultures. West Side Story features the irreconcilable differences between two Ethnic cultures. Last night I observed the much less violent and even somewhat humorous intersection of two dance cultures – salsa and swing.

A little background is in order. The Uptown Famous Dave’s restaurant at Hennepin and Lake in southwest Minneapolis doubles as a live music hot spot. Although mostly a blues club, on Monday and Tuesday nights they offer music and dancing in arguably the two most popular dance genres for young people today: Monday night is swing night; Tuesday is salsa night.

My wife and I love to dance. Although we dabble in a variety of dance styles in the general social/ballroom repertoire, we are primarily swing dancers. Now, we won’t pretend to be able to keep up with the 20 something’s who tear up the floor on a typical Monday swing night, but for 50 something’s we hold our own. What I’m trying to say is that in terms of dance culture, we are clearly Jets…er…swingers.

This was painfully clear one of the nights we tagged along with our daughters to a Tuesday salsa night at Famous Dave’s. Although I can do the steps and execute the figures involved in salsa dancing, I am no salsa dancer. I don’t get it; I don’t feel it; I don’t live it. One of my daughters succinctly summed up my effort at the end of the night: “Dad, it’s just too ‘swingy’”.

Well, last night I saw the other side of the mirror. I don’t know if the guy just got his calendar wrong and thought it was Tuesday, or if he truly just loves to dance so much he is willing to step out of his Sharks' territory and cross over to Jet turf, but he clearly was in culture shock. To paraphrase my darling daughter, his dancing was just too “salsa-y”. Don’t get me wrong, he was a really good dancer. I could see he had all the steps down and all the right moves, but there was something noticeably “off” about his dancing. It just was not swing.

“What”, you may ask, “could possibly be so different that you can tell someone is steeped in one style while dancing the other?” Well let me tell you.

Salsa and swing styles[1] are polar opposites. They are the ying and yang, the north and south pole, the Sharks and Jets of up tempo social dancing. One might think it is just because the musical basis is different – African/Latin American for salsa vs. jazz/blues/rag time for swing. But it goes far beyond that. At the core, the difference is in the physics of the dances themselves.

Salsa is smooth where swing is bouncy. In salsa the woman is continually drawn in where in swing she is constantly being cast out. Salsa is a face to face rendezvous; swing is two ships passing in the night. Salsa is a paper clip; swing is a rubber band. Salsa is a chili pepper roasting; swing is popcorn popping. Salsa is controlled; swing is frenetic. Salsa is all hips and arms; swing is all elbows and feet. Salsa can make you blush. Swing can make you bruise. Salsa is intimate where swing is anything but. Salsa is sexy! Swing is sassy!

So, why do I even care? Two reasons. First, I would like to become a better salsa dancer. Although embarrassing my kids is one of the few pure pleasures I have in life (and just compensation for the teen years), I prefer to do it without embarrassing myself at the same time. I think salsa proficiency is within my grasp.

Of course, the mirror has two faces. We are travelling to CA next month to visit our daughters and our older daughter would like us to teach her Latino boyfriend how to swing dance. He is a very good salsa dancer, and I’m sure he will have no problem with the steps. It is more a physics problem. After last night’s Shark-Jet encounter, I think I know where to start.

[1] For the dance virgins out there - salsa and swing are not just specific dances, they are families of dance. Salsa encompasses salsa, cumbia, bachata, merengue, and others. Swing includes east coast swing, lindy hop, jive, charleston, and others. Here I am referring far more to the families than the individual named dances, as most accomplished dancers in either style shift seamlessly (almost magically) between different dances in the family even within the same song.

Saturday, February 26, 2011

Eve the "Helper" - The Complete Picture

In my last post, I dug deep into the Biblical use of the Hebrew word ezer as it relates to God, and subsequently, Eve. But God's intent in his provision for Adam is not fully described by this one word. Now I would like to expand the inquiry to the full phrase that describes what exactly Eve will be for Adam.

For this post I will be using, for purposes of comparison and contrast, two translations of ezer k-neged-u from Genesis 2:18.

King James Version
And the LORD God said, [It is] not good that the man should be alone; I will make him an help meet (ezer k-neged-u) for him.

The Lord God said, “It is not good for the man to be alone. I will make a helper suitable (ezer k-neged-u) for him.”

“help meet” vs. “helper suitable” - there is quite a disparity between the two translations. The King James sounds strange to our contemporary minds. It may surprise the reader that “help meet” is actually a far more literal, and accurate, translation than “helper suitable”.

Let's begin with ezer again. There is a subtle difference between the English words “help” and “helper”. The latter is part of the solution to a problem but the former is the solution in and of itself. We see that when the word is used for God. In most cases, God isn't a “helper” per se, leaving it up to us to help ourselves to some degree. No, God is the all inclusive “help”, without which we would be completely helpless.

Which state did Adam find himself in, one where he needed a little assistance or one where he was completely hopeless. Remember that Adam did not need help with any domestic tasks. That is not what Eve was created for. Genesis 2:18 is crystal clear that the only condition that was not good and therefore required a help was Adam's state of being alone. In fact, Adam was hopelessly alone and could do nothing on his own to remedy that situation. This became even more stark of a reality when God had him name the animals and he found none that could cure his alone state. So, did Adam need a helper to fix what was “not good”, or did he need an all encompassing “help”. To me, it is clearly the latter. Eve was Adam's “help”.

This seems like a nit picky semantic exercise to go through but it is important because of the subtle differences between the English words. To an English speaking mind, helper immediately brings to mind synonyms like “assistant” which leads easily to “subordinate”. It is this very thought process, coupled with the tendency to think Adam needed help with the gardening or something, that leads people very easily to believe that Eve was made to be under Adam's authority. Using “help” instead of “helper”, while a little clumsy linguistically, fits much better with the context and reality of Adam's need.

Now on to this other word, neged that translates as “meet” vs. “suitable” in our two example verses. Beginning again with the NIV. To me, “suitable” is a terrible word to describe a person. It makes Eve in the context of the passage sound like some kind of tool. After all, if you need help with domestic chores, the most suitable helper is a domestic servant is it not? Again, it is nit picky, but I really think there are better words than “suitable”, and indeed many translations use alternatives that don't sound quite as domesticating. More on that in a minute.

Turning to the King James, a contemporary English speaker is initially quite stumped. What in the world does “meet” mean? Often we jump to a conclusion: “Well, 'meet' must mean that Eve 'meets' Adam's needs”. While that isn't the worst thought in the world, it really misses the true meaning of this word. Often too, people who have just heard the verse without reading it erroneously translate this as “helpmate” (although one translation – Darby – makes the same mistake). This is going in the wrong direction all together.

The Hebrew word neged actually means “in front of”, as in “standing face to face”. In negative contexts, it means to “oppose”. In positive contexts, it means one thing compliments or corresponds to another thing. So, literally, the King James translation of “meet” is very accurate. Eve is a “help” that “meets” Adam face to face.

Putting that together, can we find a better translation of ezer k-neged-u that removes all aspects of hierarchy and shows the true purpose behind Eve's creation for Adam? I think there are several good candidates.

The New Living Testament phrases it “a companion who will help him”. I certainly agree with the companion part, but I think we can do better.

The New King James has “helper comparable”. That's a little better. And even better still...

Young's Literal translation renders it “helper -- as his counterpart”. That isn't too bad. It certainly removes any thought that Adam was the boss of Eve. “counterpart” and “partner” are very similar words and they really get the sense of neged. Which leads to...

The New American Bible has “suitable partner”. I like “partner”, but as stated before I'm not so keen on “suitable”

The New English Translation gets a little wordy with “a companion for him who corresponds to him”. Seems “corresponding companion” would have done just as well. Never-the-less, I like this. “Companion” focuses on the correct context for the help Eve provides and “corresponding” gets the correct sense of neged. All things considered, this is my favorite.

Eve was indeed Adam's companion, not his helper. This is the correct understanding of ezer in the context, for the problem Adam needed help with was his alone state. A companion was the very “help” that fixed Adam's “not good” state. And she indeed corresponded to him. She was not his clone, but instead was his “standing in front of him” compliment.

Monday, February 14, 2011

Eve the "Helper" - The Wit and Irony of God's Word Choices

Much has been made of the designation of Eve as “helper” for Adam in Genesis 2:18;20. Some claim that it means Eve was designed to provide Adam some domestic aid as he went about his preeminent job of tending the garden. Kind of a “maid with benefits”, if you will. On the other end of the spectrum (where I fall), some point out that the word often translated as “helper” is a word in Scripture that is almost universally used for God. If God is not subordinate to us, how could Eve be subordinate to Adam. Those positions have been long discussed, including here, and I do not intend in this post to resurrect that tired debate (especially since it is clearly settled in my mind). Instead, I want to share a small but significant new irony that I have discovered about this little Hebrew word - ezer.

As mentioned above, the word ezer more often than not is used of God in scripture. In fact, of the 19 occurrences outside of Genesis 2, all but three are in reference to God. But what does this word say about God? And how is that ironic in terms of how we view both Genesis 1-3 and marital relationships in general? Let’s look.

In 5 of the 16 God-reference verses[1], God is spoken of as a “shield of…help” or “help and…shield”. In these verses, God is clearly identified as a protector. He both fights off foes and shields His people from their attacks. One legitimate interpretation of ezer, then, is clearly “protector”.

In 7 more of the 16 verses[2], God is spoken of as a provider or supporter. Phrases such as “may he send you help (ezer)…and support”, and “my help (ezer) comes from the LORD” are examples. So, “provider” is another prominent (in fact, the most prominent) general interpretation of ezer.

“Provider” and “protector” - there is something very familiar about those two words. When do we often hear them in connection with marriage? It is, of course, almost exclusively in reference to husbands. Culture (and many Christian philosophies) tells us that the males are the sole providers and protectors in the marriage and the females are the sole nurturers. Isn’t it ironic that the bible tells us the exact opposite.

Now, to be fair, the translation of ezer as it relates to God that best describes Eve in relation to Adam is “rescuer”, as in “you are my help (ezer) and deliverer”. That occurs in 3 of the 16 verses[3]. The “help” that Eve provides is actually to rescue Adam from his “not good” state of being alone by being an equal partner[4] with him. Still, I can’t help but chuckle that God in His infinite wisdom also turns the concept of gender “roles” on its ear in His provision of Eve for Adam.

1. Deu 33:29, Psa 33:20, Psa 115:9-11
2. Psa 20:2, Psa 89:19, Psa 121:1-2, Psa 124:8, Psa 146:5, Hsa 13:9
3. Exd 18:4, Deu 33:26, Psa 70:5
4. The final verse with ezer referring to God - Deu 33:7 - shows God as a fellow warrior, standing side by side as an equal with His people.