The MC: The Mackinac Center Blog

More Confusion Over 'Affordable Care Act'

Court rules IRS illegally implemented tax credits

In a significant decision issued Tuesday, the United States Court of Appeals for the District of Columbia ruled that the IRS’s implementation of a significant portion of the Affordable Care Act (ACA) was illegal. The case is called Halbig v Burwell, No. 14-5018. The DC Court’s opinion was very much in line with the interpretation of the ACA urged by Michigan Attorney General Bill Schuette, who submitted a supporting brief on behalf of the state of Michigan in cooperation with the states of Kansas and Nebraska.

What the DC Court said was that the clear and unambiguous language of the ACA states that certain tax credits are available only to people who receive their health insurance through a “health exchange” created by one of the 50 states. These tax credits serve as a taxpayer-funded subsidy to those who buy insurance through the exchange. Additionally, the existence of these tax credits affects the penalties that the IRS uses to enforce the insurance mandate for both individuals and businesses. For individuals, the tax credit makes it more likely that a person who does not buy a qualified insurance plan will face a financial penalty. For businesses, the penalty kicks in whenever a business that employs more than 50 people has an employee who receives this tax credit. If the tax credit is not available, then there can be no penalty for the employer.

The states made a choice whether or not to create these exchanges, and Michigan’s legislators voted not to create an exchange but rather let the federal government create one for them. As Attorney General Schuette argued, this was a conscious choice because it excused Michigan businesses and some Michigan individuals from incurring the ACA’s insurance mandate penalties. As the attorneys general stated in their brief:

“[Michigan and the other states] seek to protect their decision to opt out of the benefits and burdens associated with establishing state-run marketplaces for selling qualified health insurance plans under the [ACA]. The Act expressly gives States this option. In States that opt out, federally funded premium assistance tax credits are not available to individuals who purchase insurance through the required fallback federal marketplaces. In turn, large employers (including States and their political subdivisions) are not subject to the employer mandate. But the Internal Revenue Service (“IRS”) has undermined the States’ policy choice by extending federal premium assistance subsidies to them anyway. As a result, the regulations expose otherwise-exempt individuals to the individual mandate and trigger the employer mandate in States—including [Michigan]—that properly chose to avoid these additional regulatory burdens.”

The DC Court said that under the plain wording of the statute, the federally created exchange did not qualify its participants to receive tax credits, and that many of the penalties found in the law do not apply to Michigan and the other states that did not create exchanges. The court said that for them to interpret the statute as the IRS and President Obama want them to do would be rewriting the legislation — which is not the job of the courts.

Does that mean that the subsidy tax credits are not available in Michigan, or that Michigan’s business and residents do not need to worry about the insurance mandate penalties? The answer isn’t clear yet.

In striking down the IRS’s interpretation, the DC Court of Appeals sent the matter back to the lower district court to issue an order in accordance with the appellate court ruling. Whether the IRS’s policy of offering credits to states that did not create exchanges will continue at least temporarily, or whether it will be immediately ended, will be determined by the lower court, unless the matter is first heard by the entire DC Court of Appeals. The makeup of the DC Court of Appeals was recently altered drastically by the addition of three of President Obama’s appointees, after the Senate took the extraordinary step of ending the possible use of the filibuster against appellate court appointees. 

To further cloud the outlook, another federal circuit, on the same day, ruled that the same IRS interpretation was acceptable because the ACA, as written, was ambiguous. The Fourth Circuit, which covers the Carolinas, Virginia, West Virginia and Maryland, held that the IRS has the ability to clarify matters that Congress left ambiguous.

The entire matter may require a decision by the Supreme Court. However, we may find out before then whether or not the current IRS interpretation of extending the tax credits to states like Michigan will continue or has been ended. This depends on what happens in the DC Circuit either at the district court level, or at a sitting of the entire DC Circuit Court of Appeals.

Obamacare's Survival up to State Legislators

Figures for Halbig's Michigan impact

The U.S. Court of Appeals for the D.C. Circuit has just ruled that the federal health care law does not authorize insurance subsidies provided through health care “exchanges” that were set up by the federal government. Only exchanges set up by the states can qualify for these taxpayer subsidies.

D.C. Circuit appeal rulings are especially signifigant because, unlike appeals courts for other districts, they can affect the entire nation, not just one region. Given a contradictory ruling from the Fourth Circuit Appeals Court (which directly affects four states in the Southeast), the issue is likely to be taken up by the Supreme Court sooner rather than later  

If this decision prevails (and to the extent the rule of law is actually enforced on the current administration's actions), the ruling might force the suspension of exchange subsidies in 36 states — including Michigan — whose legislatures declined to create a state-run exchange. That will all play out in the fullness of time, but here’s what the ruling means right now for Michigan:

Much of this state’s political class — including many of the politicians who voted for the Obamacare Medicaid expansion — will loudly demand that the Michigan Legislature immediately create a state exchange. The chorus will be led by the law’s cheerleaders in the mainstream media, and the state insurance industry (including the giant Blue Cross Blue Shield).

This case poses an existential threat to the law euphemistically known as “the Affordable Care Act.” If the current decision is upheld, the ACA’s survival will be in the hands of legislators in Michigan and 35 other states. In plain English, Obamacare will likely collapse if its subsidies are not available in more than half the states, or even a significant number of those states. One study shows that, thanks to rate hikes driven mainly by the law's coverage mandates, the cost of insurance for those who currently get subsidies would increase 76 percent on average nationwide, and 74 to 78 percent in Michigan.

Legislators who vote to keep the law on life support by creating a state exchange will find it very difficult to claim that they also “oppose Obamacare.” (In 2011 the Michigan Senate voted to create a state exchange, but the House never took up the bill; see Mackinac Center coverage here.)

In addition, under this ruling if Michigan creates an exchange it will expose many more businesses and residents here to penalties for noncompliance with the “individual mandate” and employer mandate. The Cato Institute’s Michael Cannon has written extensively about this case, and also provided much of intellectual ammunition upon which Halbig is based. He has run the numbers on the ruling’s impact in the 36 federal exchange states.* Here are the figures for Michigan:

  • Number of Michigan residents who would be freed by Halbig from the law’s individual mandate if Halbig is affirmed: 288,130
  • Number of Michigan businesses with more than 50 employees that would be freed by Halbig from the employer mandate: 10,574
  • Number of Michigan employees in those firms: 2,527,857

The following is speculation, but one outcome if the ruling stands - and the Michigan Legislature does not help maneuver around it — would be opportunities for individuals who would like to work full time but can only find part time jobs thanks to the employer mandate’s application to full time jobs (but not ones that provide fewer than 30 hours per week).

On that, the “household survey” component of the monthly employment report for June showed a nationwide decline of 523,000 full time jobs, and an increase of 799,000 part time jobs. (The component of the report that surveys employers showed a net gain of 288,000 payroll jobs.) These figures are subject to revisions that are often quite large, but they are still suggestive of magnitude of the employer mandate’s harmful effects.

*Sources:

Individual mandate exemptions: Explanation and methodology in “50 Vetoes: How States Can Stop the Obama Health Care Law,” Cato Institute, March 2013.

Employer mandate exemptions: U.S. Census data cited by Michael Cannon in “Halbig v. Burwell Would Free More Than 57 Million Americans From The ACA's Individual & Employer Mandates,” Forbes, July 21, 2014.

Exploring the Political Climate of Climate Change

"Average" and "normal" are not synonymous

Using polling to discover not only what percentage of voters believe in man-made climate change but also how much they know about related scientific facts could prove worthwhile. Survey questions might include asking voters if they believe greenhouse gases exist and, if so, whether they think that — if possible — all greenhouse gases should be eliminated.

One wonders whether most voters realize that without greenhouse gases in the atmosphere life on Earth would not be possible. Even man-made climate change advocates don’t dispute this fact. They admit that water vapor is by far the most plentiful greenhouse gas; while conspicuously refusing to represent water vapor on their charts.

The results of such polling could be fascinating. For instance, what if polling revealed that a marked difference in the level of scientific understanding exists between those who believe in man-made climate change and those who don’t? 

Or, perhaps the polling might show that voters in general have so little understanding of the science involved that their opinions tend to be based on factors outside the realm of science.

Man-made climate change dogma has been built on a mix of misinformation, mistruths, the threat of withholding research funding from scientists who publicly proclaim their skepticism, refusal to peer review and publish the studies of nonbelieving scientists, the labeling of nonbelieving scientists who have the guts to speak their minds as not being “reputable,” and most important of all — political and other self-serving advantages of perpetuating the myth.

During some recent internet surfing, this columnist watched a governmental hearing in Washington state that displayed another tactic of those who promote man-made climate change dogma. It is the use of trick statements.

The hearing featured a scientist who argued that man-made climate change was a hoax. An apparently sincere lawmaker read a statement to the scientist and asked him to respond. The statement was basically that: “Soon, no living person on Earth will have experienced — at any moment of their lives — a normal climate.”

Possibly believing the statement didn’t deserve a response, the scientist ignored it. This was unfortunate and represented a missed opportunity for a teachable moment. The scientist should have answered the question and done so in detail.

The point is that the statement was laced with double-layered deceit. First, the proper term should not be “normal,” it should be “average.” Substituting the word “normal” for “average” can be either a commonplace mistake or willful manipulation. The classic example is that for decades the “average” family in the United States had 2.5 children; but obviously the number of families that actually had two and a half kids was zero. Average and normal are not synonymous.

Therefore an accurate answer to the question would have had to be: “Yes, that’s true, but strictly speaking no animal or plant that ever existed on the face of this planet has experienced a “normal” climate, because there has never been such a thing as a “normal” climate.

OK, so for the term “normal climate” let’s substitute the term “average climate.” That will make the statement relevant.

If the time period used for comparison was limited to the past 600 years, which was dominated by roughly 500 years of a relatively colder climate — referred to as the “Little Ice Age” (a bad name because it wasn’t exactly an ice age) — then the answer would be that the people presently on Earth have lived during a warmer than average climate.

But if the time period used for comparison was the past 3,000 years, the people presently on Earth have lived during a cooler than average climate. If the time period used for comparison was the past 9,000 years — dating back to the retreat of the glaciers, the people presently on Earth have still lived during a cooler than average climate.

If the time period used for comparison covers the past 2.6 million years (our current era), the people presently on Earth have lived during a much warmer than average climate, because most of those 2.6 million years consisted of a series of glacial ages, during which time where we are sitting right now was usually under a mile of ice. If the time period used for comparison covered the past 115 million years, the people presently on Earth have lived during a drastically cooler than average climate, because about 110 million of those years took place in a different era during which there was no permanent ice cap on Earth, not even in Antarctica.

Meanwhile, climate predictions of scientists across the world who use the solar activity (sun spot) theory are proving more reliable than those of the man-made climate change crowd. But, possibly because little political advantage can be gained by admitting climate change is beyond man’s control, most of these scientists honor the “scientific method” and call their theory “just a theory” rather than proclaiming it an undeniable fact.

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(Editor’s note: Jack Spencer is Capitol Affairs Specialist for Michigan Capitol Confidential. He is a veteran Lansing-based journalist. His columns do not necessarily represent the views of the Mackinac Center for Public Policy or Michigan Capitol Confidential.)

Statewide Media Cite Center on Prop 1

Personal property tax issue on Aug. 5 ballot

An Associated Press story about the upcoming Proposal 1 on the Aug. 5 primary ballot cites a recent policy brief written by James Hohman, assistant director of fiscal policy, which shows the measure could be up to a $500 million tax cut.

The story appeared in Crain's Detroit Business, Traverse City Record-EagleBattle Creek Enquirer, Port Huron Times-Herald, Lansing State Journal, Grand Haven Tribune, Cadillac News and Midland Daily News. It was also cited in this online "editorial board" discussion at MLive.com.  

Lansing political newsletters MIRS and Gongwer earlier covered the policy brief.

While the Legislature is on a summer break from voting, the Roll Call Report is reviewing key votes of the 2013-2014 session.

House Bill 4714, Approve Medicaid expansion: Passed 76 to 31 in the House on June 13, 2013

To expand Medicaid eligibility to families and childless adults up to 138 percent of the federal poverty level, which implements a key component of the federal health care law.

Who Voted "Yes" and Who Voted "No"

House Bill 4668, Increase hunting and fishing license fees: Passed 77 to 32 in the House

To increase hunting and fishing license fees, and revise the fee structure. The cost for a resident to hunt deer would go from $15 to $31, and the minimum fishing license cost would increase from $15 to $26. The House Fiscal Agency reports this would extract an additional $19.7 million annually from sportsmen. This was one of several fee increases enacted in connection with setting state spending levels for the next fiscal year.

Who Voted "Yes" and Who Voted "No"

House Bill 4665, Increase landfill tipping fees: Passed 62 to 47 in the House on June 5, 2013

To extend until Sept. 30, 2015 a “temporary” increase from 7 cents to 12 cents on the per-cubic yard state “tipping fee” tax imposed on dumping in landfills, which was authorized by a 2011 law. This was one of several fee increases enacted in connection with setting state spending levels for the next fiscal year.

Who Voted "Yes" and Who Voted "No"

House Bill 4664, Allow pension double-dipping by some “retired” prison workers: Passed 58 to 51 in the House on June 5, 2013

To repeal a Sept. 30, 2013 sunset on a 2012 law that “temporarily” allowed retired prison employees to simultaneously collect pension benefits and a regular paycheck for going back to work in a prison. Under current law, prison guards can retire and begin collecting pension checks as young as age 51 in some cases.

Who Voted "Yes" and Who Voted "No"

House Bill 4813, Establish procedures for dissolving fiscally failed school districts: Passed 58 to 49 in the House on June 13, 2013

To establish criteria and procedures for dissolving a school district that has become so financially unviable that it can no longer educate students, and for attaching the failed district’s territory to one or more nearby school districts. The bill was introduced after the Buena Vista and Inkster school districts reached this state shortly before the end of the 2012-2013 school year.

Who Voted "Yes" and Who Voted "No"

House Bill 4529, Establish and impose minimum indigent defense standards: Passed 101 to 6 in the House on June 13, 2013

To establish statewide standards and accountability measures for court-appointed attorneys who represent indigent criminal defendants, and establish a process by which all counties in the state would be required to conform with the standards. The bill authorizes state grants to counties to cover increased costs.

Who Voted "Yes" and Who Voted "No"

House Bill 4668, Increase hunting and fishing license fees: Passed 24 to 14 in the Senate on June 19, 2013

The Senate vote on the fee increase bill described above. This was signed into law on September 17, 2013.

Who Voted "Yes" and Who Voted "No"

House Bill 4665, Increase landfill tipping fees: Passed 20 to 18 in the Senate on June 18, 2013

The Senate vote on the fee increase bill described above. This was signed into law on June 25, 2013.

Who Voted "Yes" and Who Voted "No"

House Bill 4664, Allow pension double-dipping by some “retired” prison workers: Passed 20 to 18 in the Senate on June 18, 2013

The Senate vote on the bill described above. The Senate extended the double-dipping authorization for two years rather than making it permanent. This was signed into law on September 24, 2013.

Who Voted "Yes" and Who Voted "No"

House Bill 4813, Establish procedures for dissolving fiscally failed school districts: Passed 20 to 18 in the Senate on June 19, 2013

The Senate vote on the bill described above. This was signed into law on July 2, 2013.

Who Voted "Yes" and Who Voted "No"

House Bill 4529, Establish and impose minimum indigent defense standards: Passed 33 to 4 in the Senate on June 19, 2013

The Senate vote on the bill described above. This was signed into law on July 1, 2013.

Who Voted "Yes" and Who Voted "No"

House Bill 4714, Approve federal health care law Medicaid expansion: Passed 20 to 18 in the Senate on August 27, 2013

The Senate vote approving the federal health care law Medicaid expansion. This was signed into law by Gov. Rick Snyder on September 16, 2013.

Who Voted "Yes" and Who Voted "No"

SOURCE: MichiganVotes.org, a free, non-partisan website created by the Mackinac Center for Public Policy, providing concise, non-partisan, plain-English descriptions of every bill and vote in the Michigan House and Senate. Please visit http://www.MichiganVotes.org.

Sentencing Reforms Could Save Tax Dollars

Council of State Governments issues recommendations

All criminal justice systems face competing tensions of protecting public safety while not overburdening taxpayers, and Michigan’s is no exception. Calls to reduce financial costs often face scrutiny on the grounds of potentially compromised security. In a Lansing hearing on July 1, which I was able to attend, the Council of State Governments brought to Michigan several suggestions related to criminal sentencing, claiming that these policy changes could ease the financial burden on taxpayers while simultaneously maintaining or even improving public safety.

The Council advocates for the greater use of “supervision terms” as part of criminal sentences, with close monitoring of parolees to help prevent re-offense. Time spent outside of a prison or jail costs the state substantially less than time spent inside, and also eases the transition of criminals back into the society of their home communities. In addition, standardizing and codifying parole practices as much as possible makes it easier to predict prison populations. Under the current system, with many parole decisions left to boards which are given wide discretion, prison populations fluctuate dramatically (page 24) even as criminal convictions hold steady.

To further promote consistency on criminal sentencing, the Council recommends the reduction or elimination of “straddle cells” (page 13) in Michigan’s sentencing system. These cells correspond to offenders in particular circumstances who could legally receive jail or prison time, but whom the judge could let off with only a fine or probation, according to his or her discretion alone. The Council maintains that due to the incredible disruptive effect which even short jail terms can have on a person’s life, the law must be made explicit as to which crimes merit incarceration and which do not.

All parties to the current discussion over criminal sentencing reform recognize recidivism (page 48) as a major detriment to both public safety and public finances, but often hold conflicting ideas regarding addressing this problem or even defining it. The Council calls for Michigan to focus its resources on proven criminal re-entry programs for both current prisoners and the recently released, and to pull funding from those without a good track record of reducing recidivism. Increased counseling and programming available for probationers, convicted of relatively minor crimes, could also help in the fight to prevent repeat offenses and potential escalation.

The Michigan Law Revision Commission will consider these recommendations over the coming weeks. The Mackinac Center has previously commented on other potential savings to be found in the corrections budget via reducing employee costs and looking into privatization.

Hohman to talk at 'Detroit Rising' Panel Friday

Also, how "progressive" policies damaged the city

James Hohman, assistant director of fiscal policy, will participate in a panel discussion from 8:30 to 10 a.m. Friday as part of an event titled “Detroit Rising.” The two-day event, sponsored by the Manhattan Institute and State Budget Solutions, kicks off Thursday at 5 p.m. with a panel discussion titled “How the Motor City is Rebuilding and Returning to Greatness.” Friday’s session is titled “Learning from Detroit: Hope for Cities on the Brink.” Both panels will be streamed live.

Also in Detroit this weekend is an event known as “Netroots Nation,” self-described as a “big family reunion for the left.” One progressive Michigan website, ironically, carries this headline about the gathering: “We’re in Detroit. It’s going down.”

You can read about the “triumph” of progressive policies in Detroit here.

Pension Malpractice and Fund Raids

Everyone's doing it!

A Wall Street Journal editorial bemoans gimmicks used to “pay for” a federal road funding bill without either raising taxes or cutting other spending, which was passed by the U.S. House of Representatives yesterday:

“Ways and Means Chairman Dave Camp is paying for the additional spending with a combination of new custom fees, transfers from a fund to repair leaky underground fuel-storage tanks, and changes to pension taxes. This "pension-smoothing"—which will supply $6.4 billion of the revenue—is an especially ugly budget ruse, and thus increasingly a Congressional favorite.

“Under smoothing, employers are given permission to delay contributions to pension plans, thereby increasing corporate taxable income. That pushes immediate money to the Treasury, but at the cost of piling up pension liabilities in the longer-term, hurting employees and potentially the taxpayers who might have to bail them out. Congress used the same imaginary revenue-raiser to fund the 2012 highway bill, and the Members know most of the media won't report the boring pension details.”

Congressman Camp served one term in the Michigan House of Representatives back in 1988-1990, and as a Congressman perhaps he’s been looking to the gang at his old gig for bad ideas, because both the pension dodge and the raid on a fuel tank cleanup fund have both featured in the Michigan Legislature’s playbook over the past decade, as documented by MichiganVotes.org:

2004 House Bill 6074: Fuel tank cleanup tax "fund raid"
Public Act 390 of 2004

To extend the 7/8ths cent-per-gallon fuel sale "regulatory fee" (tax) levied for the cleanup of underground fuel tanks, and authorize a $43 million "fund raid" on the underground tank cleanup fund to avoid making spending cuts in the 2005 budget.

Passed 87 to 13 in the House on July 14, 2004 - Who Voted "Yes" and Who Voted "No"

Passed 32 to 5 in the Senate on September 29, 2004 - Who Voted "Yes" and Who Voted "No"

Signed by Gov. Jennifer Granholm on October 12, 2004.

2007 House Bill 4530: Balance budget with reduced school pension fund contribution
Public Act 15 of 2007

To allow a one-time revision in the formula used by the school employee pension fund to determine how large an annual state contribution is required. One of the elements in the formula is the value of equities (stocks) in the pension fund’s portfolio, and the usual practice in determining the required annual contribution is to use a five-year moving average of their value, to account for market fluctuations. The bill would allow a one-year average, which given a strong stock market in the past year, has the effect of reducing the state contribution by $190 million less than the true actuarially sound amount.

Passed 107 to 1 in the House on April 17, 2007 - Who Voted "Yes" and Who Voted "No"
Passed 37 to 0 in the Senate on May 22, 2007 - Who Voted "Yes" and Who Voted "No"
Signed by Gov. Jennifer Granholm on June 6, 2007.

This is not to beat up too much on Mr. Camp, who as much as anyone is a captive of a growing institutional breakdown in Washington under the current administration. The Journal explains:

“Mr. Camp's hand was somewhat forced by a last-ditch Democratic effort to raise the 18.4-cents-a-gallon gas tax. With the failure of President Obama's $300 billion blowout, the House Democratic fallback was to pass a patch that would expire at the end of this year. Their betting was that they and the business community (which wants higher gas taxes) could then leverage a lame-duck session to jam Republicans into a tax hike. Mr. Camp's 10-month extension at least avoids that box canyon.”

Michigan Future Report Doesn't Add Up

Academic research favors low-tax states

A recent Michigan Future report calls into question a common economic theory: increasing taxes tends to lead to less private-sector growth. Comparing Michigan’s economic performance over the last two decades to that of Minnesota’s, the report claims that “rais[ing] taxes on the wealthy and businesses to invest even more in public services” was the Gopher State’s key to success. While this anecdote convinced the Detroit Free Press, a large body of economic research does not support this view.

For example, a new working paper published by the Mercatus Center empirically examines the relationship between state taxes and economic growth and finds evidence exactly contrary to the Minnesota anecdote. Pavel A. Yakovlev, an economics professor at Duquesne University, analyzed data from 49 states from 1977 to 2000 and controlled for differences in average age, educational attainment, federal employment, natural resources, population density and a variety of other factors. He then attempted to capture state economic performance by measuring year-to-year growth in gross state product per capita, growth in the number of businesses and net migration rates.

The results of his research support the common economic theory: higher average tax rates tend to have a negative and statistically significant relationship to state economic growth. Specifically, Yakovlev found that a 1 percent increase in average tax rate led to a 1.9 percent decrease in gross state product growth from 1977 to 2000. Similar effects were found on other measures: increases in taxation rates lead to fewer new businesses in a state and a higher probability that residents will migrate to lower taxed states.

The Michigan Future report fails to show causation for the Minnesota-based narrative that higher tax burdens and more government spending lead to increased state-level economic growth. But even if this were true for Minnesota, considering the broad economic research literature, policymakers should view the Gopher State as the exception, rather than the rule.

Michigan Education Digest

NEA prez suggests teacher assessments are "satanic"

The newest edition of Michigan Education Digest is available here. Topics include the new National Education Association president calling value-added assessments for teachers the “mark of the devil,” why the University of Michigan has to pay a student group $14,000 to settle a lawsuit, and how privatizing noninstructional services could help Flint schools reduce its overspending crisis.