Default, Again

For my part, there appears to be an eminently reasonable approach to the stalemate that has resulted in the Federal government shutdown: postpone the Obamacare penalty for not carrying insurance for one year.  People would still have the option to buy the insurance, and receive subsidies (perhaps reducing them a few ticks to balance the penalties that won’t be collected).  It would balance the Administration’s unilaterally postponing the Obamacare employer obligation for one year.  In fact, I believe that House Republicans proposed such an approach, but Harry Reid, the Senate Majority Leader, rejected it out of hand.

Meanwhile, on top of the government shutdown (which has in fact left about two-thirds of the government up and spending), we now face a deadlock over the debt ceiling.  We went through this a couple of years ago, and if we had adults in charge, I wouldn’t be particularly worried.  If the government cannot borrow money, the 14th Amendment means that its debts are sacrosanct.  The government must pay its debts, which includes paying interest and principal on its bonds, and paying contractors and employees for services rendered.

Everything else is fair game.

If adults were in charge, they would follow the 14th Amendment, pay the debts, then prioritize the other expenses (aid for states and localities, ongoing procurements and government services that can be shut down, foreign aid, and–the elephant in the room–entitlements) and pay what they can from the remaining funds.  It’s what the rest of us do when we have a case of the shorts.  In fairness, the immediate effects would not be good for the economy.  But we would be facing reality, which is the first step to actually fixing things.

Alas, we don’t have adults in the room anymore.  One of the disconcerting parts of the Syria debacle a month ago is that the only person who seemed to have his head on straight was Vladimir Putin.  Our President and Secretary of State came across as damned fools.

That’s the real scary part.

4 thoughts on “Default, Again”

  1. Much of the money being spent by the government currently is from funds appropriated in the last fiscal year. Technically, it is not new spending, but merely the execution of previous appropriations. For instance, FY13 R&D funds can be spent through the end of FY14, and FY13 military construction funds can be spent through the end of FY17. The parts of the government that are entirely shut down are those that relied on last year’s continuing resolution for all of their funding.

    I’d argue that the penalties under the ACA for failing to be insured are not high enough. Given a choice between paying for, say, the bronze plan, and getting nothing for the same money if you are certain to be caught. most people would choose to buy the insurance. The IRS is administering the enforcement of the program, so want to bet that there will be a line on your tax form that asks you to list your insurance carrier and your policy number (or Medicaid number) next year? They are good at matching income to your Social Security number, so why not ask for your insurance information so it can be cross-checked?

    At some level, Congress likes sequestration because it enforces across-the-board cuts and puts those cuts in the hands of unelected bureaucrats, allowing Congress to avoid taking the heat for those cuts. The black hole is the Medicaid expansion.

    Utilization rates will matter hugely with the costs of the ACA. One reason that health insurance premiums have gone up so much is that insurers are predicting greater than usual demand for services from newly insured people, and spreading them over the entire pool of insured people.

  2. I’m sure it will be debated if it comes to that, but sorry, appropriation is not debt. A debt exists when you receive something of value from another party in exchange for a promise to repay that party. An appropriation is a promise the government makes to itself.

    The ACA penalties go up in successive years, but are still cheaper than the ‘bronze’ plan. And it’s pretty certain that you’ll get caught. Large employers this year, and all employers next year, have to report health insurance premiums paid on W-2 forms; insurers collect your SSN and would presumably report it to the government. (In a simpler time, before we worried about identity theft, insurers commonly used one’s SSN as an account number.)

    It would be understandable for Congress to default on the need to manage a default, as was done with sequestration. The evil thing is that the activity defaults to the executive, and President Obama seems more than willing to score political points than to actually manage the problem.

    In New York, many of the requirements of the ACA were already law. We went one better, requiring level premiums regardless of one’s age. And the Obamacare premiums for NY are in fact a few ticks cheaper than employer group insurance. But other states allowed insurers to reject applicants for pre-existing conditions, and charge different premiums for men and women, and in those states, premiums would necessarily skyrocket.

  3. If people have income that is reported on a Form 1099 (most frequently used for income paid to independent contractors or interest and dividends) or a W-2, the IRS is brilliant at matching that income to your Social Security number. I’ve gotten letter audits from the IRS on dividend income as little as $15 that they claimed that I failed to report, so I have pretty good confidence that people will be caught if they don’t buy the health insurance. It is also why I expect to have to list my insurer on my tax return for my 2014 return, and possibly for the 2013 tax return.

    One of my favorite IRS stories concerns the number of people who stopped being claimed as dependents and who did not appear on any other tax return after the IRS started requiring that Social Security numbers of all dependents be listed on the return, something like 8 million people. Given a population of a certain size, we expect some number of people to become old enough to start filing their own tax return annually. We also expect some lesser number of people to become dependents again, due to age or infirmity. That a large number of dependents just disappeared makes me think that lots of people were claiming their dog or cat as a dependent.

    For what it’s worth, the federal government has been listing the amount of money paid toward employee health insurance premiums on the W-2 for at least five years. Federal employees enjoy the benefit of so-called “premium conversion”, which is the ability to pay for health insurance premiums with pre-tax money. Suppose that I pay $1300 a year for a self-only health insurance plan. When I get my W-2, my taxable income is $1300 lower than the income subject to FICA/Medicare tax. This saves about $350 a year in taxes.

  4. No clue what is fact and what is fiction.

    Not anymore.

    Keep your nose clean, do what you gotta do or go live in a cave and see if that helps.

    Or be like one of those doomsday weirdoes who have bunkers to sustain them for at least a couple years.

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