Grassroot Perspective – Feb. 11, 2003-Bailing Out the States; Doing Medicare Right

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”Shoots (News, Views and Quotes)”


– Bailing Out the States

Author: The Editorial Board

Source: The Wall Street Journal, 01/08/03

The best way to help states out of their current fiscal crises is to
reform the mandates Washington imposes on governors, especially through Medicaid, says The Wall Street Journal. Federal aid, as suggested by Democrats in Congress, would be “a perverse reward for the wildly irresponsible spending of many states during the 1990s boom, and a punishment for the taxpayers of those states – like Colorado — that lived within their means.” The best solution is a simple block grant that states can use as they see fit. States should also try to reform Medicaid themselves by applying for HIFA waivers from the Department of Health and Human Services. “The solution ties in scrapping its ineffective price controls and bureaucracy in favor of a market-driven system,” the Journal says. “Washington can help states make the shift, through legislation or regulatory waivers. The last thing it should help them do now is bail out a broken system.”

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– Doing Medicare Right

Author: The Editorial Board

Source: The Wall Street Journal, 1/6/03

The Wall Street Journal editors say the politically easy thing for
legislators to do would be to just add a prescription drug benefit to
the current Medicare program. “But down this path lie drug price
controls and, eventually, Canadian-style health care.” Instead, the
editors conclude that the drug debate gives us an historic chance to
reform Medicare by introducing market incentives and competition to Medicare. “The solution is to change Medicare into a
defined-contribution health care model much like the insurance system that covers nine million federal employees and family members,” the editors write. “Instead of directly paying for all medical charges, Medicare should pay seniors to help them buy modern medical insurance, including drug coverage, on the private market.”

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Above summaries are quoted from Galen Institute.

”Roots (Food for Thought)”

Here are some thoughts on Taxes from the Big Island. It is well worth a read.

Dear Editor:

Mayor Kim has indicated he intends to review and possibly revamp the county property tax structure to create a “fairer” system. I would
suggest the following principles be considered:

*1. “Fair” is paying for what you get. We all pay the same for milk and gas. Since it is impossible to determine who gets the most benefit from government, it is easiest to assume we all benefit similarly. Therefore, in a completely fair tax system, each would pay the same dollar amount in tax.

*2. The “rich” pay more tax under our various tax structures because they have more money and can afford to, not because it is fairer. In fact, the “rich” generally are less dependent on government services than the “poor.” They are financially more able to care for themselves.

*3. The property tax system should attempt to incorporate taxation based upon the use of government services, overlaid with ability to pay.

*4. A tax burden placed on unproductive or under-productive property acts as an inducement to further development.

*5. Taxes are all paid by individuals. Taxes on businesses of any kind or form ultimately translate into some combination of higher prices, lower wages and lower profits. The fact that no one really knows how the tax burden is allocated makes it politically popular to tax businesses. As a policy matter, it is better to know who is paying the tax than not to know.

Let’s assume that the level of property tax should be kept as is on
commercially developed property, including resorts. How should the tax burden be allocated among the other categories?

*1. Undeveloped land should be taxed minimally. Whether in grazing or coffee or completely unused, it requires little in the way of government services. Moreover, placing a high tax burden on developable land encourages development. If we do not want to encourage the development of beachfront or agricultural lands, then we should not place a heavy tax burden on them. Land that generates some income and depends on access over government roads or government-provided water should be taxed at a higher rate than land that is in conservation and not used at all or that is used by the public (for example, Pine Trees). The fact that many undeveloped lots are owned by non-residents makes a high tax rate on them particularly unfair since the owner benefits even less from government services than would a local owner. (I know that it is popular to attempt to shift part of the tax burden out of state, but I am talking about fairness here.)

*2. With respect to residential land, the current system is upside down. If we assume that all benefit from government services equally, then it makes no sense to provide an exemption to homeowners at all. Others have pointed out that this unfairly burdens rental properties, which in turn results in higher rents for those who can least afford them. Also, rather than exempting the first $40,000 or so of assessed value from any taxation at all — a primary effect being the shifting of the tax burden from East to West Hawaii — there should be no exemptions. Rather, I suggest that the land value be taxed at a low rate, similar to minimally-developed land, and a higher rate be applied to the improvements. Further, the tax rate on the value of the average home should be higher than the rate on additional value. The person with a million dollar home does not use five times the government services as the person with the $200,000 home. I suggest that one rate be set on the first $200,000 to $300,000 in assessed value of the improvements, with a lower rate set on the excess value.

*3. Tax exemptions for the elderly may not be appropriate. These exemptions could be justified only under a theory that the elderly generally require less in county government services than the rest of the population. Since schools are not financed out of county taxes, the difference in use may not be significant. I also doubt there is much correlation between age and ability to pay. Many elderly are among our wealthiest residents. Many elderly on modest fixed incomes are not burdened with the mortgage payments and costs of caring for children with which their younger neighbors struggle.

*4. Any concern about overburdening a poor (including elderly) property owner could be addressed with a “circuit breaker,” with the tax burden limited to a percentage of income. However, I believe the above approach would greatly broaden the tax base and should not result in an unacceptably high tax burden on any property owner. (Remember that the poor renter is currently paying a higher rate of property tax in the form of increased rent.) Moreover, considering the high level of unreported income on the island, any system linking taxes with income level will reward those who are cheating the system.

*5. Broadening the tax base would have the added benefit of placing the cost of additional government programs more squarely upon the population generally. Any system where the majority can demand more public services and impose the cost on a minority is dangerous. There is no limit to what we might ask for when someone else is paying for it.

The property tax office should have the necessary information on
property tax assessments to do an analysis as to the rates that would be necessary under the above approach to produce the same amount of revenue as is currently raised. I think it would be a worthwhile exercise. Of course, our local politicians may see raising taxes on the majority and lowering them on the minority as political suicide. However, it would result in a fairer system.

— Bill Hastings, Kamuela, HI

”Evergreen (Today’s Quote)”

“Unlimited power is in itself a bad and dangerous thing. Human beings are not competent to exercise it with discretion. God alone can be omnipotent, because his wisdom and his justice are always equal to his power. There is no power on earth so worthy of honor it itself, or clothed with rights so sacred, that I would admit its uncontrolled and all-predominant authority. When I see that the right and the means of absolute command are conferred on any power whatever, be it called a people or a king, an aristocracy or a republic, I say there is the germ of tyranny, and I seek to live elsewhere, under other laws.” — Aleixis de Tocqueville, Democracy in America (1835)

”’See Web site”’ ”’for further information. Join its efforts at “Nurturing the rights and responsibilities of the individual in a civil society. …” or email or call Grassroot of Hawaii Institute President Richard O. Rowland at or (808) 487-4959.”’