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What’s Good for ObamaCare is Bad for Minnesota Jobs

When industry trade groups and companies talk about public policy, they often engage in special pleading, asking for special tax breaks or regulatory preferences. But sometimes their claims do in fact serve the public interest–especially when they call attention to unusual taxes or onerous regulations. Such is the case with the medical hardware industry and its beef against a tax levied on it as part of ObamaCare.

First, some background. In an attempt to make Affordable Care Act (ObamaCare) “fiscally responsible,” Congress enacted a number of measures to increase federal revenue. One was an excise tax on medical hardware, such as pacemakers.

Medical hardware just happens to be a Minnesota specialty, so the Affordable Care Act has a extra impact on the state. It so happens that in this case, industry concerns line up with the concerns of a free-market advocate.

Taxes are needed to fund necessary and proper government functions. But the hardware tax is bad for at least three reasons. First, it was meant to support an unwise law. Second, it’s a special rather than a general tax, which makes it suspect. Finally–and to make a parochial point–some of its harm lands squarely here in Minnesota and nowhere else.

How much harm? A new report claims that (to quote an article from the Star-Tribune), “the device tax could cost more than 43,000 job losses nationally, including 2,767 in Minnesota, home to one of the country’s most robust medical-technology sectors.” The report estimates that in 2009, all forms of medical device manufacturing employed 24,825 people in Minnesota. That’s more than tech-rich Massachusetts (23,960), though a distant second to much-larger California (76,834).

Shaye Mandle, a vice president with the Minnesota-based trade group LifeScience Alley, said, “Hopefully, this will create more energy around the repeal of the tax before it takes effect.”

Mandle added, “We are more dependent on medical technology than any other state.” All the more reason for Minnesotans to be concerned about the over-reaching health care law.

The report itself has a rather dull name: “Employment Effects of the New Excise Tax on the Medical Device Industry.” Don’t let that scare you away; it’s readable, and you can find it at the website of the Advanced Medical Technology Association (another trade group), in PDF. The authors are two economists well known in policy circles, Diana Furchtgott-Roth and Harold Furchtgott-Roth.

Here are two other points from the report:

  • The new tax will “raise the average effective corporate income tax rate [of the affected companies] to one the highest effective tax rates faced by any industry in the world.” This will be especially hard for start-up firms, which often have little income.
  • “The Joint Tax Committee estimates that the tax will raise $20 billion in revenues over the period 2013-2019, a cost to device companies and the American consumer. The economic impact of the tax on wages and output will be significantly higher.”

The report also notes that medical hardware is one of the few bright spots of manufacturing in America. I’m not in favor of special favors for manufacturing, but singling out one of the country’s–and Minnesota’s–stronger segment in manufacturing makes me … sick.

Heads Up, Minnesota! Wisconsin Sees Immediate Returns on Union Reforms

The Wall Street Journal today detailed some of the immediate benefits from the reforms championed by Gov. Walker and the GOP lead legislature: a balanced budget without tax increases (see Ohio and Indiana, too), huge savings for school districts on health-care plans who are now free to get competitive bids, and an announcement from the education union that it is laying off 40% of its staff.

Here is a recap of the recall elections from the Milwaukee Journal Sentinel that gave Democrats two more seats in the Senate (but left the GOP in control by one vote).

There is much to admire and emulate in Wisconsin and other Midwestern states but given the DFL’s and Gov. Dayton’s allegiance to all things union, Minnesota will first need to retain a GOP-lead legislature in 2012 and give the GOP a Hat Trick in 2014. Divided government will not produce these results. 

In the meantime, if the state of Minnesota wants to champion choice for state employees, they should give them the right to re-certify their unions at regular intervals and make the unions collect their own dues. These measures force unions to listen to their members.

Appeals Court Rules Individual Mandate Unconstitutional

The republican form of government received a small bit of good news today, as a federal appeals court ruled the individual mandate of the Affordable Care Act (“ObamaCare”) unconstitutional. The ruling provides more grist for a sure-to-come ruling by the U.S. Supreme Court.

The ruling came from a three-judge panel of the 11th Circuit Court of Appeals, based in Atlanta. (You can download it here.) Jonathan Adler, a law professor I once corresponded with on a regular basis (he wrote a column for a magazine I edited), has some comments at the Volokh Conspiracy.

There’s some good news: “The court concludes the mandate cannot be justified under either the taxing power or commerce power . . .” It said:

the individual mandate exceeds Congress’s enumerated commerce power and is unconstitutional. This economic mandate represents a wholly novel and potentially unbounded assertion of congressional authority: the ability to compel Americans to purchase an expensive health insurance product they have elected not to buy, and to make them re-purchase that insurance product every month for their entire lives.

So the court struck down the individual mandate. That’s the good news. But it also said that the rest of the law stands. It ruled:

The individual mandate, however, can be severed from the remainder of the Act’s myriad reforms. The presumption of severability is rooted in notions of judicial restraint and respect for the separation of powers in our constitutional system. The Act’s other provisions remain legally operative after the mandate’s excision, and the high burden needed under Supreme Court precedent to rebut the presumption of severability has not been met.

The “severability” clause of a law will say something like this: “Even if one portion of this law is struck down by the courts, the rest of it stands.” Some opponents of the ACA have noted that the law has no such clause, so they have argued that if a court finds one portion of the law unconstitutional, the whole beast–all 2,700 pages–is unconstitutional. That was, in fact, the ruling of Judge Roger Vinson, a district court judge within the 11th circuit.

The appeals court saw it differently, discarding the mandate but not the rest of the law. That’s bad news, and not just for the obvious reason. (I’ll get to “why” in a moment.)

In addition, federalism took it on the chin, at least in appearances:

“The court also rejects the argument that the law’s expansion of Medicaid is unconstitutionally coercive to the states.”

I’m inclined to agree with the court on this one, though reluctantly. It is true that it is politically impossible (for now) for any state to exercise its right to withdraw from Medicaid. But still, no state is required to participate. So the states are burdened with more and more strings, including (the latest), an ever-expansive definition of who qualifies for Medicaid.

Here, from the conclusion, is what may be the best news of the ruling: “We have not found any generally applicable, judicially enforceable limiting principle that would permit us to uphold the mandate without obliterating the boundaries inherent in the system of enumerated congressional powers.” This may be one reason why Ilya Shapiro of the Cato Institute calls the ruling “a great day for liberty.  By striking down the individual mandate, the Eleventh Circuit has reaffirmed that the Constitution places limits on the federal government’s power.”

The dissenting judge argues that the court should “ask whether the target of the regulation is economic in nature and whether Congress had a rational basis to conclude that the regulated conduct has a substantial effect on interstate commerce.” If so, under this logic, then the mandate is a constitutional use of congressional power.

Writing at National Review Online, Adler offers some reason for optimism: “the argument championed by many academics that the mandate is a constitutional exercise of the taxing power has yet to be accepted by a single federal judge, let alone by a court.” Of course, the Supreme Court may yet agree with the dissenting judge that the commerce clause is loose enough to allow government to do, well, just about anything.

Remember that I said the ruling has some bad news, and not just that it lets most of the law stand? Insurance companies will send their premiums skyward, making the price increases of the last decade look like a golden age of no inflation by contrast. The result will be either that more people drop insurance (defeating one purpose of the law) or demands on the public treasury soar like you won’t believe. Megan McArdle explains:

Presumably, the insurance market across the United States ends up looking a lot like New York’s market, where during the debate over health care reform it was reported that the cost of the average family policy in the individual market was over $4,000 a month.  That’s because New York has the other features of ObamaCare–community rating and guaranteed issue–without the mandate.  The result was that all the healthy people dropped out of the pool, leaving a few very sick people to buy insurance.
There’s a slight difference though: the government is going to subsidize individuals in the private market.  If the subsidies keep pace with the cost, Obamacare’s nominal deficit reduction is going to turn into a gaping hole in the federal budget.

The ruling may resurrect an idea long left dead. Sven Larson of the Wyoming Liberty Group says that the “public option” will become the next battle. Says Larson, “Absurdly enough, it may prove easier to maintain a private insurance market under the individual mandate  than with a public option in place.” Be sure to read his piece to understand why.

Keep a private insurance market (with some possibility for choice) by requiring people, as a condition of living, to buy insurance. Or make insurance the product of a sector that has brought us such fiscal disasters as Social Security and Medicare.

Such is the depressing but logical conclusion of expansive government.

UPDATE: According to the logic of Mario Loyola, I was far too kind on the court in the matter of Medicaid expansion which he calls the “Sleeper Issue”. He may be right; his comments are worth a read.

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